Stagnant wages: a major issue being ignored


October 27, 2012 - 12:00 AM

A silent issue in the presidential campaign is the income stagnation that has afflicted the middle class and the poor and made the gulf between the rich and the poor even wider.
New York Times writer David Leonhardt thinks the topic is being ducked by President Barack Obama and Republican Mitt Romney because neither one has a prescription for a cure that would win votes.
Leonhardt, a student of the U.S. and world economies, says, “Many of the bedrock assumptions of American culture — about work, progress, fairness and optimism — are being shaken as successive generations worry about the prospect of declining living standards. No question, perhaps, is more central to the country’s global standing than whether the economy will perform better on that score in the future than it has in the recent past. . . .
“The causes of economic stagnation are varied and lack the political simplicity of calls to bring down the deficit or avert another Wall Street meltdown. They cannot be remedied through legislation . . . The biggest causes, according to interviews with economists over the last several months, are not the issues that dominate the political debate.
“At the top of the list are the digital revolution, which has allowed machines to replace many forms of human labor, and the modern wave of globalization, which has allowed millions of low-wage workers around the world to begin competing with Americans. Not much further down the list is education, probably the country’s most diffuse, localized area of government policy. As skill levels have become even more important for prosperity, the United States has lost its once-large global lead in educational attainment.
“Some of the disconnect between the economy’s problems and the solutions offered by Washington stem from the nature of the current political debate. The campaign has been more focused on Bain Capital and an ‘apology tour’ than on the challenges created by globalization and automation.
“But economists also point to the scale of the problem . . . No country has figured out how to respond to the challenges.”
Leonhardt goes ahead to report that U.S. family income today is 8 percent below the 2000 level, when it peaked. Previously, the inflation adjusted family income rose almost 30 percent each 11 years since World War II. This past 11 years it dropped.
“There is a vast difference, both economically and politically, between incomes that are rising modestly and not at all,” he observed.
“The recent stagnation has also led, economists say, to confusion and even scapegoating about the real sources of the problem. The causes that can seem obvious, and that often shape the political debate, are not necessarily the correct ones. Impartial studies show that immigration has had a minimum effect, as has the minimum wage, which has risen faster than inflation since 2000, even as overall pay at the bottom of the income distribution has not. And the size of the federal government also looks like a dog that is not barking: Washington collected taxes equal to 15.4 percent of gross domestic product last year, down from 20.6 percent in 2000.
“A second group of much-cited forces have played a role in middle-class stagnation and inequality, just not as big a role as automation, globalization or education. Health care costs have grown sharply over the last decade, leaving employers with less cash to use on salaries. Tax rates have fallen more for the affluent than for anyone else, directly increasing the take-home pay of top earners.
“ . . . One of the more striking recent developments in economics has been economists’ growing acceptance of the idea that globalization has held down pay for a large swath of workers. . . . job growth and wage growth have been weaker in sectors exposed to global competition — especially from China — than in sectors that are more insulated.
“Automation creates similar patterns. Workers whose labor can be replaced by computers have paid a particularly steep price. The American manufacturing sector produces much more than it did in 1979, despite employing almost 40 percent fewer workers. . . Workers with less advanced skills have also suffered disproportionately. The pay gap between college graduates and everyone else is near a record . . . and their unemployment rate is just 4.1 percent.”

THE REMEDIES, then, are to put a much stronger emphasis on education so that more workers can benefit from globalization and trade rather than suffer from it and to increase the growth of the economy by investing more in the scientific and technological research that creates new industries. Money could also be found for higher wages by reducing U.S. health care costs to rich world levels.
But these are initiatives with little political appeal. The first two require more government investment and the third would face fierce opposition from what has become the nation’s largest political/economic complex. Don’t expect to hear much about them between now and Nov. 6.

— Emerson Lynn, jr.

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