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The State of Working America

by Lawrence Mishel and others

What are the long-term prospects for a democracy when nearly all media and leaders are clueless on the big pictures? Aiming to clear up some economic matters, The State of Working America delivers statistics with some prose arguments added. This work contains decent figures and tables, though not as good as the figures and tables in True Security.

The story Mishel and company tell: Between 1973 and 1995 mean hourly productivity increased a total of 25 percent, yet median hourly wages for working men fell $2.04 and $0.75 for all workers. Increases in benefits, for those who had them, did little to make up the difference. From 1977 to 1989, pension and savings provided by employers fell 38 percent. Eighty-seven percent of full time workers had health care coverage in 1979. By 1992 70 percent did. Families increased their incomes by increasing the numbers of working wives. Married families without a wife in the work force saw their median income fall. The authors do not offer many reasons why these statistics might be unjust.

Incomes for the bottom 50 percent declined, the 50th to 80th percentile stagnated. Incomes for the 80th to 99th percentile grew slightly. The top one percent enjoyed explosive growth while taxes shifted from top to middle, bottom, and future generations. Between 1979 and 1987 the top marginal federal tax rate dropped from 70 percent to 28 percent, though many tax shelters closed. By the mid 1990s the top marginal tax bracket increased to 39.6 percent. Total taxes paid by the top one percent roughly equaled 40 percent of their incomes in the 1970s, 30 percent in the 1980s, and back near 40 percent in the 1990s. Seventy percent of income increases since 1973 went to the top one percent. After tax incomes of the top one percent more than doubled.

Thanks to tight labor markets in the late 1990s things improved. Wages for low-wage men grew at 1.7 percent a year and 2.0 percent a year for low-wage women between 1995 and 1999. Wages for median income workers increased as well, but not as fast as for low-wage workers. Unemployment dropped to 4.2 percent. Official child poverty rates dropped to 18.9 percent. In addition, hourly productivity from 1995 to 1998 allegedly increased to 2.6 percent per year.

Too regressive and harmful, payroll taxes are an abysmal policy failure, punishing work and encouraging less beneficial forms of income seeking. Payroll taxes must be eliminated, the lost revenue replaced with progressive, growth-enhancing taxation. Payroll taxes and other work taxes send the message the work is bad. If politicians proposed a 15.3 percent flat, work only tax on the nation’s poorest workers 50 years ago, they might have been tarred and feathered. Every source of income that isn’t work is exempt from payroll taxes-- from stocks and interest income to unreported stripping and drug dealing income. America relies on virtue taxes rather than sin taxes. Individuals engaged in low-paying work to support families get rewarded with loads of state, local, and payroll taxes. About two million adults in poverty work year-round, full time.

The authors find newfangled methods of calculating inflation inaccurate because the methods lead to absurd consequences. Calculating backwards using the new rates of inflation leads to apparent median incomes in the past equaling dire poverty. The “counterargument” that newly calculated inflation rates lead to absurd consequences for all income groups in not a counterargument, but additional support. Wrong inflation rates calculated backwards should lead to absurd consequences for all groups. Regardless how we calculate inflation, gaps between the rich and others jumped.

The authors should have wrote that inflation affects groups differently. Lower income citizens spend a higher percentage of their incomes on housing, education, health care and so on—products with higher rates of inflation.

The popular idea of a booming America and an economically screwed up Western Europe is mistaken. Both are screwed up. In GDP per capita and productivity per capita Western Europeans do as well as the United States or better, though due in part to their smaller birth rates and lower number of children, which will cost Europeans in the future. European GDPs do not increase as fast as the United States because their populations are falling or stagnant. In GDP per hour worked, they outperform us. Hourly productivity has been increasing about one percent a year in the United States. For most other Western nations, it has been increasing one to three percent a year, with Ireland increasing about five percent a year, however, much of that is due to Ireland and some other nations having massive room for improvement. It is easier to grow fast when you start from a low number. In 1997 the Bureau of Labor Statistics reports that if U.S. GDP per hour worked were set to 100, the GDP per hour worked of France and Belgium would equal 103 and 107 respectively. Germany would equal 88, England 83 and Japan a paltry 68. How bureaucratic European nations perform roughly as well America is a mystery. Part of the reason Americans earn more total income is because they take shorter vacations and work far more hours. Official unemployment is much higher in Europe—something that should be improved—but most of the unemployed in the U.S. are in jail or are not counted as unemployed. Low unemployment, however, is not sufficient to declare an economy satisfactory. Six smaller European nations, surprisingly, sport smaller unemployment rates than the United States.

Between 1960 and 1973 growth in output per hour worked in the United States increased 2.8 percent. Between 1974 and 1996 it increased 1.1 percent. Since then it picked up, but is the pick up temporary?

Many potential reasons for the productivity reduction since 1973 exist. Figuring out how much weight each deserves, if any, is a Herculean task. They include:

· Difficulty of improving efficiency in a service economy.

· Excessive personal and government debts.

· Low savings.

· Trade deficits.

· Competitive weaknesses in high wage industries.

· Demosclerosis.

· Increases in entitlement spending.

· Burden of social factors: Crime and bad peer groups.

· Miseducation.

· Information technology wasting time, having excessive learning curves, being used for shirking.

· Lack of investment in physical capital.

· Lack of investment in human capital.

· Too many lawyers or bad tort laws. Or both.

· Winner-take-all-markets.

· Various government policy errors, including the response to the 1970s oil embargo.

· Mobility of knowledge and poor intellectual property laws.

· Work places turning into cubicle hells.

· Increased taxes and costs on lower-income workers decreasing their incentives to work and produce.

· Unequal income distribution causing human capital to be wasted in labor and capital-intensive services to the rich: Yacht building, for example.

· Poor monetary policies.

· Popular destructive beliefs.

· Vicious spirals from seemingly minor factors.

· Virtuous spiral opportunity losses.

· Poorly designed stimulus packages.

· Increases in anti-meritarian policies.

Economic growth could have been even lower if it were not for:

· Improvements in industrial technology.

· Weakening of unions.

· Better management.

· More flexible labor markets.

Ad populum appeals to European social spending practices mar this work. Even ignoring the ad populum, the comparison is misleading. If you throw in tax expenditures and parents paying for kids’ educations, U.S. spending on education, health care and so on is close to European levels as a percentage of GDP and spending per person in the U.S. is larger because Americans earn more due to the extra hours Americans work. The authors argue that AFDC (now TANF) spending levels do not affect how many individuals go on welfare, but they mistake correlation with cause.

This series of books is decent at descriptions, poor at prescriptions.

Families with children get little attention from the authors, except families in poverty. The Census Bureau asserts that in 1973 families with minor children had a median income over $4,000 higher than the median income of families without minor children. By 1997 families with children had a median income over $2,000 less than the median income of families without children.

According to TGE Demographics, in 1992 seventy-seven percent of adults without children households had discretionary incomes of a mean of $13,900 for married couples and $10,300 for singles. Seventy percent of married couples with one minor child had discretionary incomes. Thirty-five percent of married couples with two children had discretionary incomes. Only fourteen percent of married couples with three or more children had discretionary incomes. Discretionary income is “money left after paying taxes and basic expenses.” Basic being very broadly defined.

The data on mean family income commonly reported in the media misleads for two reasons: Skyrocketing incomes at the top make the mean look good when the median and below decline. When individuals see the words family income, the image they form is a family with children, but families with minor children made up only 53 percent of the 71 million American families in 1997, the lowest number in the nation’s history. The good, however, outweighs the bad in this work. Recommended.

—467p (H) 1993, 1997, 1999 and 2001 book review by JT Fournier, last updated July 24, 2009

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