The splitting of America

Robert Kuttner

May 18, 1992|By Robert Kuttner

IF ANY additional confirmation of the splitting of America were needed, the Census Bureau has now confirmed that low-wage work in the United States is increasing dramatically. This finding comes on the heels of a recent Congressional Budget Office report that 70 percent of the total income gain between 1977 and 1989 went to the richest 1 percent of Americans.

This latest Census report, titled "Workers with Low Earnings: 1964-1990" (released May 11), documents declining living standards -- not among the unemployed or the down-and-out, but among people who work year round, full time.

Throughout the 1960s and early 1970s, the share of low-wage full-time workers steadily decreased, to a low of 11.4 percent of the work force. But between 1979 and 1990, the percentage of full-time employees earning what Census defines as low wages -- currently less than $12,195 -- increased from 12 percent of the total work force to 18 percent.

This dramatic worsening of wages occurred during a relative economic boom, before the current recession. Low-wage work was most highly concentrated among women, minorities, and young workers, but it increased for every group. Even among college graduates, the share of workers with low wages rose sharply, from 6.2 percent to 10.5 percent.

A decade or so ago, when this splitting of America was first becoming evident, skeptics dismissed it as the temporary demographic consequence of so many young, inexperienced workers entering the labor force, or perhaps the short-term result of the deep recessions of 1975 and 1982. But now that the evidence is irrefutable, there is a new excuse: This division of America into haves and have-nots is allegedly the inevitable result of natural economic forces.

For example, reporter Jason deParle, in the New York Times story on the Census report, wrote, "Most analysts believe that the majority of the increase (in low wage work) has come from changes within the economy itself, rather than direct government policies, like decisions about taxes." Those unnamed analysts are just plain wrong.

In the 1980s, a number of changes occurred in government policy that promoted the division of America into haves and have-nots. The worsening maldistribution of the tax burden and the decrease in social benefits under Presidents Reagan and Bush are only part of the story:

* After 1979, the government failed to increase the minimum wage. For most of the post-World War II era, the minimum wage had been about 50 percent of the average hourly wage. By 1989 it had declined to less than 35 percent. In November 1989, Congress belatedly enacted a watered-down minimum wage increase, after President Bush threatened to veto a higher minimum. Today, the minimum wage of $4.25 per hour is again below 40 percent of the average wage. The majority of workers cited in the Census report would be earning more money if there were a higher minimum wage.

* Unions are the most potent force for raising low wages. In the 1980s, beginning with the breaking of the strike of air traffic controllers and continuing with an increasingly anti-union National Labor Relations Board, the Reagan administration declared war on unions. And the fraction of workers represented by unions continued to decline.

* U.S. trade policy has made it easier for American manufacturers to relocate overseas, which puts pressure on U.S. workers to defensively reduce their own wages. But trade policy has not fully succeeded in opening foreign markets to exports of competitive products made by American workers who earn good wages.

* The big federal deficits and the related policy of high interest rates have contributed to the splitting of America. Most of the increase in the income that went to the wealthy during the 1980s was income from capital, not from wages.

* Tight money also clobbered the construction industry -- a source of good jobs. So did reductions in public works outlays.

* Deregulation of industries that once paid stable wages, like airlines and trucking, contributed to the wage squeeze. Lax regulation of hostile corporate takeovers contributed to "leveraged buyouts," in which the new owner typically goes deeply in debt to take over a company, and then hammers down wages and cuts the work force in order to pay back the debt.

In addition, public policy defaults contributed to hidden declines in living standards. Even people whose wages have not declined are today paying more for such things as health care as public programs have been scrapped.

Face it: The more equal wages of a generation ago were anchored in a set of public policies. These included regulatory policies that kept business from operating the economy as a casino at the expense of wage workers; policies that invested in public works; policies that allowed collective bargaining, as well as more progressive tax and income transfer policies.

The splitting of that economy is not the result of unseen natural forces, but of political choices. A different set of political choices would yield different economic results.

Robert Kuttner writes a syndicated column on economic matters.

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