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Friday, May 23, 2014


On Wednesday, I started talking about economic inequality in America by assembling some statistics to clarify the situation of those at the bottom of the economic hierarchy.  My principal goal in that preliminary discussion was to establish that Americans are much poorer than most participants in mainstream public discussions acknowledge or perhaps even recognize.  As many as a hundred million Americans are living in very straitened circumstances in a society that generates vast accumulations of wealth.

Today, I continue my discussion by defending the thesis that the economic condition of the poorest Americans is structural, not characterological.  What do I mean by this?  I mean quite simply that the impoverishment of scores of millions of Americans is built into the organization of our economy and cannot be altered by changing the personal characteristics of the poor.  Poverty is not a consequence of sloth, of wastefulness, of drugs, or of "broken homes," and it is also not a consequence of the relatively low formal educational attainments of the poor.  It is a direct consequence of the fact that there are a great many low-wage jobs and relatively fewer high-wage jobs. 

There is no doubt at all that if a slug-a-bed drug-and-alcohol-addled lowlife ghetto dweller straightens up, flies right, gets clean, puts on a tie, goes back to school and earns a doctorate in engineering, his chances of getting a good job with great pay and benefits will improve [although these days not as much as in days gone by, alas].  But in making a total success of his life, he will simply displace some other poor slob who doesn't have quite so compelling a personal story.  His accomplishments, admirable though they might be, will not increase the number of good jobs in the economy.

Put this way, the truth of my thesis is obvious, but since virtually everything said by both Democrats and Republicans is in stark contradiction to what I am urging, it may be useful, even on this blog, to explain the point once more.

Let us begin by thinking of the economy as a complex structure of jobs, not of employees.  That is, after all, the way anyone will experience the economy who goes looking for a job.  If I am offered a position as a bank clerk, it will do me no good to point out that my qualifications match those for a bank manager.  The reply will be [assuming I am not thrown out on my ear], "No doubt, but we are not hiring bank managers today.  Do you want the bank clerk job or not?"

Let us suppose that applicants for jobs at the bank with the qualifications to be bank managers are uncommonly thick on the ground.  Will the Personnel Office respond by converting all the bank clerk jobs into bank manager jobs with appropriate adjustments in salary and benefits?  Of course not.  Each bank branch, we may suppose, has been determined by senior management to need one bank manager, and once that position is filled, no one else hired at that branch will be offered a managership.

"Ah," you will respond, "but the presence of a superfluity of qualified potential bank managers will cause the bank's senior directors to shift to a new form of bank organization in which there are many fewer bank clerks and many more bank managers."  That, after all, is the implicit lesson of neo-classical economic theories about production functions and elasticities of substitution.  Now there is no doubt that some changes in the organization of production are, over time, introduced in response to the improved educational and other credentials of workers in the labor force.  But these changes, which are an on-going feature of an advanced industrial or post-industrial economy, do not have the macroeconomic effect one might imagine.

Taking a long view is instructive.  Over the past century, there has been a dramatic increase in the acquisition of formal educational credentials in the United States.  When my father was a teenager, back on 1914, relatively few young men and even fewer young women graduated from high school.  Only a tiny handful went on to college.  By the time I was fourteen, in 1948, half of young adults had high school degrees and five to six percent had four year college degrees.  Today, more than eighty percent of adult Americans have high school degrees and roughly thirty percent have four year college degrees.  And yet, during that century of educational progress, the shape of the income pyramid has hardly altered.  To be sure, the nation as a whole is much wealthier, but the inequality of distribution is basically the same.  The principal differences are first, that the richest of the rich are collecting a much larger share of what there is, and those at the very bottom [i.e., the last decile, or lowest tenth] are actually getting a smaller share of the national income than they were a century ago.  [I was first made aware of this astonishing fact by reading Gabriel Kolko's first book, Wealth and Power in America.]

Stop and think for a moment just how astonishing this fact is.  In the past century, America has gone from an expanding industrial economy with a very large agricultural sector to an industrial economy with a small agricultural sector and a nascent service sector to a post-industrial economy with a very large service sector, a shrinking industrial sector, and a miniscule agricultural sector.  During that time, formal educational credentials beyond elementary school have gone from being very rare indeed to being almost universal, and college degrees, once the proud boast of a tiny fraction of the adult population, are now the possession of almost one third of adults.  And yet, the basic shape of the income distribution among the ten deciles of the population has, if anything, grown somewhat more unequal.

Clearly, this is not at all what popular discussions of income inequality would lead us to expect.  Again and again and again, everyone who talks about income inequality says that the secret of bringing everyone into the "middle class" is more education.  But that can only be true if the presence of a more highly educated workforce leads to a shift in the organization of work that features a higher percentage of high-wage jobs and a lower percentage of low-wage jobs.  And for one hundred years, that shift has not been taking place.

What in fact would result in the substitution of higher for lower wage jobs in America?  Let us talk about that tomorrow.

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