Hard Times for Working America
Mishel, Lawrence & Frankel, David M.
Facts You Ought to Know In the last half of the 1980s questions began to be raised about income and wages in the U.S. economy. Who was benefiting from Reaganomics? Was the economy producing...
...Jobs and Underemployment: The unemployment rate in 1989 was roughly the same as in the prior business cycle peak...
...Better support for quality, affordable child care and parental-leave rights are an important starting point...
...that surpassed that of any year in the 1970s...
...See our The State of Working America, M. E. Sharpe, 1991, from which this article is taken...
...Wages: Real hourly wages dropped by 9.3 percent between 1980 and 1989...
...Raising minimum wages, eliminating government hostility to unionization, and extending fringe benefits to part-time and temporary workers are some of the strategies needed to raise service-sector pay and thus provide incentives for new investment and productivity...
...In fact, our estimate is that the net worth of the average household in the bottom 90 percent actually fell 9 percent from 1979 to 1989 while the net worth of the upper 1 percent grew roughly 6 percent...
...Fringe benefits fell even more, by 13.8 percent...
...As a result, the 1980s were the first decade in the postwar period where labor's share of income fell while capital's share of income rose...
...A Shifting Wage Structure: The dramatic fall in the wages of young and non—collegeeducated workers is primarily the result of a change in the distribution of wages...
...For instance, median family income grew by just 0.4 percent per year between 1979 and 1989, a rate half that of the 1973-to-1979 period...
...This dramatic disparity has created the highest level of income inequality in the postwar period, reversing several decades of progress, and has left us with a poverty rate in 1989 (at the end of the recovery...
...3. To raise the standard of living of American workers also requires raising the wage levels of our service economy, where the majority work...
...However, the biggest losers were the 75 percent of the work force without college degrees, particularly men (especially black men) and young workers...
...Service-sector wages in the United States are far less than the average wage, a situation not true in most competitor countries...
...5. Poverty grew over the 1980s even though incomes grew, albeit slowly...
...The richest 1 percent did exceedingly well, as reflected in their 74 percent pretax and 86 percent after-tax income growth from 1980 to 1990...
...6. To generate greater economic growth we will have to close the "third deficit" —the deficit in public investment in infrastructure and in our work force's training and education...
...Productivity and Wage Growth: Slow productivity growth can only partly explain the slow wage growth of the 1980s...
...Simply put, it has become increasingly hard for a worker without a college degree to earn a middle-class standard of living...
...The pressures on manufacturing wages and the displacement of millions of jobs in manufacturing and related industries have lowered the wages of all non—college-educated workers, particularly men...
...2. Reversing these income trends will require halting the erosion of competitiveness and the shrinkage of our industrial base...
...Now that the decade is over, it is becoming clearer what has and what has not caused these disappointing developments...
...The exception * All of our comparisons, adjusted for inflation, use the Bureau of Economic Analysis's personal consumption expenditure (fixed-weight) index to avoid the debatable charge that the official consumer price index overstated inflation in the period prior to 1983...
...Capital Income: A major factor fueling the tremendous income growth among the rich has been the fast growth of capital income such as interest, dividends, and capital gains...
...The job opportunities in manufacturing and related industries make up about a third of all privatesector jobs and are a key to the ability of a broad segment of our population—the non–collegeeducated work force—to earn middle-class incomes...
...In 1987, 31.5 percent of the work force was earning poverty level wages, up from 25.7 percent in 1979...
...Taxes: The shifting of the tax burden from the very rich to everyone else compounded the problems stemming from more unequal market incomes...
...Was the economy producing a disproportionate number of low-wage jobs...
...A more generous and restructured social policy is needed as well...
...The hourly wage of young black men (aged 25-34) fell 22 percent between 1979 and 1987...
...Wealth Accumulation: Household net worth also grew more slowly over the last ten years than in previous business cycles...
...q 1n11nNom SPRING • 1991 • 285...
...Real wages have fallen in each of the last four years of recovery...
...4. We must enhance a family's ability to have more family members working while also raising children...
...The remainder is due to a growing inequality of wage and capital income...
...The truly powerful explanations of the growth in poverty in the 1980s are centered in the sizable reductions in government assistance and the growth of povertywage jobs...
...The consequence was a rise in the maldistribution of wealth...
...For instance, only about one-fourth of the increase in the income share of the upper 1 percent can be ascribed to tax changes...
...and among workers of all ages...
...This shift toward low-wage employment occurred in every demographic group: among men as well as women...
...The rise in unemployment in 1990 marks the end of the 1980s recovery, allowing us to compare trends in the 1979-to-1989 business cycle to those of prior cycles.* What Happened...
...The reasons are that there has been a shift of income from wages to capital income and there has been an erosion of worker bargaining power, both union and nonunion, including an erosion of the minimum wage...
...is that financial assets per household (those yielding a monetary return) grew at a historically high rate, reflecting the boom in the stock market and high real interest rates...
...Even among poor female-headed families, whites make up more than half of the population and have been the fastest growing component of this type of poverty...
...This is very troubling because three-fourths of today's work force (even those 25 to 34 years old) have not completed college and even by the year 2000 at least 70 percent of the work force will not be college graduates...
...But the higher poverty in the 1980s has occurred primarily among whites—the black poverty rate was about the same in 1979 and 1989—and among twoparent and male-headed families...
...Working harder for less" has been a necessary requirement for families to improve or hold on to their standard of living...
...Was the middle class shrinking...
...Poverty and Race: A new mythology about poverty has emerged that equates the growth in poverty to growth in an underclass that is primarily black and in female-headed households...
...most female family heads are widowed or divorced...
...The Future: There is no reason to expect a reversal of these trends...
...All the other indicators of labor-market performance, how282 • DISSENT Bard Times for American Workers Family Income Growth, 1980-1990 ever, showed drastic deterioration in the eighties...
...Slow Income Growth: By any measure the growth of income in the 1980s was minimal and far less than that of the 1970s, 1960s, or 1950s...
...Rising Inequality: Of course, some people did benefit greatly from recent economic policy...
...New policies will be needed if the erosion of living standards is to be reversed in the 1990s...
...Why Did These Events Occur...
...This is an appropriate time to reexamine these issues...
...Millions more were working at two or more jobs because their first ones paid so poorly...
...On the other hand, the types of wealth held by the nonrich (tangible assets such as durable goods and housing) grew only 0.6 percent annually over the last ten years, a rate far less than the 3.9 percent annual growth that prevailed throughout the 1947-to-1979 period...
...Between 1979 and 1989 the shares of income accruing to each of the bottom four-fifths declined, with the increase in the income share of the top fifth primarily rising among the upper 5 percent...
...Our analysis (unless noted otherwise) relies on comparisons of data for the cyclical peak, or low-unemployment, years of 1947, 1967, 1973, 1979, and 1989 (or the latest year for which data are available...
...The major question raised by poverty among female-headed families is, "Why does a woman have to have access to a man's income to avoid poverty...
...After all, compared to the 1970s, productivity grew slightly faster while real wages fell faster in the 1980s...
...By the end of the decade, underemployment had grown, as millions of people who wanted full-time or permanent work held part-time or temporary jobs...
...for American Workers was not a success: people are working more at lower wages...
...In fact, capital incomes grew three times as fast as labor incomes in the 1980s...
...The overall shift of employment from high paying to low paying industries reduced average hourly compensation by 0.5 percent each year in the 1980s...
...The wage of a young male high school graduate in 1987 was 18 percent lower than that of a comparable worker in 1979...
...Higher wages will help reduce poverty but not eliminate it...
...The increase in poverty is then said to be due to the growth of this part of the population, not to economic factors...
...The Implications 1. By the fundamental measure of real incomes, Reaganomics (upward redistribution of income, deregulation, unregulated import competition, lowering of the economic safety net) 284 • DISSENT Hard Tim...
...among whites, blacks, and Hispanics...
...The Importance of Wages: Because wages provide the bulk of most families' incomes, the recent fall in real wages has placed severe SPRING • 1991 • 283 Hard Times for American Workers economic pressure on most families...
...Moreover, only one out of five female family heads is a "never married" mother...
...The United States is unlikely to be able to offer good-paying jobs requiring a college degree to more than a small minority of the work force for the foreseeable future...
...Meanwhile, the after-tax income of the bottom 40 percent fell...
...In fact, the $1,369 growth in median family income over the ten years after 1979 equalled the amount that incomes rose every twenty months in the 1967-1973 period...
...The changes in the tax structure, however, are not the major reason for rising inequality...
...Among married couples with children, for instance, the bottom fourfifths would have had lower incomes in 1987 than in 1979 if the women in these families had not increased their earnings (primarily by entering the paid labor force and working more hours...
...Trade and Deindustrialization: It is precisely those groups of workers who have been adversely affected by increased import competition and the decline of manufacturing that have experienced the greatest deterioration in wages...
...This redistribution of the tax burden saved the families in the upper 1 percent more than $25,000 per family each year while adding to the tax payments of nearly everybody else...
...Nor will the mix of jobs become more upscale in the 1990s: Bureau of Labor Statistics predictions suggest that the skill and education requirements of jobs are expected to grow more slowly in the 1990s than in the 1970s and 1980s...
...With a recession at hand, it is unlikely that wage growth will be any better in the near future...
Vol. 38 • April 1991 • No. 2
