Transcript KenworthyPresentation

AMERICA’S STRUGGLING LOWER
HALF
LANE KENWORTHY
PROFESSOR OF SOCIOLOGY AND POLITICAL SCIENCE,
UNIVERSITY OF ARIZONA
JUNE 21, 2012
1
OVERVIEW
• Since the 1970s, the incomes of the lower
half of American households have grown
much less rapidly than the economy.
• Why has this happened and how can we
do better going forward?
SLOW HOUSEHOLD INCOME
GROWTH
SOURCES OF HOUSEHOLD
INCOME
There are 2 main sources of income for
households in the lower half:
1. Earnings
• Employment
• Wages
2. Net government transfers (transfers received
minus taxes paid)
WAGES
WAGES
There are many obstacles to wage growth:
- Heavy competition facing most firms
- Shareholders who demand constant profit
improvement
- Opportunity for outsourcing and offshoring
- Computerization
- Shift from manufacturing to services
- Weak unions
- Stagnant educational attainment
- Extensive low-skilled immigration
- Greater use of "pay for performance"
- Declining real minimum wage
EMPLOYMENT
We need employment growth
– It's been the key to rising lower-half
household incomes since the 1970s.
– We need higher employment to help pay the
taxes to fund social programs.
EMPLOYMENT
But
– Employment didn't do enough in the 1980s
and 1990s.
– The employment stagnation in 2000-07
(before the 2008 crash) suggests reason for
pessimism going forward.
– There's an employment ceiling, so it can't be
the locus of household income growth forever.
EMPLOYMENT
HAVE DEVELOPMENTS IN OTHER RICH
COUNTRIES BEEN SIMILAR OR
DIFFERENT?
• In most other rich nations for which data is
available, lower-half households fared better
than ours between the late 1970s and the mid2000s
• In a few, such as Ireland and Norway, that's
because of faster economic growth
• In most, it's because more of the economic
growth trickled down
• Why? Mainly because government transfers
were increased as the economy grew
INCOME GROWTH IN LOWER-HALF
HOUSEHOLDS,17 RICH
COUNTRIES, 1979 TO MID-2000S
INCOME GROWTH IN LOWER-HALF
HOUSEHOLDS,17 RICH
COUNTRIES, 1979 TO MID-2000S
INCOME GROWTH IN LOWER-HALF
HOUSEHOLDS,17 RICH
COUNTRIES, 1979 TO MID-2000S
WHAT SHOULD WE
DO?
• If we want more trickle down, increases in
government transfers may have to be part of
the solution.
– One possibility: Expand the EITC into the middle
class and index it to average compensation
• Will higher taxes and more generous
government transfers hurt the economy?
– Listen to Bakija and Lindert