New York Times columnist David Brooks weighed in on the origins of inequality in his column recently. While he wants to assure readers that inequality is not a serious issue, and not caused by policy, he gets almost everything in his article wrong.
Briefly, here are the highlights:
• He claims that the labor compensation share of GDP has not fallen due to rising profits. Actually, the labor compensation share of net income in the corporate sector (this is the place to look for redistribution — there are no profits in government or nonprofits) fell by 1.7 percentage points from the profit peak of the 1970s cycle (1977) to last year. This redistribution is equal to 5.9 percent of the family income of the bottom 60 percent of the income distribution. (Think of this as a profit tax.)
• He assures readers that globalization has not been a problem because outsourcing accounted for only 1.9 percent of layoffs. I’m not sure what this means. The biggest impact of outsourcing would be on jobs not created and also the threat effect (as in, “give us a pay cut of 20 percent or we move your jobs overseas”). So I’m not really sure what we are supposed to make of the fact that only 1.9 percent of laid off workers are told that they lost their jobs due to outsourcing.
• He tells us that job tenure hasn’t changed over the last 40 years. This is a bit tricky. Job tenure has gotten longer for women, because they are entering and staying in the labor force in higher numbers. But, if we look at the situation for men, there is very sharp fall in tenure since 1983, the period for which we have reliable data. In 1983, median job tenure for workers ages 35-44, 45-54 and 55-64 was 7.3 years, 12.8 years and 15.3 years, respectively. By 2004 (the most recent survey), these numbers had fallen to 5.2 years, 9.6 years and 9.8 years.
• He assures readers that income mobility has not declined. His unsupported assertion contradicts a recent study by Mary Corcoran and Jordon Matsudaira (cited in “The State of Working America”) showing that whites born in the bottom quintile between 1962-1969 were 40 percent less likely to end up in the top quintile than their counterparts born a decade earlier. For Blacks, the figure was 45 percent.
• He assures us that the weakening of unions only accounts for 10-20 percent of the increase in inequality. We will call this 10-20 percent share on the increase in inequality a “de-unionization tax” for workers at the middle and bottom of the wage distribution. If we say that income has fallen by 20-30 percent for these workers due to rising inequality, this de-unionization tax amounts to between 2-6 percent of income. I suspect that Mr. Brooks would be concerned if we proposed to increase taxes on high-income people by between 2-6 percentage points.
• He assures us that for most workers wages still rise over their working lifetime. Well yes, wages for workers in their peak earning years (ages 45-54) are typically 50 to 80 percent higher than in their entry years (ages 18-24), with the rise depending on gender and education. Things have not gotten so bad as to reverse this pattern, but it’s not clear what this shows.
• Brooks tells us that the wage for typical male worker with some college rose from $34,000 in 2000 to $40,000 today. This refers to nominal wages; serious people adjust wages for inflation. According to “The State of Working America,” the average hourly wage for men with some college fell from $17.95 in 2000 to $17.76 in 2005 (in 2005 dollars).
To sum up, David Brooks comes up with almost nothing in his column that would contradict the vast body of evidence showing that most workers have not been benefiting from the economy’s growth over the last quarter century — and that this is the result of deliberate policy decisions.
You can get the real story in “The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer,” a free downloadable e-book at www.conservativenannystate.com.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. This is reprinted from Baker’s blog at www.prospect.org/deanbaker/.