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U.S. News and World Report

 

Stop Freaking Out About The Middle Class

May 02, 2014

By Scott Winship

The gloomy narrative of the crumbling middle class spun by doomsayers such as economist Thomas Piketty and Democratic Sen. Elizabeth Warren is hurting precisely those that it is meant to help. While middle-class Americans are by no means free from economic hardship, overstating their plight is only prolonging it by wrecking consumer, business and investor confidence.

While news of stagnating incomes seems alarming at first inspection, slowed income growth is not the same thing as decline, and stagnant male earnings reflect the passing of an era that many of us would just as soon leave to Beaver.

Between 1979 and 2007 (both business cycle peaks), median household income rose by one-third after taking into account increases in the cost of living and declines in the size of households. That’s before taking out taxes and adding in federal benefits. Factoring those in, median income rose by more than 40 percent. It is true that this rate of growth was much lower than in the 1950s and 1960s, and much lower than it has been among the top 1 percent. But even the one-third increase amounts to a $16,000 improvement for a middle-class family of four.

Confronted with these figures, stagnationists respond that median income has risen only because wives have increased their work hours to counter declining earnings among husbands. To be sure, men have seen limited earnings growth since the 1960s. But median male compensation was no lower in 2007 than in 1979, even after accounting for the fact that a rising share of men do not work. It was 10 to 20 percent higher than in 1969, an increase of $4,500 to $9,000.

To some extent, the slowdown in pay simply reflects diminished productivity growth. But median compensation among American women more than doubled between 1969 and 2007. This historic redistribution between male and female workers is related to that between the bottom 90 percent and the top 1 percent. Both shifts reflect our transition out of a patriarchal era in which male breadwinners were overcompensated so that wives could raise children full-time. Rising unionization rates through the early 1950s helped actualize that ideal for some men, while further pushing up pay for others. Compensation soared ahead of productivity during this era, when most people viewed work among mothers not quite as unfavorably as they did child labor, but still as something to be avoided whenever possible.

After World War II, wives and mothers joined the workforce in increasing numbers. This reflected affluence, not hardship — rising work among women predated the slowdown in male pay by two decades. As the ranks of working wives grew, the rationale for a breadwinner premium disappeared. If a husband and wife were both working, why should an employer pay both enough to support a family alone? The question answered itself, especially after the 1960s, as global competition made the premium increasingly impractical.

The abandonment of the male breadwinner premium has also contributed to the rise in income concentration. Labor markets no longer are intended to abet a traditional society where women’s aspirations are directed solely to having and raising children and where jobs are reserved for men to finance the domestic enterprise. Labor markets now match demand for skill with supply without patriarchal sentimentality.

So while it is true that productivity has outpaced the pay of the median worker in recent decades, this represents a recalibration from the earlier era. Since men dominated the workforce through the 1960s, they benefited from the earlier outsized gains and have borne the brunt of recalibration; bringing pay into line with productivity levels has meant bringing male pay into line.

This adjustment has been difficult for many men, especially those with limited educational attainment. But, to repeat, middle-class male workers have not actually lost ground. Women have pushed household incomes up, but living standards would have risen regardless. A new report from Pew’s Economic Mobility Project finds that if today’s women worked the same hours as their mothers did, 72 percent of couples would have higher income than their parents did. As it stands, 79 percent of couples do. Six in 10 sons exceed their father’s earnings. And once the recalibration of pay to productivity plays out, median compensation and productivity growth should track each other again. Perhaps income concentration will even level off at that point.

By exaggerating our economic challenges, doomsayers run the risk of prolonging the slow pace of recovery. The Pikettys and Warrens are wrong. The sky is not falling, and it remains intact not just because women hold up half of it. It would be an unfortunate irony if these modern-day Chicken Littles cause it to crack.

Original Source: http://www.usnews.com/opinion/articles/2014/05/02/where-elizabeth-warren-and-thomas-piketty-go-wrong-on-income-inequality

 

 
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