Continuing Income Stagnation for Americans

Change in income-since-1979-2010

For 99% of Americans the last forty years have been a period of income stagnation. As this chart from Mother Jones displays, virtually all of the productivity gains of the last forty years have ended up the hands of the super-rich.

A new report from the National Employment Law Project, New Report: The Low-Wage Recovery and Growing Inequality (August 2012), details some of the changes in the economy that continue to drive this long-term hollowing out of our economy. The two charts from this report following below display the trends over the last five years.

Given the length and severity of these changes, one might think that our political system would be offering up serious discussions of how to reverse these trends. These trends are virtually eliminating the middle class and further impoverishing many others, while producing income inequalities not seen since before the Great Depression.

Net Change in Occupational Employment, National Employment Law Project

The Republicans are re-running their traditional “get the government out of the way and the markets will solve all problems” rhetoric. The Democrats have not been bothered to point out the obvious historical facts that render these Republican policy suggestions as only really serving the interests of the rich and their long running religious fantasies about how markets work.

The Democrats have neither rhetoric nor policies to attack this situation. They are stuck in the prevailing winds of focusing on deficit reduction so they do not have policies that will get us out of our long period of un- and under-employment let alone talk about the larger issues of income stagnation and inequality.

The implications of these long term trends for the US are probably significant.

The working class and middle class have followed several strategies to maintain the appearance of income growth over the last forty years. First, women went back into the workforce in massive numbers. This hid the decline in the working wages of male heads of households for a while. Then, there was the explosion of credit card and other forms of personal debt. Finally, working hours were extended to produce more income by brute force. With the exhaustion of these strategies for the working class and middle class to sustain their life styles, the continuing rise in the cost of higher education (also notoriously sustained by more debt) and health care costs are driving many middle class families into increasingly perilous conditions.

Occupational Growth Rates from National Employment Law Project

The causes of this long-term stagnation, and more recent actual decline, in income, are not entirely clear. David Leonhardt has started a discussion of this in the NY Times which poses 14 possible causes. These seem more to be symptoms than causes.

Though there are doubtless a number of underlying causes several seem quite compelling. First, technological innovation, especially in information systems, has been a driving force in the elimination of many working-class and middle-class jobs. This is a long-term phenomenon with its flowering in the 1970s. The emergence of containerized intermodal shipping in the 1960s radically changed the speed and flexibility of shipping goods around the world. Combined with global telecommunications and the Internet, the modern global supply chain became practical.

The global supply chain and the globalization of financial services set the stage for the second dynamic, capitalism’s never-ending drive to reduce costs, to flower. It became practical to seek out the lowest-wage countries and relocate first manufacturing and then services to serve markets throughout the world. This has produced the hollowing out of many sectors of the US economy and in others created downward pressure on domestic wages.