Power Line’s John Hinderaker has written an interesting post about rising income inequality and the plight of low- and middle-income workers in the U.S.
I’ve never been much concerned about income or wealth inequality per se. If Bill Gates’ gets richer, nequality increases, but no one is harmed, so who cares.
What matters to me most is opportunity–the ability of low-wage workers to become high-wage workers. On that criterion, the American economy has long been remarkable (see Hinderaker’s 1995 paper, co-authored by Scott Johnson, “The Truth About Income Inequality.”)
Also important is the well-being of low- and middle-income workers. Hinderaker makes a convincing case that the median working-class family is doing pretty well if the data are presented properly:
When we compare “family income” figures over time, the figures are distorted by the fact that over the past three decades, families have fragmented. There are far more single-parent families now than in the early 1970s. Single-parent families generally have lower incomes than two-parent families, so this trend has depressed family income. If we factor out this demographic change, we find strong and steady income growth. Thus, the Census Bureau data show that for the category “Married-Couple Families,” median income went from $46,723 in 1973 to $62,281 in 2003. (All numbers are in constant 2003 dollars.) That’s a hefty 33% increase in real income.
That’s persuasive, but what about workers who earn less than the median income–for example, high-school dropouts who work as janitors, gardeners, maids, and nannies? Are they doing as well today as they did in the 1970s and 1980s? No. One reason, according to the National Academy of Sciences, is immigration:
Based on previous estimates of responses of wages to changes in supply, the supply increase due to immigration lowered the wages of high school dropouts by about 5 percent, that is, about 44 percent of the total decline in wages of high school dropouts observed between 1980 and 1994.
(In spite of this finding, NAS concludes that “immigration has had a relatively small adverse impact on the wage and employment opportunities of competing native groups.” That’s because by 1995, high school dropouts “represented less than 10 percent of the American workforce.”)
If liberals’ purported concern about the well-being of high school dropouts and other low-wage workers were sincere, they would push for a sharp reduction in legal and illegal immigration from Mexico and other Third World countries. That doesn’t fit in with the blame-Bush and blame-Reagan storyline, however, so it is usually ignored.
One more thing, somewhat related. The notion that working-class people have made no gains during the past three decades ignores the spectacular increases in home equity that many homeowners of all incomes have experienced. According to this calculator, a home purchased in Los Angeles for $100,000 in 1975 would have been worth $660,000 in 2001. The same home would probably be worth well over $1,000,000 today.
Staggering increases in home values are occurring in many parts of the country, from Sacramento, Calif., to Everett, Wash., to Gaithersburg, Md. In Bradenton, Fla., home prices rose a whopping 46 percent in the past year alone.
As a result, millions of teachers, cops, firemen, nurses, social workers, mechanics, machinists, truck drivers, plumbers, and electricians now have hundreds of thousands of dollars in home equity. They live in homes that first-year engineers, college professors, lawyers, and physicians can only dream of buying. Not bad for working-class Joes who “have seen little if any progress over the past 30 years.”
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