Grow the Middle Class
 
 

The American middle class is in danger.

 

 
 
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Since 1972 the robust growth of the US economy has been diverted to the top .1%.

 

Health care is no longer affordable

The United States has failed to reign in health care costs. As a result the United States incurs costs that are twice as high as other countries, but US quality is only mediocre. The United States has failed to take effective action to control prescription drug prices; as a result Americans pay 50% more for these drugs than citizens of all other developed countries.  

Education DEBT IS RISING

Education costs have steadily increased. In 1968 the out of pocket costs for in state students for the University of California were about $2200 in today’s dollars.  In 2014 the in-state tuition for Cal-Berkeley was $12,864 and total cost of attendance was $33,319. For the University of Florida the 2014 in-state tuition was $6353 and the total cost of attendance was $19,103.

WORKERS ARE LOSING RIGHTS

Workers rights have eroded. The percentage of the workforce that is unionized is falling even though it has been shown that unions reduce income inequality.  Unions provide a source of countervailing power that can offset efforts by large employers to reduce wages.  Administration regulations expanding the availability of overtime pay have been rolled back.

EXECUTIVE INCOME IS SKYROCKETING

Although the income of rank and file workers has been stagnant since 1975 the income of top executives has shot up. The pay ratio between large company CEOs and rank and file workers has shot up from about 40 in 1980 to about 350 in 2016. Inequality.org


 
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HOW ECONOMIC INEQUALITY AROSE

Economic Inequality has arisen not only from market conditions and technical change but also from actions that foster inequality.

Market Factors

Fewer competitors (increases in market power). Between 1997 the market shares held by the top firms increased in 12 of 13 market sectors.

Fewer competitors mean employees have fewer opportunities to seek higher wages.

Market power can and has been used to lower wages.

Sources:Council of Economic Advisers Issue Brief April 2016, Inequality: Facts, Explanations, and Policies, What’s Monopsony? It May be the Reason You Haven’t Had a Raise, Bloomberg, October 15, 2018; Are US Industries Becoming More Concentrated ?, Grullon et al.; The Myth of Capitalism, Tepper, Hearn; What’s Behind the Increase in Inequality, Center for Economic and Policy Research September, 2017.

ACTIONS THAT ABET ECONOMIC INEQUALITY

Mergers of firms. Federal Antitrust enforcement has become more lax, permitting more mergers that reduce competition and opportunities for workers to switch jobs for higher wages.

Sources: Council of Economic Advisers Issue Brief, April 2016; OECD , Market Concentration, May 27 2018; Grullon et al. Are US Industries Becoming More Concentrated ?

Collusion. Employers agree explicitly or tacitly on wages and working conditions

Source: Council of Economic Advisers Issue Brief April 2016.

Outsourcing . Moving functions from company to independent contractors and firms to reduce benefits and wages or avoid workplace regulations.

Source: What’s Behind the Increase in Inequality, Center for Economic and Policy Research September 2017.

Anti-poaching agreements (agreements between employers to not hire other employers employees).

Source: Council of Economic Advisers Issue Brief April 2016.

Union Busting . Higher levels of unions are linked to higher overall wages, not just union member wages. Declining unionization may account for between third and fifth of the increase in U.S. inequality since 1970.

Sources: Fresh Proof That Strong Unions Help Reduce Income Inequality New York Times July 6, 2018; Unions and Inequality over the Twentieth Century, Farber et al, May 1, 2018; Inequality: Facts, Explanations, and Policies, Furman; Western, et al. 2011; “Unions, Norms, and the Rise in U.S. Wage Inequality.” American Sociological Review ; Inequality.org Income Inequality in the United States.

Expansion of Copyright and Patent Protections. This permits firms to entrench their market power.

Source: Grullon et. al., Are US Industries becoming more concentrated?

Tax cuts for the super-rich. Since Reagan income taxes on super-rich have fallen but payroll taxes, which primarily affect the middle class have gone up from 6% in 1960 to 12.4% in 1990.

Source: Inequality on Steroids, New York Times, 2017.

Estate Tax. In 1975 the top estate tax rate was 70% starting at $5 million. the exemption from tax was $120,000. In 2019 the top estate tax rate was 40% starting at $1 million (but an exemption of $11.2 million (for married, $5.6 million for singles)) wipes out estate tax on anything less.

Sources. Jacobson, Raub, The estate tax at ninety years and counting; Motley Fool; IRS.

Income Tax. In 1975 the top rate was 70% on income over $200,000 (about $700,000 today) . In 2019 it is 37% on $612,351 (married joint filing).

Sources: Stanford University; Tax Foundation, , Federal Individual Income Tax Rates History.

REMEDIES

A variety of remedies can be employed to reduce inequality. Some of these are:

Strengthen antitrust enforcement and unions.

Sources: Facts, Explanations, and Policies, Jason Furman Chairman, Council of Economic Advisors; OECD, Market Concentration, May 27 2018

Increase taxes on super-rich.

Sources: Facts, Explanations, and Policies, Jason Furman Chairman, Council of Economic Advisors

Update overtime regulations

Sources Economic Policy Institute Understanding the Historical Divergency Between Productivity and a Typical Workers Pay

Increase minimum wages

Sources: Facts, Explanations, and Policies, Jason Furman Chairman, Council of Economic Advisors; Economic Policy Institute Understanding the Historical Divergency Between Productivity and a Typical Workers Pay; Economic Report of the President 2015

Strengthen social security

Source: Jacob Hacker, The Great Risk Shift

Provide Universal healthcare

Sources: Facts, Explanations, and Policies, Jason Furman Chairman, Council of Economic Advisors

 

We can change our future

The grim future of the middle class can be remedied. The United States economy is strong and growing. The problem is distribution: the super-rich are taking g an increasing share of the economic pie at the expense of the middle class. America is not alone; other advanced countries face the same pressures but they have been more effective that the U.S. in dealing with it.

A 2015 study ranked the US last among 19 high income countries in effectiveness of redistribution.


Reduction in Economic Inequality

Sources: Inequality: Luxembourg Income Study Center, Research Brief 1/2015) Facts, Explanations, and Policies, Jason Furman, Chairman, Council of Economic Advisers; OECD, Market Concentration, May 27 2018.

The Canadian Middle Class has pulled ahead of the U.S. Middle Class even though Canadian average household is about $8000 less than the average U.S. household income. Canadian households in the bottom 56% have higher incomes than U.S. households in the bottom 56%. At the 50% level the income advantage for Canadian households is about $1000. At higher incomes U.S. households have an income advantage that increases with income (sharply beginning at the upper 2%). At the top 1% the U.S. advantage is about $90,000. Source: Household Incomes in Canada and the U.S.: Who is Better Off? Centre for the Study of Living Standards, CSLS Report 2019-01.

Our history shows we can make the needed chan ges. In early 1900’s America corrected major abuses arising from the so called Gilded Age. It can do it again.


 
 

 
 

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