“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker



Sunday, November 25, 2007

On Economic Myth #1- Middle Class Job Loss

Much consternation has been raised lately by Democrats who contend that US income inequality between upper and lower earners has increased.

Nevermind that they can't articulate, quantitatively, what is normatively bad about this. They simply feel it's wrong.

However, three articles have appeared in the pages of the Wall Street Journal recently which refute various pieces of this Democratic assault on economically successful Americans. One has to do specifically with middle-class job growth and loss. Another analyzes the Americans at the top of the taxpaying heap by percent of income. The third focuses on a dynamic view of US personal incomes, rather than static views of the lowest and highest incomes at points in time.

Late last month, the Wall Street Journal published an editorial by Stephen J. Rose, a senior economic fellow at the Progressive Policy Institute, entitled "The Myth of Middle-Class Job Loss."

Mr. Rose's analysis is quite in-depth, and I can't hope to capture it all in this commentary. For those who are interested, it appeared in the Wednesday, October 24, 2007 issue of the Journal, on page A21, entitled, "The Myth of Middle-Class Job Loss."

In part, Mr. Rose writes,

"The assertion that the American middle-class is disappearing along with manufacturing jobs is, put simply, based on an outdated view of how the economy operates, and is empirically wrong. Nonetheless, the view that the economy has failed the middle class is widespread. The outsourcing of jobs to low-wage countries is, of course, the latest culprit. Polemicists from all sides find it irresistible to blame expanding trade for middle-class decline. But how widespread a problem is outsourcing, exactly?

It is certainly true that many jobs in manufacturing clothing, steel, metal products and automobiles have gone overseas. Plant closures not only devastate the workers who are displaced, but they have also undermined the vitality of whole communities in North Carolina, Pennsylvania, New York, Michigan, Ohio and Wisconsin, to name just a few places. But while such communities are a clear sign of the decline in some sectors of the economy, there has been strong employment growth in many other sectors. In research just published by the Progressive Policy Institute, I show that incomes and employment have grown by substantial amounts in every state (even in the so-called Rust Belt) since the passage of the North American Free Trade Agreement in 1993.

In fact, there is no convincing, data-driven proof that trade has led to any overall job loss during the last 30 years. To the contrary, the economy has grown at a slow but steady rate (a few brief recessions notwithstanding) with trade and employment rising in tandem.

To prove that there has been substantial growth of middle-class jobs, I compare the situation that existed in 1979 with that of 2005. The base year is 1979 because it represents the last business-cycle peak before income inequality and the U.S. trade deficit began to grow quickly in the 1980s. To make the comparison fair, earnings in 1979 are increased by almost 150% to adjust for inflation.

Nevertheless, there has clearly been a sharp increase in female middle-class employment. As recently as 1979, 61% of female workers were in jobs that paid less than $25,000, and only 3% earned more than $50,000 a year. By contrast, more than 36% of new jobs that opened since 1979 for women pay more than $50,000 and only 17% pay less than $25,000.

Critics who bemoan the trajectory of the American economy over the past three decades somehow find it convenient to overlook or play down this historic improvement in the employment status and income levels of women. While women still lag in pay compared to men of similar educational attainment, the extraordinary rise in women's income since 1979 is a fact at odds with the notion of an overall decline in the American middle class.

For men, the change in employment since 1979 has not been quite as clear-cut, or as positive. There has been a tremendous growth in the number of men in high-paying jobs: In 1979, just 10% of male workers earned above $75,000, while fully 34% of new jobs since 1979 have paid this amount or more.

However, there was also growth in the share of male workers earning less than $25,000 a year, from 23% in 1979 to 36% by 2005. This rise of low-paying jobs hit less-educated men particularly hard. For those with just a high school diploma, 87% of the new jobs paid $25,000 or less.

Here's the bottom line: For three-quarters of the workforce (women and the top half of male earners), economic growth translated into earnings gains. But for male workers in the bottom half of the earnings distribution, the decline of unionized manufacturing employment has led to the drying up of some middle-class jobs for those with no post-secondary education.

Using a framework that I developed in the 1990s, I find that most of the employment gains over the last 30 years have been in business-management activities (administration, sales, finance and business services) as well as in professional services such as health care and education. While the percentage of U.S. jobs derived from manual work in agriculture, mining, timber and manufacturing has declined, the share of jobs related to low-skilled retail and personal/food services has remained steady.

The economy can expand and provide more good jobs as long as workers have the education and training required to succeed. Talk of the "disappearance of the middle class" is actually counterproductive, because it distorts the real challenge. This is to make sure that our young men and women are better prepared to enter the workforce of the 21st century."

Rose's work clearly indicates that one has to measure the US economy's middle class by earnings, not job type. Contrary to Democratic beliefs, keeping old-line manufacturing jobs is often a 'one-way ticket to Palookaville' for blue-collar workers. Rather, better education continues to be the way forward.

So, millions for education- but not a dime for old manufacturing job protection!

Next in this short series will be a piece discussing the misconceptions about America's top taxpayers.

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