Real median household income remained unchanged between 2002 and 2003 at $43,318, according to a report released today by the U.S. Census Bureau. At the same time, the nation’s official poverty rate rose from 12.1 percent in 2002 to 12.5 percent in 2003. The number of people with health insurance increased by 1.0 million to 243.3 million between 2002 and 2003, and the number without such coverage rose by 1.4 million to 45.0 million. The percentage of the nation’s population without coverage grew from 15.2 percent in 2002 to 15.6 percent in 2003.
Overview
Real median income for the nation remained unchanged between 2002 and 2003 for all types of family and nonfamily households.
Race and Hispanic Origin
Real median income did not change between 2002 and 2003 for non-Hispanic white households (about $48,000), black households (about $30,000) or Asian households (about $55,500).
Households with Hispanic householders (who can be of any race) experienced a real decline in median income of 2.6 percent between 2002 and 2003.
Comparison of two-year moving averages (2001-2002 and 2002-2003) showed that the real median income for households with householders who reported American Indian and Alaska native, regardless of whether they reported any other races, increased by 4.0 percent to $35,441. There was no change for those who chose the single race of American Indian and Alaska native ($32,866).
Regions
Real median household income remained unchanged between 2002 and 2003 in three of the four census regions — Northeast ($46,742), Midwest ($44,732) and West ($46,820). The exception was the South, where income declined 1.5 percent. The South continued to have the lowest median household income of all four regions ($39,823). The difference between median household incomes in the Northeast and West was not statistically significant.
Nativity
Native households had a real median income in 2003 ($44,347), not different from that in 2002. Foreign-born households experienced a real decline of 3.5 percent to $37,499.
Earnings
Real median earnings of men age 15 and older who worked full-time, year-round in 2003 ($40,668) remained unchanged from 2002. Women with similar work experience saw their earnings decline — 0.6 percent to $30,724 — their first annual decline since 1995. As a result, the ratio of female-to-male earnings for full-time, year-round workers was 76 cents for every dollar in 2003, down from 77 cents for every dollar in 2002.
Income Inequality
Income inequality showed no change between 2002 and 2003 when measured by the Gini index. The share of aggregate income received by the lowest household income quintile (20 percent of households) declined from 3.5 percent to 3.4 percent, while remaining unchanged for the other quintiles.
Poverty
Overview
The number of people below the official poverty thresholds numbered 35.9 million in 2003, or 1.3 million more than in 2002, for a 2003 poverty rate of 12.5 percent. Although up from 2002, this rate is below the average of the 1980s and 1990s.
The poverty rate and number of families in poverty increased from 9.6 percent and 7.2 million in 2002 to 10.0 percent and 7.6 million in 2003. The corresponding numbers for unrelated individuals in poverty in 2003 were 20.4 percent and 9.7 million (not different from 2002).
As defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the average poverty threshold for a family of four in 2003 was $18,810; for a family of three, $14,680; for a family of two, $12,015; and for unrelated individuals, $9,393.
Race and Hispanic Origin
In 2003, among people who reported a single race, the poverty rate for non-Hispanic whites was 8.2 percent, unchanged from 2002. Although non-Hispanic whites had a lower poverty rate than other racial groups, they accounted for 44 percent of the people in poverty.
For blacks, neither the poverty rate nor the number in poverty changed between 2002 and 2003. People who reported black as their only race, for example, had a poverty rate of 24.4 percent in 2003.
Among those who indicated Asian as their only race, 11.8 percent were in poverty in 2003, up from 10.1 percent in 2002. The number in poverty also rose, from 1.2 million to 1.4 million. For the population that reported Asian, regardless of whether they also reported another race, the rate and the number increased to 11.8 percent and 1.5 million.
Among Hispanics, the poverty rate remained unchanged, at 22.5 percent in 2003, while the number in poverty increased from 8.6 million in 2002 to 9.1 million in 2003.
The poverty rate of American Indians and Alaska natives did not change when comparing two-year averages for 2001-2002 and 2002-2003.
The three-year average poverty rate for people who reported American Indian and Alaska native as their only race (23.2 percent) was not different from the rates for blacks or Hispanics. It was higher than the rate for non-Hispanic whites who reported only one race. The three-year average poverty rate for people who reported American Indian and Alaska native, regardless of whether they also reported another race (20.0 percent), was lower than the rates for blacks or Hispanics and higher than the rate for non-Hispanic whites who reported only one race.
Age
For all children under 18, the poverty rate increased from 16.7 percent in 2002 to 17.6 percent in 2003. The number in poverty rose, from 12.1 million to 12.9 million.
Neither people 18 to 64 years old nor those age 65 and over experienced a change in their poverty rate, 10.8 percent and 10.2 percent in 2003, respectively.
States
The poverty rate for Arkansas (18.5 percent) — although not different from the rates for New Mexico, Mississippi, Louisiana, West Virginia and the District of Columbia — was higher than the rates for the other 45 states when comparing three-year average poverty rates for 2001 to 2003. Conversely, New Hampshire’s rate (6.0 percent) — though not different from the rate for Minnesota — was lower than those of the other 48 states and the District of Columbia.
Seven states — Illinois, Michigan, Nevada, North Carolina, South Dakota, Texas and Virginia — showed increases in their poverty rates based on two-year moving averages (2001-2002 and 2002-2003), while two states — Mississippi and North Dakota — showed decreases.
Nativity
The native population had increases in their poverty rate (from 11.5 percent in 2002 to 11.8 percent in 2003) and their number in poverty (from 29.0 million in 2002 to 30.0 million in 2003). Poverty rates remained unchanged for foreign-born naturalized citizens (10.0 percent) and for foreign-born noncitizens (21.7 percent). Although the number for foreign-born naturalized citizens in poverty (1.3 million) did not change from 2002, the number of foreign-born noncitizens in poverty increased (to 4.6 million in 2003 from 4.3 million in 2002).
American Community Survey
Income
Counties
In the 2003 ACS, Somerset County, N.J., while not different from Howard County, Md., or Prince William County, Va., had the highest median household income ($89,289) of the 233 counties with populations of 250,000 or more in the sample.
The median household income of Hidalgo County, Texas ($24,926), while not different from Cameron County, Texas; Bronx County, N.Y.; or Lubbock County, Texas, was lower than those of the remaining 229 counties.
Poverty
Counties
Somerset County, N. J., while not different from Waukesha County, Wis.; Anne Arundel County, Md.; Howard County, Md.; Prince William County, Va.; or Anoka County, Minn., had a poverty rate (1.7 percent) that was lower than those of any of the other counties with a population of 250,000 or more.
Hidalgo County, Texas (38.0 percent), and Cameron County, Texas (36.5 percent), had poverty rates higher than those of the other 231 counties, though not different from one another.
Children Under 18 Years Old
Counties
Somerset County, N. J., while not different from 17 other counties, had a child poverty rate (2.0 percent) that was lower than any of the remaining counties of 250,000 or more in the 2003 ACS.
Hidalgo County, Texas, while not different from Cameron County, Texas, had a child poverty rate (48.6 percent) that was higher than those of the other counties of 250,000 or more.
How Much Do They Make?
Average Pre-Tax Family Income (in 1995 US Dollars)
Some political theorists who accept the existence of "middle-class squeeze" believe that it represents a societal crisis. Correlating socioeconomic status with the political spectrum, they equate middle-class social status with political moderation. This correlation has a valid logical basis— middle-class individuals have some capital and, thus, stake in a stable society, but also have aspirations that would prevent them from being resistant to change. According to this theory, continued economic stress on the middle class would lead to a "collapse of the center" that could result in societal schism, radical Producerism, class warfare, or even violent revolution.
Furthermore, many middle-class people in the United States have high aspirations with regard to education, personal growth, financial success and accomplishment. (See: American dream.) Ambitious middle-class individuals are also, sometimes, the initators and leaders of rebellions, revolting against society when their ambitions are frustrated by a constricting society. Some theorists believe that widespread frustration of middle-class ambitions may lead to massive societal upheaval in the United States, though the probability of a violent revolution is usually considered very low; a peaceful conflict is more likely. Furthermore, the individuals most likely to precipitate such a "conflict" tend to hold negative views of corporations, but neutral to positive views of government, especially at the grassroots level. More likely scenarios involve a "subtle conflict" wherein educated middle-class individuals, as well as wealthy leftists, infiltrate government and the NGO sector, then enact policies that place quality of life, equality, sustainability, and human and civil rights at higher priorities than property rights, resulting in dramatic changes in society. Some believe that this is already happening in Canada and the European Union nations.
David B. Grusky (Editor) Social Stratification: Class, Race, and Gender in Sociological Perspective (2000)
Alan C. Kerckhoff; Socialization and Social Class 1972, textbook
Jim Lardner, James Lardner, David A. Smith, editors, Inequality Matters: The Growing Economic Divide In America And Its Poisonous Consequences, WW Norton (January, 2006), hardcover, 224 pages, ISBN 1565849957
Rhonda F. Levine, ed. Social Class and Stratification (1998), anthology of classic articles
W. Lloyd Warner; Marchia Meeker and Kenneth Eells; Social Class in America: A Manual of Procedure for the Measurement of Social Status 1949
Erik Olin Wright. Classe (1997) - a detailed Marxian guide to define working class/middle class etc.
Michael Zweig, Working Class Majority: America's Best Kept Secret, Cornell University Press (2001), trade paperback, 198 pages, ISBN 0801487277
David Popenoe, Sociology, (ninth edition, Prentice Hall, 1993 ISBN 0138197989 ) pb. pp. 232-236,
This page was last modified 02:03, 6 June 2006. All text is available under the terms of the GNU Free Documentation License (see Copyrights for details).
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc.
HARVARD GAZETTE ARCHIVES
Elizabeth Warren delivers the bad news, 'We discovered that having a child is the single best predictor that a person will go bankrupt.' (Staff photo Jon Chase/Harvard News Office)
Middle-class income doesn't buy middle-class lifestyle
HLS professor sounds an alarm to families: One in seven will go bankrupt
By Beth Potier
Harvard News Office
Elizabeth Warren, a portrait in soft-spoken calm as she sips tea in her gracious office at Harvard Law School, is sounding an alarm.
"The American middle class is in real trouble," she says, her Southern-tinged sotto voce belying the power of her statement. "American families are smack up against the wall, financially speaking." A middle-class lifestyle, she says, is increasingly out of reach for middle-class families, many of whom are going broke trying to attain it.
This startling news shouldn't have stunned Warren, the Leo Gottlieb Professor of Law. After all, she's been studying families, debt, and bankruptcy for nearly three decades. Yet her recent research, based in part on a survey of more than 2,000 families who had filed for bankruptcy, told a different tale from familiar bankruptcy sagas of the elderly, the young, or the profligate.
"We discovered that having a child is the single best predictor that a person will go bankrupt," she says. By the end of this decade, one of every seven families with children will file for bankruptcy.
Even more surprising to Warren were the causes of this financial breakdown, which she assumed would implicate the battered culprit of overconsumption of luxury goods. "I thought I would write a story about too many trips to the mall, too many $200 sneakers, too many Gameboys," says Warren.
But stacks of government data on consumer spending, which she combed through as a Radcliffe Institute Fellow in 2002, proved her hunch wrong. Compared with a generation ago, she found, today's middle-class families earn about 75 percent more (all figures are adjusted for inflation), thanks in large part to Mom's entrance into the work force. But after shelling out for four fixed expenses - mortgage, health insurance, child care or education, and car payments - today's median-income family has less left over, in inflation-adjusted dollars, than the single-income family of the 1970s.
"Families are not going broke over lattes," Warren quips. "Families are going broke over mortgages."
'Families are not going broke over lattes. Families are going broke over mortgages.'
- Elizabeth Warren, the Leo Gottlieb Professor of Law
Warren has reported her findings, as well as a few proposed solutions, in the book "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" (Basic Books, 2003), which she co-authored with her daughter, Amelia Warren Tyagi.
The book's title highlights a central paradox of middle-class families today versus a generation ago: While middle-class families generally need two incomes to make ends meet, it's reliance on that second income (usually Mom's) that's putting them in financial peril. By counting on two incomes to fund the basics of a middle-class lifestyle - including modest homes in safe neighborhoods with good schools and high-quality child care, preschool, after-school care, or college - families have forfeited their safety nets.
"When a family builds its budget around two workers ... they're much more exposed to any economic disruption," says Warren. A generation ago, if the sole breadwinner lost his (or her) job or became disabled, the family had a backup earner who could step into the workforce. Further, reliance on two incomes makes families twice as vulnerable to layoffs.
"The two-income family is like a speeding race car," says Warren. "It goes faster than its one-income counterpart, but if it hits a rock, it careens out of control and crashes."
Making those crashes all the more devastating, Warren adds, is a deregulated consumer credit industry that she calls "a monster that feeds on families in trouble." With both incomes committed to fixed costs, families who hit a financial rock in the road turn to credit cards, mortgage refinancing, and payday lenders - often at ballooning interest costs that drag families into a spiral of debt. More and more often, bankruptcy is the only way out. This year, more children will live through their parents' bankruptcy than their parents' divorce.
Blame it on good schools, safe neighborhoods
How did being middle class get so expensive? The answers run contrary to popular wisdom as well as to Warren's own assumptions. Today's family is spending 21 percent less on clothing, 22 percent less on food - including eating out - and 44 percent less on appliances than they did a generation ago. Warren notes that a combination of lowered production costs and changing lifestyles are at work. Discount stores, meals that include less red meat and are more likely to have been purchased in bulk from wholesalers like Costco, and casual dressing at all ages have spelled savings for families.
Nor are warehouse-sized McMansions to blame; this type of housing is generally not going to middle-class families. Although housing costs have skyrocketed nationwide in the past generation, the size of average homes has grown far more modestly, by less than one room between 1975 and the late 1990s, Warren found.
Instead, Warren points the finger at two concepts dear to the hearts of almost all Americans: safety and education. Both are perceived to be more elusive now than a generation ago, when families bought a house they could afford and sent their children to the school down the street without a second thought. Now, she says, middle-class families are stretching themselves to the breaking point to afford homes in safe neighborhoods and "better" school districts.
Warren insists she's not discussing a phenomenon exclusive to Cambridge academics or the wealthy go-getters of Boston's tony suburbs who measure the subtle distinctions between two towns' outstanding public schools. "I'm talking about families that are weighing the differences between Plymouth and Weymouth," she says, describing two middle-class communities south of Boston.
Not surprisingly, improving public education is one of the policy fixes "The Two-Income Trap" recommends, along with reining in the credit industry and boosting family savings with tax policy. But families need to save themselves, she says, and trimming out the daily latte isn't going to do the trick.
"We recommend that families take a financial fire drill," she says. What would you do if one income disappeared? The answer, she admits, can be painful to contemplate, but she nonetheless encourages families to create a plan - savings to cover the mortgage payment for a few months, valuables to sell, a relative to move in with if circumstances dictate giving up the house - before disaster strikes and debt rages out of control.
Keeping up with the cohort
"The Two-Income Trap" is multigenerational in both analysis and authorship, thanks to Tyagi's contribution. "She's a Wharton-trained, hard-nosed number cruncher" who was serendipitously home with a new baby when Warren needed help analyzing the reams of government data she had uncovered.
After a few weeks as her mother's researcher, Tyagi proposed that she step up her role and co-author the book. Mom balked. "I'm a serious academic. I don't co-author with people from the business world, and I don't co-author with people 22 years my junior," says Warren. But she relented on the strength of her daughter's argument: How better to illustrate the transformation of the American family in a single generation than to write from the point of view of two generations of a family?
Tyagi also convinced Warren that she could help bring this cautionary tale to an audience far larger than a purely academic book would reach. Reminding her mother not to refer to families as "economic units" and neighbors as "cohorts," Tyagi brought "the ear of a popular audience to the book," says Warren.
Describing bankruptcy as veiled in shame and silence, Warren is gratified to see "The Two-Income Trap" reaching that popular audience. She's witnessed a media whirlwind unfamiliar to an academic author, but more powerfully, she's listened to dozens of middle-class Americans share their stories.
"I can't say strongly enough how decent and hardworking these people are," she says. "The cost of being middle class has shot out of the reach of the median family. For millions of families, the situation is getting desperate."
This book details research on bankruptcies and the American family. Before I read it, I knew that a lot of people were having financial trouble in today's America, but I had no idea it had gotten so out of hand. The authors make it clear that it's tougher for a family to make it today than it was a few decades ago. This is not due to an increase in selfishness or irresponsibility; families really do have less discretionary income today. This is in spite of the fact that far more women are working today. The book is worth reading just for this information.
This certainly struck a chord with me. My husband and I both work at good jobs, similar to the job my father had when I was a child. Yet living the lifestyle my father and mother had when I was young is completely out of our reach. My parents owned a detached house; we own a small condo. They could afford several children and a wife who was a full-time homemaker; we have one child and find even that a financial struggle. It is nice to know that we aren't the only ones.
When it comes to the author's policy prescriptions to solve this problem, some of their ideas are very good. The authors make an excellent case for reregulating the interest rates credit card companies are allowed to charge. Allowing banks to charge very high rates only encourages them to make loans they know people can't afford to pay back. The authors make a good point that the sale of actual goods has to a large extent now become a sort of financial sideline to where the real money is made, which is charging interest on the purchase. (Maybe in their next book they can apply the same principle to student loans--education has now become a sideline to the student loan business.)
I was disturbed that the authors missed one of the main reasons why housing is so much more expensive now. The population of the U.S. has doubled since the 1940s. There isn't enough room, or for that matter enough gasoline, for a house and a yard and the roads to reach them for all of those people. Want to get housing prices back to a more reasonable level? First, cut immigration and stabilize the U.S. population. Second, change zoning laws to encourage higher density housing near jobs and public transportion.
This book is a must-read for anyone concerned about the present and future of American families, as well as issues surrounding money and its impact in our lives. The authors bring out a number of amazing facts - amazing for a variety of reasons and oftentimes because they are quite humbling in what they reveal about the state of many families in America. It is very eye-opening, informative and helpful, while also being chilling in what it reveals about the near past, present and potential future.
The authors do an exceptional job of disspelling common myths surrounding the financial issues that plague many people in America today. They have done their research, which shows that many of the "conventional wisdom" on the subject is really not wisdom at all; they demonstrate the evidence that shows it to be anything but wisdom. They call not only for policy changes, but also informs the common person of some things they can do to help themselves along the way.
There is not enough good that can be said about this book. Anyone - regardless of marital status (as the book's title implies this being about married couples) - would do themselves a great service to read this book. I rarely praise books like I have praised this one - it is in a class with few peers. There is a reason Dr. Phil often mentions this book and has Elizabeth Warren on shows he does about financial problems in marriages, and you will see it in reading this book.
FITHIAN PRESS
EXPOSING THE CONSERVATIVE AGENDA
FOR AMERICA'S WORKERS
"Kelly mans the ramparts again, this time to beat back the endless barrage fired by Business Week, Barron's, Fortune, Forbes, and the Wall Street Journal. Kelly uses direct quotes from these publications to document the many ways the rich are getting richer and the poor are getting poorer." --Booklist (8/00)
According to Charles M. Kelly, conservatives, as a matter of policy and strategy, are waging financial warfare against working-class Americans. They've been waging this class war successfully for twenty years, throughout the Reagan, Bush, and Clinton administrations.
Who is Charles Kelly, and by what authority does he make such a statement? He is a highly respected author and university-level teacher with a Ph.D. in industrial communications, and his warnings and opinions are as articulate as they are provocative.
But in his new book, Class War in America, Kelly largely lets the economic conservatives speak for themselves. Quoting extensively from such influential publications as The Wall Street Journal, Forbes, Fortune, Barron's, and Business Week, Kelly demonstrates the clear intention of the conservative establishment to benefit corporations, executives, and investors at the expense of the lower- and middle-income workers on whom they depend.
The term "workers," by the way, does not refer only to manual laborers. In the modern class struggle, "workers" are also the engineers, scientists, computer programmers, and other professionals whose wages are kept under strict control in order to inflate profits for the conservative powers in control.
What can Americans do about this situation? They can be informed, and they can vote.Class War in America appears on the eve of a national election, while Americans are listening to politicians and deciding which ones to place in office. Financial conservatives have their allies in the political arena, and voters concerned about the exploitation of workers in America will take their concerns to the ballot box. Charles Kelly's book is a wake-up call to anyone who hasn't noticed what's been happening in the past twenty years. For those already concerned about the problem, the book offers a guided tour of the conservative strategy, documented by the conservative press.
Charles M. Kelly holds a Ph.D. in industrial communications. He has taught courses in communication, ethics, and management at numerous universities, including Syracuse University, Cal State University, SUNY, and the U.S. Chamber of Commerce's Institute of Managment. He has conducted conferences and seminars in these same subjects for Fortune 500 companies. He is the author of The Destructive Achiever: Power and Ethics in the American Corporation and The Great Limbaugh Con and Other Right-Wing Assaults on Common Sense.
Baby boomers like me grew up in a relatively equal society. In the 1960's America was a place in which very few people were extremely wealthy, many blue-collar workers earned wages that placed them comfortably in the middle class, and working families could expect steadily rising living standards and a reasonable degree of economic security.
Working families have seen little if any progress over the past 30 years. Adjusted for inflation, the income of the median family doubled between 1947 and 1973. But it rose only 22 percent from 1973 to 2003, and much of that gain was the result of wives' entering the paid labor force or working longer hours, not rising wages.
Meanwhile, economic security is a thing of the past: year-to-year fluctuations in the incomes of working families are far larger than they were a generation ago. All it takes is a bit of bad luck in employment or health to plunge a family that seems solidly middle-class into poverty.
But the wealthy have done very well indeed. Since 1973 the average income of the top 1 percent of Americans has doubled, and the income of the top 0.1 percent has tripled.
Why is this happening? I'll have more to say on that another day, but for now let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power.
Since 1980 in particular, U.S. government policies have consistently favored the wealthy at the expense of working families - and under the current administration, that favoritism has become extreme and relentless. From tax cuts that favor the rich to bankruptcy "reform" that punishes the unlucky, almost every domestic policy seems intended to accelerate our march back to the robber baron era.
It's not a pretty picture - which is why right-wing partisans try so hard to discredit anyone who tries to explain to the public what's going on.
These partisans rely in part on obfuscation: shaping, slicing and selectively presenting data in an attempt to mislead. For example, it's a plain fact that the Bush tax cuts heavily favor the rich, especially those who derive most of their income from inherited wealth. Yet this year's Economic Report of the President, in a bravura demonstration of how to lie with statistics, claimed that the cuts "increased the overall progressivity of the federal tax system."
The partisans also rely in part on scare tactics, insisting that any attempt to limit inequality would undermine economic incentives and reduce all of us to shared misery. That claim ignores the fact of U.S. economic success after World War II. It also ignores the lesson we should have learned from recent corporate scandals: sometimes the prospect of great wealth for those who succeed provides an incentive not for high performance, but for fraud.
Above all, the partisans engage in name-calling. To suggest that sustaining programs like Social Security, which protects working Americans from economic risk, should have priority over tax cuts for the rich is to practice "class warfare." To show concern over the growing inequality is to engage in the "politics of envy."
But the real reasons to worry about the explosion of inequality since the 1970's have nothing to do with envy. The fact is that working families aren't sharing in the economy's growth, and face growing economic insecurity. And there's good reason to believe that a society in which most people can reasonably be considered middle class is a better society - and more likely to be a functioning democracy - than one in which there are great extremes of wealth and poverty.
Reversing the rise in inequality and economic insecurity won't be easy: the middle-class society we have lost emerged only after the country was shaken by depression and war. But we can make a start by calling attention to the politicians who systematically make things worse in catering to their contributors. Never mind that straw man, the politics of envy. Let's try to do something about the politics of greed.
AMERICAN JOBS AND THE ASIAN CRISIS The employment impact of the coming rise in the U.S. trade deficit
by Robert E. Scott and Jesse Rothstein
The recent collapse of Asian currencies and financial markets will have severe economic consequences for the United States. A slowdown or shrinkage in domestic demand in the Asian nations affected by the crisis will force them to export their way out of their problems, and the impact will spread throughout the global economy. As a result, the U.S. merchandise trade deficit could increase from an estimated $200 billion in 1997 to $300 billion to $400 billion within the next 12 to 24 months.(1)This study analyzes the employment impacts of both a $100 billion and a $200 billion increase in the U.S. trade deficit, thus providing a range of estimates of the impact of the Asian crises on the U.S. labor market.
This study finds that, if the U.S. trade deficit increases by $100 billion to $200 billion, 700,000 to 1.5 million jobs will be eliminated in manufacturing and other tradable goods industries, and these job losses will occur in every state. Male blue-collar workers will be particularly hard hit. If these losses are not immediately offset with substantially lower interest rates from the Federal Reserve, unemployment will rise and gross domestic product will fall by 1.3% to 2.6%.
But even if the Fed could lower interest rates fast enough and far enough to prevent the national unemployment rate from rising at all - an extremely difficult task - an increase in the trade deficit of this magnitude would mean a rapid shift of 600,000 to 1.1 million jobs out of manufacturing and tradable goods industries into the lower-paying service sector. Substantial dislocation of families and disruptions in the nation's communities would be unavoidable. Moreover, since service-sector jobs pay less than those in manufacturing, average wages will be reduced, thereby threatening a premature end to the recent upturn in wages at the bottom of the income distribution.(2)
Furthermore, even successful compensating action by the Fed would be unable to prevent a drop in GDP of 0.5% to 1.0% over the next two years, as the low-wage, low productivity non-traded goods sector expands to replace the high-wage jobs destroyed by rising trade deficits. Specifically, up to 119,000 high- and medium-wage jobs will be replaced by up to 119,000 low-wage jobs (in the bottom fifth); these replacement jobs will generate only $63 billion in GDP to offset a $100 billion increase in the trade deficit. Thus, average incomes will decline by at least 0.5% to 1.0% as trade deficits grow. Losses will be significantly larger if the Fed is unsuccessful at offsetting the effects of the Asian crisis.
The job dislocation effects of the increased trade deficit presented here are conservative, since they leave out several effects that will act to make the problem worse. First, we refer only to the direct and indirect effects of trade on employment, and do not include any of the potentially large and significant "multiplier effects" found in most macroeconomic models.The job effects estimated here include, for example, the impact on jobs in plants producing automobiles (direct effects) and in plants producing materials used to make automobiles (indirect effects), but not the effect of a drop in the sales of items that newly unemployed workers might otherwise have bought. Second, the estimates here assume that the crises in Asian currency and financial markets will stabilize quickly and that there are no further rounds of competitive devaluations in China or Japan. Finally, the assumption of successful offsetting policy from the Fed is optimistic. In the real world where people, firms, and governments interact, the Fed will be hard pressed to keep unemployment from rising, especially in the short run.
States will suffer job losses and severe dislocations
Figure 1 illustrates the gross impact of a $100 billion rise in the trade deficit on employment in the 50 states; Figure 2 shows the net effect assuming a completely successful offset policy by the Federal Reserve.(3)Table 1 provides specific estimates for each state of a $100 billion and $200 billion increase in the trade deficit, either of which would generate gross employment losses in all 50 states (see columns 1 and 3). Particularly hard-hit states include California; Texas; the industrial heartland states in the upper Midwest, such as Illinois, Michigan, Ohio, and Indiana; and apparel centers such as New York, Pennsylvania, and the Carolinas. California alone will lose more than 120,000 jobs. If the trade deficit increases by $200 billion, each of these regional effects will be doubled (column 3).
Even if the Fed perfectly manages interest rates to offset the trade deficit, 20 states will suffer a net loss of employment if the trade deficit rises by $100 billion (column 2). California, with its huge industrial base located on the Pacific Rim, will be hardest hit with 25,000 jobs lost, followed closely by North Carolina, with its large textile and apparel industries (20,000), Michigan (9,000), and Indiana (7,500). On the other hand, Florida will see the creation of about 50,000 jobs in non-traded goods (not shown), enough to more than offset a gross loss of 36,000 jobs and produce a net gain of 14,000 jobs. Employment in Florida and every other state will shift from manufacturing industries, such as electronics, to lower-paying service sectors. Thus, even states that report net gains in columns 2 and 4 will still experience substantial job displacement, and some communities and areas in each state will grow while others suffer.
Widening trade deficit will severely damage manufacturing industries
If the U.S. trade deficit increases by $100 billion, then 1.1 million job opportunities will be eliminated in the domestic economy, as shown in the first column in Table 2.(4)These job losses will begin to accumulate by mid-1998, rising sharply thereafter as the trade deficit expands. The full effect will likely take hold over the next 12 to 24 months (through the end of 1999), and 70% of job losses will be concentrated in the manufacturing sector. Within manufacturing, the largest losses in absolute terms (column 1) will occur in industrial machinery (169,000 jobs lost, representing 8.1% of total employment in the sector), which includes computers and other office machinery, and in electronic equipment (122,000 jobs lost). These sectors will be hard hit because of their size and because of the direct, often intense, price competition between domestic and foreign producers. These industries are particularly important as key centers of high-tech, high-wage employment.
Other hard-hit sectors within manufacturing will include apparel (65,000 jobs), textile mill products (33,000), transportation equipment (48,000), and miscellaneous manufacturing (32,000).(5)Outside of manufacturing, the agricultural sector will also be significantly affected, with losses of 35,000 jobs or roughly 1% of total agricultural employment. Job losses in trade and services will be large in numerical terms but not as a share of total sectoral employment.
If the U.S. trade deficit increases by $200 billion, the impacts will be much larger. Nearly 1.5 million manufacturing jobs will be lost (Table 2, column 2), 7.9% of total manufacturing employment in 1996 (column 4). Losses of this scale would induce depression-like conditions in manufacturing communities, on a scale approaching the Rustbelt disaster of the early 1980s.
Fed intervention cannot protect traded goods industries
Table 3 reports the results of an assumption that the Fed will be able to reduce interest rates so precisely as to completely offset the overall employment effects of larger trade deficits, leaving overall employment unchanged (as indicated by the total of zero net job loss in columns 1 and 2). Even so, there will be substantial shifts in employment between sectors and regions. If the U.S. trade deficit expands by $100 billion, then manufacturing employment will fall by 569,000, 22% less than before adjusting for Fed actions but still substantial. Industrial machinery, electronic equipment, apparel, and transport equipment are still the most heavily affected sectors, losing 3% to 8% of total employment even when overall unemployment levels are unchanged.
This Fed-intervention scenario shows non-traded goods production growing rapidly to absorb the excess labor that will result from trade deficits. Employment in services increases by 198,000 (column 2), the government sector adds 153,000 employees, and trade (wholesale and retail) adds 114,000. In addition, net job losses in agriculture are substantially smaller than in Table 2, as increased income stimulates food demand and output.
If the U.S. trade deficit increases by $200 billion (Table 3, columns 2 and 4), the Fed's job will become much more difficult. Even if the Fed policy is successful, there will be much larger changes in the composition of employment than in the $100 billion case. The manufacturing sector will shrink by 6.2%, while employment in services, government, and the finance sectors will increase by 1.2% to 1.6%. Again, most jobs in these sectors pay substantially less than those in traded goods industries.
Trade deficit will hit high-wage, non-college workers harder than others
Table 4 (previous page) shows the impact of increasing trade deficits on different groups of workers. Men will lose 639,000 to 1,278,000 jobs if deficits increase $100 billion to $200 billion (columns 1 and 3), 61% of total loses. Male workers are only 53% of the labor force, but since they make up a greater share of total employment in manufacturing they will suffer most heavily from a trade shock. While there are no great disparities in job loss by ethnicity, there are clear trends in the impact on workers by education and wage level. College-educated workers will lose 180,000 jobs (17% of total losses) with a $100 billion trade deficit, but they make up 19% of the labor force. Workers with less than a high school education will lose 228,000 jobs (22% of total losses), but they make up only 19% of the labor force. On the other hand, 25% of the jobs destroyed will be of the high-wage variety, while only 21% of jobs in the economy fall into this group. At the bottom of the wage ladder, only 31% of the jobs destroyed will be in the low-wage category, although such jobs make up 36% of the economy. For a $200 billion deficit, the number of jobs lost in each category double, while the shares remain the same.
These results show that an increase in U.S. trade deficits will eliminate relatively more high-wage jobs, especially for workers with less than a college education, and these workers will bear the brunt of the economic dislocation that will result from bigger trade deficits. Manufacturing and other traded goods industries employ a larger-than-average proportion of non-college-educated production workers, yet, for reasons that include the high productivity of manufacturing relative to other sectors of the economy, these sectors pay their workers better-than-average wages.
If the Fed is able to prevent an increase in unemployment, the new jobs will offset lost jobs to leave little or no differential impact on employment by ethnic group. However, with a $100 billion deficit, workers with a college education (either a degree or some college) will gain 59,000 jobs.(6)Workers with a high school degree or less will suffer an equivalent net loss of jobs.
Even though bigger trade deficits will increase demand for college-educated workers -- if the Fed keeps unemployment rates steady -- there will still be a net loss of high- and medium-wage jobs. Job gains will primarily be those paying lower wages: the bottom quintile of the labor force will see a net increase of 59,000 jobs (column 2). Therefore, the increase in demand for college-educated workers will be concentrated in lower-paying positions. This finding illustrates the continuation of a previously noted trend: even while the share of college graduates in the labor force rises, shifts in labor demand are primarily creating jobs with below-average wages (Mishel, Bernstein, and Schmitt 1997).
Appendix -- Methodology
Throughout this report, we use the Bureau of Labor Statistics' 183-industry categorization of the U.S. economy. We use 1995 final demand data as the baseline for changing trade and for macroeconomic effects (BLS 1997b). We assume that the currency crises throughout Southeast Asia will cause the U.S. trade deficit to grow by $100 billion and $200 billion (see Hale 1997; The Economist 1997).
The last similar period of appreciation of the U.S. dollar was in the early 1980s. Between 1981 and 1985, real U.S. imports increased by 50%, while real exports fell by 6%. We consider the industry-level changes in imports and exports, using data from the Bureau of Labor Statistics, Office of Employment Projections (BLS 1997b), and assume that the current expansion of trade will be distributed among industries in the same pattern. If trade in each industry were to change by the same fraction as it did in 1981-85, the trade deficit would rise by over $762 billion, which is unrealistic. Thus, to yield an increase in the trade deficit of $100 billion we scaled the change back by a constant multiple of 0.131. In other words, the percentage changes of exports and imports in each industry are expected to be 13.1% as large as they were between 1981 and 1985. In aggregate, then, exports are expected to increase by a modest 0.3% and imports to balloon by 11.7%. In the $200 billion scenario we use a multiplier of 0.262, producing export growth of 0.7% and import growth of 23.5%.
To estimate the employment impacts of the increased trade, we use the 1995 input-output package - the most recent version available - from the Bureau of Labor Statistics' Office of Employment Projections.(7)This package includes an input-output table, derived from BLS calculations of the number and types of jobs supported by production in each industry. The table reflects not just the direct labor requirements of manufacturing production, but also the indirect employment in non-manufacturing industries (like business services) that supply manufacturers.
Labor content studies of this type typically measure job opportunities, rather than jobs, for two reasons. First, in a growing economy we expect a certain level of background employment growth. In this situation, increases in trade deficits may lead to lower job creation than would otherwise occur, without producing actual declines in employment. Second, some particular imported products are not produced in the U.S., so increases in their consumption do not directly displace domestic workers. However, employment in manufacturing has been declining in absolute terms since 1995, and is likely to decline even more rapidly in 1998 and 1999 as a result of the unexpected increase in trade deficits discussed in this report. Therefore, the terms "jobs" and "job opportunities" are used interchangeably in this analysis.
Offsetting Fed Policies
In several calculations, we include an assumption that the Federal Reserve Bank will intervene in the economy -- by lowering interest rates - to offset the effects of rising trade deficits. This matches the conventional wisdom: prior to the Asian financial crisis, economic forecasters were widely predicting that the Fed would raise interest rates in 1998. However, many of these forecasters have recently revised their interest rate forecasts sharply downward, and now conclude that rates will stay constant or fall in the next year (Berry 1998). Our model of a net interest rate reduction in response to the crisis is an equivalent counterfactual scenario, in the context of a constant demand model. As a result, final demand less net exports (exports minus imports) increases just enough to keep unemployment unchanged. A $63 billion increase in non-trade final demand is required to offset a $100 billion increase in the trade deficits. We model this as a uniform 0.83% expansion of all non-trade final demand. The increase in non-trade final demand is smaller in dollar terms than the decrease in net exports because fewer dollars of spending are required to generate a given number of jobs in non-traded goods sectors (i.e., services) than in traded goods (such as manufactured products). Traded goods sectors pay higher wages and are more capital intensive than other sectors of the economy; therefore, fewer jobs are generated per dollar of final demand (see Scott, Lee, and Schmitt 1997).
State and Demographic Effects
We assume that job gains or losses in each of the 183 industries are distributed among the states in the same proportions as total employment. Data on total employment by state and industry come from BLS (1997c). Similarly, we assume that the casualties and beneficiaries in each industry are demographically similar to that industry's overall workforce; we use Census Bureau data (from the Public Use Microdata Sample of the 1990 Census) for this demographic information. See Rothstein and Scott (1997a and 1997b) for more information.
Technical Notes (see PDF version of this report for technical notes and formula)
Endnotes 1.Several economists have forecast a $100 billion increase in the merchandise trade deficit. For example, in testimony before a House Banking subcommittee, David Hale stated that "it is not difficult to imagine the U.S. trade deficit expanding to the $250 [billion] to $300 billion range by early 1999 from $192 [billion] in 1996" (Hale 1997). Fred Bergsten told The Economist that an upcoming study by the Institute for International Economics predicted the deficit to grow by $100 billion in 1998 alone (The Economist 1997). These estimates (Hale's in particular) were made before the full extent of the crisis was known, and it is possible that the ultimate effect will be even greater. Thus, the estimates in this paper also include the effect of a $200 billion increase in the trade deficit.(RETURN TO TEXT)
2.EPI analysis of Current Population Survey outgoing rotation group (ORG) data has shown that wages in the lowest decile of workers began to rise in real terms in 1997 over the previous year (see Webster 1997 for details on the methodology behind these unpublished calculations). However, real wages for this group remain 16% below those of workers in the lowest decile in 1979.(RETURN TO TEXT)
3. The models and data sources used in this analysis are described in the appendix. (RETURN TO TEXT)
4.The relationship between jobs and job opportunities is discussed in the
appendix.(RETURN TO TEXT)
5.Significant job losses are also predicted for footwear, especially as a share of current employment. However, this particular estimate probably overstates the role of trade, since by 1996 imports had largely captured the likely market in this sector. Unlike in 1981-95, there is now little domestic employment in this sector. These sectoral job losses, 2.5% of the total, will be spread over the other traded goods sectors. Therefore, other sectoral job impacts will be proportionately (up to 2.5%) larger.(RETURN TO TEXT)
6.The net demographic impacts of a $200 billion increase are, in general, twice as large as those of a $100 billion increase.(RETURN TO TEXT)
7.See Franklin (1997) and related articles as referenced on the BLS Office of Employment Projections web site.(RETURN TO TEXT)
8.See PDF version for technical notes endnote.
9.See PDF version for technical notes endnote.
References Berry, John. M. 1998. "Eyes on Fed amid talk of rate cut." The Washington Post, January 13.
Council of Economic Advisors. 1997. Economic Report of the President. February. Washington, D.C.: U.S. Government Printing Office.
The Economist. 1997. "The Asian effect." January 17, pp. 23-34.
Franklin, James C. 1997. "Industry output and employment projections to 2006." Monthly Labor Review, November, pp. 39-57.
Hale, David. 1997. "The East Asia financial crisis and the world economy." Testimony before the House Subcommittee on Domestic and International Monetary Policy, November 13.
Mishel, Lawrence, Jared Bernstein, and John Schmitt. 1997. The State of Working America 1996-97. Economic Policy Institute Series. Armonk, N.Y.: M.E. Sharpe.
Rothstein, Jesse, and Robert E. Scott. 1997a. "NAFTA and the states: job destruction is widespread." Issue brief. Washington, D.C.: Economic Policy Institute.
Rothstein, Jesse, and Robert E. Scott. 1997b. "NAFTA's casualties: employment effects on men, women, and minorities." Issue brief. Washington, D.C.: Economic Policy Institute.
Scott, Robert E., Thea Lee, and John Schmitt. 1997. "Trading away good jobs: an examination of employment and wages in the U.S., 1979-94." Briefing paper. Washington, D.C.: Economic Policy Institute.
U.S. Department of Labor, Bureau of Labor Statistics. 1997a. Employment and Earnings. January. Washington, D.C.: U.S. Government Printing Office.
U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment Projections. 1997b. Employment Outlook: 1996-2006 Macroeconomic Data, Demand Time Series and Input Output Tables. November. Washington, D.C.: U.S. Government Printing Office.
U.S. Department of Labor, Bureau of Labor Statistics. 1997c. ES202 Establishment Census. Washington, D.C.: U.S. Government Printing Office.
U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment Projections. 1997d. Unpublished data from upcoming Employment Projections. Washington, D.C.: U.S. Department of Labor.
Webster, David E. 1997. "Wage analysis computations." In Mishel et al. (1997), pp. 423-6.
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Distribution of Income
by Frank Levy
The distribution of income is central to one of the most enduring issues in political economics. On one extreme are those who argue that all incomes should be the same, or as nearly so as possible, and that a principal function of government should be to redistribute income from the haves to the have-nots. On the other extreme are those who argue that any income redistribution by government is bad.
Whether government should redistribute more or less income is, of course, a normative question. Each person's answer depends on his values. But for many people, answering the normative question requires an understanding of just how income is distributed now, and how—and why—the distribution has changed over the decades. To start, here is what the basic numbers tell us.
A statistical summary of U.S. family income distribution since World War II shows the following:
1. The U.S. family income distribution is highly unequal.
2. The degree of income inequality is not much greater today than it was at the end of World War II.
3. Family income inequality declined slowly from 1946 through 1969, increased slowly from 1970 through 1979, and has increased somewhat faster since then.
Data for the summary comes from the U.S. Census Bureau's Current Population Survey (CPS), a monthly survey of sixty-five thousand households that includes both families and unrelated individuals. Every March the CPS collects data on household income in the previous year. To keep interviews simple, the questions focus on gross money income (excluding capital gains but including interest and dividends). This means that census statistics—the standard source of income data—measure income before taxes and do not count nonmoney income like Medicare coverage and employer-paid health insurance.
The census constructs the family income distribution by listing CPS sample families in order of increasing income. The distribution is described by computing the share of total family income going to the poorest one-fifth of families, the second fifth, and so on. Part A of table 1 contains these data for selected years since World War II.
TABLE 1
The Shape of the Family Income Distribution
A. Percent of Total Family Income Going to Each Fifth of Families
1st (poorest)
2nd
3rd
4th
5th (richest)
Total
Median Family Income ($1990)
1949
4.5%
11.9
17.3
23.5
42.7
100%
$16,712
1959
4.9%
12.3
17.9
23.8
41.1
100%
$23,057
1969
5.6%
12.4
17.7
23.7
40.6
100%
$31,912
1979
5.2%
11.6
17.5
24.1
41.7
100%
$33,454
1989
4.6%
10.6
16.5
23.7
44.6
100%
$34,213
B. Income Cutoffs in the 1989 Family Income Distribution ($1989)
1st fifth (poorest) ends at
2nd fifth ends at
3rd fifth ends at
4th fifth ends at*
5th fifth (richest) begins at*
$16,003
$28,000
$40,800
$59,550
$59,551
*$59,500 is the dividing line between the fourth and top fifths of families. The highest-income 5% of families had incomes beginning at $98,963.
SOURCE: U.S. Bureau of the Census, Current Population Reports, various issues.
In 1929, on the eve of the Great Depression, the richest one-fifth of families received over half of all income going to families. The depression and World War II reduced that figure so that in 1949, the richest one-fifth of families received 42.7 percent of all family income while the poorest one-fifth received 4.5 percent. Put differently, in the late forties the top fifth of families received about $9.50 in income for every $1.00 received by the bottom fifth. Inequality continued to decline slowly through the fifties and sixties. By 1969 the top fifth of families received $7.25 for every $1.00 received by the bottom fifth.
But 1968 and 1969, when unemployment averaged 3.5 percent, marked the high point of family income equality. Beginning in 1970, inequality began to grow again at a moderate rate. Through much of the seventies, the slow rise of inequality seemed to reflect the economy's general weakness. Yet contrary to expectations, inequality increased even more rapidly in the post-1982 recovery. In 1989 the top fifth of families received $9.69 in gross money income for every $1.00 received at the bottom, roughly the same as in the late forties.
Family income inequality is now high not only by our own post-World War II standards, but also when compared to other industrialized countries. Detailed comparisons from the Luxembourg Income Study show that in the United States, West Germany, and Israel, the richest fifth of families receives about 45 percent of all family income, compared to 39 percent in Sweden and 41 percent in Canada, the United Kingdom, and Norway. One reason for greater U.S. inequality is the large number of female-headed families, which comprise about two-fifths of the bottom quintile. These female-headed families, in turn, reflect the nation's high divorce rate and high rate of out-of-wedlock births. Partially because of these single-parent families, there are only eight earners for every ten families in the distribution's bottom fifth, while there are twenty-three earners for every ten families in the top fifth. In recent years U.S. income inequality has also been driven by falling wages for less skilled workers and relatively limited cash benefits for the poor.
A Vanishing Middle Class?
Although many people have claimed that the United States is losing its middle class, the 1989 distribution of income was not radically less equal than the distribution of 1949 or 1959, a period when the middle class was perceived to be growing rapidly. Moreover, the whole concept of a middle class is vague. In 1989 the top fifth of families (with 44.6 percent of all income) included every family with income above $59,500, many of whom saw themselves as middle class. Because the concept is vague, it follows that inequality statistics cannot, by themselves, say whether the middle class is vanishing. They must be supplemented with data on both economic growth and demographics.
Begin with economic growth. In 1947, median family income—the midpoint of the income distribution—stood at $16,712 (all income figures are in 1990 dollars). By 1973 it had doubled to $33,398. During these years income inequality had declined modestly. But more important, the whole income distribution had moved to much higher real incomes. The poor and the rich were both getting richer and an increasing proportion of all families could afford a middle-class life, including a single-family home, two cars, and so forth.
Since 1973, median family income has grown very little. Income growth fell victim to oil price shocks and to the productivity slowdown (the slow growth of output per worker that has plagued most industrialized countries). This slow growth has affected our outlook on economic life. When incomes grow rapidly, more inequality means that the poor get richer but the rich get richer faster. But when inequality increased in the slow-growth eighties, some groups' incomes fell in real terms. Between the business cycle peak of 1979 and the next business cycle peak of 1989, the average income of the poorest fifth of families fell from $10,900 to $10,200, while the average income of the top fifth grew from $89,600 to $97,600. Moreover, the price of two key pieces of a middle-class life—a single-family home and a college education—grew faster than the general rate of inflation and faster than average incomes. For all of these reasons, slow income growth played a key role in perceptions of a vanishing middle class.
Turn next to demographics, where movements of families within the income distribution add to perceptions of a vanishing middle class. In popular culture the middle class usually appears as urban families with children. In the late forties these families were concentrated in the top four-fifths of the distribution. The poorest fifth contained mainly farm families, other rural families, and elderly families, most of whom were not yet eligible for Social Security benefits. Put differently, those families that "should have been" in the middle class were relatively unlikely to have incomes in the lowest quintile.
Today the situation is reversed. Farm and rural families are far fewer in number. Many elderly families have moved from the bottom of the distribution to the lower middle, the result of a mature Social Security program and better private pensions. Now the poorest fifth does contain urbanized families with children. Included in the group are a significant number of families headed by single women and, since the early eighties, husband-wife families hurt by a sharp drop in the wages of men with a high school education or less. A higher proportion of families that "should be" in the middle class are now in the lowest quintile. For urban families with children, the picture of a distribution with a shrinking middle has some validity.
In sum, slow income growth and movements within the income distribution have led to a sense of a vanishing middle class even though overall family income inequality has not increased very much.
