Climbing The Economic Ladder Getting Harder

It's the American dream: anyone can become wealthy through hard work. But the gap between rich and poor in the US is growing. Slate's Tim Noah and economist Jason Seligman discuss the growing income gap and examine some of the myths about income inequality.

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NEAL CONAN, host:

This is TALK OF THE NATION. Im Neal Conan in Columbus, Ohio today, at the studios of member station WOSU.

The perception remains intact: Hard work and talent can take anyone from the wrong side of the tracks to Park Avenue, from blue collar to white, even all the way to the White House. And it does still happen, but nowhere near as much as you might think.

And while almost everyone in America thinks of themselves as middle class, income disparities are wide and getting wider.

While wages stagnated for almost everybody in the middle or even went down, the rich got richer these past 30 years. Venezuela and Nicaragua now have more equitable pay than the United States.

Over time, the effect of these disparities and the narrowing of the social ladder can corrode faith that life is fair and that the rules make sense.

Timothy Noah debunks some of the long-accepted causes of income equality in a 10-part series called "The Great Divergence," for Slate.com, where he's a senior writer. He'll join us in a moment.

Later in the program, the growing love of food trucks. But first, income equality. If you're a boss, when was the last time you gave your employees a raise? 800-989-8255 is our telephone number. Email us, talk@npr.org. You can also join the conversation on our website. Thats at npr.org. Click on TALK OF THE NATION.

And we begin with Tim Noah, who is back in Studio 3A in Washington. And Tim, sorry I couldn't be there to greet you in person, but thanks very much for coming in.

Mr. TIM NOAH (Slate.com): Thanks for having me.

CONAN: And there's not one simple cause, is there?

Mr. NOAH: No, and no, there isn't. There's a combination of causes, and it's odd. Many of the things that we would immediately think must be causes it turns out aren't.

CONAN: Such as?

Mr. NOAH: Such as, well, gender and race. When we think about inequality, the first two things we typically think about are gender and race, because there is a great disparity in incomes between blacks and whites and between men and women.

But when I talk about the great divergence, the income inequality trend of the last 30 years, I'm really talking about a growth in inequality. And inequality has not income inequality has not grown between blacks and whites or between men and women these past 30 years.

It's actually narrowed between men and women and between blacks and whites, it's stayed about the same, which of course is nothing to brag about. But that means that these two factors don't contribute to the growth in income inequality.

CONAN: Some people would then argue that there has to be some other factor at play, and that is, well, tax regulations that favor the rich. You're talking 30 years, you're back to the Reagan administration.

Mr. NOAH: That's right. And the tax factor is, it was one of the more surprising things to me because of all the domestic policies that have changed in the last 30 years, I think taxation has changed the most.

When Ronald Reagan came in, the top rate, the top marginal rate, was 70 percent. He dropped it to to up to 50 I'm sorry, it was 50 percent, 50 percent to 30 percent. And it's been that's a fairly dramatic drop, from 50 to 30 percent, and then he even dropped it a little further.

But when you look at the effective tax rate, the amount of taxes that people actually paid, yes, that's changed, and it changed the most under Reagan, but it hasn't changed nearly as much as the change in the marginal rates would suggest.

So while it has been a contributing factor, it has not been a major contributing factor.

CONAN: Well, if the middle class has not been pushed from the top, perhaps it's been pulled from the bottom, and that's the large number of immigrants to this country, legal and otherwise, who are willing to work at much lower rates.

Mr. NOAH: Right, and that too turns out to be not as significant a factor as you might think, at least so far. And that's you know, that's an important caveat. It might be becoming a it might be in the process of becoming a more significant factor.

But you know, economists have looked at the question of, you know, the impact of immigration on wages in the United States, and the only area where they've been able to find some impact is at the very bottom, the bottom sort of 10 percent, people who did not graduate high school. Those folks have seen their incomes depressed by about seven percent over the last 30 years. For everybody else, the effect has been negligible.

CONAN: A couple of other factors people might cite initially as a cause of the growing disparity in the income gap is, well, the decline of organized labor, and that goes hand in hand with the decline of manufacturing in this country.

Mr. NOAH: Right, and the decline of organized labor is, that's one case where your gut instinct is absolutely correct. The decline of organized labor has had a tremendous impact.

You know, if you look back 30 years, we had a much more thriving labor movement in the United States in the private sector. That caveat is important because the labor movement has been very successful in the last 30 years in the public sector. Government workers have unionized at a great rate.

But the decline in unionization in the private sector has drastically reduced, and that had a big impact on how much money people bring home.

CONAN: And the decline in manufacturing in this country, and with it the decline in the influence of labor unions, a lot of people say globalization. A lot of these jobs are being sent overseas.

Mr. NOAH: That's right, and to the extent that we're talking about trade when we talk about globalization, trade is an interesting case.

A lot of economists looked at the question of whether foreign trade was contributing to income inequality in the '90s, and they concluded that it really wasn't.

But 10 years later, Paul Krugman, who had been one of those economists, took another look and concluded that while he said he had been right in the '90s, that things were changing so fast that that conclusion was no longer correct in the '00s, because what really happened between the '90s and '00s was that U.S. trade with less-developed countries exploded. And of course the country we most associate with that is China.

China is a very low-wage economy that now imports just about everything we buy, and that has had presumably some impact on inequality as well.

CONAN: We're talking with Timothy Noah, columnist at Slate.com, writing a series called "The Great Divergence," about rising income inequality.

And we wanted to talk with bosses today. When was the last time you gave your employees a raise? 800-989-8255. Email us, talk@npr.org.

And this is Hyena(ph), is that right?

HELENA (Caller): It's Helena(ph).

CONAN: Helena? Helena?

HELENA: Yes.

CONAN: Hi, joining us from Kankakee in Illinois. Go ahead, please.

HELENA: I have a two-part comment-question. First of all, in figuring this income disparity and talking about the stagnation of wages, is the value of an employer-provided health insurance plan added in? Because those have been going up drastically year after year after year, and employees, because they dont pay for them or state them on their income returns, they do not know what the value of that is or how much or how little that has gone up in any given year.

CONAN: And I know you've got more, so stay with us. But Timothy Noah, is part of the calculation, benefits?

Mr. NOAH: Yes, I think it probably is. This is not something I went into in my series, but it is certainly true that the cost of that a bigger and bigger portion of workers' income, so to speak, is in health care benefits, and that has, that has been increasing and increasing, and therefore having a depressing effect, relatively speaking, on wages.

And that - some people have suggested that may also explain why, when we've seen a pretty impressive increase in productivity during the last 10, 15 years, we haven't seen average wages go up.

CONAN: And Helena, that's an explanation, but the question that we had: Are you an employer?

HELENA: Yes, I am.

CONAN: Helena?

HELENA: Yes.

CONAN: And how many employees do you have?

HELENA: I have one employee. I have my own business. I'm self-employed, kitchen and bath designer-remodeler. And of course we've been very much affected by the slowdown that our economy has felt.

So yes, I do have one employee, and it has been a couple of years since I've given her a cash raise. However, her she gets time off on a formula, which gives her more time off every year that she works for me. So I think that that works out pretty generously in her favor, and she actually does, I think, prefer that.

CONAN: So obviously with one employee you can afford to be creative with this kind of thing and work out something that she likes and works for you as well.

HELENA: Yes.

CONAN: So not been a couple of years since a cash increase. Has your income gone up in those couple of years?

HELENA: No, it has not. So as I said, we're in a construction-related field, and the construction industry is an industry that generally does take the brunt of any type of a regime that tries to make a correction within our economy.

The last time that something this drastic happened was in the early '80s, and we, in our area here, in Kankakee, Illinois, 40 percent of our construction industry went away and never came back.

And so, you know, we're just this is a field where there tends to be a lot of risk-taking. So people go out on a limb. They speculate in housing, and housing is the area that does tend to bear the brunt of any type of slowdown.

Plus there are a lot of self-employed people in that particular segment of the economy, and the self-employed do not get unemployment benefits of any kind, and very little other support from the government. So it hurts when the economy goes south.

CONAN: Helena, thanks very much, and we wish you and your employee good luck and that the whole industry picks up.

HELENA: Thank you.

CONAN: And Timothy Noah, I suspect Helena's not the kind of boss we're talking about when you're saying that there's this enormous income disparity.

Mr. NOAH: Well, that's right. And you know, another factor we want to take into account here is that while it's true that bosses are paying more that the cost of health insurance has been going up and up, it is also true that companies have more and more been shedding their health insurance obligations. That was one of the arguments President Obama marshaled in pushing for health care reform.

So its relationship to income inequality, I think, particularly during the last 10 years, is somewhat complicated.

CONAN: Is there a class of people who are the very rich? Is it fair to call them a class now?

Mr. NOAH: Oh, absolutely. I mean there is let me be clear. When we're talking about the inequality trend of the last 30 years, we're really talking about two trends. One of those trends is a growing disparity between people who graduated from college and people who didn't, and a big part of that has to do with educational opportunities.

The second part of that involves the very rich, whose incomes have taken off like a rocket.

CONAN: We're talking with Timothy Noah. We're going to continue discussing the great divergence, what's behind America's growing problem of income unequality(ph) and what to do about it. If you're a boss, when was the last time you gave your employees a raise? 800-989-8255. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. Im Neal Conan in Columbus, Ohio today, at WOSU.

Even in an economy that's dragging along, the rich in this country get richer while the poor and the middle class fell flat. The richest one percent now account for nearly a quarter of the income in this country. It's gotten harder to work your way out of poverty and live the American dream.

Tim Noah wrote a 10-part series looking at the causes of income equality, debunking some of the myths as well as considering some solutions. He's a columnist at Slate.com, and there's a link to his series at npr.org. Just click on TALK OF THE NATION.

If you're a boss, when was the last time you gave your employees a raise? 800-989-8255. Email talk@npr.org. You can also join the conversation on our website. Thats at npr.org. Click on TALK OF THE NATION.

Timothy is at our Studio 3A in Washington, D.C., which is where I usually am. But with us here in Columbus is Jason Seligman, an economist who studies these issues. He served on the staff of the Council of Economic Advisors, now an assistant professor at the John Glenn School of Public Affairs here at the Ohio State University. Nice to have you with us today.

Professor JASON SELIGMAN (Ohio State University): Thank you for having me.

CONAN: And this income disparity that Timothy's been writing about, I guess the causes and the solutions are controversial. The facts are not?

Prof. SELIGMAN: Well, no, the facts are not very controversial. Each year, you can use income tax data from the IRS, as economists like Emmanuel Saez have in the past, or there are a couple of other sources that have been around for a longer period of time, like the historical statistics of the United States that help us to document the disparity in income or the proportion of income, of total national income that's earned by each strata of society, as it were.

CONAN: And what is the effect, I guess almost the moral effect, if you have a large segment of society, people who believed if you worked hard and played by the rules you would get ahead, your children would do better than you had done, if they see those things slipping away, if they are merely staying in place, some of them falling further behind and worried that their children will not get ahead?

Prof. SELIGMAN: Well, I think that's a great question because it helps us to think critically and to segregate some of these ideas from one another. First of all, in terms of motivation, I think that the idea that winning pays is a very compelling one, and it helps to motivate people in society.

That at any one moment in time is in some sense part of the justification for income inequality, that those that produce more should gain more from what they do.

CONAN: And provide an incentive for those who are doing less. If I work harder, I can do that.

Prof. SELIGMAN: Yeah, exactly, yes. But what you're talking about over the course of a lifetime of an adult, say, realizing today that what they were promised yesterday, that the odds are different than they expected them to be, the likelihood that they could actually achieve what they wanted, given the effort that they put out, is very different than what they expected - that's a sort of a different dynamic that I think is affecting our society and has over the past 30 years in fits and starts.

This idea that you'll do as well as your parents, better than your parents, that you want your children to do better than you have done, and that has always been a part of what made America great in terms of opportunity, that's something that we've been struggling with a little bit recently.

And I think that, I think there's a lot of reasons behind that. But income mobility is something that people care about a lot, and it is alive and well in the United States. The likelihood that, say, if you're unemployed and you're in, say, the first earnings quartile - that is, you're among the lowest 25 percent paid, you'll move up to the second, third or fourth earnings quartile instead of staying pat when you are re-employed, that's a real phenomenon in this country, and it's got to do with pluck and luck, the old two words there.

But expectations have really changed. You take a person like my mother, for example. She was born in 1941. When she was 20 years old, she was in the middle of a new frontier. By 1971, the United States had debased its currency. Bretton Woods had collapsed and there was an international crisis around the United States fiscal policy, more or less.

Ten years later, we were recovering from terrible inflation. Ten years after that, we were recovering from a recession. And 10 years after that, we were about to engage in 9/11. So there's a number of things that have impacted, say, life-cycle expectations that are both within and outside of the control of U.S. government policy, fiscal policy, and even more broadly what we as economists and people in households can plan for in the future.

CONAN: And Timothy Noah - I guess another way of putting that same question to you: Isn't this cyclical? Aren't a lot of comparisons made to, in terms of income disparities, to the 1955, 1960, the immediate post-war period, when there was an anomalous period when incomes were fairly compact?

Mr. NOAH: Well, I don't know if you'd call it anomalous. For actually, you know, starting in really 1929, through the early '70s, you saw a trend towards greater income equality. Incomes were becoming more equal rather than less.

So that was hardly a blip on the screen, and of course for much of that time, particularly the post-World War II era, the economy was extremely prosperous, and that's when we saw some of the most dramatic gains in terms of equality, incomes converging.

I think it's no accident that, you know, people get misty-eyed about the Greatest Generation. You know, the years of the 1940s and 1950s are seen as a period when the nation was united with a strong sense of common purpose.

You know, I think a lot of that had to do with a greater feeling of equality and that that feeling, in turn, was partly as a result of incomes becoming more equal.

I wanted to speak to the mobility, upward mobility issue, because I think that's really important. A lot of people say that income inequality doesn't matter because, you know, because the United States has a lot of social mobility. Yes, there might be dramatic differences between social classes in terms of income, but you can move out of your social class, upward.

And that is true, but it is not as true as it used to be. One of the more surprising things I found in researching this piece was that there are several nations in what we think of as class-bound, old-world Europe that have more upward mobility than the United States: France, Germany, Sweden, Denmark, Spain. These are all places with greater upward mobility than the United States.

The same is true of Canada and Australia. So we are no longer the undisputed champs when it comes to upward mobility.

CONAN: Let's see if we can get some more callers in on the conversation. We're asking bosses to call in today to tell us the last time they gave their employees a raise, and let's see if we can go to I've clearly done something wrong here.

Let's see if we can go to Anthony, Anthony with us from San Antonio. Anthony, are you there? Anthony? All right, let's see if we can go instead, and we're having a little difficulty with our technology here. So we apologize for that. And let's get Anthony, can you hear me? So this is clearly not working, and I apologize for that.

Jason Seligman, let me turn back to you.

Prof. SELIGMAN: Sure.

CONAN: As we're talking about this - difficulties of social mobility, this has all been a characteristic of American society. This has always been something that has been, I think, the definition, at least a strong part of the definition, of the American dream.

Prof. SELIGMAN: Yeah. I agree with that. There are a couple of dynamics here, though, that are increasingly impinging, I think, on social mobility in this country that are probably fairly global, and then there are probably a few that Tim has insights on that I do not that may explain some of the dynamics between these countries.

First of all, when you're growing, there's more opportunity in the expansion for everybody. And so that's a real challenge for us right now, and perhaps in some ways more than for other people or for other nations.

But the other thing is that increasingly what is rewarded in the workforce is an educa a group of skills and education and talents that coalesce into a capacity for doing unique, analytical, critical-thinking-type work.

And so some of what we're seeing in terms of a lack of mobility and a lack of growth in our country really has to come back to our educational system at some point.

CONAN: Let's see if we can go back to let's see if we can go to instead Whitney(ph). Whitney's on the line from Tucson, Arizona.

WHITNEY (Caller): Hi, Neal, how are you?

CONAN: I'm well, thank you, except I can't work this computer. But I'm glad we got you on.

WHITNEY: Thank you. My husband and I have a loss-control inspection business. We actually run it in Upstate New York. And we, probably these last five years, have had some of the toughest economic times for our business. We're like a lot of small businesses, barely profitable if at that. But we were able to give our employees all across the board a raise in the last year and primarily because we've started getting rid of hard assets, like we sold the building. We don't have an office anymore. We got rid of a lot of hard supplies, copy machines, things like that. All of our employees now work from home. We're 100 percent virtual. So we've really reduced our expenses, and we were able to give, I think, all of our employees anywhere between $1.50 and $3 raises across the board.

So that was, you know - and that really is to retain staff that we have and to continue to streamline and cross-train our employees so that not one single person is irreplaceable. We can fit each other. And if someone drops out, we can, you know, we can double for them, and everyone knows how to do everything. So it's been a concerted effort to streamline and cross-train and then retain.

CONAN: And, Timothy Noah, if you - anybody who's studied business will look at what Whitney's just been saying and say these are two things to increase sufficiency and increase productivity and make everything a lot more profitable.

Mr. NOAH: Yes. I mean, I'd be curious to know how many of these employees are college graduates, because that is easier to do with a workforce of college graduates, I think.

CONAN: Whitney, what percent of college graduates?

WHITNEY: You know, that's really interesting. I have no idea. I would probably say, if I had to guess, maybe 5 percent of college graduates. They're all very computer savvy. We have a great training program, and they're just very good at what they do. But I would have to say they're probably not college graduates by and by and...

CONAN: And your business is in upstate New York. This is an employer's market, I would think. There's a lot of unemployment up there.

WHITNEY: Right. But we have had our employee pool - probably the same folks for at least the last seven to 10 years. So we don't get a lot of attrition. We do - we have hired a couple of people, and then because of our streamlining and increasing our efficiency have decided, oh, I guess we didn't need that person. So that has happened to us a couple of times in the last two years where we have increased our employee base and we didn't need to because we are becoming much more streamlined.

CONAN: Hmm. So, Tim Noah, this is a recipe for success or at least survival.

Mr. NOAH: Yes. I mean, it's - it sounds very encouraging. In general, over the last 30 years - and, you know, I want to emphasize that the series I did for Slate on this is backward looking. It's looking over the past 30 years. Who knows what the future holds? But over the last 30 years, one big problem has been that the education system has not been increasing the number of high school graduates. Throughout the 20th century, we had a number of technological changes that increased the required level of education for workers, starting with the advent of electricity and, you know, going all the way through to the advent of the personal computer.

And what characterized the 20th century was every time one of these new technological changes came along - and many of them, electricity in particular, were actually much more significant than the advent of personal computer - the education system responded by increasing the number of high school graduates. That stopped in the '70s. It declined a bit and then it leveled off. So the real problem that we have had since the late '70s is that the demand for college graduates has increased, and the supply of college graduates has not increased as reflected in the supply of - you can't go to college unless you graduate from high school.

CONAN: Most places.

Mr. NOAH: Right. So that has bid up the price of people who've gone to college.

CONAN: Whitney, we wish you and your employees the best of luck. Thanks very much for your call.

WHITNEY: Thank you very much. Have a great day.

CONAN: You're listening to TALK OF THE NATION from NPR News.

And we're going to try to get Tom(ph) on the air, Tom calling us from Redding in California. Are you there?

TOM (Caller): Yes, I am. Can you hear me?

CONAN: Tom? Yes, you're on the air. Go ahead.

TOM: All right. Yeah, we have a physical therapy clinic up here. And, you know, it's been very good to our family. And we have eight employees. But my biggest thing is, right now, we haven't been able to give our employees I would say a decent increase in salary because the insurance companies keep reducing what they're paying to us. And we just can't afford to, you know, to share the wealth so to speak. We haven't given ourselves a raise in probably six years. And it's just really, you know, disconcerting that we're providing a service to the public that -it's in the news all the time, but we kept getting slammed with reduction by workers' comp and private insurance. Medicare's got a 20 percent increase coming down the pipe.

CONAN: I wonder, Tom, are you getting it coming and going? Are your health care costs to your employees going up at the same time the health care companies are paying you less?

TOM: Definitely.

(Soundbite of laughter)

CONAN: There's a Catch-22 for you.

TOM: Oh, yeah.

CONAN: We were talking with Timothy Noah about this earlier. But, Jason Seligman, this is just a classic problem that so many employers are having.

Prof. SELIGMAN: Sure. Yeah. Well, I think this is one of the great hopes for health care reform, is to reduce this sort of slippage between what people are paying in terms of premiums and the cost that actual service providers are seeing in terms of the value of their service and wage and billable goods. It remains to be seen as to what extent that kind of thing will happen. But I am at least somewhat hopeful.

I think this also feeds through, though, even without anything else going on. You've seen this in a lot in the press that a lot of what have increased workers aren't getting raises so much, as they're getting just it's costing employers more and more to pay that part of compensation: the soft wage or the benefit package behind that wage.

And I think one of the things that strikes me about that is that workers often have benefits that they aren't of or that they aren't aware of the costs of. And I've personally heard of stories where people going to see doctors or what have you, and they're ironically not they don't feel as entitled as they should to the services, because they sort of don't realize that last month, that they already paid 700 to, say, $1,200 to this for health care.

CONAN: Tom, thanks very much for the call. And thanks to our guests. You just heard Jason Seligman, an assistant professor in John Glenn School of Public Affairs at the Ohio State University. A lot of thanks also to Timothy Noah, Slate.com columnist. There's a link to his series, "The Great Divergence," at npr.org. Click on TALK OF THE NATION.

When we come back, well, it's the explosion in the food truck. Well, there's an industry we can all be proud of. It's the TALK OF THE NATION from NPR News.

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