In the United States we tend to think that when people work hard, things get better. But the statistics we have seen so far indicate that for many workers, their real incomes are lower today than in the mid-1970s. Lower!! And it’s not because these workers are lazy. Every single statistic I have shown you is for people working full-time and full-year. While the U.S. economy has grown dramatically over that very same time period, none of the gains have gone those in the middle. The logical question is: what are some solutions for middle-income workers?
In the short-term, three strategies seem likely to help today’s workers: 1) direct subsidies; 2) job creation; and 3) increasing worker bargaining power.
Subsidizing Worker Wages
The first approach would be to directly augment the wages of middle- and lower-income workers. Expanding a policy like the Earned Income Tax Credit (EITC) is a logical way to equalize incomes without discouraging work. The EITC gives a tax credit to workers at low-income levels that shrinks as someone makes more money. It is an ideal bi-partisan policy. It can appeal to conservatives, because it only gives a credit to people who work. It can appeal to liberals, because it augments the income of those with moderate means.
However, the way the EITC is designed is counterproductive as a solution for middle-income workers. For example, single workers without children cannot get any credit if they make more than $20,000 a year – which is well below the median. Even for a married person with two children, the limit for the EITC is about $50,000. This means that workers at the median (who make about $50,000) would likely get only a very small benefit.
So, as it is currently designed, the EITC mainly targets only very low-earning women with children. Why not expand the EITC up the income distribution to include even middle-income workers? After all, these workers have seen their earnings capacity eroded by forces largely outside of their control. It seems logical to augment the income of these workers with a policy that rewards the hard work that, for a variety of reasons, isn’t as rewarding as it used to be.
The second approach is to expand the demand for middle-class workers by actively creating jobs. After all, technological change and globalization have both reduced the demand for certain kind of workers. A useful way to accomplish this increase in demand would be through infrastructure projects – the “Green New Deal” is in vogue now, but good old fashioned improvements to roads and bridges or parks could work too.
These types of projects tend to employ exactly the kinds of workers who have seen their demand decrease due to technology and globalization. After all, jobs in construction and utilities use many of the same skills and abilities that workers in the middle of the income distribution possess. These projects would employ the workers who have lost out due to the trends described so far in this blog. Plus, they would provide our society with improvements it desperately needs. It’s a win-win.
Increasing Bargaining Power
The third approach would be to try and improve the bargaining power of workers. One way would be to eliminate so called “Right to Work” laws that take away unions’ power. These laws give workers a choice between joining a union or not –- ostensibly choice is a good thing — but they also take away unions’ primary bargaining chip. Conducting a strike is not such a valuable threat when only some workers will do it. However, while eliminating these laws would help, it’s unlikely to restore unions to their former role in society, since research suggests that these laws have played only a secondary role in the decline of unionization.
Another tactic – one that will come up later when we talk about the very rich – would be to try to limit the growth of very large firms that dominate local labor markets. One way to accomplish this limitation would be to be choosier in approving mergers and acquisitions between companies. These approvals have increased dramatically over the last several decades – from roughly 2,500 instances in the mid-1980s to about 13,000 in 2015. If the government approved fewer mergers, it could slow the growth of market dominating firms and give workers a more powerful voice. Plus, some recent work points out that the consolidation of firms is costing all of us $5,000 a year. Limiting big firms sounds like another win-win.
Finally, protecting public sector workers’ unions is likely key. After all, a third of public-sector workers are unionized compared to just 6 percent in the private sector. Politicians that threaten the bargaining power of public sector workers are really threatening the last semblance of union power in the economy.
The long-term solution requires us to ask hard questions about what the future of work looks like, and thus what the future of education should look like. If the idea of Polarization stems from the fact that computers can do routine tasks, what does this tell us about the future of work and education?
First, children need to be taught to think creatively and flexibly about problems. One reason we still have human doctors is because computers can’t understand combinations of symptoms that are novel. Similarly, good inventors work almost exclusively outside the realm of what they have seen before. Gadgets like the IPhone and services like Instagram would be hard for a computer working on past patterns to identify. And small business people succeed when they recognize something that is lacking in their community. People who can solve problems that are not based solely on past patterns will be able to succeed in competition with computers.
Second, we need to teach children how to work with other people – how to empathize with, communicate with, and/or manage other human beings. For the time being, computers do not know how to get people with difficult personalities to work together, how to help children who are struggling to learn, or how to counsel people who have experienced trauma. Computers cannot do the whole “human” thing yet. High-quality managers, educators, and counselors are going to be in demand until computers learn how to react to and empathize with humans in a convincing way. Sorry, Siri, but I am just not convinced you really care about me.
Third, we need to teach people how to work with technology to augment their skills. For example, a nurse’s productivity can be enhanced if she or he can view her patients’ test in a database and compare results to other patients. Similarly, a welder who can train on a computer system is going to pick up a lot more than one who has to learn by doing on the job. Self-employed workers like electricians, carpenters, and plumbers will be better off if they can use the internet to advertise and bill their clients. People who learn to use computers instead of avoiding them will be better off in the long run.
Finally, if we make these educational changes for some, we need to make them for all. If only the children of the rich receive this kind of training, then we will not only have inequality in outcomes, but also inequality in opportunity. In the long-run, we need to teach everyone how to think creatively, work with others, and augment technology. Otherwise, the future’s rich people will just be today’s rich kids.
So, those are some solutions for middle-income workers. Now that you know we have a problem and some of its causes, hopefully you can start thinking of some others. Next week’s post will be begin to delve into our second stylized fact that this blog is concerned with — the stalling of women’s progress towards men with respect to equal earnings. For now, just know that if we want to help middle-income workers, we can subsidize work, create work, or increase the bargaining power of workers. What we can’t do, is nothing.