More About Inequality in America
VTR Date: June 22, 2005
Dr. Eric Wanner discusses American inequality in income and standards of living.
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GUEST: Eric Wanner, Ph.D.
I’m Richard Heffner, your host on The Open Mind.
And when today’s guest first joined me here last year, I recalled with what pleasure and pride I had written so definitively in the first edition of my Documentary History of the United States more than a half-century ago that “The Roosevelt Revolution” – FDR’s New Deal – had permanently reversed the economic and social inequality that had plagued laissez-faire, post-Civil War industrial America, and finally in the Great Depression had left one-third of Americans “ill-fed, ill-clothed, ill-housed”.
But I had been wrong – or at least I feel that today we Americans should recognize that we are experiencing a real counter-revolution — for now various New Deal programs themselves seem to have become an endangered species … and income inequality in our nation seems once again to point to an ever widening gap between rich and poor Americans.
Dr. Eric Wanner, the erudite President of The Russell Sage Foundation, talked with me here last time about “Social Inequality” the research volume he and others associated with it had recently discussed at a Carnegie Corporation Forum.
And now Russell Sage has underwritten three other volumes that deserve both our attention and concern, “Low-Wage America … How Employers Are Reshaping Opportunity in the Workplace”; “Moving Up or Moving On … Who Advances in the Low-Wage Labor Market?”; and “Chutes and Ladders: Navigating the Low-Wage Labor Market”.
Well, you and I may not belong in America’s “Low-Wage” category … but more and more of our countrymen do, and the consequences – for us and for our nation – may become enormous. As the playwright said: “Attention, attention must be paid”! And I wonder, Dr. Wanner whether you think enough attention is being paid now to this phenomenon?
WANNER: I really don’t think enough attention is being paid. The rise of inequality that you talk about, that you mentioned, has been a very long, slow, gradual process, starting in the early 70s and kind of inexorably creeping up; a kind of glacial process. It hasn’t really called the kind of attention to itself that an immediate crisis of some kind would.
The plight of low wage workers which I hope we can talk about mainly today has been a plight that’s been experienced by a kind of silent sector of the workforce. These are people who are making … 24% of them are making less than poverty level wages; that is the wages you would need to support a family above the poverty line. And 30% of all families with working children have incomes below the standards necessary for what’s deemed a reasonable, decent standard of living. Well above the poverty line, but still a bare-bones budget for a family of four.
So, these are people who, for one reason or another kind of have accepted their lot in this economy. They’re not rebelling; they’re not banging on the doors. But nevertheless because of a long slow gradual process, their well-being has been eroded.
HEFFNER: They’re not banging on the doors. Do you anticipate a time when, if this process of erosion continues, they will be banging on the doors? Because, you know, I, I read the Business Week issue of what … about a year and a half ago …
HEFFNER: … on working and poor that was based upon the researches …
WANNER: Our work.
HEFFNER: … that you have done. And as I read about these individuals, I thought to myself, can’t be … they can’t be so acquiescent in this process. Do you think it’s going to happen?
WANNER: I personally don’t think it will happen unless … unless, like as in the Civil Rights movement the larger society begins to recognize and sympathize with the plight of the minority. Why isn’t it going to come from them themselves?
First, there’s the question of … in America … always of sort of who’s responsible for your outcomes in life. Are you personally, individually responsible? Or is the system in some way responsible? In the US, the American dream says that if you have the ability and the energy and you work hard, you will get ahead. And people generally believe that. In The New York Times series on social inequality, that’s recently concluded, they did a poll of their own and found, overwhelming belief that you can get ahead based on your own individual hard work and merit.
Unlike the Europeans who generally understand, having been through a couple of wars and, and major sort of historical traumas in the 20th century, and maybe having a longer memory than we have in the US. They seem to understand that there are properties of the system, the way the system works, that will tend to steer people into one fate or another. And that when we find a certain group losing ground, we have to think about how to change the system; not just change the people.
HEFFNER: Now, are we doing that?
WANNER: No. I don’t think we are. We’re doing a little bit. So, for example, in one of the books you mentioned we talk about what you might try to do if you wanted to really repair this problem.
One thing we are doing is the earned income tax credit. This is a Federal program of wage subsidies for workers who earn below poverty … workers with children … who earn below poverty level wages. And it does, indeed, bring many workers up above the poverty line, but just barely.
If we really, as a society, wanted to eradicate working poverty … one way to do it would be to vastly increase the earned income tax credit system. This would take money and in this current environment where we have a large Federal deficit and no real political impulse to expand government programs, it’s very, very hard to get any political support for such an effort to increase earned income tax credit, especially when, and I think this is important to say, I think, the poor themselves, the working poor themselves are not a potent political force.
HEFFNER: But that, that’s a point you made last time and it’s emphasized again, now, in your researches that the percentage of people who fall into this low wage level … way below when it comes to voting.
WANNER: Yes, that’s right.
HEFFNER: Than those of us who are better well off.
WANNER: That’s right. Voting is correlated with education. Highly correlated with education. So the more education you get, the more somehow you recognize the collective importance of voting. People who are, or tend to be towards the bottom of the socio-economic spectrum are very hard pressed, often single parents … sometimes working more than one job, trying to balance lots of different responsibilities. Voting doesn’t seem so important to them, perhaps because … with all the responsibilities they’re trying to meet, they really don’t think the political system is going to do anything for them.
It’s a vicious circle, if you think about it for a minute. They think the political system is tuned to help other people, not them. They don’t participate in the political system, therefore the political system doesn’t pay much attention to their needs.
HEFFNER: Eric, let me ask you a question. How accurate is that perception on their part?
WANNER: Well, I … let me talk a little bit about a new piece of research that we’ve just supported, and enough of it’s been done so I think I can preview the results a little bit.
We all know that the political system … well, we think we know … pays more attention to the rich than the poor. Ah, and this is support that we’ve recently given to a political scientist at Princeton named Martin Gilens, who’s working on a way to find out how much more the political system pays attention to the rich than to the poor.
And what he’s done is to go through about … you’ll have to stop me if I get too technical … but to go through about 50 different surveys which asked people their opinions of particular political … particular policies … like, do you favor an increase in the minimum wage? Or do you favor an increase in the earned income tax credit of the sort we were just talking about. And then for each one of those questions on all these surveys, covering 20 year periods … 1980 to 2002 … he divides up the respondents into the slices of the income distribution from which they come … lowest fifth … middle fifth … top fifth.
Basically what he finds in a preliminary analysis of his data, that the rich … if the rich favor a policy it has about a four times more chance of being enacted than if they don’t like the policy.
That compares to the middle income quintile, where if they like it it’s about twice as likely to be enacted as if they don’t like it. And the poor much, much less than that.
But here’s a very interesting part of his results. He looked at just policies where the top quintile … the rich … disagree with the middle quintile … and on those policies, the rich tend to get their way and if the middle income quintile disagrees … they don’t get their way.
In other words, the interests of the rich predominate over the interests of the median voter. And as you probably know, in political theory, the idea was most of politics would crowd into the middle and the middle … it would be the middle voter that the political parties would be trying to satisfy.
What Professor Gilens has shown is that it appears that the top quintile has much, much more influence than the middle quintile which may have no influence at all when it disagrees with the rich.
HEFFNER: Now, isn’t the key question … you talk about a 20 year period …
HEFFNER: What’s happened over …
WANNER: It did change.
HEFFNER: … that 20 year period.
WANNER: Invite me back.
WANNER: (Laughter) It will be another … no, shamelessly negotiating here … it will be another 15 months, a year before we have that answer. Maybe you should have Professor Gilens when his book is ready. Because he will have an answer to that question, and that’s exactly one thing we want to track … how has this changed over the last 20 years?
HEFFNER: What’s your bet? What’s his bet? Without being unfair.
WANNER: Let me go back … let me also say one more thing that he’s going to do. He’s also going to look at the sixties and compare from 65 to 68 and see if that’s different than this period from the late seventies.
WANNER: Well, because in the mid-sixties you have a period in which you have a very vibrant Civil Rights Movement …
WANNER: You have a unionization rate which is closer to 30% than today’s 8% and you have the Democratic Party in charge, which is of both houses of Congress, which nominally, at least, is supposed to be representing the interests of the lower tiers of the income distribution.
So it would seem to us that if ever the poor were relatively more influential than they are today, it would have been at that period.
HEFFNER: Any indication at all?
WANNER: Oh … can’t tip it …
HEFFNER: That’s not fair.
WANNER: I’m sorry and it’s not fair to Professor Gilens either because he, I want him to be able to deliver that news. But that’s a study that’s coming and I think should make a lot of news because it will answer just the question you wanted answered … are the rich becoming more influential politically?
HEFFNER: Let me ask you this. You say it will make a lot of news. It should make a lot of news. Cynically I ask, will it make a lot of difference? In your estimation.
WANNER: That’s a very good question. I think the question will be … does … can a political party pick this up as an issue. As you know John Edwards tried to pick it up …
WANNER: … as an issue. Ah, to a lesser extent I guess John Kerry did … it wasn’t his main theme. It seems that this particular election was fought out … largely on national security grounds and on people’s fears about terrorism.
So it may not have been the time for this issue to rise to the surface. But I think it would require some entrepreneurial, political activity … somebody who wants to advance this cause and then … an ability to rouse the middle class and get us all to see … I think … that if we don’t … if we don’t repair this problem, we’re in danger, all together as a, as a society … it is just commiserating with the working poor … it’s really a cancer on the whole system.
HEFFNER: Because you’re saying the middle class is going down that tube as well.
WANNER: That’s right.
HEFFNER: Are you astonished by this? Or maybe a better question would be … at what point over the past 20, 30 years … though you’re a young man, so I shouldn’t stretch it off that far … but at what point were you going to be less surprised by these figures? When did you feel that we were making that shift in our national paradigm?
WANNER: I think first it was in the mid-eighties when we began to see evidence that inequality had started to rise. It actually started to rise in the very late seventies, but it wasn’t until the mid-eighties that it began to get on sort of statisticians radar screen and you could see enough data to see it actually change.
And what was threatening about it, as perhaps as we talked about it before … not that it was so fast … it was a slow … there was a big bump … relatively big bump … let me back up … some economists have talked about watching inequality grow is like watching the grass grow.
It didn’t change at all, only very, very gradually after World War II, it started gradually to go down. And it went down from 45 through mid-seventies. Just a little bit each year.
This was really a very encouraging secular trend, because to the extent that we have a social policy in this country, it’s been to grow the middle class. And this was the period in which, indeed, we grew the middle class, in part through a booming economy, but also because we supported some of the important institutions like public higher education, which let people move into skilled position in the, in the middle class.
After the seventies, after “stagflation”, after the kinds of retrenchments that occurred in American industry in order to cut costs and become more internationally competitive, high school educated workers, particularly male high school educated workers took an enormous hit in their income between the late seventies and the mid-nineties, they lost 17% of their income in real terms after inflation.
That’s an enormous, enormous change for the 40-odd percent of the population that has no college whatsoever, at all.
HEFFNER: And yet I had the feeling in, in looking through and I must say I was looking through the, these last three volumes that the Russell Sage Foundation has underwritten, that there was somewhere … your, your authors were sort of saying … there are ways … maybe not ways that will be, ultimately be successful … but there are ways of sort of working the system. Am I wrong in that? For instance, the advice … “don’t stay in one place.”
HEFFNER: Are there ways, or are they just such minor methods are our madness can’t really be dealt with?
WANNER: We looked, and this is I think what you’re referring to … at very low wage jobs …
WANNER: … these were people making less than $12,500 a year for three years in a row. And this is the moving up or moving out book … .
WANNER: … that you mentioned at the beginning. And Harry Holzer who was the lead economist in this team, wanted to find out how much mobility there is for those people if they keep working.
And what he found was … it’s sort of a glass half full, glass half empty. What he found was that about half are able to move up from that very low position over a six year period. The other half, around 40%-45% are stuck. They’re stuck still making … they’re still in the labor force, they’re still working, but they’re working at $12,000 a year which is … I don’t need to tell you and extremely small amount of money in this economy.
Now, we wanted to find out, is there hope, really, for people at the bottom. If that number had been, I don’t know, an escape out of low wage job more like 75% then I think I could have answered your question and said, “Yes, low wage job are a stepping stone, not a dead end”.
But I have to tell you that I think they’re at least as much a dead end as they are a stepping stone. And those people who get out … turn out to be people who move early and move into a good company.
That was the real story of that study. There are certain companies which for various internal reasons are concentrating on a high training, high productivity path to competition as opposed to cutting labor costs. And those companies are very, very good places to be and even for a worker with limited education, if they get in a good niche in those companies they can experience significant income increase.
I’ll tell you another story, just quickly. You, you mentioned, you mentioned Katherine Newman’s forthcoming book. That’s the second book in a series, the first book looked at McDonald’s workers about …
WANNER: … the mid-nineties. And now she’s gone back to that same group of McDonald’s workers ten years later and asked “Where are they? What happened to them?”
And what you find is that 10% … these are McDonald’s workers in Harlem, around 125th Street … I’m probably not supposed to say they’re McDonald’s, she calls them Burger Barn. They’re in a franchised …
HEFFNER: I recognized it.
WANNER: Ah, yes. Okay.
HEFFNER: Not that well hidden.
WANNER: At any rate, the question is how do they do in 10 years? 10%, roughly, have done extremely well. They’ve moved up from $6.50 an hour which they were making, to making more than $11.00 an hour. Which is, if we multiply that by 2,000, that’s getting on towards $25,000 a year. If you put two of those salaries together from two young people, that’s a viable start for a family, even in New York City.
On the other hand, fully 40% of all her workers were doing less well ten years later than they had been in the mid-nineties.
HEFFNER: I, I found it hard to puzzle that out … to do less well.
HEFFNER: What does that mean about them or about the employers?
WANNER: It probably means that they were young when she first observed them. And that for one reason or another they went downhill. They were striving … they, they maybe were trying to combine some education with their, with their work at McDonald’s. But it may not have worked, they may not have gotten their GED, their high school equivalency degree. They may have encountered greater family responsibilities … a lot of these young people do.
For one reason or another, they began to detach from the labor force and they probably were employed many fewer hours when she saw them the second time.
HEFFNER: Have we as yet seen the impact of what has been happening here upon kids going into higher education, being able to go to college and stay there.
WANNER: Yeah, we have. Maybe you know these numbers. It runs something like this. If you look at the children of families who are earning in the top fifth of the income distribution, about 52% of them have finished their degree within a, within a reasonable period of time.
I should back up … okay … this is a study that started in 1988 and it took eighth graders in 1988 and it asked 10 years later … did they get a degree or not? 52% of those eighth graders in 1988 had completed a degree ten years later if you come a wealthy family. If you come from a family in the poorest fifth … the number is 6%.
WANNER: Yeah. So there’s just an enormous difference. And that … you asked before about political influence and whether that difference is growing and I was coy about that because we don’t yet know. But I can tell you that the higher education difference is growing.
So that if you look from the … roughly from the early eighties to the early nineties, which is where we have data, what you see is that everybody … that is kids from all of the income groups went to college somewhat more frequently than they had in the past; as everybody began to realize the increasing economic importance of a college education.
But the increase was biggest at the top and progressively smaller as you get on the income scale.
HEFFNER: So the gap …
HEFFNER: … increases.
HEFFNER: We have very little time left … I want to ask you how many Americans do you think, what percentage of Americans really understand this … the gap is increasing?
WANNER: Well, that’s interesting. I’m trying to think if I can give you a precise number. Again, there’s a political scientist Lawrence Bartels of Princeton, who has measured these … exactly that kind of question.
And what he finds, as I remember, is that there’s a good percentage of people, say … let’s say on the order of 60% … I may not have that number exactly right, who do understand that inequality has been going up. And who do think it’s bad for the country.
But, those same people supported at very high rates the repeal, for example, of the estate tax. They supported Bush’s two tax cuts. So, for some reason, they don’t understand … they seem not to understand the political implications of these policies, even though the tax cuts may give them a small initial increase in their spendable income, because their taxes will go down … they don’t seem to see that those very same tax increase will impose cuts in programs, which are starting to happen now, which will impact them much more severely than the little bit of tax savings that they achieve.
HEFFNER: So this is what’s the matter with Kansas.
WANNER: Yes, it’s very close to what’s the matter with Kansas. Tom Franks’ argument, I think, is that not only did they not recognize their economic self interest, but they seem to be much more pre-occupied with … what shall we call it … their social self interest; their, their belief that the culture is going to hell in a hand basket and that the importance of opposing abortion, opposing gay marriage, restoring creationism in the schools and so forth is somehow symbolically more important to them than these economic issues.
And he blames the Democratic Party, largely, for abandoning its economic populism which once was so strong in Kansas.
HEFFNER: In, in your studies, in your various studies, do you find that people in the low wage group deal at all with these social issues?
WANNER: Most of the people we talked to directly are not too concerned with these social issues. They are concerned with survival day to day, getting ahead, taking care of their family and so forth.
I do think, however, that …and I have … I should emphasize I have no proof of this, it’s my own hunch … that to some extent the fact that we have so much economic insecurity in this country accounts for some of the, some of the turn toward social issues and towards fundamentalist religion, which provides the kind of symbolic reassurance and comfort in ways an economy, this economy does not.
HEFFNER: You mean “the next life”? In a sense?
WANNER: Yes. In a sense. And this life, too, because churches provide a kind of instant community. We have an incredibly mobile economy where people are moving much more, for example, than in Europe … we make many more long distant moves. A family arrives in a new place, they don’t know anybody … a church is a sort of support.
Because we have so many fewer other civic groups than we used to 50 years ago; the church is what’s left. And in this case it’s been a variance of evangelical enthusiastic religion that have been most vibrant and have filled this need.
HEFFNER: We have about a minute. Let me ask you how the global economy, in your estimation, impacts upon the problem as you’ve described it.
WANNER: It impacts at many different places. Obviously capital is much more mobile than it used to be. You can move production around the world. You can split up the “value added” chain and put pieces of it here and pieces of it there and because of information technology you can coordinate all that. You can outsource and subcontract and offshore and you can also import workers, low cost workers. And we, of course, have a steady flow of willing immigrant workers, which does, of course, put downward pressure on the wages of workers with modest, with modest education.
So, for all those reasons globalization, I think … and I think everyone aggress to this … has had quite a negative impact on the outcomes for low education workers.
HEFFNER: Would you oppose it? Fifteen seconds.
WANNER: Would I oppose what?
HEFFNER: Globalization for …
WANNER: I don’t’ think you can. It’s like King Canute, you know, you can’t hold back the tides. I think what we have to do is figure out a way to arrange … re-arrange, reform our institutions to preserve the lifestyle and life quality of those people who are most threatened by globalization.
HEFFNER: Dr. Eric Wanner, obviously, we have much, much more to talk about … and you will come back, when you have study.
WANNER: All right. I promise.
HEFFNER: Thanks. Thanks for joining me today.
WANNER: Thank you, too.
HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time, and if you would like a transcript of today’s program, please send $4.00 in check or money order to The Open Mind, P. O. Box 7977, FDR Station, New York, New York 10150.
Meanwhile, as an old friend used to say, “Good night and good luck.”
N.B. Every effort has been made to ensure the accuracy of this transcript. It may not, however, be a verbatim copy of the program.