A Working Nation: Workers, Work, and Government in the New Economy

Monthly Labor Review, Sept, 2001 by Horst Brand

A Working Nation: Workers, Work, and Government in the New Economy. By David T. Ellwood, Rebecca M. Blank, and others. New York, Russell Sage Foundation, 2000. 146 pp.

Sponsored by the Aspen Institute's Domestic Strategy Group, this volume deals with some of the causes of the inequality of earnings that has increasingly characterized the wages and benefits of male workers and their families over the decades since the early 1970s (it slightly decreased during the late 1990s). While the volume's title refers to the "New Economy," the term remains undefined, and we may disregard it. One of the announced purposes of the studies presented is to deal with "the future of work," but the authors avoid doing so. However, the "the future of work" may well be viewed here in terms of the continuation of the trends that have prevailed over the period analyzed. This would imply that adapting to new work patterns and technologies by most low-wage workers will be too slow to significantly change those trends.

David Ellwood presents and interprets the basic facts of wage and income inequality, and does so in a spare, lucid style. He derives the data from national income statistics and the Current Population Survey, making adjustments (for example, for inflation) he deems appropriate. He divides the income distribution into thirds, which may be a bit crude but makes for clarity. He figures the national income on a per-adult (rather than per-person) basis. He reports total compensation of wage and salary workers separately for men and women. Subsequently, he reports the income from work and other sources for two-parent families with children by thirds of educational grouping. He does the same for single-parent families.

While median compensation of men in the top third of the income distribution rose 28 percent between 1973 and 1996, compensation of men in the middle third declined 3 percent, and of men in the bottom third 8 percent. The pattern for husbands in two-parent families is similar if somewhat more moderate; compensation of these men rose 31 percent in the top third educational grouping, 4 percent in the middle third, and remained unchanged over the period in the bottom third. "It is simply not true that middle and working class men get much of the income generated in our nation," writes Ellwood.

The decline in median compensation shown for these men was suffered entirely by men under 45 years old, with those in the 18-34 age brackets being affected most. It was associated with a full or less than full high school education, but also with "some" post-high school education. All the increase in compensation occurred among college and post- college graduates. It remains, however, that compensation of men in the higher age brackets improved, reflecting experience and tenure.

Women's median compensation rose in all income and education brackets over the 1973-96 span. The increase was largest, however, in the top third of the income distribution and of the educational grouping of two-parent families. Hence, income of two-parent families benefited from wives' earnings, although in the bottom third it rose but 14 percent, compared with 57 percent and 25 percent in the top and middle thirds (by educational grouping).

Inequality of family income intensified between 1973 and 1996. In 1973 the top one-third of families had income from compensation and other sources--for example, dividends, net interest, and rent--that exceed the middle third by 32 percent, and the bottom third by 61 percent. In 1996, the respective differences ran to 66 percent and 122 percent. Inequality also sharpened when income of single-parent families is compared with that of two-parent families: the former "had less than half of the income of families with two parents for each level of parental education."

Ellwood writes "the traditional cost of living adjustment would show little or no increase in income for families at the bottom." Those at the bottom are poorer today than they were 20-25 years ago -- a factor that also diminishes opportunities for children. For example, higher earnings are more and more associated with college education, but that has become virtually unattainable for poor people: the entire increase in college attendance has stemmed from children in families in the top 60 percent of the income distribution.

Substantial differences in understanding the widening earnings gap and ways of dealing with it are evident from essays by two contributors to the volume--one by William A. Niskanen, the other by Rebecca M. Blank. Both are one-time members of the Council of Economic Advisors, the former under President Reagon, and the latter under President Clinton. We cite some examples.

Both Niskanen and Blank support the Earned Income Tax Credit (EITC) as a subsidy to low-wage workers. Niskanen, however, opposes the minimum wage as a hindrance to the hiring of low-skilled workers, while Blank strongly supports it as being inseparable from the EITC, hence as "substantially (improving) the returns to work among low-wage workers in the face of declining or stagnant market wages." Blank extends the argument, viewing minimum wage laws as seeking "to assure that work provides economic sufficiency." Equally important, the minimum wage, together with the EITC, helps reverse and forestall the devaluation of work often linked with declining pay. She also urges the adoption of adequate child care and health plan insurance subsidies, again so as to raise compensation and secure family well-being. She does not believe that the labor market by itself will raise low-wage workers' earnings sufficiently to ensure an adequate living standard.