Populist Persuasion

Stephen Rose, Lawrence Mishel, and others are debating the economic politics of the middle class this week. Here is Mishel's opening salvo.

Steve Rose has been my friend and intellectual colleague for many years and I hold him in the highest regard. But I strongly disagree with his recent piece for the Progressive Policy Institute and the earlier version posted on Donkey Rising. Rose does not believe a populist economic agenda is warranted or is useful for attracting middle-class voters to the Democrats. In his view, economic policies should seek to generate overall growth, assist the poor, and provide educational assistance to middle-income families in their role as "free agents," but otherwise leave them happily "on their own" within the broader economy.

That's a shame. The vast working and middle classes in America have not fared well over the last six years and, in fact, have not fared well since 1973 (excepting about five years in the 1990s). Moreover, there are public policies that have aided this vast middle class and others that can definitely improve their economic well-being. Those in the middle, both economically and politically, are extremely aware of the great economic challenges they face and are disappointed in Republican leadership on the issue. This provides an important opportunity for Democrats. Whether they are able to exploit this opportunity remains to be seen.

Rose's claim that government policy only helps the poor is terribly wrong and only reinforces the conservative pitch to the middle class: that Democrats just want to take "your money" and give it to the poor, and otherwise have nothing to offer you; that you're better off on your own (the "yoyo economics" philosophy that my colleague Jared Bernstein describes in his new book). In fact, unless there is a dramatic switch in economic policies, we will not be able to achieve a broadly shared prosperity that benefits both low-income families and the broad middle class.

As I will explore below, Rose does have some insights that are important and useful. In particular, it is true that most people's incomes and wages have been increasing. This is because people gain skills and experience and thereby attain higher pay year by year. Nevertheless, Rose does not explain that young workers start "lower" and grow their earnings "slower" than their predecessors, so that it can also be true that for groups of workers (such as those without college degrees) wages are lower now than in the past. There really is an attack on the living standards of the working and middle classes.

Rose thinks the answer to the apparent puzzle that many (white) working and middle-class voters seem to vote against their class interests is that these voters are, in fact, faring decently. This is an odd argument to make at this moment in time. There's been much commentary on the fact that people are feeling dour about the economy despite seemingly robust GDP growth and unemployment that is low by historical standards.

I believe this recovery is unique in the degree to which overall growth, particularly as reflected in rapid productivity gains, has not translated into rising incomes and wages for the vast majority. I am far from alone in this view. The Brookings Institution's Hamilton Project (chaired by Robert Rubin) has made the gap between fast productivity growth and stalled family incomes and wages a centerpiece in their effort to define new public policies. As Rob Shapiro (a former DLC economist and Clinton Undersecretary of Commerce) and Simon Rosenberg, head of the New Democrat Network, have recently noted, figures such as former Clinton Treasury secretaries Bob Rubin and Larry Summers as well as a panoply of progressive organizations, from the DLC to the Center for American Progress to the Center on Budget and Policy Priorities to the Economic Policy Institute, are all putting the issue of stagnant wages in spite of productivity growth "at the heart of their agendas." Bill Clinton has also recently highlighted this issue. Rose is clearly missing something others are seeing.

Jared Bernstein, Sylvia Allegretto and I profile this productivity-wage gap in the new State of Working America, 2006/07. True, Jared and I highlighted this gap as early as 1994, noting the sharp divergence between both average and median hourly compensation and productivity over the 1973 to 1992 period. But the recent period is even more astonishing, since productivity growth is even faster and wages (inflation-adjusted) for both college and high school graduates have actually fallen a bit between 2002 and 2005 (and into 2006).

The problems faced by college graduates, especially recent college graduates, are particularly instructive, since Rose describes the group benefiting from Democratic economic policies as an increasingly small segment of the economy:

  • The wages of 'entry-level' male and female college graduates (working from one to five years) were, respectively, 4 percent and 2 percent lower in 2005 than in 2000 after rising 21 percent and 12 percent, respectively, in the prior five years.
  • The share of college graduates employed has also fallen (from 87.4 percent to 85.5 percent) from 2000 to 2005, indicating shrinkage in demand for such workers.
  • The share of "entry-level" college graduates provided health insurance coverage by their employers has fallen from 77.7 percent in 1979 to 70.6 percent in 2000 and down to 63.5 percent in 2005. Pension coverage is falling as well. These are clear indications of declining job quality for new college graduates.

Of course, those with college degrees have higher pay, more security, and better jobs than those with less education. Nevertheless, college graduates are facing relatively new economic challenges.

The vast bulk of the workforce (roughly 70 percent) does not have a four-year college degree (or education beyond that). Here are indicators of how they've been faring:

  • The hourly wage of the median worker has risen roughly 9 percent from 1979 to 2005, and if you exclude those few good years in the late 1990s, has risen just 1 percent.
  • Men have fared worse, as seen in the 5 percent drop in the male median hourly wage from 1979 to 2005, with a drop of 11 percent if you, again, exclude the late 1990s.
  • The median hourly wage among male high school graduates fell 14 percent from 1979 to 2005 (including the 5 percent gain of the late 1990s).
  • The median hourly wage among female high school graduates grew just 7 percent from 1979 to 2005 and if you exclude the late 1990s did not grow at all.
  • The share of high school graduates with employer-provided health insurance coverage fell from 70 percent in 1979 to 53 percent in 2004.

Not surprisingly, family incomes have not done so well:

  • The median family's income has fallen by 2.9 percent from 2000 to 2004. Aside from the very rapid growth of the late 1990s (up 11 percent), median family income growth has been very modest, rising just 6 percent from 1979 to 1995.
  • Middle income married-couple families with children did a bit better, seeing incomes rise by 10 percent from 1979 to 1995, jump 13 percent in the late 1990s before falling 2.6 percent thereafter. Meanwhile, the hours worked in these families grew 18 percent from 1979-2004, so overall incomes grew just slightly faster than hours worked over 25 years.
  • The CBO reports even more pessimistic trends, with middle incomes rising just 8.6 percent from 1979 to 2003. Note that productivity grew 62 percent over this time period, so middle-class income growth barely exceeded the growth in hours worked (from more wives working and working more weeks and hours per week) and fell far behind the pace at which the pie grew. Yet, the incomes of the upper 1 percent grew by 111 percent. Populism anybody?

It is peculiar that at a time when the economy is clearly benefiting a smaller proportion of the population, Rose argues in his PPI paper that shifts in the economy mean that "the majority of workers are less likely to feel like victims of the economy and more likely to feel like beneficiaries of it."

Does public policy help middle-class citizens?

Rose argues that only low-income or poor people (and those persistently so) have economic interests aligned with Democrats. He reaches this conclusion because he considers a very narrow scope of economic or social policies and because he wrongly claims that labor standards and protective policies are now "widely accepted" and "go largely unchallenged even in Republican administrations." The truth is there are policies that are or can be in political contention that do or could materially benefit large segments of the middle class, and policy fights that require mobilizing political forces against powerful economic interests -- the class-interest populist economic policies that Rose says we need to move beyond.

Consider just a few items.

First, the level of unemployment (the tightness of the labor market) is critically important to middle-class workers, and extraordinarily important to more vulnerable segments of the workforce. Here we are at 4.8 percent unemployment with stagnant wages, a Federal Reserve policy of raising interest rates, and the prevailing view of Wall Street that wage growth is getting out of hand and that we are growing too fast. It seems we will have a recession or slow growth before we ever get to the part of a business cycle where most people see income gains. Is there not room for a counterargument and program, one that will generate jobs and allow workers to benefit from growth? Let us also recall the misdirected economic stimulus of the Bush tax cuts in 2003: Mark Zandi estimated that had the Democratic stimulus approach been passed instead there would have been two million additional jobs created at half the fiscal deficit. That could have helped middle-wage workers.

Second, social insurance is under attack in ways that hurt middle income and low-income families. The victory in defeating the privatization of Social Security and associated benefit cuts is an economic victory for the broad middle class. Social Security makes up a major part of the retirement income of far more than just low-income retirees. Moreover, the disability and survivor benefits in the program, which would have been jeopardized by privatization, are also an essential income support for a wide swath of middle-income families. And who is it that has been failed by the lousy prescription drug benefit? Any populism warranted?

Third, even means-tested cash payments benefit far more than the persistently poor since many middle-income people are exposed to layoffs, medical problems, and other crises that make them reliant at times on the safety net. Consider that 23 percent of people in the middle fifth benefited from a cash entitlement program at some point (measured from 1976 to 1988) with even greater participation by those in lesser income groups. In contrast, Rose seems to claim that only the bottom 25 percent of the total population benefits from Democrat-favored social policies.

Fourth, even policies such as a higher minimum wage have benefits that go way beyond persistently or even currently poor families. A higher minimum wage is an important labor standard that primarily benefits adult working women, a group dispersed in a wide range of families. For instance, as documented in The State of Working America 2004/05, the gains from the last minimum wages increases accrued as follows: roughly 35 percent to the bottom fifth of prime-age households; another 23 percent of the gain to the next lowest fifth; and 36 percent to the next two fifths.

Fifth, policies to address our trade problems (such as tackling the artificially low value of the Chinese currency), establish labor and environmental standards in trade agreements, and support domestic manufacturing capacity are clearly oriented to middle-class jobs.

It would, moreover, be easy to extend this list to other matters such as unemployment insurance, workers compensation, and bankruptcy laws that are determined politically at the federal or state level.

Labor standards accepted?

One of the most astonishing claims that Rose makes in his PPI paper is this:

On a wide range of other issues, Democratic policies have unquestionably had a direct impact on workers' lives -- the 40-hour week, overtime pay, and sick leave, to name a few -- but most of those policies have long since become widely accepted. They go largely unchallenged even in Republican administrations, so the Democratic Party reaps little benefit for having championed them in the first place, even though it is still perceived to be the party of business regulation.

I would agree that Democrats have not benefited much from their role in protecting and extending such policies, primarily because they do not exploit their advantage in this area. But it is simply not true that these policies are not politically disputed. It was just a few weeks ago that the GOP, at the behest of the National Restaurant Association, tried to alter the minimum wage law so that "tipped workers" in seven states (where the laws provide protections beyond the federal law) would see their wages lowered.

From the moment the Republicans took control of Congress in 1995 they began attacking the 40-hour work week and the right to overtime pay. Their comp and flex time proposals would have permitted employees to work more than 40 hours in a week without premium overtime pay. The Bush Labor Department recently pushed through changes that eliminate the right to overtime compensation for millions of workers -- and would have done worse if Democrats had not raised a ruckus.

What "sick leave" right is Rose talking about? Half of the workforce has no paid sick leave at all, and no federal law guarantees so much as an hour per year of paid sick leave. Democrats, led by Ted Kennedy, are trying to enact a minimum standard but have been unable to get so much as a hearing in Congress.

Recall that the first act of the Congress in 2001 under George W. Bush was to overturn the Clinton administration's OSHA ergonomics regulations that would have helped prevent injuries for millions of workers (millions, that is, in Rose's "office economy" workforce). The GOP, meanwhile, tried to eliminate trade adjustment assistance in 1995 and more recently has tried to replace it with very weak "wage insurance." The last recession also witnessed a political fight over securing extended unemployment insurance.

Then there are the rulings by the NLRB that take away the right to form a union from various parts of the workforce, including from many workers who are currently represented by unions: the latest issue, soon to be decided, could disallow rights to collective bargaining to eight million workers by labeling them "supervisors" even if they have no responsibilities for hiring, firing, or discipline. This would affect many nurses, accountants, computer programmers, engineers, and secretaries. Simply doing nothing to modernize and strengthen union-related labor laws is sufficient to facilitate the ongoing decline in unionization that has undercut living standards and rights on the job for many millions of workers. Family leave policies, civil rights protections, enforcement of basic wage and hours laws, and safety and health protections (need to hear the story about mine safety?) are all vulnerable and being weakened. "Widely accepted" and "unchallenged," my foot.

One hand clapping.

The Democrats would be wise to listen to some of what Rose is saying: do not treat citizens as victims of the economy; do not assume most individuals are worse off now than they were previously; and respect people's aspirations and optimism about their future. David Kusnet, Ruy Teixeira and I have reached the same conclusions in a forthcoming EPI report (done in collaboration with a number of fellow grantees of the Rockefeller Foundation's Economic Resiliency program) on how people view the economy.

Rose comes to these conclusions because he analyzes longitudinal data that tracks workers' and families' income and wage growth over time rather than compare the income of a given group (e.g., middle fifth or high school graduates) today against that same group at an earlier time. It is important to appreciate what Rose reports: most people do see their incomes improving over time and very few are on a downward trajectory. This is why many people rightly report that they are better off and expect to make further gains.

While such an analysis rightly reflects how people directly experience the economy, it does not reflect how groups, classes, and communities are faring. Rather, such findings reflect the fact that individuals see their earnings rise as they gain experience and skills. It can still be true, however, that groups of workers as a whole have wages today that are lower than in the past. It occurs when the entry-level wages in the group (say, high school graduates) are now lower, and the gain in earnings as they age is slower, than their predecessors.

We have illustrated this phenomenon in the introduction to the newly released State of Working America by tracing the annual earnings of those with "some college" (have education beyond high school, including possibly an associates degree, but not a four-year degree) over time. The group of people with some college that were ages 20-24 in 1970 saw their earnings of $23,071 (in 2005 dollars) grow by 90 percent to $43,809 in 2000, thirty years later, when they were 50 to 54 years old. Yet, the earnings they achieved in 2000 were still 10 percent less than the $48,511 that 50-54 year olds with some college earned in 1970. Yes, if you were a member of that cohort of young workers with some college education in 1970 you would have experienced a large growth in earnings over your lifetime. But it's also true that the average worker with some college in 2000 earned 11 percent less than workers with some college in 1970. This phenomenon may help explain why individuals are optimistic about their own situation but still see "people like themselves" not faring well -- the reality of a weakened middle class is entirely consistent with individuals making progress over time.

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A progressive political movement that does not seek to establish broadly shared prosperity is not worthy of the name "progressive." Determining how to do so -- what policies to pursue and how to be in the political position to determine policy -- is one of the central tasks of our movement today. We will not accomplish our goals if we are not willing to challenge established economic powers -- through, yes, populist measures -- and implement policies that will and can be seen as benefiting both middle-class and low-income voters. This is doable. Unfortunately, Rose's analysis distracts us from these essential tasks.

Lawrence Mishel is president of the Economic Policy Institute.

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