Friday, February 29, 2008

Another Look at Inequality: The Real Problem is Stagnant Wages

Thanks to my father and buddy Dan for pointing out some errors in my Wednesday analysis on inequality. Looking back I think the overall point stands, many/most people without a college degree have not seen wage increases for the last 25 years. I also agree with Dan’s assertion that we should care more about stagnant wages than inequality. So how do we address stagnant wages? That’s tough!

I think the wrong way is the current finger pointing of Barak Obama and Hillary Clinton to Nafta as the cause of stagnant wages. Looks like Greg Mankiw was right and the democrats are going too far left, perhaps now with the audacity of fear.

I think Glenn Hubbard had it right on Market Place last night, he says:
“We should make funds available to workers whose job loss is likely to be long lasting for whatever reason. Placed in a Personal Reemployment Account, such funds could be used for individualized training and income support, letting individuals keep the balance if they find a new job quickly gives a reemployment bonus.
We should also pursue tax reforms that would give all workers access to affordable health insurance that's portable. And, of course, we should redouble our efforts to ensure that all workers have the education and skills to compete in a global economy.”

To address some of Dan's points in his comments. The chart comes from a paper by Frank Levy linked here.

The figure includes health insurance, not sure about EITC and informal economy. But hours worked have not been going down so it is not a trade off for leisure. I'm not sure about specified skills, but that is a good point.

Now is it 70% of the population (or at least working age population). Another figure shows basically the same result for women's wages. But what about people with some college? It appears that women with some college have seen income growth, but not men. From the Economic Policy Institute

"The average hourly wage for men with "some college" education was no higher in 2005 than in 1973. Women's wages in this group rose only 20%, despite a 75% growth in national productivity. Wages for both men and women with "some college" have been stagnant since 2000."

So it may not be 70%, but the data suggests wages have been stagnant for a large part of the population. I do not think that is good. I’m not sure which programs are the right answer, but I think a few might exist. I think Hubbard’s proposal should be examined as a good first step.

On a perhaps less serious note, but why inequality might be important: over at Marginal Revolution there is a link on chimps and their response to inequality.

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