The Price of Everything - Eduardo Porter [60]
Incomes per person in the United States soared almost sixfold over the twentieth century, driven by a burst of technological progress. But the most remarkable feature of this growth was that through most of the century it was widely shared. In 1928, the top 1 percent of American families hoarded nearly a quarter of the nation’s income. By the 1950s their share had fallen to 10 percent.
Economists have ventured several hypotheses for this dynamic. Some suggest the playing field was leveled by the institutions that emanated from the New Deal—including the minimum wage, labor protections, and government programs like Social Security, coupled with high tax rates and strict regulations constraining the profits of industries like banking. The rise of organized labor played a part, as unions negotiated better pay for their members.
Yet another factor stands out: education. Throughout the century, businesses demanded increasingly educated workers to keep pace with technological progress, offering higher wages to laborers with more schooling. And workers responded by going to school.
From the generation born in 1870 to that born in 1950, each cohort of Americans received more education than their parents. By the 1950s, 60 percent of seventeen-year-olds had graduated from high school; roughly six times the share in the United Kingdom. Then the GI Bill kicked in, offering to finance college for veterans returning from World War II. In 1915, the average American worker had 7.6 years of education. In 1980, he had 12.5.
One consequence of this investment in human capital is that the income of most American families grew 2 to 3 percent per year in the quarter century after the end of World War II, more or less evenly across the income scale. These families built the American middle class.
SOMETIME IN THE 1980s the dynamic broke down. Since then bankers, lawyers, and engineers, those with a college education or more, have seen wages rise substantially. Workers at the bottom—janitors and nursing-home staffers, housekeepers and nannies—have also benefited from slightly improving pay. But workers in the middle, like union workers in steel plants and car companies, have suffered as their pay stalled and declined.
It all comes down to the question of who is easiest to replace. It’s tough to mechanize a nanny. It’s also difficult to replace lawyers and bond traders. But jobs that can be reduced to a mechanical routine, like spray-painting a car, have disappeared or gone somewhere else. In 2008, the Orange County Register in California hired an Indian company, Mindworks Global Media, to take over some editing functions. In 2007, Reuters opened a bureau in Bangalore, India, to cover American financial news.
The education premium is bigger than ever. In 1973, men who had at least a college degree made 55 percent more than those who had only completed high school. In 2010, they made 84 percent more. Yet perhaps due to the hollowing out of the labor market, this premium is no longer working well as an incentive. The educational attainment of the average American worker grew only one year from 1980 to 2005.
These days the American Dream is a pretty misleading reverie. The hourly wage of the average shop-floor worker was lower in 2009 than it was in 1972, after accounting for inflation. The typical American family—two earners, a couple of kids—made less than it did a decade before. It’s been forty years since the last time the average worker could afford to pay the bills of the average household on a forty-hour workweek at the average wage. At the end of the first decade of the new millennium, the prosperity boom experienced by many workers in the twentieth century looks like a flash in the pan.
A BANKER’S PARADISE
This reconfiguration of prosperity is not simply about changes in the way we pay for work. The entire set of rules governing American capitalism changed. Those that emerged over the past three decades hammered the middle class.
Trade barriers fell during this period, and capital controls were done