October 3, 2008 Volume 109 Number 19

America the Unequal:

EPI finds a nation polarizing economically

By DON McINTOSH, Associate Editor

Once every two years, researchers at the Economic Policy Institute produce The State of Working America, a fact-filled summary of the problems and challenges that face American workers. EPI is a pro-labor think-tank based in Washington, D.C., that researches the impact of economic trends and policies on working people.

An advance version of the 2008-2009 edition was released Labor Day weekend, and the story it tells is that America is getting more productive, but the gains in wealth that result are not being shared with the workers who produce it.

EPI economists studied the most recent business cycle, and say it’s unlike any other in modern times.

“For the first time since the Census Bureau began tracking such data back in the mid-1940s, the real incomes of middle-class families are lower at the end of this business cycle than they were when it started,” write the report’s authors — Lawrence Mishel, Jared Bernstein and Heidi Shierholz.

Plus, a smaller share of the adult population was working at the end of this cycle than at the beginning.

“When it comes to efficient, profitable production, the men and women of the American workforce have a lot to be proud of. But when it comes to being rewarded for the work they do, the skills they have sharpened, and the contributions they make … well, that’s a different story. Their paychecks have been frozen, their health coverage is being cut back, their jobs are at risk of being shipped overseas, and their pensions are more precarious than ever.”

The top 1 percent of wage earners now hold 23 percent of total income. Using data on income concentration that go back to 1913, EPI found that that’s the highest inequality level in any year on record, bar one: 1928.

How well is the top 1 percent doing? That one in a hundred earners in 2006 had average annual earnings of $576,000. Of course, the top one-thousandth fared far better, seeing their annual earnings grow 324 percent since 1979 to reach over $2.2 million in 2006.

For most of the rest of the 140 million Americans who go to work every day, not only are wages not keeping up, but employer-provided benefits are eroding, most notably pensions and health insurance.

Employer-provided health care coverage eroded from 1979 until 1993-94, and then began falling again after 2000 through 2006. Coverage dropped from 69.0 percent in 1979 to 55.0 percent in 2006, with a 3.9 percentage-point fall since 2000.

Employer-provided pension coverage tended to rise in the 1990s but receded by 2.8 percentage points from 2000 to 2006 to 42.8 percent, 7.8 percentage points below the level in 1979. Pension plan quality also worsened as 401(k)s come to replace traditional pensions. The share of workers in the traditional “defined benefit” plans fell by half — from 39 percent in 1980 to just 18 percent in 2004. Correspondingly, the share of workers with a 401(k) style “defined-contribution” plan (and no other plan) rose from 8 percent to 31 percent.

In 1965, U.S. CEOs in major companies earned 24 times more than an average worker. This ratio grew to 298 at the end of the recovery in 2000, fell due to the stock market decline in the early 2000s and recovered to 275 in 2007. In other words, in 2007 a CEO earned more in one workday (there are 260 in a year) than the typical worker earned all year.

Income is one thing, wealth is another. Wealth is net worth — the total dollar value of what you own minus whatever you owe. EPI found that the wealthiest 1 percent of all households have a larger share of national wealth than the entire bottom 90 percent. And over the 1962-2004 period, the share of wealth held by the bottom 80 percent of the wealth distribution fell from 19.1 percent — already an extremely small share — to 15.3 percent. Today, about 30 percent of households have a net worth of less than $10,000, and one in six households have zero or negative net wealth.

Inequality is reflected in health, as well. While today’s Americans, on average, are healthier and living longer than previous generations, more are being left without adequate insurance coverage or access to the health care system. As a result, the poorest increasingly die earlier than the richest. Between 1980 and 2000, the life expectancy gap between the socioeconomically best- and worst-off grew from 2.8 years to 4.5 years.

And it doesn’t have to be so. The United States spends by far the highest percentage of its Gross Domestic Product on health care, but is the only one of its peers without universal health insurance, and it has the lowest life expectancy and the highest infant mortality rates of its peers.

The State of Working America doesn’t provide a policy roadmap away from inequality, but makes clear that the current set of policies are creating the current set of outcomes. The authors say what’s behind the growing inequality is the rise of a YOYO (You’re-on-Your-Own) economic philosophy that has guided economic policy makers.

“The YOYOs are market fundamentalists,” EPI says. “They believe that unfettered market outcomes are always the best outcomes.… The YOYOs want to replace Social Security with private retirement accounts, kill the minimum wage, weaken unions, and force everyone to buy health insurance in the individual market.”

“The past few decades, and especially the past few years, reveal the impact of this approach on the living standards of working families,” EPI concludes. “The results are unequivocal: Families are ill-served by this set of policies.”

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