Populist myths on income inequality

Populists in the U.S. argue that rising income inequality is the result of a broken market. The rules are rigged. The reigning ideology in Washington must be upended. Unions must be revived. Globalisation needs to be reorganised. The problem with this narrative is that it doesn't really fit the facts, says columnist David Brooks.

For example:

Workers overall are not getting a smaller slice of the pie; wages and benefits have made up roughly the same share of gross domestic product (GDP) for 50 years.

Offshore outsourcing is not decimating employment; according to the Bureau of Labour Statistics, outsourcing is responsible for 1.9 per cent of layoffs, and the efficiencies it produces create more jobs at better wages than the ones destroyed.

Jobs are not more insecure; workers are just as likely to hold a job for 20 years as they were in 1969.

Workers are not stuck in dead-end jobs; social mobility is roughly where it was a generation ago.

Lastly, says Brooks, declining unionisation has not been the driving force behind inequality:

David Card of the University of California, Berkeley, has estimated that de-unionisation explains between 10 and 20 per cent of the rise in inequality, and that effect was probably strongest decades ago.

These days the working class is not falling behind the middle or upper-middle class, instead, the big rise in inequality is within the office parks, among people who were never unionised; middle managers are falling behind top executives.

A much more persuasive school of thought on inequality holds that the key issue is skills. Lawrence Katz, formerly of the Clinton administration, now of Harvard, puts it this way: Across many nations, the market increasingly rewards people with high social and customer-service skills.

Source: David Brooks, The Populist Myths on Income Inequality, New York Times, September 7, 2006.

For text (subscription required): http://select.nytimes.com/2006/09/07/opinion/07brooks.html

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 12 September 2006