Dean Baker Economy

The Big Myth About Inequality: It Just Happened!

Photo by Jeremy Segrott via Flickr

By Dean Baker / Beat the Press/CEPR

The standard line in policy circles about the soaring inequality of the last four decades is that it is just an unfortunate outcome of technological change. As a result of technological developments, education is much more highly valued and physical labor has much less value. The drop in relative income for workers without college degrees is unfortunate and provides grounds for lots of hand wringing and bloviating in elite media outlets, but hey, what can you do?

Manufacturing plays a central role in this story since it has historically been the major source of high-paying jobs for workers without college degrees. Manufacturing jobs offered a pay premium of almost 17.0 percent in the 1980s. This had fallen sharply by the start of the last decade and had largely disappeared in more recent years.

This decline in the wage premium has coincided with a plunge in unionization rates in manufacturing. Approximately 20 percent of manufacturing workers were unionized at the start of the 1980s. In 2021 just 7.7 percent of manufacturing workers were in unions, only slightly higher than the average of 6.1 percent in the private sector.

The media endlessly hits us with the line that this is just an unfortunate outcome of technological progress. Washington Post columnist Catherine Rampell gives us the latest rendition this morning. The highlight is this graph showing that manufacturing had been seeing a steady decline in employment shares for the six decades from 1950 to 2010.

This is the basic “nothing to see here” story.

There is another graph that shows a very different story. The chart below shows employment in manufacturing not as a share of total employment but in absolute numbers. This one gives a very different picture.

From the start of 1970 to the middle of 1998, manufacturing employment has only a modest decline. There are cyclical ups and downs, but total job loss over this 28-year period was about 800,000, from 18.4 million in 1970 to 17.6 million in 1998, a decline of 4.4 percent.

However, the story becomes very different over the next decade. From the middle of 1998 to December of 2007, manufacturing lost almost 4 million jobs. This means that, after seeing a drop in employment of just 4.4 percent over 28 years, manufacturing saw a decline in employment of more than 22 percent in less than a decade. That looks like there is something to see here. (It lost another 2 million jobs in the Great Recession, which began in December 2007.)

The item to see in this graph is the explosion in the trade deficit in this decade, with the deficit on goods peaking at more than 6.0 percent of GDP during this period. In short, a huge increase in the trade deficit coincided with a massive and unprecedented loss in manufacturing jobs. Can we hear again how those workers are stupid for blaming trade for their problems?

It Took More than Trade to Screw the Country’s Workers

But trade is not the whole story of the upward redistribution of the last decade. We also made government-granted patent and copyright monopolies longer and stronger. We also encouraged the financial sector to become bloated, giving big paychecks to Wall Street types at the expense of the rest of us. And, we have a corrupt corporate governance structure that allows CEOs and other top management to line their pockets and rip off the companies they work for. And we also ensured that highly paid professionals, like doctors and dentists, are protected from the same competition that their less educated counterparts face.

This is the topic of Rigged [it’s free]. It’s also the focus of a video series I recently did with the Institute for New Economic Theory, How to Unf*ck America. (Coming soon to a theater near you.)

Perhaps what is most striking about the inequality just happened story is how deeply ingrained it is among people in policy circles. When we make policy decisions that are virtually guaranteed to redistribute income upward, the implications for inequality do not even get raised.

The government paid Moderna $450 million to develop a coronavirus vaccine at the start of the pandemic, and it then spent another $450 million for its large-scale phase 3 testing. We then gave Moderna control over the intellectual property associated with the vaccine, and the result was that we got at least five Moderna billionaires.

More recently, Congress passed the CHIPS Act, which will involve tens of billions of dollars of subsidies to manufacturers of semiconductors and other cutting-edge products. Again, there seems to have been no debate about who will own the intellectual property.

Naturally, it will be the companies that get the contracts. This is like paying a company to build a factory and then letting them keep the factory. Oh well, as a consolation prize, we will get more opportunities for rich liberals to whine about inequality.

Rampell’s colleague, Andrew Van Dam, had a piece a couple of weeks back that inadvertently showed how inequality is taken for granted in policy circles. The highlight was where Van Dam gave us the “optimistic” view of how the increased globalization of many higher-end jobs (jobs where people can work remotely) would turn out.

“Many economists are optimistic that American workers will land on their feet amid a gradual transition from a world in which they compete with a few dozen locals for each new job to one in which they compete with a few million professionals worldwide. But economists were optimistic about Y2K-era globalization as well, and it seems wise to keep a wary eye on the possible downside.”   

Okay, let’s get our eyes on the ball here. How is it “optimistic” that the pay of more educated workers is not depressed due to international competition, as when their less-educated counterparts were subjected to international competition with low-cost labor?

As Rampell rightly points out in her piece, protecting domestic manufacturing means higher prices for manufactured goods. These higher prices are paid by everyone, which is a bad story when it comes to getting people to buy electric cars and solar panels. Getting these items from lower-cost labor, whether from foreign sources, or domestic labor that has to take pay cuts due to competition, is good for consumers.

So why wouldn’t Van Dam see it as an optimistic story that we can get everything from accounting and legal services to medical consulting at a much lower cost due to increased international competition? Sure, our accountants, lawyers, and doctors would get lower pay, but this will mean lower consumer prices and more economic growth. How could any self-respecting policy wonk see this as a bad thing?

As a practical matter, I am sympathetic to many of the points Rampell makes. Since the manufacturing wage premium has largely disappeared, it doesn’t make sense to put a major focus on getting back manufacturing jobs. (The politics may argue otherwise.)

But, if we want to improve the situation of less-educated workers in our economy, we have to reverse how we have structured the market to redistribute so much income upward. Unfortunately, this topic is largely not considered suitable for discussion in the Washington Post and other elite media outlets.

Dean Baker
Dean Baker

Dean Baker co-founded CEPR in 1999. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare and European labor markets. He is the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His blog, “Beat the Press,” provides commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan.

Dean previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He has also worked as a consultant for the World Bank, the Joint Economic Committee of the U.S. Congress, and the OECD’s Trade Union Advisory Council. He was the author of the weekly online commentary on economic reporting, the Economic Reporting Review (ERR), from 1996–2006.

17 comments

  1. We’re still operating in a hierarchical paradigm where the apex is a dangerous place that’s rank with temptation and like a light to moths in what it attracts.

    It’s incumbent on us within the marketplace to create a “rounder world”.

  2. Reagan marked the start of our Great Job Drain. US job losses had long surpassed job gains, and Democrats ended basic poverty relief 26 years ago. While it seems to be a hard concept to grasp, the fact remains that not everyone can work, and viable jobs are not available to all. Subsequently (according to the UN report), the life expectancy of the US poor fell below that of every developed nation. There is currently an estimated 10 million jobless Americans, but who knows? We no longer have a way to determine that figure.

    1. Why aren’t Americans supporting their economy with their own sovereign debt-free money as is permitted. Your troubles would come to a close and the rest of the world would follow.

      1. Michael G. the goldbug. Americans are short on income and mired in bad credit so they ain’t gonna buy no gold. In fact, the entire American economy is a puff-job under record deficits and debt. Not that this conjob couldn’t be fixed, but the elites in charge are cleaning up in a rigged casino. Inflation is essentially a surtax on the public by big business. Enjoy your gold-dipped soylent green.

  3. ECON PRIVILEGE v. ESSENTIAL WORKERS

    If it’s good for the upper middle class whom the Ds represent, it’s good for… well, certainly not the majority, the working class. The compartmentalized thinking of the privileged is rightly called out here.

    ++Around 70% of the U.S. economy is still consumer driven.
    ++Why the assumed disconnect between workers and consumers as if these were two opposed groups?
    ++Didn’t we just find find out who the real “essential workers” are? The true engine of the econ system should be acknowledged.

    Decades ago, Sen Henry Jackson pointed out that full employment would erase the national debt. At the time, the D party was actively aligned with labor interests. But behind the scenes this proposal was heavily opposed–actual econ policy was to deliberately maintain a certain percentage of unemployment as inflation control. In other words, those who don’t cause problems are made to suffer losses for the benefit of others. Of profiteers who rig the rules, then define themselves as winners deserving all they have.

    1. A long time ago MalcolmX told the people.that they.have been lied to cheated,exploited Nothing.has changed in 60 years.Capitalism and wage slavery gave triumphed.The working.class trapped by consumerism and the need for massive defense spending have been screwed out of any chance for a decent
      life.Now death and destruction are.on the table with Climate Change and the probability of Nuclear Winter.What.the ruling class do? Everyone on the Planet waits for an answer.

  4. obviously Americans cannot think qualitatively….”the American has no imagination…he is unable to create…the american mentality is technical…the poet is sensitive to images, the musician is sensitive to sound–the american is sensitive to numbers….american pragmatism does not value or grasp abstractions”. Antonio Gramsci

    1. @giligan ILLOGICAL BIGOTRY

      Again claims that defy simple rules of logic. Like the fallacy of non-sequitur; citations of something out of context that doesn’t even apply to the discussion of economics. Or anything else here.

      Another is the fallacy of argument by authority. Made deliciously absurd by your assumption of your own god-like authority and undeserved yet interminable sense of superiority.

      You apparently only want to lecture us and to indulge in talking down to us. What you actually reveal is the same disdainful bigotry and inability to present a coherent argument as any right winger.

      From what objective standards is “obviously Americans cannot think qualitatively…” derived? Are all Americans the same?! That sort of illogic is the very definition of prejudice–the assertion that any member of a group is the same, all subhumans undeserving of respect.

      As for qualitative, to what does this refer? A lack of poetry, art, mysticism–characteristic right brain values that technocratic econ determinists, right and left, seldom acknowledge? Values emphasized by the hippies you dissed in your last diatribe. How about African-American jazz and classical composers and musicians? Or we who do Native American art or traditional shamanism? Does our non-white American skin mean we should be ignored?

      Besides all of that, your irrelevant fractured quotations also show your take on American philosophy is way out of date. Presuming you mean actual pragmatism and not something idiosyncratic. Pragmatism sensu strictu and logical positivism were taken apart decades ago.

      And what makes you believe none of us here have read Gramsci? What mental flaw, other than raw bigotry, would drive you to conflate capitalist economists and corporate plutocrats with the American workers they exploit? Why else the distortion of Gramsci? As if he weren’t sympathetic toward and actively allied with the global working class, including Americans. He is. You aren’t.

      As people like Studs Terkel and Barbara Ehrenreich wrote about in detail and the longshore worker and author Eric Hoffer demonstrated in his books, some of us working class Americans can read, write, and think. A few of us can even assess logic and the lack thereof.

  5. insecure rafi…..”americans are the living refutation of the cartesian cogito ergo sum. americans are yet they do not think. the american mind puerile primitive lacks characteristic form….” Juius Evola
    “nothing can thrive in America unless inflated by hyperbole and gilded with a fine coat of fraud. americans cannot think except by means of slogans—they identify garbage as quality. the stupidity and ignorance of americans has long been a topic of hilarity in Europe”. Paul Fussell
    “americans are not trained to think historically or sociologically; the functional illiteracy and ignorance …has made Americans an international joke”. Morris Berman

    1. @ giligan: MORE LOGICAL FALLACIES, BIGOTRY, AND OUT OF CONTEXT TROLL-LIKE BEHAVIOR

      Predictable. When you can’t muster a good refutation, you stoop to ad hominem. Then pile on the same logical fallacies: arguments by assertion, by authority, by non-sequitur.

      Again, the bigoted and illogical blanket condemnations. If no Americans can think, why would you quote Paul Fussel?

      Do you actually know anything about Julius Evola?! I have some of his books–good in some ways about the legacies of western esotericism. But he was also known for his overtly Fascist politics!!!

      In what way would Morris Berman be proof that no Americans can think? He’s an American also. And he’s engaged in a family argument from and to other Americans as a call to better education. Not in some final condemnation of the American victims of racism, class prejudice, and poor school systems. I’ve read him, too.

      As for not thinking “historically and sociologically,” in what way does this apply to African-Americans or Native Americans? We’re painfully aware of American and European history!!! You sound to me like just another white guy talking down to us.

      You do what so many people on-line do when the weak points of their arguments are pointed out. Simply ignore them and keep repeating their unsupported, inapplicable, and meaningless words.

      You appear to have used another of the on-line troll tricks. Look up quotation lists to find snippets that seem to validate your ideas. Then use out of context. While failing to understand that the body of work of these authors doesn’t support how you’ve used them.

      The irony of trying to show your own superiority and prove the inferiority of all Americans is that you’ve done the opposite. You seem to be like the right wingers who know something is wrong with the econ and political systems. But instead of finding common cause with other oppressed people, they blame those others, they find a scapegoat. In your case, all of us Americans indiscriminately. Or should I say with discrimination–with angry bigotry. Often a mask for fear, which no real man can admit.

      As I said, like my grandfather, I’m a Wobbly, I.W.W. International Workers of the World. Yeah, international, as in inclusive! Our motto is: AN INJURY TO ONE IS AN INJURY TO ALL.

      1. rafi can only call names like a child and distract from the truth—like an impoverished weak victim you pull out the crayons resort to the most peurile illiteracy —expected from a self uglified american….your insecure responses are expected….you are the ideal type american and represent why I do not live in your country—15 years in graduate school and teaching university was enough to know George Santayana is correct: “americans are ignorant and unteachable”

  6. rafi she is insecure—do not comprehend ad hominem obviously–cannot think historically obviously—Fussell taught in France Germany UK didn’t he moron…you cannot make an argument can you…”democracy in amerika means my ignorance is as good as your ignorance”. Isaac Asimov
    “amerikans cannot think dialectically—they only comprehend discreet disconnected facts”. Geoffrey Gorer
    you are anti-authoritarian child?
    “only in amerika has the authority of the father vanished”. Alexandr Kojeve
    “only in amerika has the dignity of the father ceased to exist”. Horkheimer/Adorno
    “only in amerika is the father vestigial: the american mind and conscience is feminine…americans especially males are troubled with a basic insecurity inadequately disguised by their boasting and bragging…americans are insatiable for reassurance…americans bewilder Europeans”. Geoffrey Gorer
    “americans are not at all happy, they feel themselves lacking…all the sensitiveness has dried up in americans…the crystallization of love is impossible in USA…I do not envy their kind of happiness—it is the happiness of a different and inferior Species”. Stendhal
    “of all peoples in an advanced stage of economic civilization american s are least accessible to long views always and everywhere in a hurry to get rich they give no thought to remote consequences they perceive only present advantages…americans do not feel, amerikans do not think—americans live in a materialist dream”. Moised ostrogorski
    “americans cannot think or feel dialectically”. University of Wuhan study (2020)
    “americans have always been anti-intellectual”. John McWorter
    “nowhere in an american public education are the concepts of truth or falsity ever addressed…american politics is baby talk”. Neil Postman
    “busy busy numb–americans cannot feel themselves alive unless they feel themselves busy”. Thomas de Zengodita
    “speed obliterates the capacity to think”. Zygmunt Bauman
    enjoy your shallow ugliness….”the people of north America accept a level of ugliness in their daily lives nearly with out precedent in the history of western civilization”. Yuri Bezmenov
    “the banality of america—the radical absence of culture”. J Baudrilliard

  7. obvious rafi does not comprehend nation character…”as one digs deeper into the national character of amerikans one sees they have sought the value of everything in this world according to the answer to a single question: how much money will it bring in?….the least reproach offends americans —the slightest sharp sting of truth turns them fierce”. Tocqueville
    “the nodal point for an american is the 2nd generation”. Margaret Mead
    “the limits of your language are the limits of your world”. Ludwig Wittgenstein…obviously also argued by Herder, von Humboldt, Gramsci, Goethe, Bahktin, Adorno, Belinsky, Berdayaev, Stalin Deleuze, Gadamer, Hertzen, Pasternak, Rilke, Nabokov, Schleimacher, Simmel, etc
    “the american language unlike British English is conservative: Webster purified British English of all its eccentricities and perversities”. Daniel Boorstin
    “the american ideal is that everybody should be the same”. James Baldwin—this ideal has been achieved

  8. Consider each time the drop in manufacturing jobs occurred, you had fewer workers in the pool that the percentages were effecting. So by the time we got to the large slide in 2000 to 2010, we’re essentially looking at a tsunami coming in and sucking out the pool that was already largely diminished.

    The only realistic means to reverberate manufacturing jobs is by local and state governments collaborating with local businesses who genuinely care about American workers towards rebuilding our economy is to develop worker cooperative work places to challenge private industries. Rather than pay out millions or billions to keep or bring in a company into their locality, put that money towards a take over under security claims. Allowing a company to hold a locality hostage by such means should, quite frankly, be considered criminal and detrimental to that society. After 5 decades can anyone not see the sense of negative national security these practices have incited towards the harms the working class has endured? What more does it take to recognize that we have had a class warfare being waged on us as the working class constantly loses while the ruling elite exploit the shit out of us with the help of our representation and medias they also own?

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