Obama’s flawed framing of wage and income problems in the State of the Union
Sottotitolo:Technological change has not been a leading factor in our wage problems or inequality in the 2000s. Wage stagnation and growing wage inequality are the consequences of policy decisions made over the last four decades.
Having closely followed all of President Obama’s speeches on income inequality, I’ve noticed a significant move forward, from an abstract discussion to one that focused on the key underlying issue—the need to generate robust, widespread wage growth. Unfortunately, this week’s State of the Union (SOTU) address was a huge step backward in how the president framed and discussed the issue. His policy agenda, which I view very favorably, has not shifted. President Obama actually has a wage growth agenda—he just does not highlight its elements as part of a coherent package. That’s unfortunate.
The president’s SOTU framed income inequality and the “strain” on working families as the result of ongoing technological disruption, a force widely considered to be something we cannot nor should not do something about. This is extremely disappointing, incorrect as a factual matter, and misdirects our policy focus and mis-educates the public. It is especially disappointing since the views of center-left economists have been converging on a recognition that technological change has not been a leading factor in our wage problems or inequality in the 2000s (see Mike Konzcal). One need only note the statements made by President Obama’s leading economic advisor in the first term, Larry Summers, last March at a Hamilton Project event on the role of robots:
“And I am concerned that if we allow the idea to take hold that all we need to do is there are all these jobs with skills and if we just can train people a bit then they will be able to get into them and the whole problem will go away. I think that is fundamentally an evasion of a profound social challenge… I think that the broad empowerment of labor in a world where an increasing part of the economy is generating income that has a kind of rent aspect to it, and the question of who is going to share in it becomes very large.”
In plainer terms, Summers is saying that economy’s winners at the top of the income scale have gotten more than their share gaining ‘rents’ (meaning they don’t reflect efficiency gains), and that giving working people the power to act collectively will be key to any rebalancing between the elites and the middle and working classes. He’s saying that any talk about “skill deficits” as the cause of wage problems—that is what the technology story is all about— is misguided, and evades the essential questions of power in the marketplace that drive inequality and wage stagnation.
So with that, here is an annotated discussion of the key excerpts from the SOTU. Obama sets the stage by focusing on technological disruption as the main factor—the big picture dynamic that is hurting working families.
President Obama: We live in a time of extraordinary change — change that’s reshaping the way we live, the way we work, our planet and our place in the world. It’s change that promises amazing medical breakthroughs, but also economic disruptions that strain working families. It promises education for girls in the most remote villages, but also connects terrorists plotting an ocean away. It’s change that can broaden opportunity, or widen inequality. And whether we like it or not, the pace of this change will only accelerate.
Unemployment has dropped from its height of 10 percent to the current 5 percent, but we still have a ways to go. Blacks are still living in a deep recession. Our continued economic weakness is best seen in the share of the prime-age (25–54) workforce that is employed: it dropped by 4.7 percentage points between December 2007 and the summer of 2010 and has recovered only half the drop since then. This is why many economists believe we still have a ways to go to get to full employment and that we still face inadequate demand.
Incomes have been depressed for fifteen years, but especially since the recession began in 2008, and are nowhere near recovery: between 2009 (the start of recovery) and 2014 (the latest year of data), the income of the median working-age household (those under 65) fell from $63,532 to $60,462 (all in 2014 dollars). That puts it 9.2 percent below 2007, the last year before the recession. That is a long time to be underwater. And this followed the earlier period from 2000-07 where income fell 3.4 percent. So, we’ve had 14-15 years of pitiful income growth. No wonder people are not feeling the recovery.
This is primarily the result of excessive unemployment on top of broad-based wage and benefit stagnation, affecting both white-collar and blue-collar workers, which has prevailed since 2002 (and for the typical worker for most of the last four decades). That’s not technological change straining working families, nor should Obama be blamed for this income decline.
President Obama: In fact, it’s that spirit that made the progress of these past seven years possible. It’s how we recovered from the worst economic crisis in generations. It’s how we reformed our health care system, and reinvented our energy sector; how we delivered more care and benefits to our troops and veterans, and how we secured the freedom in every state to marry the person we love. But such progress is not inevitable. It is the result of choices we make together. And we face such choices right now.
President Obama: What is true — and the reason that a lot of Americans feel anxious — is that the economy has been changing in profound ways, changes that started long before the Great Recession hit and haven’t let up. Today, technology doesn’t just replace jobs on the assembly line, but any job where work can be automated. Companies in a global economy can locate anywhere, and face tougher competition. As a result, workers have less leverage for a raise. Companies have less loyalty to their communities. And more and more wealth and income is concentrated at the very top.
Wage stagnation is a problem President Obama inherited, but it has continued under him. Laudably, the administration has taken actions that can help restore wage growth—new fair contracting rules, revised overtime rules, attacking employee misclassification, minimum wages for contractors, providing legal work status and eventual citizenship to exploited undocumented workers, NLRB policy changes to facilitate collective bargaining and more—and suggested others—raising the minimum wage, changes to labor laws, etc.—that require legislation. Unfortunately, rather than highlight what is essentially the “Obama wage agenda” that can help balance out power in the labor market, the president chose to blame wage problems on external technological forces.]
Obama shifts to “opportunity,” rather than income or wage trends. Opportunity surely needs to be improved in the United States, but doing so will do nothing to generate more inclusive economic growth over the next twenty years, since opportunity policies are mostly education-related policies aimed at the next generation.
President Obama: We agree that real opportunity requires every American to get the education and training they need to land a good-paying job. The bipartisan reform of No Child Left Behind was an important start, and together, we’ve increased early childhood education, lifted high school graduation rates to new highs, and boosted graduates in fields like engineering. In the coming years, we should build on that progress, by providing Pre-K for all, offering every student the hands-on computer science and math classes that make them job-ready on day one, and we should recruit and support more great teachers for our kids.
President Obama: Of course, a great education isn’t all we need in this new economy. We also need benefits and protections that provide a basic measure of security. After all, it’s not much of a stretch to say that some of the only people in America who are going to work the same job, in the same place, with a health and retirement package, for 30 years, are sitting in this chamber. For everyone else, especially folks in their forties and fifties, saving for retirement or bouncing back from job loss has gotten a lot tougher. Americans understand that at some point in their careers, they may have to retool and retrain. But they shouldn’t lose what they’ve already worked so hard to build.
President Obama: Now, I’m guessing we won’t agree on health care anytime soon. But there should be other ways both parties can improve economic security. Say a hardworking American loses his job — we shouldn’t just make sure he can get unemployment insurance; we should make sure that program encourages him to retrain for a business that’s ready to hire him. If that new job doesn’t pay as much, there should be a system of wage insurance in place so that he can still pay his bills. And even if he’s going from job to job, he should still be able to save for retirement and take his savings with him. That’s the way we make the new economy work better for everyone.
President Obama: I also know Speaker Ryan has talked about his interest in tackling poverty. America is about giving everybody willing to work a hand up, and I’d welcome a serious discussion about strategies we can all support, like expanding tax cuts for low-income workers without kids.
President of the Economic Policy Institute.Co-author The State of Working America. He has testified before Congress on promoting policies that reduce inequality, generate jobs, improve the lives of American workers.