The Income Gap
Is globalization to blame? Only in part
Then there's the claim that workers' wages have been flat since the 1970s. According to the Labor Department, average hourly earnings, adjusted for inflation, have been flat overall since 1977. But there are two problems with this commonly heard statistic. For starters, there's a strong case to be made that government inflation statistics overstate rising prices by about a percentage point, failing to take into account the rising quality of goods and the ability of consumers to shift to Wal-Mart when prices go up at their local supermarket. If true, earnings have actually risen by 35 percent or so. Second, the Labor Department numbers do a poor job at tracking the earnings of "knowledge workers," notes economist Edward Yardeni, and are scheduled to be phased out in a few years and replaced with a more comprehensive measure. Better to look at overall compensation, including benefits such as healthcare coverage and 401(k) matches. Compensation has been rising at a far faster pace than wages in recent years.
Bashing. How will Democrats choose to deal with income inequality, wage stagnation, and-just as important-the less-noticed rise in income volatility? (Big swings in family incomes have tripled since the '70s, according to Yale University political scientist Jacob Hacker.) Jason Furman, director of the Hamilton Project, a centrist economic group, thinks there will be plenty of China-bashing rhetoric and talk of trade barriers-like one proposal to slap a 27.5 percent tariff on Chinese goods because of the weak yuan-over the next few years, not to mention a pause in new trade agreements. But in the end, he speculates, Democrats will mostly push for greater social insurance, such as vastly increased unemployment benefits. "Social insurance," he says, "can lead to a more dynamic society by letting people feel more comfortable taking risks."
Sen. Max Baucus, a Montana Democrat who is the new chair of the Finance Committee, advocates "global adjustment assistance," expanding wage and health benefits to workers displaced by all aspects of globalization, not just trade agreements. While emphasizing that future trade agreements must have better environmental and labor provisions, Baucus says it's important that Americans remember that trade "creates opportunities for economic growth and encourages innovation." (It has been estimated that global integration has added $1 trillion to the U.S. economy.) He guesses that the 2008 Democratic presidential nominee will sound a lot more like him than Brown or Webb. As for the protectionist measures that Wall Street worries so much about, Smick thinks there will be more talk than action, "unless we get a recession-then all bets are off."
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