I see a lot of discussions about the increase in income inequality in the US. Many attribute it to a transfer of wealth from the middle and lower classes to the wealthy.
I suspect that instead, US middle class wealth was largely attributable to manufacturing jobs, and those jobs have transferred overseas, mostly to Asia and especially China. Meanwhile, the wealth of the top 1% or 2% is based in ownership of US or multinational corporations, which continue to thrive, benefiting from the low Asian wages and their US intellectual property, along with US technological advantages and skilled tech workers.
That is, the middle class is losing manufacturing jobs, while the upper class is still earning income from manufacturing jobs exported overseas.
Can you support or refute this? Is there a better explanation, or a different cause that is more significant?
BTW, if the hypothesis is true, it would probably apply to European industrial countries, too. If it’s not happening there, does that mean it’s wrong, or is there something else going on to offset it?
I don’t think Offshoring of jobs is the sole or even primary reason for increasing inequality.
If you accept the premise of Thomas Piketty (under debate in another thread), income from wages is not growing as rapidly as the growth of income from investments. Add in different tax rates one wages vs capital gains and inequality increases even more.
From the mid-1990s to today, the US has lost roughly five or six million manufacturing jobs, either to overseas workers or through productivity improvements. While that is a lot of jobs, out of roughly 145 million employed people in the United States, offshoring alone can’t possibly explain the changing income distribution in the country.
Agreed. Offshoring has a lot less impact on the economy than most people think, and just to be clear, I don’t think we can attribute all 5-6M manufacturing jobs to offshoring. Some of that is going to be due to automation and other productivity advances.
The cap is not caused by Asia. Asian countries or people did not come here and steal things away. Asia is a factor in the wealth gap, in that the wealthy have learned how to use Asian labor to increase their profits – by and large by displacing American labor.
I think the hypothesis is true, strictly speaking, but simply doesn’t go far enough.
I suspect the problems with the US economy have more to do with the gradual levelling of the economic playing field on a global scale. We’ve had it so much better than everyone else that there’s bound to be some drop off as the rest of the planet absorbs its share.
The manufacturing jobs mentioned earlier are a good example. Those used to be done domestically, but now through normal economic forces they’ve moved to other places. (i.e. cheaper labor and lower regulation) After a few generations, this will probably average out by labor costs and regulation strictness declining domestically, which arguably we’re beginning to see already.
The Economist had a recent article about a study which found that the income gap increases about as much as we’ve seen, then instant you have women join the workforce - unless you assume there to be no relation between who a person dates and what their personal income is. But assuming that people tend to date/marry people near their own income, then basically the income chart gets stretched by 2x.
It’s not a zero sum game, there isn’t a fixed pie, and the wealth hasn’t been transferred from the poor and middle class to the rich. The poor and middle classes have simply grown slower or stagnated, while the wealthy class has expanded (there are more wealthy people and their wealthy has expanded as well…and the bar has been continually moved on where ‘wealthy’ starts).
Basically, my own non-economics major opinion on this is that expert systems, automation and the like have allowed companies to optimize their productivity, which has enabled the wealthy to become more wealthy. Certainly offshoring and outsourcing have also helped in this regard, allowing manufacturing costs to go down, making products that were once only marketable to the rich or upper middle class available to basically everyone (cell phones, laptops, even high speed internet, etc). The middle class in the US benefits from this global manufacturing and availability of a staggering array of products and services on the one hand, but they haven’t had ever increasing salaries and benefits because the increase in productivity hasn’t come from them, but from the capital investment in those automated processes, expert systems and such. Why people think that (US) labor should or will be on some perpetual upward increase machine is beyond me. Labor is worth what it’s worth, and Americans are one of the wealthiest countries on the planet. Our poor are better off and have access to goods and services unavailable to all but the richest classes in much of the 3rd world.
I think that it’s true that manufacturing JOBS are being phased out in the US (US manufacturing is actually on the rise, and has always been very strong and remains so), but it’s as much due to automation, expert systems and efficient processes and procedures as it is to offshoring. Even if those jobs stayed in the US, they would be making less, however, since let’s face it, we just don’t need a large number of semi-skilled laborers making high wages with good benefits anymore.
If that were true then the gini coefficient would have seen as much growth in other OECD nations. The US tends to have seen more inequality growth than other wealthy nations.
Also service sector work is becoming a bigger part of the economy, and that is not affected by outsourcing. A higher minimum wage, stronger unions, etc. would increase income at that level (and if the extra income comes from lower incomes for the top 0.1%) and reduce inequality.
So I really don’t think that alone is the cause. Not only that, but there still are manufacturing jobs in the US. However they pay less and less. At a place near where I grew up they used to offer about $23/hr with great benefits. Then it was $20. Then $18. Then they started people at $15. Last I checked people were starting at $13 with no benefits.
The Scandinavians are pretty fond of using tax rates to redistribute income. You would either need to remove the differences in the tax code between the various nations (have fun!) or compare each country’s level of inequality to its own past vs. its uptake of female workers (i.e. make each country its own control).
No, you are right…it was really a rhetorical phrase. I do know why people think it ‘should’ be…because they feel it should. And stuff. Personally, I think our current system IS the ‘best thing for most people’, historically speaking, but I concede that MMV. This isn’t to say there isn’t room for improvement, but to me it’s small tweaks, while to folks like you it’s more throwing the baby out with the bath water in a quest for utopia…a quest I personally feel would be an unmitigated disaster. But that’s what makes debating about it so fun, since, thank the gods, you will probably never get your way, while I already have for the most part.
While I’ve never been a fan of unions, I do see where the decrease in overall membership has contributed the drop in wages around the US. Since union members are among the highest paid of blue collar workers in the US, any decrease in the number of unionized employees would commensurately decrease the number of higher positions.
Also, organized labor’s failure to unionize the tech industry was a huge misstep for them. When the nature of work changed, the unions were unwilling or unable to change with it. Thus employers gained greater leverage and lower wages accordingly.
Finally, the rise of temporary work has been a disaster for the poor and lower middle class in the US. By not having to employ people but simply adding or subtracting them when things are slow, most companies can make huge profits and never have to increase their head count. Also, temp agencies have little incentive to pay their employees much nor will they charge employers that much as another agency will simply offer the company lower waged workers.
Asia played a role in the employment situation in the US; but IMHO only a minor one. Our wounds are mostly self-inflicted.
I am not sure I see why the tax-created contribution to a low GINI should be singled out. Also, the trend goes beyond the Scandinavian countries.
Also, Norway for instance, can save its oil income for a rainy day because the high female participation in the labor market yields higher tax income per head.
Oh, feel free. If you have a serious argument that it was the tax structure in the 40’s-70’s that kept the gap tight between the poor and the rich in the US and that (presumably Regan) changing that is what’s caused the explosion of both wealth and the wealthy then I’m all ears. Certainly it was a factor, but my understanding is that not that many people actually paid those levels of taxes…and, frankly, there were not that many really rich people, unlike today where we have to continually up the bar of what ‘rich’ even is since there are so many.
To me, sounds more like a feature than a bug in any case.
