The standard line in political circles about the growing inequality of the past four decades is that it is just an unfortunate result of technological change. Due to technological developments, education is valued much more and physical labor is valued much less. The decline in the relative income of workers without a college degree is unfortunate and gives rise to much hand twisting and bloviation in the elite media, but hey, what can you do?
Manufacturing plays a central role in this story since it has always been the main source of well-paying jobs for workers without a college degree. Manufacturing jobs offered a wage premium of almost 17.0% in the 1980s. This had fallen sharply at the beginning of the last decade and had largely disappeared in recent years.
This drop in the wage premium coincided with a drop in unionization rates in the manufacturing sector. About 20% of workers in manufacturing industry were unionized in the early 1980s. In 2021, only 7.7% of workers in manufacturing industry were unionized, which is only slightly higher than the average of 6, 1% in the private sector.
The media keeps hitting us with the line that this is just an unfortunate result of technological progress. Washington Post columnist Catherine Rampell gives us the latest interpretation this morning. The highlight is this graph showing that the manufacturing sector has seen a steady decline in employment share over the six decades from 1950 to 2010.
This is the basic “nothing to see here” story.
There is another chart that shows a very different story. The chart below shows manufacturing employment not as a share of total employment but in absolute numbers. This paints a very different picture.
From the early 1970s to mid-1998, manufacturing employment declined only slightly. There are cyclical ups and downs, but the total loss of jobs over that 28-year period was about 800,000, going from 18.4 million in 1970 to 17.6 million in 1998, or a decrease of 4.4%.
However, the story becomes very different over the next decade. From mid-1998 to December 2007, the manufacturing sector lost almost 4 million jobs. This means that after experiencing a decline in employment of only 4.4% over 28 years, the manufacturing sector has experienced a decline in employment of more than 22% in less than a decade. Looks like there’s something to see here. (It lost an additional 2 million jobs during the Great Recession, which began in December 2007.)
The thing to see in this chart is the explosion of the trade deficit over this decade, with the goods deficit peaking at over 6.0% of GDP over this period. In short, a huge increase in the trade deficit coincided with a massive and unprecedented loss of manufacturing jobs. Can we hear again how stupid these workers are to blame commerce for their problems?
It took more than trade to fuck the working people of the country
But trade is not the whole story of the upward redistribution of the past decade. We have also made the patent and copyright monopolies granted by the government longer and stronger. We’ve also encouraged the financial sector to become bloated, handing fat 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 senior executives to line their pockets and rip off the companies they work for. And we’ve also ensured that highly paid professionals, like doctors and dentists, are protected from the same competition faced by their less educated counterparts.
It is the subject of Rigged [it’s free]. It’s also the subject of a series of videos I recently made with the Institute for New Economic Theory, How to Unf*ck America. (Coming soon to a theater near you.)
Perhaps most striking about the inequality story that just happened is how deeply entrenched it is in political circles. When we make policy decisions that are virtually guaranteed to redistribute income upwards, the implications for inequality are not even heightened.
The government paid Moderna spent $450 million to develop a coronavirus vaccine early in the pandemic, then spent another $450 million on its large-scale Phase 3 testing. We then gave Moderna control of 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 in subsidies to makers of semiconductors and other advanced products. Again, there does not appear to have been any debate over who will own the intellectual property.
Naturally, it will be the companies that will get the contracts. It’s like paying a company to build a factory and then letting them keep the factory. Well, as a consolation prize, we will have more opportunities for wealthy liberals to complain about inequality.
Rampell’s colleague Andrew Van Dam published an article a few weeks ago that inadvertently showed how inequality is taken for granted in political circles. The highlight was when Van Dam gave us an “optimistic” view of the evolution of the increased globalization of many high-end jobs (jobs where people can work remotely).
“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 a world in which they compete with several million professionals worldwide. But economists were also optimistic about 2000-era globalization, and it seems wise to keep a cautious eye out for possible downsides.
OK, let’s keep our eyes on the ball here. How is it “optimistic” that the wages of more educated workers are not depressed due to international competition, as when their less educated counterparts were subjected to international competition with cheap labour?
As Rampell rightly points out in his article, 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. Obtaining these items from a lower-cost workforce, whether from foreign sources or from a domestic workforce that has to take pay cuts due to competition, is good for the consumers.
So why wouldn’t Van Dam see this as an optimistic story that we can get everything from accounting and legal services to medical advice at a much lower cost due to increased international competition? Of course, our accountants, lawyers and doctors would be paid less, but that would translate into lower consumer prices and increased economic growth. How could any self-respecting politics buff see that as a bad thing?
In practice, I am sensitive to many of the points raised by Rampell. Given that the wage premium in manufacturing has largely disappeared, it does not make sense to focus on recovering manufacturing jobs. (Politics may argue otherwise.)
But, if we want to improve the situation of the less educated workers in our economy, we must reverse the way we have structured the market to redistribute so much income upwards. Unfortunately, this topic is generally not considered appropriate for discussion in the Washington Post and other elite media.
This first appeared on Dean Baker’s Beat the Press blog.