But the Clinton team’s pet schemes, like infrastructure projects and tax breaks for manufacturers, won’t address what may prove the thorniest economic problem of the 1990s: how to slice the pie. The environment in which business operates has changed in fundamental ways, from tougher international competition to the automation that has eliminated routine manufacturing jobs, and the consequences are lower wages and higher insecurity for many workers. While productivity is picking up and U.S. industry is turning in an impressive performance internationally, millions of Americans are being left by the wayside. Faster growth will not solve their problems; as the 1980s made crystal clear, many workers can become worse off even in a growing economy. Simply put, there are just too many people like Terri Owen, who four years ago was earning $30,000 as a flight attendant for Eastern Air Lines. She eventually went to work for United Airlines, whose attendants agreed to wage concessions, in 1984. Now the 33-year-old Owen, who shared an apartment with three colleagues for years to cut expenses, earns only $22,000.
Politicians have been running from the subject of income distribution ever since the ignominious end of Lyndon Johnson’s Great Society, more than two decades ago. When it comes up at all, they’re usually talking about forcing welfare mothers to work. Pointing out that wage differences among full-time workers have widened dramatically is a sure-fire way to be tagged with that most damaging of labels, “liberal.” But sharing the nation’s economic gains more evenly is a political imperative, and only government can make it happen by taking steps ranging from making it easier to unionize to forcing small businesses to provide pensions and health insurance.
To be sure, some economists tend to shed few tears for people like Terri Owen. “I’m not going to worry about guys in the middle when low-wage workers are losing income every year,” says Northwestern University economist Rebecca Blank. Although Blank has a point-minimum-wage workers have taken the worst beating-the political system may not accept her answer. Unless they see benefits for themselves, voters have little reason to back freer trade and other policies vital to faster growth. Says Normand Bailey, a struggling welder in New Hampshire: “They tell us they’ll come back and buy from us. But we still don’t have jobs.”
The rise in the wage gap is visible all across the wage spectrum. Back in 1979, a 30-year-old man with a college degree earned, on average, 27 percent more than a 30-year-old high-school graduate. By 1991, the differential had widened to 65 percent. Of course, the college grad’s earnings haven’t been growing by leaps and bounds, but he’s at least been keeping ahead of inflation. The average male high-school graduate, meanwhile, now earns less than $23,000 a year; in 1979, his pay in today’s dollars was almost $27,000. Fewer and fewer jobs now fit that worker’s skills, and the trend shows no signs of reversing. “Low-wage, low-skill jobs will continue to go to the Pacific Basin and Mexico,” says Timothy Smeeding of Syracuse University. Even the good news is bad: inequality fell a bit in 1991 because corporate cutbacks left upper-income folks, doing worse, not because low-wage or middle-income workers did better.
Inequality is rising in other areas, too. In 1979, a male high-school graduate with 25 years’ experience earned 43 percent more than one with five years of work. By 1988 the veteran was earning $11.91 an hour compared with the youngster’s $7.31-a 63 percent gap, proof that employers attach more importance to experience than in the past. Differences are also growing among people in similar jobs; industrywide standards have largely given way to wages based on a particular company’s fortunes. “Which firm you work for seems to matter more,” says Richard Murnane of Harvard’s Graduate School of Education. That’s also true in government, as Dorothy Pastoriza learned. In 1992, the fifth-grade teacher took a 3 percent cut due to the financial crisis facing Los Angeles schools. “I can’t stay after school and help a kid with anything because I need to get to my waitressing job.” she says.
What explains the skewing of the wage scale?
The signs point to one straight answer: technology. The computer chip has transformed the labor market. Offices don’t need as many paper shufflers-and that hurts everyone seeking such jobs. Says Charles Shoemaker, a senior VP with the First National Bank of Chicago: “Today even our management team is comfortable sitting down and banging out a memo” on the computer. Or visit a steel mill like Nucor in Crawfordsville, Ind. As machines do most of the dirty work, many of Nucor’s production workers monitor computers to make sure the product meets quality standards; those uncomfortable with statistical process control need not apply. Within an industry, contends Princeton economist Alan Krueger, workers who use computers earn, on average, 15 percent more than those who don’t.
Technology has altered the very structure of competition in many industries. As phone companies improve video teleconferencing, airlines and hotels see part of their core business gone for good. That creates jobs in telecommunications, but it wipes out jobs and pushes down wages for workers in the travel industry. And technology means that market forces change more quickly than ever, placing a premium on business flexibility-and exposing seemingly secure workers to the risk of sudden unemployment. Nearly one in four U.S. jobs has been eliminated since, 1980. Even in Europe and Japan, lifetime job security is becoming a thing of the past.
Yet while the economic forces are the same everywhere, some countries are doing far better than others when it comes to keeping wage differences within bounds. In Germany, pay is actually becoming more equal. At companies like GAT Fashion Group in the town of Gescher, unions insist that low-paid workers should get the highest wage hikes. Workers earn nearly twice as much as those in the U.S. apparel industry, and management adapts by hiring only highly trained employees and sending low-skilled work abroad. In France, low-paid workers are gaining on others, owing to a high minimum wage designed to prod employers to use labor more efficiently-at the cost, of course, of higher unemployment. In the United States, Britain, Canada and Japan, low-wage workers are losing ground against the middle even as average earners fall farther behind the top bracket. Of all those countries, America has experienced by far the sharpest rise in inequality.
Clearly, the forces that have made salaries more unequal and employment more unstable can’t be turned around by government fiat. Programs that help the lowest-paid, like the earned-income tax credit for low-income working families with children, are easy to expand if Washington is willing to spend the money, but shrinking the gap higher up the wage scale is trickier. High-profile programs to promote industrial “competitiveness,” if they succeed, will only push low-skilled workers farther behind. Clinton’s campaign promise to raise taxes on the highest-income families will make the overall distribution a tad less uneven, but it won’t reduce the vast divide between computer jockeys and computer assemblers. What can?
“Upgrading skills is the most important single thing you can do,” says Harvard economist Lawrence Katz. Clinton’s plan to require employers to spend 1.5 percent of the payroll on training won’t do it; since businesses spend most of their training dollars on highly educated workers, “rather than pull up the bottom, it’s just going to push the top farther ahead,” says Krueger. The government’s efforts should focus on teaching technical skills to young people who don’t go to college, a group that’s been mauled in the wage wars. Such training could be tied to industry-sponsored tests of proficiency in, say, computer-aided design: if students could obtain a certificate of competence widely recognized by industry, employers would be more confident of their skills and starting pay would rise. Training is no quick solution, but over time it can narrow the wage gap, since the main reason wages have become so skewed is a surplus of people with inadequate skills.
While the need for better training for non-college youths is widely recognized, the flip side is often neglected. “Anything schools do to reform themselves can be undermined by the policies of employers,” says W. Norton Grubb of the University of California, Berkeley, School of Education. One example: U.S. companies are far quicker than those in Europe and Japan to fire hourly workers when business slows down, so people with drive have incentives to aim for salaried jobs. There’s a way to discourage layoffs that even conservatives can applaud. Unemployment insurance makes stable companies subsidize those where layoffs are frequent; forcing manufacturers and construction companies to pay premiums that reflect the full cost of the unemployment they cause might lead them to do less firing.
Layoffs can’t always be avoided. But Americans would be less worried about them if employers were required to provide a cushion. According to the Labor Department, almost half the workers who were displaced from 1987 through 1991 received no advance notice. Although notice of major layoffs is now mandatory, smaller layoffs still occur with out warning. It’s easy to go too far, as France does, and make dismissals so costly that employers do all they can to avoid hiring. But requiring employers to provide several weeks of severance pay and health-and life-insurance coverage could offer U.S. workers protection against sudden job loss without unduly limiting employers’ flexibility.
Decades ago unions had a key role in improving conditions for low-paid workers. But U.S. labor law was written for the factory of the 1930s. It doesn’t fit today’s fast-changing world, it discourages labor-management cooperation and it makes banks, other service companies and high-tech firms all but impossible to unionize. One of the AFL-CIO’s top priorities is to change the law to bar employers from firing strikers, but this would do nothing for the 90 percent of private-sector workers who aren’t covered by union contracts. A total rewrite is in order.
All the nation’s private-sector job growth comes from small companies. But only two thirds of the 30 million workers at companies with fewer than 100 employees receive health benefits, and only one third have retirement programs. Small-business groups, of course, claim that their members can’t afford to pay higher benefits. But their failure to do so has helped create a two-tier work force-and left many of their workers looking to the government for aid. Clinton’s health-reform program may require all employers to pay for health coverage; a similar mandate for pension contributions is worth considering.
These measures will hardly render U.S. industry uncompetitive; they are modest by the standards of international competitors such as Germany. And they are far preferable to the likely political alternative: greater barriers to international trade and investment to protect particular groups of workers. Neither they, nor anything else Bill Clinton might do, can shrink the gap between managers and assembly-line workers back to where it was a decade ago. Government shouldn’t give everyone an equal piece of the pie. But if it cant make sure that average-wage earners get some of the benefits of globalization, Americans may be unwilling to accept the costs.
The Great Divide In the ’80s, the pay gap between the top 10th and average earners grew faster in the U.S. than in other wealthy nations. Country Average Annual Growth in the Wage Gap FOR MEN AGES 25-54 United States 2.2% United Kingdom 1.1% Japan 1.0% Netherlands 0.8% Australia 0.8% Sweden 0.4% SOURCES: PETER GOTTSCHALK, BOSTON COLLEGE; LAWRENCE KATZ, HARVARD UNIVERSITY
