Sunday, January 17, 2016

Rising Wages, Sinking Families: the Paradoxes of Income

Despite economic “hard times” in the 1970s, when the U.S. economy was hit separately but simultaneously by inflation and by the Arab Oil Embargo, and in early 2010s, statistics still show long-term growth in real wages, as Charles Murray notes:

In the 1960 census, the mean annual earnings of white males ages 30 to 49 who were in working-class occupations (expressed in 2010 dollars) was $33,302. In 2010, the parallel figure from the Current Population Survey was $36,966 — more than $3,000 higher than the 1960 mean, using the identical definition of working-class occupations.

Alternatively, the same trend can be quantified as a rising standard of living. During that period, 1960 to 2010, the percentage of households possessing the following items increased: televisions, color televisions, microwave ovens, DVD (previously VCR) devices, cell phones, electric garage door openers, personal computers, smart phones, etc.

In any case, we can mark that fifty year period as a time of net economic gain: which means we can use this half-century as social specimen of what happens to a population when prosperity increases.

This occurred despite the decline of private-sector unions, globalization, and all the other changes in the labor market. What's more, this figure doesn't include additional income from the Earned Income Tax Credit, a benefit now enjoyed by those making the low end of working-class wages.

At one time, demographers often accepted the hypothesis that higher income rates led to higher marriage rates. Accordingly, they made few or no policy recommendations to directly increase the marriage rate. Instead, they assumed that improvements in the economy would automatically fix social problems like low marriage rates.

Perhaps, at some point in the past, that hypothesis was true. But, as Charles Murray points out, the last few decades have yielded numbers which have created great doubt about this conjecture:

If the pay level in 1960 represented a family wage, there was still a family wage in 2010. And yet, just 48% of working-class whites ages 30 to 49 were married in 2010, down from 84% in 1960.

If the hypothesis which linked rising wages to a rising marriage rate is not true, then the question arises about which causal relations, if any, exist between income levels and marriage rates. Additionally, the question arises about whether there are other factors, economic or noneconomic, which might determine marriage rates.

A second hypothesis had predicted that rising wages would cause rising participation in the labor force. Better wages, it was assumed, would lure more workers into the workplace. But this hypothesis also showed itself to be questionable.

What about the rising number of dropouts from the labor force? For seven of the 13 years from 1995 through 2007, the national unemployment rate was under 5% and went as high as 6% only once, in 2003. Working-class jobs were plentiful, and not at the minimum wage. During those years, the mean wage of white males ages 30 to 49 in working-class occupations was more than $18 an hour. Only 10% earned less than $10 an hour.

Contrast the average real wage in the period from 1995 to 2007 to the wage from 1960:

If changes in the availability of well-paying jobs determined dropout rates over the entire half-century from 1960 to 2010, we should have seen a reduction in dropouts during that long stretch of good years. But instead we saw an increase, from 8.9% of white males ages 30 to 49 in 1994 to 11.9% as of March 2008, before the financial meltdown.

In the face of the failure of these two hypotheses, statisticians, economists, and demographers had to explain why rising wages didn’t trigger an increase in workforce participation and an increase in the marriage rate.

If changes in the labor market don't explain the development of the new lower class, what does? My own explanation is no secret. In my 1984 book Losing Ground, I put the blame on our growing welfare state and the perverse incentives that it created. I also have argued that the increasing economic independence of women, who flooded into the labor market in the 1970s and 1980s, played an important role.

There are, however, alternatives to Charles Murray’s interpretations. The question is why rising wages didn’t have the anticipated social effects. But from a different perspective, perhaps the wages didn’t really rise.

Although Murray’s numbers, as quoted above, seem to indicate an increase in wages, his numbers also show an increase in single-parent households, whether through divorce or through illegitimacy. Unwed motherhood erodes the expanded purchasing power expected from nominally rising wages.

When parents do not live together with their children, the need arises to sustain two households. If mother and father do not live permanently in the same dwelling, then there is a need for two stoves, two refrigerators, two furnaces, two lawnmowers, etc.

This redundancy is very expensive, nearly doubling the cost of living. So if wages rise at the same time that single-parent families arise, then the latter number will to some extent counteract the former.

With more women in the workforce, single mothers were often able to maintain themselves financially. So the average standard of living across the population was able to sustain itself and even increase.

This increase in standard of living was, however, achieved very inefficiently, because for each working single mother, there was a corresponding male either working or potentially in the workforce. Had the two of them joined forces, the standard of living would have risen even faster, and with less work.

These inefficiencies arise when there are two parallel households when there should be one. Then net cost to individuals and to societies is significant.

Charles Murray examines the cultural factors behind the increase in single-parent households, whether through divorce or through unwed motherhood:

Simplifying somewhat, here’s my reading of the relevant causes: Whether because of support from the state or earned income, women became much better able to support a child without a husband over the period of 1960 to 2010. As women needed men less, the social status that working-class men enjoyed if they supported families began to disappear. The sexual revolution exacerbated the situation, making it easy for men to get sex without bothering to get married. In such circumstances, it is not surprising that male fecklessness bloomed, especially in the working class.

In the early twenty-first century, these cultural factors are powerful influences in society. Culture seems to trump economics, not the other way around:

I barely mentioned these causes in describing our new class divide because they don't make much of a difference any more. They have long since been overtaken by transformations in cultural norms. That is why the prolonged tight job market from 1995 to 2007 didn't stop working-class males from dropping out of the labor force, and it is why welfare reform in 1996 has failed to increase marriage rates among working-class females. No reform from the left or right that could be passed by today's Congress would turn these problems around.

The disclaimer needed when examining these trends is, of course, that we are dealing with averages and trends. There are exceptions: widowhood is, for example, almost never by choice.

Physical disability is another important exception.

But as percentages in the general population, these exceptions are small segments, and the general trends are not affected by them.

As single mothers have proven themselves more adept and creative at sustaining themselves and their children in single-parent households, the corresponding males, who are on average not supporting any children, find it easier to support themselves with little or no constructive economic activity.

Society has created a giant loophole, an easy way out, for men who father children, abandon them, and then live easily without contributing to the economy, to their children, or to the mother of their children. They are allowed to act irresponsibly.

The prerequisite for any eventual policy solution consists of a simple cultural change: It must once again be taken for granted that a male in the prime of life who isn't even looking for work is behaving badly. There can be exceptions for those who are genuinely unable to work or are house husbands. But reasonably healthy working-age males who aren’t working or even looking for work, who live off their girlfriends, families or the state, must once again be openly regarded by their fellow citizens as lazy, irresponsible and unmanly. Whatever their social class, they are, for want of a better word, bums.

The use of the word ‘responsible’ is central to Murray’s argument here. For many people, the word or the concept it represents need not be invoked: they are naturally inclined to contribute to their families and to society.

But there is a large enough segment of the population - and especially of the male population - which needs some external encouragement to seek and maintain employment, and to support their families, that it is necessary to provide structures which incentivize socially constructive economic behavior.