It's really quite odd. By most accounts, the economy is in pretty good shape, with an unemployment rate of 5.1%, growth at 3.5%, and productivity running at a 2.9% annual pace. What's more, the economic performance of the past 10 years -- call it the New Economy decade, boom and bust combined -- is arguably the best since the 1960s, with the stock market doubling and real incomes rising for rich and poor alike.
Yet against this backdrop, two of the nation's leading newspapers -- The New York Times and The Wall Street Journal -- are running extensive multipart series that paint a much darker picture. The U.S., rather than being a land of opportunity, these stories argue, is increasingly a class-bound place of immobility and stratification, where it's becoming ever harder for the people at the bottom to move up. "The odds that a child born in poverty will climb to wealth -- or a rich child will fall into the middle class -- remain stuck," proclaimed one Wall Street Journal article. the Times went further: "Mobility, which once buoyed the working lives of Americans as it rose in the decades after World War II, has lately flattened out or possibly even declined."
The stories -- so far 10 in the Times and 4 in the Journal -- are rich with anecdotes and references to topflight economic research. Yet the economics involved in sorting out questions of mobility are far more complex than such evidence would suggest. First, both newspapers focus on what economists call "relative" mobility -- whether you are moving up or down relative to everyone else in the U.S. But such a definition of mobility seems parochial and almost quaint in an increasingly globalized economy where we are acutely aware of the Chinese and the Indians catching up with us. Our frame of reference is expanding beyond our immediate neighbors to encompass the entire world.
In such a global economy, rather than agonizing over relative comparisons, it may be better to concentrate on the simpler and intuitively satisfying concept of "absolute" mobility -- whether you are doing better than your parents did, or whether the living standards of a whole group of people are rising over time. From this perspective, there are signs that this past decade has had more upward mobility compared with the previous two decades. One example: The inflation-adjusted income of the lowest 20% of households basically did not rise from 1973 to 1993, according to the U.S. Census Bureau. But from 1993 to 2003, the last year available, the same segment's income was up by 7.6%.
Entry Level Gains
There's yet another big problem: We actually know very little about whether relative mobility increased or decreased during the New Economy decade because complete data don't exist yet. With a few exceptions, most studies stop with the mid- or late 1990s. For example, one influential study that was cited in the Times, by economists David I. Levine of the University of California at Berkeley and Bhashkar Mazumder of the Federal Reserve Bank of Chicago, only uses data up to 1995.
That means their study and others miss or underestimate the structural shifts that occurred in the economy over the past decade as productivity growth accelerated and technological change and globalization became bigger disruptive influences on American lives. Downplayed are critical events such as the tight labor markets of the late '90s, which forced employers to hire and train less-skilled workers, and the tech boom, which created a whole new generation of millionaires from ordinary people who happened to be working in the right place at the right time. The studies also miss the layoffs of educated workers during the tech bust, the massive surge of outsourcing to India and elsewhere, and the ongoing residential construction and renovation boom, which is boosting demand for less-educated workers. The final impact is hard to judge, but all of this change could easily have generated more movement -- up and down -- the income ladder.
Here's what we do know: Over the past decade, virtually every traditionally disadvantaged group made gains in absolute terms. Take, for example, families headed by immigrants who entered the country in the 1980s. The poverty rate for such families dropped sharply, from 26.6% in 1995 to 16.4% in 2003, the latest numbers available. Similarly, a combination of welfare reform and tight labor markets helped drive down the poverty rate for female-headed households with children from 46.1% in 1993 to 35.5% in 2003. That may not seem like much, but it beats the total lack of progress in the previous decade. And a new book, Moving Up or Moving On: Who Advances in the Low-Wage Labor Market?, uses a new set of data to look at the wage history of a group of low-earning workers from 1993 to 2001. Adjusted for inflation, those people saw their average earnings more than double over those nine years.
These gains came in part from the low unemployment rates in 1999 and 2000, which fell below 4% for the first time in 30 years. As a result, "some workers got access to better job opportunities," says Harry J. Holzer, a co-author of the book and a former chief economist at the Labor Dept.
There were also big wage gains in retailing and construction, two industries that hire a lot of entry-level workers. Adjusted for inflation, construction wages have gone up by 7.5% since 1995, compared with a 16.7% decline over the previous two decades. Retail wages have followed a similar pattern. That means more new low-end workers are entering industries where wages have been rising rather than falling.
Yet continuing those gains and doing even better is no sure thing. For one, absolute mobility depends on sustained productivity gains throughout the economy, which lift incomes for everyone.
Longer-term, there are two disturbing weak spots in the picture of mobility. One is higher education, where fast-rising costs in tuition have outstripped gains in income and financial aid programs. What's needed, among other things, is a big infusion by the federal government of financial aid funding as an investment in human capital.
The other issue is the health-care sector, which has generated almost 2 million jobs since 2000 and will be one of the biggest job creators in the future. While health care has always employed a mix of skilled, semi-skilled, and unskilled labor, workers in dead-end nonclinical positions, such as food services, haven't been able to easily make the jump into better-paying jobs. "There wasn't much opportunity at the entry level, especially for people who wanted to get ahead," says Phyllis Snyder, vice-president of the Council for Adult & Experiential Learning (CAEL), a nonprofit specializing in lifelong learning for workers. Under a Labor Dept. grant, CAEL has organized pilot programs at five sites that help less-skilled workers get the training to move into patient-care jobs while earning money at the same time. Says Diana Bamford-Rees, CAEL's associate vice-president: "It's about how to make them upwardly mobile."
If the past decade has shown us anything, it's that Americans are not fixed in place -- not in absolute terms, and probably not in relative terms, either. Despite what the Times and Journal stories say, today's economy is a place of growth and tumult, rather than stagnation and immobility -- and that's a good thing.
By Michael J. Mandel