It’s an election year, Obamacare’s problems have Democrats backpedaling, and so we can expect a reprise of a theme from 2012: Life really should be more fair, and your federal government can make it so.
This theme will probably play out in a number of ways, from arguments to increase the minimum wage to claims middle-income Americans would be better off if only government were just a little bit bigger.
Underlying it all is a notion that President Barack Obama phrased this way in a December 2011 speech:
“[F]or most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success.”
That is a weighty charge, one he has repeated in some form or another several times since then. Is it true?
We know the Great Recession and the subsequent weak recovery took a toll on American workers, in the form of stubbornly high unemployment and slow wage growth. But had “hard work stopped paying off” for many Americans before the recession hit?
Among the data reported by the Bureau of Labor Statistics are the usual weekly earnings of full-time workers by education level (high school grads, college grads, etc.) and at various points on the income scale within each education level (10th percentile of high-school dropouts, median of high-school dropouts, etc.).
If hard work had truly stopped paying off, one thing we could expect would be stagnation as one moved up the education ladder. Likewise, if we assume someone in the 90th percentile within one education level has more skills than someone at the 75th, who has more than someone at the median, and so on down the line, we should see stagnation across those groups, too.
So what do the numbers say?
Looking at the period between 2000 and 2012, the only years for which annual data are available, the income premium for moving up one level of education has remained pretty much a constant. That is, a high school graduate at the median wage consistently earns about 40 percent more than a dropout; someone with some college education earns about 65 percent more; someone with a bachelor’s degree earns about 130 percent more; and someone with an advanced degree earns almost 190 percent more.
This has remained true except during the recession. There was also a dip in 2012, though it’s too soon to say if that was a blip or the start of a trend.
Likewise, the median wage earner in each education group remained about as well off relative to federal poverty guidelines through 2008, when wages peaked. It is only since then that Americans have lost ground compared to what the government estimates it takes to live above a poverty wage.
That said, even high-school dropouts, if they work full-time at the median wage, continue to earn more than twice the poverty level for a single person, and more than the poverty level for a family of four. If two of the highest-paid dropouts were married with two children, they probably would be considered too well-paid to qualify for an Obamacare subsidy.
Turning to wage growth, the gains have been higher as one moves up the income/skills scale within four of the five education levels. The only exception is high-school dropouts, who saw the same 27 percent growth (unadjusted for inflation) at the 90th and 10th percentiles. The growth gains became more prominent as one moved up the education ladder.
Granted, these are but a few indicators among many. But are these the signs of an erosion in America’s “basic bargain”? Do they suggest “hard work [has] stopped paying off”? The tide may have been weaker than many of us would like, but it is still lifting all boats.
The main obstacle American workers face is weak job creation. That is one part of the basic bargain that hasn’t held up, particularly over the past five years. The same ideas we’ve been hearing probably won’t change the direction we’ve been taking.
