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02/03/2004 Entry: "Can we wake up and smell the coffee yet?"

"The other day I found myself reading a leftist rag that made outrageous claims about America. It said that we are becoming a society in which the poor tend to stay poor, no matter how hard they work; in which sons are much more likely to inherit the socioeconomic status of their father than they were a generation ago.

"The name of the leftist rag? Business Week, which published an article titled 'Waking Up From the American Dream' (Click LINK below if the yahell page no longer works. GM). The article summarizes recent research showing that social mobility in the United States (which was never as high as legend had it) has declined considerably over the past few decades. If you put that research together with other research that shows a drastic increase in income and wealth inequality, you reach an uncomfortable conclusion: America looks more and more like a class-ridden society."
The Death of Horatio Alger, by Paul Krugman, The Nation, January 5, 2004 issue

Commentary: Waking Up From The American Dream
Dead-end jobs and the high cost of college could be choking off upward mobility

There has been much talk recently of the "Wal-Martization" of America, a reference to the giant retailer's fervent attempts to keep its costs -- and therefore its prices -- at rock-bottom levels. But for years, even during the 1990s boom, much of Corporate America had already embraced Wal-Mart-like stratagems to control labor costs, such as hiring temps and part-timers, fighting unions, dismantling internal career ladders, and outsourcing to lower-paying contractors at home and abroad.

While these tactics have the admirable outcome of holding down consumer prices, they're costly in other ways. More than a quarter of the labor force, about 34 million workers, is trapped in low-wage, often dead-end jobs, according to a new book entitled Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace. Many middle-income and high-skilled employees face fewer opportunities, too, as companies shift work to subcontractors and temp agencies and move white-collar jobs to China and India.

The result has been an erosion of one of America's most cherished values: giving its people the ability to move up the economic ladder over their lifetimes. Historically, most Americans, even low-skilled ones, were able to find poorly paid janitorial or factory jobs, then gradually climb into the middle class as they gained experience and moved up the wage curve. But the number of workers progressing upward began to slip in the 1970s, when the post-World War II productivity boom ran out of steam. Upward mobility diminished even more in the 1980s as globalization and technology slammed blue-collar wages.

MANY EXPERTS expected the trend to reverse as productivity rebounded during the heated economy of the 1990s. Certainly, there were plenty of gains. The long decline in pay rates turned around as supertight labor markets raised the wages of almost everyone. College enrollment boomed, too, and home ownership shot up, extending the American dream to more families. Low interest rates and higher wages allowed even those on the bottom to benefit. There was even a slight decline in the ranks of the very poorest families, as measured by asset wealth -- those with a net worth of less than $5,000 -- according to a study by New York University economics professor Edward N. Wolff.

But new research suggests that, surprisingly, the best economy in 30 years did little to get America's vaunted upward mobility back on track. The new studies, which follow individuals and families over many years, paint a paradoxical picture: Even as the U.S. economy was bursting with wealth in the 1990s, minting dot-com millionaires by the thousands, conventional companies were cutting the middle out of career ladders, leaving fewer people able to better their economic position over the decade.

During the 1990s, relative mobility -- that is, the share of Americans changing income quintiles in any direction, up or down -- slipped by two percentage points, to 62%, according to an analysis of decade-long income trends through 2001 by Jonathan D. Fisher and David S. Johnson, two economists at the Bureau of Labor Statistics. While two points may not sound like much, it's bad news given how much progress might have been made amid explosive growth. Essentially, says University of Chicago economics professor and Nobel laureate James J. Heckman, "the big finding in recent years is that the notion of America being a highly mobile society isn't as true as it used to be."

In fact, according to a study by two Federal Reserve Bank of Boston economists that analyzed families' incomes over three decades, the number of people who stayed stuck in the same income bracket -- be it at the bottom or at the top -- over the course of a decade actually increased in the 1990s. So, though the boom lifted pay rates for janitors and clerks by as much as 5% to 10% in the late 1990s, more of them remained janitors or clerks; fewer worked their way into better-paying positions. Imelda Roman, for one, makes about $30,000 a year as a counselor at a Milwaukee nonprofit -- barely more than the $27,000 or so, after inflation adjustments, that the 33-year-old single mom earned as a school-bus driver more than 10 years ago. Says Roman, who hopes to return to college to improve her prospects: "It's hard to find a job with a career ladder these days, and a B.A. would be an edge."

What Roman faces is an economy that is slowly stratifying along class lines. Today, upward mobility is determined increasingly by a college degree that's attainable mostly by those whose parents already have money or education. "It's clear that unless you go to college, you can't achieve a high trajectory in life. Education is the key to success in America today," says Aramark Corp. CEO Joseph Neubauer. He gives scholarship money to hundreds of disadvantaged kids every year through the Horatio Alger Assn., a group of successful Americans who try to help others make it, too.

THE GAP in advancement shows up clearly in longitudinal studies such as Wolff's and the Boston Fed's, which track the same people over many years. These give a better picture of long-term economic mobility than the annual government surveys of wages and incomes, since even highly educated employees usually start at the bottom and work their way up the economic ladder.

For mobility to increase in relative terms, which is the standard way economists measure it, someone has to move down the pecking order to make room for another to move up. But the Boston Fed study found less movement in both directions. Some 40% of families didn't change income brackets over the decade, vs. 37% in the 1980s and 36% in the 1970s, according to the authors' analysis of annual longitudinal surveys by the University of Michigan.

The changing dynamic of the U.S. economy clearly has the most impact on those at the bottom. Some 49% of families who started the 1970s in poverty were still stuck there at the end of that decade, the Boston Fed study found. During the 1990s, the figure had jumped to 53%, even after accounting for two-earner families. A key reason lies with the creation of millions of jobs that pay less than a poverty-line wage of $8.70 an hour, according to Low-Wage America, a massive research project involving case studies by 38 academics. Most of the workers, such as nursing assistants or food preparers, "have no educational credentials beyond a high school diploma," the authors found.

Problem is, that all-important sheepskin is out of reach for most students from low-income families. Although college enrollment has soared for higher-income students, more children from poor families can only afford to go to community colleges, which typically don't offer bachelor's degrees. The number of poor students who get a degree -- fewer than 5% in 2001 -- has barely budged in 30 years, according to an analysis of Census Bureau data by Thomas G. Mortenson, who publishes an education newsletter from Oskaloosa, Iowa.

In turn, the lack of mobility for those who don't or can't get a degree is putting a lid on the intergenerational progress that has long been a mainstay of the American experience. Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found. By contrast, 23% of lower-class sons had done so by 1973, according to the earlier study. Similarly, only 51% of sons whose fathers belonged to the second-highest quarter equaled or surpassed the economic standing of their parents in the 1990s. In the 1960s, 63% did.

That's the pattern Michael A. McLimans and his family follows. Now 33, with two young children, the New Holland (Pa.) resident has spent the past decade working at pizza chains such as Domino's and Pizza Hut (YUM ). He made it to assistant manager but found that he could earn more, $9 to $12 an hour with tips, as a delivery driver. He and his wife, a hotel receptionist, pull down about $40,000 a year -- far from the $60,000 Michael's father, David I. McLimans, earns as a veteran steelworker. "I save every dime I can so my kids can go to college, which neither of us can afford to do," says Michael.

INCREASINGLY, the story's the same for immigrants, who have been the most celebrated symbols of U.S. mobility. But compared with immigrants in the 1960s and '70s, a larger share of newcomers today are high school dropouts, including hundreds of thousands of poor villagers from Mexico. They encounter a plentiful job market that pays better than the one they left behind -- but find fewer paths to a middle-class lifestyle, according to several recent studies. Over the long term, the spread between immigrant and native-born incomes is about three times greater today than it was a century ago, according to Harvard University sociology professor Christopher Jencks. Says Harvard economics professor George J. Borjas: "If you come here as an adult, it's very hard to get more education, which is the only way to get ahead today."

Restoring American mobility is less a question of knowing what to do than of making it happen. Experts have decried schools' inadequacy for years, but fixing them is a long, arduous struggle. Similarly, there have been plenty of warnings about declining college access, but finding funds was difficult even in eras of large surpluses. One radical approach: that college be treated the way high school is, as a public good paid for by taxpayers. Presidential candidate Senator John Edwards (D-N.C.) has proposed making the first year's tuition free at all community and public colleges for any student willing to work 10 hours a week. That may never happen, but clearly, if the U.S. couldn't shake off a creeping rigidity in the best of times, it will take a conscious change to reverse course now.

By Aaron Bernstein, Business Week, December 1, 2003




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