Inequality is a consequence of a wide (and often bewildering) array of factors and circumstances. Understanding the relative weight of these factors is important—not only because we want a decent and credible explanation of what has happened, but because there is so much at stake in the details of that explanation. Understanding the roots of inequality is the starting point for any political response.
Before turning to the political roots of American inequality, we need to dispense with some common—and mistaken—explanations: the globalization of the American economy, recent technological change, and the demographic transformation of the American family.
I. The World Is Flat
The first culprit for rising inequality is often globalization, or the ease and speed with which goods and services, money, information, production, and labor can move across national borders. In this view, the collapse of American leadership in the world economy in the 1970s yielded a form of globalization that was both more intense and more heterogeneous than what came before; its rewards flowed to emerging or resource-rich economies, and to private interests rather than nations.
With globalization, we see a general trend toward declining inequality between countries and rising inequality within them. In this flat new world, production follows lower labor costs across borders and oceans (most notably in clothing and consumer electronics). The threat of flight or plant closing becomes a pervasive and effective strategy in labor relations. The impact has been starkest on American manufacturing—where we have seen sustained competitive pressures from labor-intensive imports, a diversion of domestic investment, and unrelenting pressure on wages. The local impact in regions and communities more directly exposed to low-wage competition from abroad has been devastating: markedly steeper unemployment, lower labor-force participation, slower wage growth, and higher demands on public services and support.
These are pretty dismal consequences (and prospects). But it is important to understand globalization—and its discontents—in a broader economic and political context. As an explanation for economy-wide wage weakness, the footloose mobility of capital is overdrawn. Much of the economy is rooted in place by labor markets, supply chains, or consumers. Sectors of the economy untouched by liberalized trade shed workers and dampened wages at pretty much the same rate as the rest of the economy in the twenty-five years after 1970. While globalization has accelerated since 1990, wage inequality at the bottom (between low-wage and median-wage workers) has actually slowed over that span. Most of the growth in inequality during this era has been driven by gains made by very high earners—a pattern unlikely to be shaped much by trade.
More to the point, all countries face the forces and consequences of globalization, and yet wage and income inequality is starker in the United States than in most other settings. Indeed, the United States is less exposed to trade than any of its OECD peers, and yet more unequal than almost all of them [for a closer look at historical and comparative patterns of globalization]. It is not globalization (as an abstract and inevitable force) that generates or explains inequality, but the political response to globalization in particular countries.
The demands globalization places on the labor market can lead to a race to the bottom, but they need not. Indeed, globalization widens the wage gap (within and across countries) not universally, but when and where labor protections are weak. It is not trade that generates inequality, but its political terms.
II. The Computer Did It
Others have argued that shared prosperity is undone by technological change. In this view, skill-biased technological change displaces “routine” manual tasks such as working on a production line and creates new tasks and occupations for which skilled workers are better adapted. But it does not displace non-routine, low-wage service jobs. As a result, those with skills and advanced degrees hoard any economic gains and everyone else falls farther and farther behind. We see losses in the middle of the labor market (in sectors like administration, production, and fabrication), accompanied by growth at the edges—in low-wage, low-skill jobs at one end, and in high-wage, high-skill jobs at the other.
If nothing else, this is a politically attractive kind of explanation for inequality. Technological innovation or change (like globalization) is not something you can control, so there seems little political recourse but to occasionally lament the quality of American education. But, on closer examination, it is not that compelling an explanation [for a closer look at technological explanations for inequality].
Despite all the handwringing about our underprepared workforce, the returns on education are not that clear. While those with some college education or better pulled away from the pack in the 1980s and 1990s, that advantage has slowed dramatically. Workers with some college education or a college degree are much more likely now to remain mired in low-wage work than workers with the same educational background a generation ago. The last fifteen years have seen significantly slower growth in high-skill, high-wage jobs than in the economy at large. Even those with the right skills are pounding the pavement.
The evidence linking technological change and inequality is weak with respect to the timing and the nature of that inequality. Over the long haul, technological change has tended to push job growth to the margins, but this has occurred monotonously, across eras of relative equality and inequality. The modern trajectory of wage inequality, by contrast, is sharply discontinuous—widening most dramatically between low and median wage workers in the 1980s, and between median and high-wage workers in the last decade.
The notion that inequality is generated by rapid technological change and skill shortages is not sustained by recent American experience. Since 1969 labor’s share of income has fallen most rapidly in those sectors where union presence withered, not where computers displaced labor. Across our last two business cycles, income concentrated not in sectors or regions where skills were most in demand, but where speculative bubbles bloomed and burst. During our most recent recession and recovery, the notion of a “skills shortage” was belied by the fact that job openings and available workers were distributed pretty evenly across the economy. Skilled workers saw no “bidding up” of their wages or increase in their work hours, as one would expect in a shortage. Indeed, most of the growth in wage inequality across the last generation can be found within occupations, and not in their relative share of the labor market.
Whatever causal importance we assign to technological change, it is hard to see it as a credible account of the different trajectories of inequality across countries. Like globalization, technological change is a challenge faced by all economies. And yet differences across national settings (and especially the outlying status of the United States) remain profound.
III. Calling Ward Cleaver
A final culprit is demographic trends—particularly changes in family composition. Since income is a “household” measure, the rising proportion of single-parent households is often invoked to explain inequality. Indeed, in the United States the most prosperous family units (married households with a woman in the labor force) are declining as a share of all families, just as the least prosperous (single, female-headed households) are rising as a share of all families. This has been accompanied by a rise in what social demographers call “assortative mating,” or the reluctance of men and women to cross an educational or income barrier when they get married. This further widens the gap between affluent dual-income families and all others.
But we need to be careful about what is being observed or explained here, and the mechanisms by which demographic change might contribute to economic inequality. On single motherhood, the United States shares top billing among its OECD peers with Sweden—a country noted for its relative equality. On assortative mating, the United States is in the middle of the pack. And on neither trend do gradual changes in family composition line up in any credible manner with the growth of inequality in the United States.
The differences, it turns out, are political rather than demographic. Compared to their OECD peers, two-earner families in the United States do fairly well (only 5 percent fall below the poverty line). But American families with only one worker—over a quarter of which fall below the poverty line—are at a much sharper disadvantage than similar families elsewhere. At the same time, the presence of kids (in the absence of policies like family leave and publicly supported child care found in much of the rest of the world) is a distinct economic burden in the United States. While childless American households have one of the lowest rates of poverty incidence in the OECD, those with children have one of the highest. It is not the rise of single-parent households that feeds inequality but the stigma attached to single motherhood—and the policies that flow from that.
Finally, demographic explanations tend to confuse consequence and cause. Wages, income, and wealth are shaped by family structure but they also shape family structure. Those with lower incomes and lower educational attainment, for example, tend to marry earlier and divorce more often. In this sense, single motherhood is a reflection of inequality, not a cause. Finally, most of the measurable inequality (and insecurity) occurs within demographic categories. Inequality and insecurity cut across family types. The gap is growing not between single moms and everyone else, but between (for example) some parents with kids and other parents with kids [for more on demographics and inequality].
Too much competition from China. A skills gap. Too many single moms. In most explications of the inequality problem, this is the conventional roundup of suspects. Yet, at best, this is a line-up of minor accomplices. And the case against each is surprisingly thin.
For starters, none of these explanations do a very good job of explaining the timing of increases in wage and income inequality across the last generation—either because the explanatory trends are continuous and the trajectory of inequality is not, or because movement in the explanatory trends do not line up in any chronologically plausible fashion with movement in different kinds of inequality. The suspicions are warranted, but the suspects have decent alibis.
Each of these explanations is also rooted in global trends. They lack much explanatory weight, therefore, in explaining differences in inequality across national settings. Gradual, continuous, and global patterns of change cannot be used to explain discontinuous spikes in inequality within one national setting. They key variable here is not the broad social or economic trends, but our political response to them.
All of these economic and demographic changes are embedded in a larger institutional and political story. In order to understand U.S. inequality (its growth over time and its exceptionalism), and in order to think about redressing that inequality, we need to focus on differences that matter. The simplest way to do this is to go back to our midcentury sketch of the public policies and institutions—the “New Deal order”—that sustained both a floor for the bottom of the labor market and a ceiling for the top of it. What happened to those policies over the last half-century? How did their fate contribute to rising inequality?