A Living Wage? : WORK : Toiling Longer--But for the Same Pay

Reading the business pages these days is an increasingly surreal experience. Two weeks ago, the Federal Reserve Bank raised interest rates because of concern that “their six interest-rate increases in 1994 have not yet slowed economic growth.” Obviously, you can’t be too vigilant when it comes to fighting the scourge of economic growth.

Then last week, it appeared their fears were groundless when “stock and bond markets rallied on the news” of an rise in unemployment. This surely pleased the Fed also, for declining unemployment--more than economic growth--is “particularly worrisome to Fed officials.” Why? Because “the competition for workers is so strong that . . . wages will start to increase more rapidly.” Rising wages are a definite no-no.

In today’s topsy-turvy language of economics, less is more and up is down. This extends far beyond the Fed and its obsession with avoiding inflation at any cost. The discourse of limits is ubiquitous--with constant calls for “streamlining” and “downsizing.” But what are these words, if not euphemisms for a lower standard of living? Austerity dominates the public-policy debate as well, with most experts agreeing on the need for fewer government services to go with our low wages and job insecurity.

The truth is this: Most of the nation’s leaders--including economists, politicians and the chattering classes--have concluded that the economy can only grow slowly, and that the standard of living for most families essentially cannot grow at all. What’s more, they expect this to be true for many years to come, perhaps indefinitely.

It is hard to overstate what a profound change this represents for American society. And it has happened with extraordinarily little debate--or even real recognition--by the public. How did we get here?

Through the 1950s and ‘60s, a growing economy and shared prosperity were our nation’s first principles. Democrats and Republicans, management and labor--whatever they might disagree on, broad prosperity was a common denominator. Walter W. Heller, chairman of the Council of Economic Advisers for Presidents John F. Kennedy and Lyndon B. Johnson, said economic growth is both “the pot of gold and the rainbow.”

He meant that prosperity was not only a value in its own right, but was also necessary for addressing social problems. It was the political and economic prerequisite for tackling poverty and racism, because economic security is the best antidote to resentment. Heller and his peers would consider today’s anti-growth policies bizarre, but would find the consequences--a nasty, zero-sum politics with powerful racial undercurrents--eminently predictable.

The economic realities have changed as radically as our expectations. For a quarter century after World War II, working-class and middle-class Americans experienced regular growth inwages and benefits. Productivity and total output grew, and all but the poorest saw their standard of living improve. An unemployment rate of 4%--well below what economists today consider “full employment”--was cause for alarm and rapid government response.

But starting in about the mid-1970s, the story has been far different. Average hourly wages have stayed flat, and have actually fallen significantly for large sectors of the work force. A young male high-school graduate, for example, earns 30% less today than his counterpart earned in 1979. Family incomes have risen somewhat--but only because of women’s increased work hours.

Some would argue this transition was inevitable, that the rapid growth of the immediate postwar era was unsustainable once other nations emerged from the wreckage of World War II and competed with us. What’s more, Americans needed to learn the reality of limits. We had deified economic growth in an unhealthy way, consumed vast resources and developed a sense of casual entitlement to ever-greater wealth. Perhaps these changes, if difficult, were for the better?

This is the dominant view today, and it can be seductive. It appeals both to liberal impulses, such as concern for the environment and the world’s poor, and also to Americans’ more Puritan instinct that suffering now is the best road to later reward. But it is seriously misleading.

Certainly, we cannot measure quality of life only in gross-national-product statistics. But we have not sacrificed economic growth in favor of green imperatives, or to spend more time with our children.

America has not decided that a rising standard of living is something we should not have; we have decided--or rather our leaders decided--it is something we cannot have.

More important, we must distinguish between overall growth and wages. While economic growth decelerated--perhaps inevitable--wage growth was stopped in its tracks, and actually went into reverse for younger and less-educated people. Yet, productivity did not stop growing in the 1970s, ‘80s and ‘90s, the rate of increase simply slowed (and there is even debate over that). That means U.S. workers produce far more goods and services per hour than they did 25 years ago, and yet receive about the same wage. It seems fair to ask why.

After all, if productivity grows, but 80% of the society sees no change in its standard of living, someone is doing pretty well. To a large extent, it is the same people who carry out our national political and economic debates. The leadership strata has found it easy to embrace an ethos of limits because, in part, it is other people who will be limited.

Indeed, experts’ initial reaction to stagnant wages and growing inequality was denial: They said it wasn’t true. As accumulating evidence made that case untenable, we began to hear that short-term pain would bring long-term gain. After the deindustrialization and corporate downsizing would come the good times, thanks to higher productivity. Now that argument, too, is fading.

Reality was on display again last week, as Boeing announced layoffs amounting to 6% of its work force. In fact, many business leaders acknowledge they can see no end to downsizing. Polls suggest the public has figured out the truth, too: 83% believe more downsizing is ahead, and 77% say the economy is mainly producing low-wage jobs.

It turns out there is no gain, just pain. A leaner and meaner economy leads simply to more leanness and more meanness.

Will the American people accept a permanent downsizing of their life expectations? That will depend largely on whether any leaders step forward to challenge the new orthodoxy of limits and offer something better. This may be starting to happen.

Many Democrats sharply attacked the Fed’s recent interest-rate hike, with Rep. David E. Bonior (D-Mich.) saying it amounted to a tax increase on working people. Another sign of political ferment was a major speech delivered by House Minority Leader Richard A. Gephardt (D-Mo.), who contrasted the old economy--”where workers increased productivity and profits, and shared in the rewards”--with more recent increases in inequality. He challenged corporations to pursue a high-wage economic path, and suggested government must provide both carrots and sticks to get them there.

Voters understand that excessive economic growth can spur inflation but most would be surprised to learn that a rigid upper limit on growth has been established. And they would be shocked to discover their own government intervenes aggressively in the economy to block real-wage growth--thereby effectively guaranteeing that the benefits of greater productivity flow only to capital, never to labor. This is a complex reality, one not easily translated into the political arena but is potentially explosive politics.

Republicans will be inclined to reject Bonior’s and Gephardt’s analyses, but growth was once a consensus across ideological lines, and conservatives might want to recall its advantages. The central political achievement of shared prosperity was allowing the nation to finesse 1930s-era questions about economic equality. As John Kenneth Galbraith wrote, “Production has eliminated the more acute tensions associated with inequality. Increasing aggregate output is an alternative to redistribution.” More affluent Americans may come to regret their decision not to share the wealth a bit more, if concern over growth reopens a 50-year-old debate over who gets what.

Finally, economic stagnation has had another consequence that neither liberals nor conservatives should find any satisfaction in. As the nation has lost faith in prosperity, it also suffered a greater loss of belief in national possibilities. Today, we talk and act like a poor nation: We cut back on space exploration and scientific research, reject proposals to invest seriously in our cities and refuse to pay peacekeeping dues to the United Nations. We have downsized our imaginations and our ambition along with our economy.

In truth, though, we remain a wealthy nation--vastly richer than in 1960, when any achievement seemed within our reach. While we talk in fatalistic tones about “limits,” they are largely self-imposed. It is time to recommit ourselves to the idea of prosperity for all Americans, and to the greater national possibilities it provides.