LABOR DAY '99: THE CHANGING WORLD OF WORK : Look at the Growth Opportunities, Not the Wage Disparities

By JAMES FLANIGAN

Sept. 5, 1999 12 AM PT

Contrary to a lot of the rhetoric you’ll hear this Labor Day Weekend, wage inequality in America is narrowing, not widening. The gap is shrinking between the highest-paid and lowest-paid workers.

But stoked by the rising stock market, the gap in wealth is growing between the richest 1% of Americans and the rest of the people.

That’s neither a sign of cruel unfairness or of social breakdown but the consequence of years of high capital investment by business. Returns on those investments have been reflected in profits and stock prices. It would be surprising if the richest, who own the most stock, didn’t get richer in such times.

It’s also not surprising that wage disparities are narrowing at a time of low unemployment. Restaurant workers are in short supply this year and are getting 6% more in wages than they did last year, according to Labor Department statistics. Retail store workers, too, are beginning to see their pay rise faster than the average for all industries.

Indeed, wage inequality has been declining for most of the 1990s, reports the University of Texas Inequality Project, which measures wages in manufacturing across 18 industries dating back to 1947.

“Similar patterns occur in service industries,” says UT economist James Galbraith. “It makes sense. Economic growth creates more jobs, and the lowest-paid workers do better too.” That’s why joblessness among minorities is lower than it has been in decades.

The UT figures show less wage disparity now than in the 1970s or 1980s or the latter half of the 1950s.

Those facts don’t mean that all is well. But they do suggest a different perspective for this Labor Day. America is not a society divided into income groups or classes, but a striving, rich society, capable of great initiatives.

Increased wealth represents an opportunity and a challenge to spend our riches wisely for economic and social good and to raise the level of the lowest wage earners so they can get into the game of wealth building too.

The wealth picture, as portrayed in statistics on household assets compiled by economist Edward Wolff of New York University, shows a skewing to the top. The richest 1% of U.S. households now account for 38.5% of the nation’s personal wealth, whether in stocks, bonds, houses, mutual funds or other financial assets. That’s up from 34% in 1983.

Meanwhile, the poorest households appear to have lost ground over the last 15 years, according to Wolff’s survey.

And undeniably, wage differentials are large. The Labor Department reported last week that the top 10% of full-time workers earn $1,200 a week, on average, and the bottom 10% earn $275 a week. High-tech jobs pay 78% more than jobs outside high tech.

The problem there is not the $1,200 weekly paycheck. More power to it! But the $275 wage is not enough to allow the wage earner to qualify for a mortgage and buy a house--the asset that accounts for 30% of all American wealth.

But, you say, moderation in wage increases is one of the factors driving better profits and high stock prices. Will raising low wages clobber the stock market? Not necessarily, and in any case, larger issues are involved. Chronically low wages can create an underclass.

The challenge is to bring up the bottom ranks, says economist Glenn Yago of the Milken Institute in Santa Monica. “If the poor can’t participate, you run the risk of a diminishing economy.”

What to do? The commonplace answer these days is “improve education.” But education, although the key to economic betterment, is a complex and long-term solution.

More immediately, the priority should be to help the poor earn more money. “Find ways to make mortgages available to poor workers; raise the minimum wage so they can qualify for mortgages,” says UT’s Galbraith.

Raising minimum wages may not earn those workers the down payment on a cottage, but special mortgage programs do exist, and these could be expanded. Making homeownership possible is a great tradition--and the reason that 67% of U.S. families own housing.

Low-wage workers could form labor unions to bargain for better pay levels. The organized-labor movement, which has won and lost battles for low-paid workers recently, now represents only 15.5% of the U.S. work force, roughly 21 million out of 137 million workers. Still, the appeal is there: Workers in unions make wages 32% higher, on average, than do nonunion workers.

Employers, on the other hand, could find ways to generate stock ownership and profit-sharing among all employees. Stock ownership and options are the real driving forces behind this decade’s buildup of U.S. wealth.

And there is education. The best way for Americans to increase their earning power and chances for wealth is to get a college education. The returns are clear: College graduates earn 60% more, on average, than those who finish only high school.

The returns on education are so well-known that colleges and universities are inundated with rising numbers of applicants. Soon schools will encounter difficulty in financing student aid, says economist Thomas Kane of Harvard University’s Kennedy School of Government.

But the solution should not be to cut the poor off from college. Rather, says Kane, author of a forthcoming book, “The Price of Admission,” student loans should be made longer-term and payable over a student’s employment lifetime.

The suggestion is that government or private foundations make long-term loans to, in effect, extend the resources of higher education to more of the population.

That’s a bold idea. It recalls the Homestead Act of 19th century America, which gave land to farmers and laid the foundation for a great rise in national wealth. And that’s fitting because these times are far more like the late 19th century than any other age.

“The post-Civil War period saw the buildup of great fortunes and disparities in wealth, but it was also a time of great economic growth,” says Charles Clough, a Merrill Lynch investment strategist who is retiring to pursue charitable work.

And there was vision. Rich men of that time used their wealth to launch public institutions. Andrew Carnegie funded the Public Library system. John D. Rockefeller financed hospitals and scientific research. J.P. Morgan and others financed art museums.

Those things were not rich men’s toys but beacons to the whole society, especially the poor, says Leon Botstein, president of New York’s Bard College and author of “Jefferson’s Children: Education and the Promise of American Culture.” It would be good if today’s mega-millionaires would put up new beacons, Botstein says.

In fact, we may be making a start. The new and excellent Museum of Technology in San Jose was financed by Silicon Valley companies and individuals. The innovative aquariums in Monterey and Long Beach are examples of new philanthropy. Los Angeles’ Getty Museum can become a great beacon if it will reach out to this area’s diverse population.

Once again, an accurate picture for this Labor Day is that America is not stuck in upper and lower classes but is a rich and striving society in which great initiatives are possible. It’s a time of opportunity.

James Flanigan can be reached at jim.flanigan@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Working on Equality

THE LOWEST PAID ARE GETTING MORE...

Wage inequality has been narrowing for most of the 1990s, as a strong economy has created jobs and given a better break to the lowest paid workers. The chart shows wage patterns in manufacturing across 18 industries, as measured by the University of Texas Inequality Project. Similar patterns occur in service industries, a project leader says.

Source: University of Texas Inequality Project

BUT THE REALLY RICH KEEP GETTING RICHER.

Rising values for stocks swelled the asset holdings of the richest 1% of Americans by 17% between 1983 and 1995,, but assets of the other 99% are mostly down, reflecting higher mortgages on houses. Statistics show mean asset holdings in thousands of dollars to 1995, but trends continue to the present along with stock market gains have continued.

Net worth, in 1995 dollars.

Top 1%: 1983: 6.7 million; 1995 $7.8 million

Next 4%: 1983: $1.1 million; 1995: $1.2 million

Top 20%: 1983: $ 808,300; 1995: $858,100

2nd 20%: 1983: $124,900; 1995: $118,100

3rd 20%: 1983: $51,900;; 1995:$45,900

Bottom 40%: 1983: $4,400; 1995: $900.

Checking Pay

1998 median weekly earnings for selected occupations:

Lawyer: $1,209

Physician: $1,156

Computer programmer: $843