Social Democratic America (5 page)

Has the incidence of large year-to-year income decline increased over time? Yes, according to calculations by Jacob Hacker's team and by Scott Winship. But not a lot. These estimates, shown in
figure 2.2
, suggest a rise in sharp year-on-year income decline of perhaps three to five percentage points since the 1970s or the early 1980s.
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Again, though, this might cumulate into a more substantial increase. If we instead focus on the share of Americans experiencing a sharp year-on-year decline at some point over a decade, Elizabeth Jacobs's calculation suggests a rise of seven or eight percentage points from the 1970s to the 1990s.
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What's the bottom line? In my read, the data tell us that sharp declines of income among working-age American households are relatively common and that their incidence has increased over the past generation.

We need to keep in mind that some of these declines are (fully or partially) voluntary. A person may leave a job or cut back on work hours to spend more time with children or an ailing relative. A couple may divorce. Someone may quit a job to move to a more desirable location without having another lined up. We don't know what portion of income drops are voluntary. But I don't think we should presume that most are.

FIGURE
2.2 Households experiencing an income decline of 25 percent or more from one year to the next

The lines are loess curves. PSID and SIPP: posttransfer-pretax income, for households with a “head” aged 25–54. PSID is the Panel Study of Income Dynamics. SIPP is the Survey of Income and Program Participation.
Data source
: Scott Winship, “Bogeyman Economics,”
National Affairs
, 2012, figure 1. CPS: posttransfer-pretax income, for households of all ages. CPS is the Current Population Survey.
Data source
: Economic Security Index,
www.economicsecurityindex.org
, downloaded January 2013.

How should we assess the trend? One perspective is to view it as unavoidable. The American economy has shifted since the 1970s. It's more competitive, flexible, and in flux. Even though this is bad for some households, it can't be prevented unless we seal the country off from the rest of the world and heavily regulate our labor market. In this view, we should be happy that the increase in income volatility hasn't been larger.

I think we should be disappointed. After all, there are ways to insure against income decline. We could have improved our porous unemployment compensation system, added a public sickness insurance program, or created a wage insurance program so that someone who loses a job and gets a new, lower-paying one receives some payment to offset the earnings loss. We could have done more, in other words, to offset the impact of economic shifts.

Low income and a sharp drop in income cause economic insecurity because we may have trouble meeting our expenses. A large unanticipated expense can produce the same result, even for those with decent and stable income.

In the United States, the most common large unexpected expense is medical. About one in seven Americans does not have health insurance. Others are underinsured, in the sense that they face a nontrivial likelihood of having to pay out of pocket for health care if they fall victim to a fairly common accident, condition, or disease.

Of course, many of the uninsured and underinsured won't end up with a large healthcare bill. And some who do will be able to pay it (due to high income or to assets that can be sold), or will be allowed to escape paying it because of low income or assets, or will go into personal bankruptcy and have the debt expunged.

Yet in a modern society, we should consider most of the uninsured and some of the underinsured as economically insecure, in the same way we do those with low income. They are living on the edge to a degree that should not happen in a rich nation in the twenty-first century. After all, every other affluent country manages to provide health insurance for all (or virtually all) its citizens without breaking the bank.

This form of economic insecurity has increased over the past generation, though we don't know exactly how much because we lack a continuous data series on the share of Americans without health insurance.
Figure 2.3
shows the information we do have, going back to the late 1970s. Each of the three data series shows a rise in the share without insurance. Over the whole period, the increase is on the order of five percentage points.

Figure 2.3
understates vulnerability to a large medical expense in two respects. First, these data capture the average share of Americans who are uninsured at a
given
point during a year. If we instead ask how many are uninsured at
any
point during a year or two, the figure is larger. The Lewin Group estimates that during the two-year period of 2007 and 2008, 29 percent of Americans lacked health insurance at some point.
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FIGURE
2.3 Persons without health insurance

The lines are loess curves.
Data sources
: CNHPS is from Marc Miringoff and Margue-Luisa Miringoff,
The Social Health of the Nation
, Oxford University Press, 1999,
p. 198
, using Center for National Health Program Studies data. CPS 1 and CPS 2 are from Census Bureau, “Income, Poverty, and Health Insurance Coverage in the United States: 2011,” table C-1, using Current Population Survey (CPS) data.

Second, it isn't only the uninsured who are insecure. Some Americans have a health insurance policy that is inadequate. Each year 25 to 30 percent of Americans say they or a member of their family have put off medical treatment because of the extra cost they would have to pay.
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They can indeed end up with a large out-of-pocket medical expense if they get treated. We know this from data on bankruptcy filings. Such filings have increased steadily, from an average of .2 percent of the population each year in the 1980s to .4 percent in the 1990s to .5 percent in the 2000s. About one-quarter of Americans who file for bankruptcy do so mainly because of a large medical bill, and some of them do have health insurance.
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The 2010 healthcare reform is expected to reduce the share of uninsured Americans from 16 percent to perhaps 7 or 8 percent. That represents a substantial reduction in economic insecurity,
but it still leaves us well short of where we could be, and where every other affluent nation has been for some time now.

Americans believe in equal opportunity. Public opinion surveys consistently find more than 90 percent of Americans agree that “our society should do what is necessary to make sure that everyone has an equal opportunity to succeed.”
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True equality of opportunity is unattainable. Equal opportunity requires that everyone have equal skills, abilities, knowledge, and noncognitive traits, and that's impossible. Our capabilities are shaped by genetics, developments in utero, parenting styles and traits, siblings, peers, teachers, preachers, sports coaches, tutors, neighborhoods, and a slew of chance events and occurrences. Society can't fully equalize, offset, or compensate for these influences.

Nor do we really want equal opportunity, as it would require genetic engineering and intervention in home life far beyond what most of us would tolerate. Moreover, if parents knew that everyone would end up with the same skills and abilities as adults, they would have little incentive to invest effort and money in their children's development, resulting in a lower absolute level of capabilities for everyone.

What we really want is for each person to have the most opportunity possible. We should aim, in Amartya Sen's helpful formulation, to maximize people's capability to choose, act, and accomplish.
³⁹
Pursuing this goal requires providing greater-than-average help to those in less advantageous circumstances or conditions. This, in turn, moves us closer to equal opportunity, even if, as I just explained, full equality of opportunity is not attainable.

Americans tend to believe that ours is a country in which opportunity is plentiful. This view became especially prominent in the second half of the nineteenth century, when the economy was
shifting from farming to industry and Horatio Alger was churning out rags-to-riches tales.
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It's still present today. On the night of the 2008 presidential election, Barack Obama began his victory speech by saying, “If there is anyone out there who still doubts that America is a place where all things are possible … tonight is your answer.”

There is more than a grain of truth in this sentiment. One of the country's major successes in the last half century has been its progress in reducing obstacles to opportunity stemming from gender and race. Today, women are more likely to graduate from college than men and are catching up in employment and earnings.
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The gap between whites and nonwhites has narrowed as well, albeit less dramatically.
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When we turn to family background, however, the news is less encouraging. Americans growing up in less advantaged homes have far less opportunity than their counterparts from better-off families, and the gap is growing.

There is no straightforward way to measure opportunity, so social scientists tend to infer from outcomes, such as employment or earnings. If we find a particular group faring worse than others, we suspect a barrier to opportunity. It isn't proof positive, but it's the best we can do. To assess equality of opportunity among people from different family backgrounds, we look at relative intergenerational mobility—a person's position on the income ladder relative to her or his parents' position. We don't have as much information as we would like about the extent of relative intergenerational mobility and its movement over time. The data requirements are stiff. Analysts need a survey that collects information about citizens' incomes and other aspects of their life circumstances, and then does the same for their children and their children's children, and so on. The best assessment of this type, the PSID, has been around only since the late 1960s.

It is clear, though, that there is considerable inequality of opportunity among Americans from different family backgrounds.
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Think of the income distribution as a ladder with five rungs, with
each rung representing a fifth of the population. In a society with equal opportunity, every person would have a 20 percent chance of landing on each of the five rungs, and hence a 60 percent chance of landing on the middle rung or a higher one. The reality is quite different. An American born into a family in the bottom fifth of incomes between the mid-1960s and the mid-1980s has roughly a 30 percent chance of reaching the middle fifth or higher in adulthood, whereas an American born into the top fifth has an 80 percent chance of ending up in the middle fifth or higher.
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Between the mid-1800s and the 1970s, differences in opportunity based on family circumstances declined steadily.
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As the farming-based US labor force shifted to manufacturing, many Americans joined the paid economy, allowing an increasing number to move onto and up the income ladder. Elementary education became universal, and secondary education expanded. Then, in the 1960s and 1970s, school desegregation, the outlawing of discrimination in college admissions and hiring, and the introduction of affirmative action opened economic doors for many Americans.

But since the 1970s, we have been moving in the opposite direction. A host of economic and social shifts have widened the opportunity gap between Americans from low-income families and those from high-income families.

For one thing, poorer children are less likely to grow up with both biological parents. This reduces their likelihood of succeeding, since children who grow up with both parents tend to fare better on a host of outcomes, from school completion to staying out of prison to earning more in adulthood.
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For those with higher incomes, there has been far less change in family structure and, as a consequence, less-drastic implications for children's success.
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