Social Democratic America (8 page)

In 1970, 80 percent of American households had a car, compared to just 52 percent in 1940. The interstate highway system was built in the 1950s and 1960s. In 1970, there were 154 million air passengers versus 4 million in 1940. Only 45 percent
of homes had a telephone in 1945; by 1970, virtually all did. Long-distance phone calls were rare before the 1960s. In 1950, just 60 percent of employed Americans took a vacation; in 1970 the number had risen to 80 percent. By 1970, 99 percent of Americans had a television, up from just 32 percent in 1940. In music, the “album” originated in the late 1940s, and rock ‘n' roll began in the 1950s. Other innovations that made life easier or more pleasurable include photocopiers, disposable diapers, and the bikini.

The Civil Rights Act of 1964 outlawed gender and race discrimination in public places, education, and employment. For women, life changed in myriad ways. Female labor force participation rose from 30 percent in 1940 to 49 percent in 1970. Norms inhibiting divorce relaxed in the 1960s. The pill was introduced in 1960. Abortion was legalized in the early 1970s. Access to college increased massively in the mid-1960s.

Comparing these changes in quality of life is difficult, but I see no reason to conclude that the pace of advance, or of innovation, has been more rapid in recent decades than before.
⁶⁶

Yes, there have been significant improvements in quality of life in the United States since the 1970s. But that shouldn't lessen our disappointment in the fact that incomes have grown far more slowly than the economy.

Rather than understate the true degree of progress for middle-and low-income Americans, the income trends shown in
figure 2.5
might overstate it, for the following reasons.
⁶⁷

1.
Income growth is due mainly to the addition of a second earner
. The income of American households in the lower half has grown slowly since the 1970s. But it might not have increased at all if not for the fact that more households came to have two earners rather than one. From the 1940s through the mid-1970s, wages rose steadily. As a result, the median income of most
families, whether they had one earner or two, increased at about the same pace as the economy.
⁶⁸
Since then, wages have barely budged.
⁶⁹

It's important to emphasize that most of this shift from one earner to two has been voluntary. A growing number of women seek employment, as their educational attainment has increased, discrimination in the labor market has dissipated, and social norms have changed. The transition from the traditional male-breadwinner family to the dual-earner one isn't simply a product of desperation to keep incomes growing.

Even so, the fact that income growth for lower-half households has required adding a second earner has two problematic implications. First, single-adult households have seen no income rise at all.
⁷⁰
Second, as more two-adult households have both adults in employment, more struggle to balance the demands of home and work. High-quality childcare and preschools are expensive, and elementary and secondary schools are in session only 180 of the 250 weekdays each year. The difficulty is accentuated by the growing prevalence of long work hours, odd hours, irregular hours, and long commutes. By the early 2000s, 25 percent of employed men and 10 percent of employed women worked fifty or more hours per week.
⁷¹
And 35 to 40 percent of Americans worked outside regular hours (9 a.m. to 5 p.m.) and/or days (Monday to Friday).
⁷²
Average commute time rose from forty minutes in 1980 to fifty minutes in the late 2000s.
⁷³

2.
The cost of key middle-class expenses has risen much faster than inflation
. The income numbers in
figure 2.5
are adjusted for inflation. But the adjustment is based on the price of a bundle of goods and services considered typical for American households. Changes in the cost of certain goods and services that middle-class Americans consider essential may not be adequately captured in this bundle. In particular, because middle-class families typically want to own a home and to send their kids to college, they suffered more than other Americans from the sharp rise in housing prices
and college tuition costs in the 1990s and 2000s. Moreover, as middle-class families have shifted from having one earner to two, their spending needs may have changed in ways that adjusting for inflation doesn't capture. For example, they now need to pay for childcare and require two cars rather than one.
⁷⁴

Consider a four-person family with two adults and two preschool-age children. In the early 1970s, one of the adults in this family was probably employed, and the other stayed at home. By the mid-2000s, it's likely that both were employed. Here is how their big-ticket expenses might have differed.
⁷⁵
Childcare: $0 in the early 1970s, $12,500 in the mid-2000s. Car(s): $5,800 for one car in the early 1970s, $8,800 for two cars in the mid-2000s. Home mortgage: $6,000 in the early 1970s, $10,200 in the mid-2000s. When the children reach school age, the strain eases. But when they head off to college it reappears; the average cost of tuition, fees, and room and board at public four-year colleges rose from $6,500 in the early 1970s to $12,000 in the mid-2000s.
⁷⁶

Overall, among American households, debt as a share of personal disposable income jumped from 74 percent in 1979 to 138 percent in 2007.
⁷⁷
The confluence of slowly rising income and rapidly rising big-ticket costs is part of the reason why.
⁷⁸

In the past generation, ordinary Americans have had less economic security, less opportunity, and less income growth than should be the case in a country as prosperous as ours. Can we do better? Yes. In the next chapter I explain how.

AMERICA'S EXISTING INSTITUTIONS
and policies aren't doing well enough in providing economic security, in promoting capabilities and opportunity, and in ensuring rising living standards for households in the lower half. We can do better. In this chapter, I describe how.

Happily, for the most part we aren't in need of new ideas. We have good programs in place that we can build on, and other rich nations have some that we could adopt. We can go a long way toward a good society via programs already in existence here or abroad.

What can be done to reduce economic insecurity? In
chapter 2
, I highlighted three sources of insecurity: low income, large income declines, and unexpected large expenses. Let's consider these in reverse order.

First, unexpected expenses. The most common large unanticipated expense Americans face is a medical bill. The remedy here is simple and straightforward: universal health insurance.

Who should provide this insurance? Currently, more than half of Americans get their health insurance via an employer-based
program. Another third are insured through a government program (Medicare, Medicaid, or the Veteran's Administration), and the remainder purchase health insurance directly or are not insured.
¹
Our employer-centered health insurance system was a historical accident. It originated in World War II, when wage controls led firms to offer health insurance in order to attract employees. After the war, encouraged by a new tax break, this practice proliferated, and it has remained in place ever since. In a society in which people switch jobs frequently, it makes little sense for insurance against a potentially major and very costly risk such as medical problems to be tied to employment. Moreover, growing numbers of employers have cut back on or dropped their health insurance plans, and that's likely to continue.
²

This is a problem, but it's also an opportunity. As fewer Americans in coming decades have access to affordable private health insurance, we should allow them to shift into Medicare or Medicaid (and eventually combine these two programs). This will free employers from having to deal with the cost and hassle of health insurance and free employees to move more readily from job to job. And it will give Medicare and Medicaid more leverage to impose cost controls on healthcare providers.
³

Can the country afford universal health insurance? Containing the growth of health-care costs is vital, and there is disagreement about the best way to do it.
⁴
The good news is that we can go a long way simply by learning from other rich nations.
⁵
As
figure 3.1
shows, health expenditures in the United States have risen much faster than in other affluent nations, yet we've achieved less improvement in life expectancy. This is a big challenge, but it's a manageable one.

Next, large involuntary declines in income. Here, four changes are needed. One is sickness insurance. We are the only rich nation without a public sickness insurance program.
⁶
Though many large private-sector firms offer employees some paid sickness days, and a few cities and states have a public program, one in three employed Americans gets zero days of paid sick leave.
⁷

FIGURE
3.1 Health expenditures and life expectancy, 1960–2010

The data points are years. The lines are loess curves. Life expectancy: years at birth. Health expenditures: public plus private, as percent of GDP. The other countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Data source
: OECD, stats.oecd.org.

A second is paid parental leave. A 1993 law, the Family and Medical Leave Act, requires firms with fifty or more employees to provide twelve weeks of leave to employees having a child or caring for a sick relative. But that isn't much time, and there is no requirement that the leave be paid. Consequently, many Americans in low-income households take little time off. That's bad for newborn children. Outcomes for children tend to be best when they are with their parent(s) throughout the first year of life.
⁸
Swedish policy gets it right. Parents of a newborn child have thirteen months of job-protected paid leave, with the benefit level set at approximately 80 percent of earnings. (Two of those months are “use it or lose it” for the father; if he doesn't use them, the couple gets eleven months instead of thirteen.) In addition, parents can take four months off per year to care for a sick child up to age twelve, paid at the same level as parental leave.
⁹

A third change needed to reduce large income declines is to expand access to unemployment insurance.
¹⁰
Only about 40 percent of unemployed Americans qualify for compensation.
¹¹

Fourth, we should add a new wage insurance program.
¹²
Flexibility is a hallmark of America's economy. It's a feature worth preserving and enhancing. Some Americans who get laid off from a job cannot find another one that pays as well and are forced to settle for one that pays less. For a year or two, wage insurance would fill half the gap between the former pay and the new lower wage. This would enhance economic security. It would also ease resistance to globalization and to technological advance, both of which are beneficial for the whole but result in job loss for some.

Finally, we come to the question of low income. For the bulk of working-age Americans, the problem of too-low household income can be addressed via two simple steps. First, increase the statutory minimum wage and index it to inflation. Second, increase the EITC benefit level, particularly for households without children, for whom the EITC currently provides only a small amount. These two steps would boost the incomes of working-age households that have someone employed.
¹³