On January 13, 2016, I published a blog in The Huffington Post, where I pointed out that an increasing proportion of families and “their future generations” are ending up in the bottom of the income distribution and hence are trapped in the cycle of poverty. Poverty rates vary among racial groups. Blacks and Hispanics face twice the poverty rates of Asians and Whites. In August 29, 1997, Time magazine’s lead article termed poor Blacks as an Underclass, as they were entrapped in the cycle of psychological and material deprivation even after 20 years of civil rights and anti-poverty programs.
Nobel Laureate Economist Angus Deaton, in a conversation at Knowledge@Wharton, April 6, 2017, is raising a similar issue, with a slightly different twist, pertaining to the effect of material deprivation and lack of economic opportunities on working class middle age White undereducated Americans. Most economists have also been pointing out that, in the emerging technologically sophisticated economy, the role of higher education and skills beyond high school will play a significant role in determining the success of job seekers in the labor market and their economic well-being.
Professor Deaton argues that the mortality rate among Non-Hispanic Whites in their early 50’s, “after 100 years of declining had turned the wrong way or at least flattened out.” (See source above). This is happening to both men and women, and not to Hispanics and African-Americans, and not in other rich countries. Most deaths are due to alcohol consumption, drug overdose and suicides. Deaton has argued in his book, The Great Escape (2013), that well-being is primarily based upon income and health.
In this age of rapid technological change, job opportunities open up for those who have acquired human capital that complements physical capital with advanced technologies. The Wall Street Journal, November 30, 2017, reports a study by McKinsey Global Institute that predicts that around the world close to 375 million workers, displaced by new technologies, will have to find new occupations by 2030. Public policy makers and businesses have to equip workers with new skills and technical training to minimize labor market disruptions of automation. The US is not alone in facing this challenge. In fact, even now, manufacturers in the US have been complaining about the problem of finding technologically skilled workers (The Wall Street Journal, December 1, 2017).
Those with less education are facing desperate times in finding job opportunities that will create a sense of income security and economic well-being. The Trump administration and Republican Congressional members are derelict in providing sufficient support to Americans who need new skills, job training and education to meet challenges of automation in the labor market. Job uncertainty, income insecurity and inadequate health care of this group of Americans create a sense of anxiety, despair and depression compounded by the lack of family ties, and public and community support. Unhealthy and depressed workers cannot be productive members of society.
Deaton argues in his book (p. 207) that despite the belief in the American dream, the US is not “particularly good at actually delivering equal opportunities.” This is supported by high correlation between fathers’ earnings and sons’ earnings in the US, highest among OECD countries of Europe and only lower than China and some Latin American countries.
Deaton states that this problem among Non-Hispanic Whites with low levels of education has arisen due to “...a cumulative disadvantage over life in the labor market, in marriage, in child outcomes and in health triggered by progressively worsening labor opportunities at a time of entry…”(See source above). A study by John F. Helliwell and Hafang Huang (HH), Economic Enquiry, October 2014, using subjective well-being (SWB) data covering life evaluations and emotional experiences reports, finds that SWB increases with income, education, and marriages, and diminishes with increase in unemployment rates. Unemployment rate increase also affects emotional well-being of employed, since it threatens workplace downsizing -- hence their job security. HH also find, for those who are employed, that a one percent increase in unemployment rate is equivalent to a 4 percent decline in household income.
A labor market that creates employment and occupational growth for skilled and highly educated workers and dries up job opportunities, occupational growth and economic well- being of less skilled and educated workers is bound to be disruptive to households and the nation. It would also lead to increasing levels of income inequality that we experience today in the US as opposed to other advanced nations. And as Deaton would argue, income inequality is harmful to the nation and its economic system when rent seeking (special favors from government by lobbying) rich affect public policy that deprives lower income people of services, such as education and health care to enrich themselves. In fact that is what the Congressional Republican’s tax bill, if it becomes the law, will do.
I hope that the Trump administration and some Republican Congressmen will be bold enough to realize that just passing a tax bill and enacting it into law to make a political point is not an achievement for the well-being of Americans.
Enacting tax and spending laws that benefit all current and future generations of Americans to meet challenges of advanced technologies and competitive forces in the global market would be a laudable legacy. As Justice Sonia Sotomayor has stated, “Until we get equality in education, we won’t have an equal society.”
Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.