February 7, 2011
02/07/2011—As the world’s attention is focused on the popular uprisings in the Middle East, many are speculating on the underlying sources of this civil unrest. Most agree that major contributing factors to destabilizing these authoritarian governments are the combination of high levels of rising prices, youth unemployment and income inequality.
It was thus striking to see how the US compares with different Middle Eastern regimes in Charles Blow’s column, “The Kindling of Change,” in Saturday’s New York Times. Income inequality in the US, as measured by economists’ most common indicator, the Gini coefficient, is not only higher than Egypt and Tunisia, but also greater than any country in the Middle East (where data is available), and over ten times as great as in Kuwait.
As for employment, the latest US data is both depressing and puzzling. Job growth continues to be anemic, with only 36,000 new jobs in January, far below experts’ projections. And yet the unemployment rate fell dramatically (from 9.4 to 9.0 percent). This suggests that many of the long-term unemployed have either exhausted their benefits or become so discouraged from seeking work that they are no longer considered in the labor force.
The US response to the current economic crisis and the federal and state budget deficits it has produced is going to be sharp cuts in the number of public sector employees and the benefits for those who keep their jobs, while reducing taxes on the most wealthy 1% of the population, who have captured a majority of all growth in income over the last 15 years.
The US approach is particularly discouraging at a time when our main competitors are focused on the opposite problem. In China, the government is raising interest rates to try to avoid over-heating the economy, which continues to grow at double digit rates. And in Germany, where unemployment actually fell during the recession, thanks to wage subsidies for employers, the focus is now on impending worker and skill shortages, due to a combination of low birth rates and a rapidly aging population. See: "As Germany Booms, It Faces a Shortage of Workers".
As I’ve suggested in earlier posts, a long-term driver of increased inequality and the loss of middle-class jobs in the US is the combination of technological change (the internet and IT revolution) combined with globalization that has dramatically increased wealth for the highly educated and those at the very top of their occupations—whether star chefs and athletes or investment bankers and CEOs—while placing huge pressure on earnings for the average college grad or worker.
An unexpected source of insight into the link between technological innovation, employment and inequality came from my current bedside reading: Bill Bryson’s At Home: A Short History of Private Life. Inspired by his Victorian rectory home in Norfolk, England, he moves from room to room, writing about anything and everything that pertains to it. In his chapter devoted to the dressing room, he discusses some of the inventions that underpinned the creation of textiles that were the main product of the first industrial revolution and their unintended effects. He shows how Eli Whitney’s cotton gin, which enabled huge labor savings in separating seeds from cotton bolls, made US cotton economically viable and fed English mills. As a consequence, slavery, which had been in decline in the US, exploded, with a growth in the number of slave states from 6 to 15 and 800,000 slaves in the North being shipped south to harvest the cotton. The other key invention was the power loom, developed by the Rev. Edmund Cartwright, which solidified Britain’s place as the world’s first industrial power, but in the process drove an increase in child labor in the factories, as was already occurring in the mines, on the farms, and up the chimneys. As Bryson notes, “Children were malleable, worked cheap, and were generally quicker at darting about among machinery and dealing with snags, breakages, and the like. Even the most enlightened mill owners used children freely. They couldn’t afford not to.”
It took several generations before the UK and US put in place laws that ended slavery and regulated child labor. We can’t afford a similar gap in dealing with our current employment challenges.