Millennials have endured the Great Recession and over a decade of war, but their prospects don’t mirror those of the ‘Greatest Generation.’ (More)
The Greatest and Latest, Part II: Glass Floors and Glass Ceilings
This week Morning Feature compares two American generations. Yesterday we began with the so-called ‘Greatest Generation,’ who came of age in the Great Depression and World War II. Today we look at Millennials, who came of age in the Great Recession and the wars in Iraq and Afghanistan. Tomorrow we’ll conclude with hope for our children and grandchildren.
The Great Divergence
Yesterday we discussed the Great Compression, a term coined by economists Claudia Goldin and Robert Margo to describe the dramatic narrowing of income inequality after World War II that continued until the mid-1970s. But it’s important to note what their research omitted: the Great Compression was limited to white men. Indeed their early U.S. Census sample set was exclusively white men, as the data for women was too sparse and the data for people of color too divergent from the overall trend. Regardless, white men of the ‘Greatest Generation’ could expect to share in what political scientists Paul Pierson and Jacob Hacker call “Broadland.” Regardless of their place on the income ladder, America’s growth would be reflected in their family incomes.
But by 1979 we were on the path to what Pierson and Hacker call “Richistan,” and Slate’s Timothy Noah explored that at length in a series of articles titled “The Great Divergence.” The series is very well-researched and worth reading in full, and he concludes:
We have now reviewed all possible causes of the Great Divergence – all, at least, that have thus far attracted most experts’ attention. What are their relative contributions? Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:
— Race and gender is responsible for none of it, and single parenthood is responsible for virtually none of it.
— Immigration is responsible for 5 percent.
— The imagined uniqueness of computers as a transformative technology is responsible for none of it.
— Tax policy is responsible for 5 percent.
— The decline of labor is responsible for 20 percent.
— Trade is responsible for 10 percent.
— Wall Street and corporate boards’ pampering of the Stinking Rich [his term for the top 0.1%] is responsible for 30 percent.
— Various failures in our education system are responsible for 30 percent.
“We have the most-educated 55-year-olds in the world, but we’re in the middle of the pack for 25-year-olds”
The so-called ‘Greatest Generation’ entered World War II as the best-educated in the world and that advantage grew after the war with programs like the G.I. Bill. But that trend ended in the mid-1970s. Noah notes that the average American born in 1945 received two more years of schooling than his parents, while the average American born in 1975 received only a half-year more than his parents. Meanwhile, children born in Europe and other developed nations were passing us. As Harvard economist Lawrence Katz succinctly put it:
We have the most-educated 55-year-olds in the world, but we’re in the middle of the pack for 25-year-olds.
During the Great Divergence the education system has not been able to increase the supply of better-educated workers, and so the price of those workers (i.e., their incomes) has risen faster relative to the general population. At a time when the workforce needed to be smarter, Americans got dumber. Or rather: Americans got smarter at a much slower rate than they during previous periods of technological change (and also at a much slower rate than many other industrialized democracies did). That was great news for people with college diplomas or advanced degrees, whose limited supply bid up their salaries. It was terrible news for everyone else.
Millennials with college degrees are likely to out-earn those with only a high school diploma, but that broad statistic conceals as much as it reveals. The Washington Post’s Matt O’Brien explains that family wealth is now at least as important as personal education:
Even poor kids who do everything right don’t do much better than rich kids who do everything wrong. Advantages and disadvantages, in other words, tend to perpetuate themselves. You can see that in [this] chart, based on a new paper from Richard Reeves and Isabel Sawhill, presented at the Federal Reserve Bank of Boston’s annual conference[.]
Specifically, rich high school dropouts remain in the top about as much as poor college grads stay stuck in the bottom – 14 versus 16 percent, respectively. Not only that, but these low-income strivers are just as likely to end up in the bottom as these wealthy ne’er-do-wells. Some meritocracy.
What’s going on? Well, it’s all about glass floors and glass ceilings. Rich kids who can go work for the family business – and, in Canada at least, 70 percent of the sons of the top 1 percent do just that – or inherit the family estate don’t need a high school diploma to get ahead. It’s an extreme example of what economists call “opportunity hoarding.” That includes everything from legacy college admissions to unpaid internships that let affluent parents rig the game a little more in their children’s favor.
But even if they didn’t, low-income kids would still have a hard time getting ahead. That’s, in part, because they’re targets for diploma mills that load them up with debt, but not a lot of prospects. And even if they do get a good degree, at least when it comes to black families, they’re more likely to still live in impoverished neighborhoods that keep them disconnected from opportunities.
“The new motto is Big Fish Eat Little Fish”
It’s not just Millennials’ current earnings that are at risk. You probably read about House Republicans “inventing a Social Security crisis” by limiting transfers between the retirement and disability trust funds. If passed, that will give Republicans more bargaining power to either narrow eligibility or reduce payments for disabled workers.
But you probably didn’t read about a subtle change signed into law as part of last month’s $1.1 trillion CRomnibus bill. Senator Elizabeth Warren (D-MA) fought hard against a new rule that puts taxpayers on the hook if Wall Street derivatives crash, but University of Missouri economics professor Michael Hudson explains at Naked Capitalism that another part of that change may sting Millennials even more:
Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008.
Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years.
But the funds most under attack are union pension funds. These are the funds that Congress has gone after. The fight is not merely to scale back pension funds – and avoid the government’s Pension Benefit Guarantee Corp (PBGC) being bailed out – but to break the power of unions to attract members or to defend them.
The Congressional budget act states that pension funds with more than one employer – such as construction industry funds, teamster funds for truckers and public service workers funds – can be scaled back in order to pay Wall Street creditors.
Labor now is told to go to the back of the line behind Wall Street. If the economy is too debt strapped to pay everyone what is owed, then the new motto is Big Fish Eat Little Fish.
Such policy changes comprise the “institutions and norms” that Noah discussed in his series. The impact of any single change seems small, but collectively they drive the decline of organized labor, the erosion of education, and the pampering of the 0.1% that, by Noah’s estimate, combine to explain 80% of the Great Divergence.
Tomorrow we’ll see hope for Millennials – our children and grandchildren – and what we can do to make that hope reality.