Joining the Inequality Debate

Wednesday, March 22, 2006

THE BUSH administration seems ready to debate inequality, the subject of the occasional series that we began 10 days ago. In recent conversations with us and with the Wall Street Journal, Treasury Secretary John W. Snow has described inequality as "the new sort of battle line in the political arena," suggesting that this may have something to do with desperation among the administration's critics. The way the secretary tells it, economic pessimists used to gripe that the economy was not growing; then, when the economy accelerated, they grumbled that growth was not producing jobs; now, with unemployment down at 4.8 percent, they protest that jobs aren't paying enough to ordinary folks. Mr. Snow, for his part, is an optimist. "We may now be at a tipping point for higher real wages going forward," he told us.

The secretary bases his optimism partly on short-term arguments. He correctly points out that declines in unemployment are generally followed by increases in wages; given that joblessness has declined from 6.3 percent to 4.8 percent during the current recovery, wages may indeed rise over the next year or so. But the question is whether these gains will dent the long-term pattern of stagnation. For the bottom half of the workforce, wages have actually fallen since 1980 after accounting for inflation. Although it's true that households have done better, this is not exactly comforting. The gain in income for the typical household, about a fifth since 1980, has been smaller than the increase in the household workload. Since 1980, the number of hours worked by the average husband-and-wife team has increased by a quarter, as more women have entered the labor force.

In his conversation with The Post, Mr. Snow drew attention to an apparent fall in inequality between 2000 and 2003. In 2000, according to data compiled by the Congressional Budget Office, the top fifth of households pocketed 51.3 percent of all post-tax income; in 2003 they pocketed 48.8 percent, allowing the rest of the country to increase its share of the pie. But this isn't the basis for optimism that Mr. Snow supposes. The top fifth lost ground for two years after 2000 because they stopped cashing in on the stock market bubble. But between 2002 and 2003 their share of national income rose again, a fact obscured by Mr. Snow's choice of statistics; the numbers for 2004 and 2005 have not yet been crunched. Besides, Mr. Snow's focus on three years' worth of data should not distract him from the bigger picture. Between 1980 and 2003, the top fifth of households increased their share of national income by six percentage points.

At other times in the conversation, Mr. Snow accepted that inequality has grown over the long term but sought to explain it as the natural product of market forces. It's true that the "star system" has grown more pronounced in many professions, from sports to medicine to academia: Globalization has allowed top performers to attract a global following, driving remuneration up. But if this is a big reason for inequality, as indeed seems likely, one should expect the gap between the stars and the majority to grow even more in the future -- globalization is not about to go away. Far from providing a reason to embrace inequality as "natural" and therefore, presumably, acceptable, Mr. Snow's argument underlines why inequality is a rising social challenge that policymakers must reckon with.

Mr. Snow indicated an open-mindedness on these issues, which is a good thing. "I want to get deeper into the data because it's a very important question," he said of wage disparities. We look forward to the debate.

This is the second editorial in an occasional series on inequality.

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