FOR THE PAST five years the debate on income distribution in this country has centered on the Reagan tax and spending cuts; they have defined the fairness issue. Now come two reports from the Joint Economic Committee suggesting that the focus should be broader. They say there has been a much greater increase in income inequality in recent years than was commonly perceived; that this began in the 1970s and was only accentuated in the 1980s, and that the heart of it lies not in federal tax and transfer policies but in a fundamental deterioration of wages in the economy.
The broadest measure of well-being in the society is real disposable per capita income -- income adjusted for inflation, the tax burden and population growth. It has continued to rise in most recent years, but the rise has not been robust, and not everyone has been a winner.
To clarify this the two reports -- one by Sheldon Danziger of the University of Wisconsin and Peter Gottschalk of Bowdoin College, the other by Frank Levy of the University of Maryland and Richard Michel of the Urban Institute -- focus on family income instead. The first deals even more narrowly with the incomes of families with children. It says that:
For most of the post-World War II period, "real" median family income increased, while in 1973- 1984 it was flat or fell a little, depending on how you measure it. The median, moreover, masked very different experiences at the top and bottom. The real median income of the poorest fifth of families with children declined by a third, of the next poorest quintile by a fifth, and of the middle quintile by a tenth, while the median of the richest quintile held essentially constant. The poorest fifth started the period with just under 6 percent of all income and ended with just over 4 percent. The richest fifth started with more than 38 percent and ended with more than 42 percent. One result was that the poverty rate rose: in 1973, the Census Bureau classified 11.1 percent of the population as poor; in 1984, 14.4 percent.
What are the reasons? One is a continuing increase in the percentage of female-headed families, accompanied by a decline in the value of transfer or government benefit payments to people other than the elderly. But far more important, the economists say, has been a decline in the value of wages, which make up the bulk of income in the economy. Real average weekly earnings fell by an eighth from 1973 to 1984. The Danziger-Gottschalk report says that in 1973, 21.5 percent of heads of families with children were making too little to sustain a family of four at the poverty level even if they worked full-time year-round. By 1984 that figure had risen to 29.9 percent. This wage loss experienced by heads of household was partly made up by an increase in working wives. Had wives not been working, the average income of two-parent families with children in 1984 would have been a fourth lower, the poverty rate a third higher. Those are much greater contributions than wives were called upon to make in 1973.
Why have wages faltered? Explanations range from the oil shocks of the 1970s to the decline of manufacturing industries, the rise of foreign competition and the advent of the baby boomers in the work force (a factor partly because younger workers tend to earn lower wages). The economists do not know which of these fac- tors weighed the most. But some fearsome things have happened to the economy and society over the past 13 years. We're just starting to learn about them.