Will The real Wealth Gap Please Stand Up?
May 24, 2000
by Ryan Streeter
The stock market keeps showing up in the presidential race's social policy debates. At the same time that George W. Bush and Al Gore were sparring last week over how close to let Wall Street get to Social Security, their policy advisers were sparring over strategies for helping those left out of our recent prosperity explosion.
Together with national experts on poverty issues, the advisers formed a panel at a May 17 Brookings Institution event in Washington, D.C., titled "Americans Left Behind: Issues Facing The Next President In Dealing With Those Left Behind In The Current Economic Boom." Panel members agreed and disagreed about how to better serve the working poor amidst a booming economy. But mostly they agreed on one thing: this is a problem that the next president needs to take seriously.
In a way, each candidate has defined himself with this issue. Gore has staked his social policy platform on his statement that "our national prosperity should not leave anyone behind." And Bush has built his compassionate conservatism on the claim, "The purpose of prosperity is to leave no one out-to leave no one behind."
Wall Street's gains and our continued economic expansion have sharpened our focus on those "left behind." But, as most experts agree, the problem of growing inequality began in the early 1970s and continued through the early 1990s, when real earnings grew by 0.3 percent among wealthiest Americans and fell 0.6 percent among the poorest. The rich have always had more assets, but growing income disparity, many claim, seems unjust.
Analysts on right and left also agree that the income gap is largely due to technological change that favors high-skilled workers and globalization that pits low-skilled workers against cheaper foreign labor. And there is general consensus that the gap could be lessened by allowing the poor to keep more of their pre-tax earnings, promoting stable families, strengthening education, increasing charitable sector involvement, and improving work supports such as child care, transportation and income tax credits.
However, since 1993, earnings among the poorest Americans have been growing at a faster rate than among the wealthy, but no one really knows why.
So policy professionals continue to offer solutions based on possibly faulty assumptions about the causes of income inequality. According to Harvard's David Ellwood, federal spending on working poor families has increased from $6 billion in 1984 to $52 billion in 1999. Are we ready to increase this amount if we do not understand recent trends?
This debate may be missing a fundamental point. Absent from nearly every public discussion about economic inequality in America is the role of employer investment in low-skilled workers.
One thing we do know is that employers need workers. And current trends show us that they will continue to need them, especially as baby boomers begin to retire. Unlike any time in recent history, employers are reaching out to poor unskilled workers, many of whom face multiple barriers to employment.
The real "wealth gap" in America may be more cultural than economic: wealthy employers and the poorest workers have historically had little to do with each other.
To retain unskilled workers, employers have to invest in them like never before. This means getting creative about reaching out to the poor, providing unconventional human services, and paying a wage that makes sense.
Consider the nationally respected Jobs Partnership in Raleigh, N.C., which brings business leaders together with urban churches to provide jobs for the less fortunate. More than 90 percent of program participants keep their jobs, but the real success, according to founding businessman, Chris Mangum, is in the way that the cultural and racial barriers between rich and poor are coming down.
He refers to program participants not as "clients" but as his "neighbors," and he exhorts fellow businesspeople to invest in them by providing livable wages and a broader spectrum of personal help and services.
Or, look at the Orlando Chamber of Commerce, which works together with Florida's welfare-to-work program to educate area businesses in developing low-skilled workers into successful employees. This second largest American Chamber has been bombarded by businesses seeking to learn about the poor-as if to meet them for the first time.
By only focusing upon macroeconomics and social programs, policy professionals are failing to think anew about what we do know: most poor workers eventually leave poverty, and they do so because they find what we often call a "career ladder." Employers are the ones that can get them climbing.
The next president needs to know how to incentivize business sector investment in the poor. Current policies to this end need to be reworked to encourage career development, which is in the interest of employers and workers.
And the next president needs to get on this yesterday.
Ryan StreeterRyan Streeter is Vice President of Civic Enterprises, LLC, a public policy development firm in Washington, DC. Streeter was a research fellow of the Welfare Policy Center at Hudson Institute from 1998-2001.