Make America greater by looking forward
We don’t have to bring back an older way of life; we have to bring forward our social contract
In my last article, I described the term social contract (the implicit and/or explicit agreements people make with others in their society) and demonstrated how mid-20th-century America was both better and worse than society today. In this article, I want to look forward.
Many of the economic problems people face today are due to an outdated social contract. That is, the assumptions that existed no longer apply, but policies haven’t changed. It’s impossible to force social norms back in time, and as I mentioned in the previous article, many people wouldn’t want to. But we could still make people’s lives better today if we update our social support for the way people actually live.
To progressive readers: Most politically liberal folks are inclined to lean heavily on government programs to solve problems, but I hope you’ll also see market-based ways to change the social contract.
To conservative readers: Most politically conservative folks are inclined to emphasize personal responsibility, but I hope you’ll also see ways that government programs could even out the opportunities that chance provides to individuals.
The old agreements
Let’s start by itemizing the current social contract in the US, which was established around Roosevelt’s New Deal and solidified in the post-War era.
Public school usually doesn’t start until kids are 5 or 6 years old, under the assumption that mothers are home with their young children and will give them a solid educational foundation.
The school schedule — from school days ending before the workday does to frequent days off that aren’t public holidays — presumes children have at least one parents who’s at home or readily available. The educational path from Kindergarten through college is clear, while “continuing education” (post-degree) tends to be a specific requirement in a few industries.
Health insurance is primarily provided through employers, which was convenient for men who rarely changed jobs and women who were usually married. Our metaphor for work is a “corporate ladder” — it’s supposed to be obvious how to climb, and it values loyalty and benefits from consistency.
And for decades, it was assumed that retirees would have pensions and that retirement would last only a few years, thus Social Security provides only the bare minimum to keep the elderly out of abject poverty.
Even in the mid-20th century, not everyone fit into those assumptions, but enough people did that the policies made with those people in mind were popular and generally effective at doing what they set out to do.
Our current reality
There are very, very few people in America now to whom those assumptions still apply.
Over 75% of women aged 25–54 years are in the formal labor force, including over 60% of mothers whose youngest child is under age 6. Whether by choice or necessity, women are working outside the home; the assumption that they’re available is flat out wrong, even though they may have to adjust to it, often by working fewer hours.
Just under half of Americans today get their health insurance through an employer, while around 6% have private (“non-group”) plans. The rest are on Medicare, Medicaid, or military-provided plans, but many (up to 8%) simply don’t have it.
Today’s workers are more likely to switch jobs and more open to moving than previous generations. They’re seven times more likely to have a defined-contribution plan (e.g., 401(k)) than a pension, meaning they are responsible for saving individually, even though retirement lasts longer now than it used to.
Today’s problems
In What We Owe Each Other, the book I referenced in the last article, Minouche Shafik writes that “one of the key drivers of political discontent in advanced economies” is that “those with once well-paying jobs in sectors like manufacturing, who expected middle-class lives, find themselves struggling.” These changes have led to the number of people earning middle-class wages declining noticeably (see below).
Some industries have changed significantly. Just since 1950, agriculture and manufacturing have decreased, while trade, education, and business/professional services have increased.
Another change comes from declining wages in specific occupations. For example, the chart below shows that Jurists (lawyers and judges) have historically been and remain highly paid, while Managers saw decreasing pay relative to other available jobs.
It’s not necessarily a problem that any given job earns less than it used to, but it’s understandable why people might become resentful when they expected a job — say, the same job their parents had — to earn a similar amount and it doesn’t. In the coming years, salaries for jobs in trade, manufacturing, utilities and mining — many that don’t require college education — are expected to decrease further.
I charted the median wages of several occupations projected to gain the most workers in the next ten years. Notably, many of them are near or below the current median wage, such as trade and retail. Higher-wage jobs are more likely to require college degrees, which fewer than 40% of Americans have earned (with significant disparity in race).
What changed?
What happened to the “good” jobs? Some people lay blame on workers who are willing to throw others under the bus to keep their own salaries (such as unions who agree to allow lower-paid contractors alongside their members). Many companies seem to be focused more on “valuing investors ahead of everyone else.” Those changes are fixable, or at least could be addressed by policy changes.
But many studies have concluded that the biggest driver of wage reduction by far is automation and efficiency improvements. This movement away from manual labor favors higher-educated employees at the expense of the middle. Shafik writes,
We see increased demand for those with ‘high’ skills (like scientists or data analysts) and ‘low’ skills (like care workers), while the jobs in the middle (such as factory or clerical posts) are disappearing.
Unfortunately, business can’t un-learn all the automation and productivity, society can’t unmake the technology, and most people don’t want to go back to monotonous factory work.
The US could become more protectionist and require more things to be manufactured here, such as by adding tariffs to imports. This strategy was notably used to protect a burgeoning US steel industry[1] around the time of the Civil War. But by the time of the Smoot-Hawley Tariff Act in 1930 — admittedly a wide-reaching set of tariffs — the repercussions of retaliatory tariffs reduced global trade by 26% and may have exacerbated both the Great Depression and the rise of extremism in Europe.
In a global market, there’s always another supplier or buyer. Tariffs tend to be self-defeating, passing on higher prices to consumers while the original suppliers find new markets. While tariffs are hard to measure (since they might vary based on quantity), the period of prosperity shared in the mid-20th century came when tariffs were slightly higher than today, but quite low relative to earlier.
Moreover, global outsourcing and economic growth have benefited many lower-income people around the world. The graph below shows the percentage gain in wages since 1988 based on their original percentile in the global income distribution in that year.
The left half of the graph (up to point A) represents the world’s poor, “mostly in China, developing Asia, and Latin America,” who “were able to climb into the middle class.” The far right of the graph (point C) represents the top 1% globally, who were already the upper class of developed countries, and they’ve seen their incomes rise significantly due to the importance and expansion of high-education jobs.
But the people who didn’t see much salary growth (starting at point B in the graph), the global 75th-95th percentile, were primarily the lower-middle class in developed countries — the people most likely to have seen their salaries drop or their jobs disappear, thus shunting them to lower-wage jobs that don’t require a college degree.
Globalization has been shown to reduce inequality, but to do so too unevenly. The challenge, therefore, is not to reverse it. Rather, it is to help buffet the highly unequal impact of global inequality reduction. (source)
The social norms aren’t the problem
If we can’t move society backward, then how can we move our social contract forward? We must reconsider the social contract in terms of government programs and business practices relative to our new societal expectations. That can show us a way to share prosperity more evenly.
Stagnant wages
For jobs that still exist but are being squeezed by profit motive, collective action is a huge opportunity. Individual employees don’t have leverage to keep their wages up, but unions seem to be able to do it. When union membership is higher, share of income going to the top 10% is lower (meaning more of it is going to the rest).
I grew up hearing a distinctly negative opinion of unions — that they care more about “fighting the man” than actually making sure their workers do a good job. It must be said that unions have been guilty of abuses and failures in the past.
My opinion is changing, though. I can’t dispute the point that the savings companies said they needed on labor costs haven’t been going to consumers or workers. Wages have been stagnant, and the only amount rising faster than consumer inflation is the staggering increase in CEO pay (figure 7 in first link).
When the UAW went on strike last year, they made some extremely compelling points:
Across the U.S., auto manufacturing workers have seen their average real hourly earnings fall 19.3% since 2008. … CEO pay at the Big 3 companies has jumped by 40% during the same period and the companies paid out nearly $66 billion in shareholder dividend payments and stock buybacks.
It’s pretty clear that companies are going to reward shareholders and executives before workers. However, after the pandemic, we have already seen that workers are in greater demand and have been able to individually extract more concessions. We could enact regulations about minimum wage and CEO pay ratios, or we could let unions bargain for the best deals they can get and stop eroding their power. Any combination of policy and program that lets workers be choosy and enables them to change jobs for better conditions would help in similar ways as unions.
Disappearing jobs
But wages aren’t always the problem — sometimes the jobs just don’t exist anymore. We need to expect that many people will change not just jobs but careers as technology continues to evolve. Millennials (born 1980–1996) have already embraced the trend, but Gen Z and Gen Alpha will have to do it, too.
Shafik offers the image of careers as a tree, where you can climb up, sideways, or down as life circumstances change, rather than a ladder that you climb continuously up and end abruptly. Changing our metaphor will be essential for longer working years that may span different careers.
Disappearing jobs are only a serious problem when workers can’t retrain, re-educate, or find a comparably paying job (although being forced to move isn’t anyone’s favorite, either). Right now, our social contract delegates all of that work to the individual. While many states have an unemployment program, they’re typically limited and require recipients to be actively looking for a new job. That doesn’t help people who are changing fields.
Imagine instead: a disappearing industry becomes an inconvenience, but not the death of a whole town or way of life. We’re going to need that future, because mitigating climate change will require completely shutting down many fossil-fuel based industries.
A solution that leans toward government programs could bring continuing education and worker training under the umbrella of public benefits — such as federal grants to employees in the industries or roles that are shrinking, or a one-time unemployment benefit that requires education rather than job searching.
Alternatively, policies could incentivize on-the-job (re)training within employers, perhaps by allowing them to write off the cost of classes or of an employee’s salary while being trained. Most companies report that training an existing employee is still cheaper than hiring someone new.
The important thing is recognizing that people whose jobs are disappearing need to be supported better.
Employer-sponsored health insurance
Health insurance is another area where our social contract hasn’t kept up. We currently assign much of the burden of retirement savings and the cost of health insurance to employers — but only for full-time employees. Then individuals are left to pick up the slack.
That creates an incentive for companies to prefer workers for whom they don’t have to pay benefits, such as contractors, part-time workers, and gig workers. People who need or want flexible work are left in a precarious position, while people who have benefits are afraid to leave for jobs they enjoy more.
Think about how silly it is that a married couple where each partner works 20 hours a week probably doesn’t have health insurance, but a married couple with one full-time partner probably does. For many cultural reasons, that often leads to the wife scaling back her career, at cost to her personally and the economy as a whole.
But we could choose a different social contract. Employer-offered healthcare was an accident, begun when companies that couldn’t raise wages during World War II offered medical benefits to attract employees. It was literally the same as we now think of free soda — a perk.
Most developed countries now assign responsibility for health insurance to the government, paid for by taxes on all wages for whatever hours were worked. Companies are spared the complication of administering their own plans, and individuals who work on contract or part time still get healthcare. Moreover, the risk (which drives up cost) is spread across the largest possible pool — the whole country. Not having employer-paid health insurance is also better for women, small businesses, and essentially everyone.
Since many Americans have a knee-jerk reaction against public insurance, however, I think it’s worth exploring other ways we could decouple employment and insurance coverage.
For example, we could delegate health insurance entirely to the individual and prohibit companies from offering it. Then all Americans would be on equal footing and have to buy insurance plans in the same way (such as the online exchange). I’m certain that insurance companies would quickly figure out how to make their plans user-friendly and attractive. We’d want to find a way cushion the transition for people who would owe more in premiums, but considering that the federal government currently spends at least $152 billion a year — the tax expenditure of not taxing healthcare benefits — money from wages could be redirected to income-based subsidies similar to what the ACA currently provides.
As with health insurance, we could assign retirement savings either to the government (such as by increasing contributions to and benefits from Social Security) or to the individual (say, by automatically enrolling all workers in IRAs for tax-deferred savings). There is room for a disagreement, balance, and compromise — but not the status quo.
Conclusion
For many people, the old norms of stay-at-home moms and working dads having long careers with the same company aren’t actually the important part. What they really want is what we all want: the chance to have a good life. Every aspect of the social contract — children, education, work, healthcare, aging, and inheritance — can be improved if we try to solve those problems instead.
As demonstrated by the variety of solutions I proposed just for the above problems, there’s still plenty of room for disagreement on how we want to move forward. The important point is that we don’t have to look backward. We have multiple ways to provide for everyone in society, just as it is now.
A note to Christians
The premise of this article is that the aspects of life people miss from the Baby Boom are primarily economic rather than cultural. Some Americans, however, do want to bring back (at least some of) the social norms of yesteryear, and many of those people claim to be evangelical Christians.
Christians have enjoyed being the majority religion of the global west since Constantine converted Rome, and it was certainly true in mid-20th century America. Of course we were more comfortable when we could assume that everyone around us had the same ideas about how life is supposed to be lived. American culture at large used to look down on divorce, extramarital sex, abortion, homosexuality, and even swearing, to name a few ideas that now have broad secular acceptance.
Similar to technological development, however, cultural change is nearly impossible to turn backward. Frustrating as that may be, it poses no danger to our salvation or our mission. Christianity was born in the Roman Empire, a famously licentious culture with much harsher punishments for wrongdoing, and Christians still held the line on morality among believers. The early church flourished and spread for hundreds of years with no official support. Today, we have it easy in comparison!
As I wrote in my article about abortion, I think the appropriate reaction to moral disagreement is a listening ear and gentle persuasion, not a loud insistence of our “right” (desire) to tell others to be like us. That doesn’t mean you can’t engage with culture — clearly, this whole blog is about political engagement — but when you find yourself fighting the culture, I hope you will evaluate carefully whether you truly care about a moral issue or simply want to feel comfortable (again). Let’s spend our energy helping others, not ourselves.
[1] “Protection has played a great part in the development of manufacturing in the United States. … The tariff became no longer a party question, but a national policy, approved by both parties. It had become a patriotic duty to develop vital resources.” (Autobiography of Andrew Carnegie, page 146, viewed on Project Gutenberg)
