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A COLUMN BY MICHAEL HICKS

Easy avenues to the middle class are disappearing

Tuesday, January 29, 2013 - 12:01 am

The United States has always had something like a middle class, but for most of our history it has been a distinction of class not necessarily dependent on income or wealth. In that sense we have been unusual among nations in allowing a Ben Franklin, Abe Lincoln or Harry Truman to do the same jobs as a Washington or Roosevelt. Class mobility remained a constant feature of our republic for most its history.

In the last century, the middle class became defined by something different – household earnings. As unpleasant as it is to say, the truth is that this economic definition of the middle class was built upon an abundance of well-paying but relatively low-skilled jobs. For almost half century, these jobs have been in retreat, while at the same time our educational attainment has stagnated. The link between education and earnings is so strong that we have seen a widening income gap between those with and without college degrees. While income inequality remains far smaller than the mainstream alarmists would have us believe, it also shows few signs of slowing. That should give us all pause to consider what it may mean and what it will not mean for our nation.

We must start by acknowledging that the cause of inequality is not policy driven. It was not brought about by anti-union efforts, or unions, or NAFTA or anything in the tax code. It is simply the slow but inexorable economic changes that have rewarded those with specific skills more handsomely than in the past. Any effort to address income inequality will have to begin with the underlying economic factors. This is a far more difficult challenge than adjusting a policy mistake.

Moreover, income inequality at a single point in time may be less an issue than it seems. While earnings in a given year may be increasingly unequal, earnings over a lifetime are far less so. High-income occupations require much human capital investment, which is costly in both time and money. For example, the average physician's lifetime earnings, minus college debt, will not have equaled that of the average plumber until they are both in their mid-40s. Moreover the physician is likely to have met the definition of poverty for the better part of a decade of adulthood, only to find herself a much maligned “one-percenter” a year or two after completing residency. Indeed, the intellectual father of inequality research, Simon Kuznets, argued that the whole concept of income inequality lost most of its meaning if households saw big income shifts over their lifetimes.

All the focus on potentially meaningless income inequality data leads us to ignore the greater problem of intergenerational inequality. If, as it appears, earnings will be increasingly linked to human capital, and human capital is inherited, either through parenting or genetics, then we have cause for worry. The question might well be, “How do we sustain a free society when, as it may turn out, the parent lottery determines income and class?”

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University.