Income inequality has risen steadily in the United States since the 1970s. Reuters
John Manzella, Tribune News Service
I often hear people talk about their difficulties in finding a meaningful job or keeping up with increasing healthcare, housing and education costs. These concerns, along with rising income inequality and a shrinking middle class, are provoking anger. For many, trade and immigration have become convenient villains. But that narrative is wrong. Let me tell you why.
Income inequality, which is partly a reflection of the growing gap between lower and higher skilled workers, has risen steadily in the United States since the 1970s. In fact, the economic gap between the rich and poor is higher here than other advanced economies, according to the Pew Research Center. This has resulted in a shrinking middle class that no longer represents the majority of Americans.
What’s gone wrong?
American free-market capitalism has generated the greatest economic growth the world has ever seen, but it has not benefited all of us equally. But in an effort to improve economic outcomes for all Americans, it’s essential to continually improve our system of free-market capitalism — not move toward a more socialist-like model that empowers left-leaning politicians to make decisions that should be made by the market.
It’s just as important not to accept oversimplified solutions to complex problems presented by far right or far left-leaning populist leaders. Unfortunately, support for the far right and left is growing and has contributed to greater polarization in the United States. This is further dividing Americans and making it more difficult for Congress to compromise to pass necessary legislation.
This polarization trend isn’t just an American problem. A recent report published by the Organization for Economic Co-operation and Development, a global policy forum, indicates that over the past 30 years, middle class households worldwide have experienced dismal or no income growth. This has fueled perceptions that the current socio-economic system is unfair and has led to greater support for extreme left and right ideologies and politicians that embrace them.
But that’s not all. Stated by the Pew Research Center, across 27 countries surveyed, 51% are dissatisfied with the way their democracy is functioning, compared with 45% who are satisfied.
It’s time to take a deep breath and not buy into emotionally appealing solutions from populist leaders who often scapegoat trade and immigration as the causes of America’s problems. In doing so, keep the following points in mind.
First, problems associated with rising income inequality, a shrinking middle class, and the inability to find meaningful work has much to do with lower and middle-skilled jobs being eliminated by automation and the increasing demand for higher skilled workers.
Moving forward, 14% of existing jobs could disappear as a result of automation in the next 15 to 20 years, plus another 32% are likely to change radically as individual tasks are automated, says a recent report by the OECD. Other organizations say nearly half of existing jobs could vanish, mostly affecting lower to middle-skilled workers.
To adapt, a well-educated labour force should be a top national priority equal to the effort that put a man on the moon. Importantly, students need the ability to pay for technical or university level educations without incurring unreasonable debt. And employees of all ages need to engage in life-long learning. History reveals that after fast-emerging technologies destroy jobs, more new ones are created. Although we don’t know what the new jobs will be, we do know they will require highly skilled workers.
Secondly, don’t scapegoat trade.
Automation, not trade, accounted for more than 85% of US job losses in manufacturing from 2000 through 2010, according to the Center for Business and Economic Research at Ball State University. Although trade has contributed to some job losses, it has provided far greater benefits.
Today, nearly half of all US exports are sold to our 20 free trade agreement partners — which only represent 6% of world consumers. To boost job-creating exports to the rest of the world, we need more, not fewer, free trade agreements.
Thirdly, immigrants don’t steal American jobs, they help fill them.
Immigrants help fill vacant American jobs at all skill levels. But the worker shortage is getting worse. According to Korn Ferry, the US skilled worker deficit could result in $1.75 trillion in lost revenue annually for American companies by 2030. In light of this, legal immigration should be expanded, not reduced.
Furthermore, American colleges and universities attract the best and brightest students the world has to offer. However, after graduation we send them home to compete against us. Allowing more foreign graduates to remain here to support our companies or start new ones would benefit our economy.
Immigrants also add to America’s population and consumer base. Germany and Japan, for example, have negative population growth rates. This puts downward pressure on their economic prospects.
The United States has problems. But trade and immigration aren’t to blame for them. Americans, as well as others around the world, need to look past the simplified and often emotionally-charged solutions presented by far right and far left-leaning populists or our problems will only get worse.
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