Despair Over Income Disparity

During his annual State of the Union address President Obama identified the growing income disparity in our country as a major problem we should do something about. This is apparently going to become the mantra of the Democrats for the November elections.It’s going to be a long year. The income disparity is one of those fuzzy issues that lends itself to demagoguery. Everyone seems to agree the disparity is too big, but no one says how big it ought to be. Surely we don’t want everyone to have the same income. That vision got a workout in the last century. The results were poor. Income inequality is as American as pizza. We assume people with a lot on the ball should earn more money than slackers.

But how much more? There is no credible answer, nor is there any consensus regarding what we should do about the growing income disparity.
We hear a lot about curbing the excessive compensation of corporate CEOs, which generally speaking would be a good idea. Some of these guys are giving greed a bad name. But that would not rectify the problem. Also, raising the minimum wage is another red herring. Less than 3 percent of workers earn the minimum wage and most of those are middle class kids in their first jobs. Raising the minimum wage may be a good idea but it will not impact the income gap.

Likewise, raising taxes on the rich might have some impact, but not much. In 2013, the top 1 percent of wage earners paid 30 percent of tax revenues. The bottom 20 percent paid no federal taxes. We can tweak that balance but all our tweaking will not close the income disparity.

The real problem of course is not one of income but rather social and economic mobility. As long as people see reasonable hope for a better future, our nation will prosper. Unfortunately, opportunities for advancement are increasingly scarce for many people, especially those with limited education and few job skills. A major part of that stems from the loss of millions of low skill manufacturing jobs that once offered people with minimal qualifications relatively easy access to the middle class. We have a great potential to employ more people in well-paying manufacturing jobs, but jobs in modern manufacturing require advanced education and training that most of the displaced manufacturing workers simply do not have.

In sum, we are left with a growing wealth gap between the top and bottom. What are we to do about it? Should we do anything? I extol the importance of education, but too much of our higher education today is failing to endow students with marketable work skills in our rapidly changing economy. Today 15 percent of cab drivers in the U.S. have college degrees. Applications to four year universities are declining and for good reason.

The growing income disparity is a result of a stubborn unemployment that reasonable people working together can solve. One solution is a coherent program for training people of all ages for jobs that actually exist and offer potential for personal growth. The business community would eagerly join forces with government in support of such an initiative if it were truly bi-partisan, professionally led and based upon practical incentives.
In his State of the Union address, the President also called upon Vice President Joe Biden to lead an effort to rationalize federal job training programs. Without question, the plethora of federal job training programs is a mass of confusion and wasteful duplication. The Government Accountability Office had identified 47 job training programs in nine agencies that spent $18 billion in 2009. The House Education and Workforce Committee says the GAO left out at least nine programs.

And of course these are just federal programs we’re talking about. There are hundreds more at the state and local level, and even more in the private sector – including the Manufacturing Institute’s “Dream It, Do It” initiative of the Manufacturing Institute that is doing great work. It may be that the best training programs are in fact at the state and local level.

We have faced bigger challenges than the income gap. What we need is less demagoguery, more rational analysis and perhaps a bit of leadership.