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A Working Nation: Workers, Work, and Government in the New Economy. (Book reviews: Employees at work).

A Working Nation: Workers, Work, and Government in the New Economy. By David T. Ellwood, Rebecca M. Blank, and others. New York, Russell Sage Foundation, 2000. 146 pp.

Sponsored by the Aspen Institute's Domestic Strategy Group, this volume deals with some of the causes of the inequality of earnings that has increasingly characterized the wages and benefits of male workers and their families over the decades since the early 1970s (it slightly decreased during the late 1990s). While the volume's title refers to the "New Economy," the term remains undefined, and we may disregard it. One of the announced purposes of the studies presented is to deal with "the future of work," but the authors avoid doing so. However, the "the future of work" may well be viewed here in terms of the continuation of the trends that have prevailed over the period analyzed. This would imply that adapting to new work patterns and technologies by most low-wage workers will be too slow to significantly change those trends.

David Ellwood presents and interprets the basic facts of wage and income inequality, and does so in a spare, lucid style. He derives the data from national income statistics and the Current Population Survey, making adjustments (for example, for inflation) he deems appropriate. He divides the income distribution into thirds, which may be a bit crude but makes for clarity. He figures the national income on a per-adult (rather than per-person) basis. He reports total compensation of wage and salary workers separately for men and women. Subsequently, he reports the income from work and other sources for two-parent families with children by thirds of educational grouping. He does the same for single-parent families.

While median compensation of men in the top third of the income distribution rose 28 percent between 1973 and 1996, compensation of men in the middle third declined 3 percent, and of men in the bottom third 8 percent. The pattern for husbands in two-parent families is similar if somewhat more moderate; compensation of these men rose 31 percent in the top third educational grouping, 4 percent in the middle third, and remained unchanged over the period in the bottom third. "It is simply not true that middle and working class men get much of the income generated in our nation," writes Ellwood.

The decline in median compensation shown for these men was suffered entirely by men under 45 years old, with those in the 18-34 age brackets being affected most. It was associated with a full or less than full high school education, but also with "some" post-high school education. All the increase in compensation occurred among college and post- college graduates. It remains, however, that compensation of men in the higher age brackets improved, reflecting experience and tenure.

Women's median compensation rose in all income and education brackets over the 1973-96 span. The increase was largest, however, in the top third of the income distribution and of the educational grouping of two-parent families. Hence, income of two-parent families benefited from wives' earnings, although in the bottom third it rose but 14 percent, compared with 57 percent and 25 percent in the top and middle thirds (by educational grouping).

Inequality of family income intensified between 1973 and 1996. In 1973 the top one-third of families had income from compensation and other sources--for example, dividends, net interest, and rent--that exceed the middle third by 32 percent, and the bottom third by 61 percent. In 1996, the respective differences ran to 66 percent and 122 percent. Inequality also sharpened when income of single-parent families is compared with that of two-parent families: the former "had less than half of the income of families with two parents for each level of parental education."

Ellwood writes "the traditional cost of living adjustment would show little or no increase in income for families at the bottom." Those at the bottom are poorer today than they were 20-25 years ago -- a factor that also diminishes opportunities for children. For example, higher earnings are more and more associated with college education, but that has become virtually unattainable for poor people: the entire increase in college attendance has stemmed from children in families in the top 60 percent of the income distribution.

Substantial differences in understanding the widening earnings gap and ways of dealing with it are evident from essays by two contributors to the volume--one by William A. Niskanen, the other by Rebecca M. Blank. Both are one-time members of the Council of Economic Advisors, the former under President Reagon, and the latter under President Clinton. We cite some examples.

Both Niskanen and Blank support the Earned Income Tax Credit (EITC) as a subsidy to low-wage workers. Niskanen, however, opposes the minimum wage as a hindrance to the hiring of low-skilled workers, while Blank strongly supports it as being inseparable from the EITC, hence as "substantially (improving) the returns to work among low-wage workers in the face of declining or stagnant market wages." Blank extends the argument, viewing minimum wage laws as seeking "to assure that work provides economic sufficiency." Equally important, the minimum wage, together with the EITC, helps reverse and forestall the devaluation of work often linked with declining pay. She also urges the adoption of adequate child care and health plan insurance subsidies, again so as to raise compensation and secure family well-being. She does not believe that the labor market by itself will raise low-wage workers' earnings sufficiently to ensure an adequate living standard.

Niskanen and Blank offer divergent conceptions of what lies at the root of the widening earnings gap. Nikanen traces that gap to some of the personal characteristics and social settings of low-skill workers. He mentions negligent attitudes toward work and such "dramatic changes in family structure" as the great increase in births by single mothers, which has made for poor schools and employment problems. Remedial policies should be focused accordingly. They should include removal of impediments to a more freely operating labor market, such as the minimum wage (as noted) and prevented the erosion of the "employment at will" doctrine which, according to Niskanen, increases the expected cost of hiring.

Blank is more concerned than Niskanen with demand-side sources of the earnings gap, and with institutional weakness she believes should be overcome--for example, difficulties of the school-to-work transition faced by many youngsters. Thus, she holds that "widening inequality among workers with similar education levels in the same industry or occupation suggests that firms are trying to link pay more directly to individual productivity," and that "changes in the use and management of labor" seem to be "linked closely" to the widening earnings gap. The growing use of temporary workers and of outsourcing is part of that policy, as is the decline of unions, which have traditionally resisted wage variance among defined categories of workers in given industries or firms, but have had to accede, for example, to so-called two-tier wage agreements in many circumstances. Thus, wage variance can perhaps be modified only if union possess the necessary bargaining power, which in this respect they evidently lack.

Blank is not sanguine about the effects of training involving today's low-skilled workers, although she emphatically advocates it. She writes that few workers raise their skill levels after their mid-twenties. Training under the Job Training Partnership Act has had but modest effects on post-training wages, and increases in these wages soon eroded. Training programs for public assistance recipients have had better success, however.

A lengthy essay by two contributors to the volume, Joseph Blasi and Douglass Kruse, titled "The New Employee-Employer Relationship," inter alia deals extensively with the subject of training. They write that "(t)he new skills needed by new employees are generally developed through informal training," that is, inhouse and on the job. More formal training is sponsored by, or occurs, mostly in large establishments where turnover is low, and where the employees, already college-educated, are professionals or technicians. American employers are generally reluctant to invest in training, partly because of high voluntary turnover, partly because of high probabilities of worker displacement occasioned by product changes, increased productivity by way of new equipment or new work organization, foreign competition, and so forth. Be it noted that worker displacement is viewed by the authors as an aspect of the weakening of the relationship between employee and employer rather than merely in connection with training. One may regard worker displacement, however, as in part a social loss, a loss of skills specific to the occupation and firm of the displaced worker, which she or he cannot easily unlearn. According to the authors, displacements were not quite as high during the mid- 1990s as they had been during the recession of the early 1980s, indicating a disturbing trend.

Blasi and Douglas devote a section of their essay to high-performance work practices and their diffusion. They lean toward acceptance of the argument that unless such work practices are combined, that is, not introduced piecemeal, their effectiveness is questionable. Among them, they list careful selection of workers; decentralized management; quality circles; sharing of gains from enhanced productivity with workers bringing them about; no layoffs of workers as productivity rises; job rotation; and work-related meetings. Very few of the firms surveyed had adopted a full complement of such innovative work (or better: managerial) practices. The authors list some of the significant technical, managerial, and cost barriers to that failure. They make no mention, however, of the origin of such practices in Japan, where their success has been partly attributable to less confrontational worker-management attitudes than in the United States, and to entrenched customs ensuring tenure and seniority. Blasi and Douglas write that tenure in the United States has tended to decline. The employment of contingent workers, that is, workers hired on a temporary or part-time basis, greatly increased during the 1990s. They do not discuss whether such workers fit the "team" concept which in large part underlies high-performance work practices.

A Working Nation is a well-conceived summary and analysis of key problems facing a large proportion of working people and their families. These problems have been in the forefront of concern of labor economists and the Department of Labor over the past four decades. It is a good thing that they also are kept in the forefront of public attention, such as this volume will help ensure.
--Horst Brand
formerly with the
Bureau of Labor Statistics
COPYRIGHT 2001 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001 Gale, Cengage Learning. All rights reserved.

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Author:Brand, Horst
Publication:Monthly Labor Review
Article Type:Book Review
Date:Sep 1, 2001
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