The new dollars and dreams: American incomes and economic change

Abstract

The New Dollars and Dreams: American Incomes and Economic Change. Frank Levy. NY: Russell Sage Foundation, 1998. ISBN 0-87154-515-2. $16.95 paper. Levy's original Dollars and Dreams recounted the tremendous growth in incomes following World War II. The new version tells of the disturbingly little growth there has been since the early '70s. It tells, too, of the even more disturbing increase in income inequality: When the earlier growth peaked around 1969, the richest five percent of families claimed 15.6 percent of total income; by 1996 that share had shot up to 20.3 percent. So what happened? After the war it was possible for unskilled workers, including blacks from the South moving up north, to find well-paying jobs in heavy industry/manufacturing. (A considerable equalization of what had been vast regional discrepancies resulted as these migrants lowered average incomes in the North while raising them in the South by their departure.) But then that high-income North turned into the rustbelt as de-industrialization set in and such opportunities for the unskilled disappeared. The beginning of the end of this great growth came with the worldwide crop failures of 1972/1973 which led to a 34 percent increase in food prices. This was followed by the (contrived) oil shortage through which OPEC was able to triple prices. These inflations impacted family income considerably, to the point that it actually dropped (in 1997 dollars) from a postwar high of $40,400 in 1973 to $38,600 by 1975. (By 1989 it had risen merely to $43,600 and because inflation and productivity both stayed low it went down to $43,200 in 1996.) Incomes remained fairly flat for several reasons. There was a productivity decline in which three factors played a role: higher oil prices changed techniques used to achieve productivity; maturing baby boomers, and more women, entering the workforce in greater numbers lowered the average workforce experience and hence wages; and increased government regulation diverted research from streamlining production to reducing pollution and protecting workers. And there was a lack of technological change that contributed substantially as well. Pressure to improve productivity, and technology, didn't come until the early '80s, and by the mid-'80s it extended to the service sector, with first blue- (low-skilled) and then white-collar workers getting laid off. The beginning computerization of work played a familiar role in these years. It's true that there has been a substantial expansion of the service sector in the U.S. economy, but Levy makes it clear that this is not as radical as many believe and certainly is not the explanation for the sorry state of family incomes. As he reminds us, even in 1947 the service sector consumed 53 percent of hours of employment; by 1996 it was 77 percent. Productivity grows very slowly in services-you can only speed up a haircut so much, likewise brain surgery. What's really more the issue is that services involve jobs both for the well-educated and for the unskilled. This most salient skills differential really shows up after 1979 when the gap between high school- and college-educated white males shot up from nine to 32 percent. …