The risk of economic insecurity is a useful lens through which to understand today’s economy and politics. Globalization, advancing technology, shifts in labor markets, and historically high levels of inequality (both in terms of income and in wealth) have all generated a set of risks to which a growing share of Americans is increasingly vulnerable.
Take trade. While trade is invariably a net plus for economies, workers thrown into competition with much cheaper workforces abroad can and do come out behind. In America, that’s one factor behind the fact that while real compensation for blue-collar manufacturing workers doubled between the late 1940s and the late 1970s, it’s been flat since 1980. Clearly, these workers were uninsulated from the downside of global competition.
The decline of traditional employer-employee relationships is another example. In what former Department of Labor official David Weil calls the increasingly “fissured” workplace, there has been a rise of outsourcing, contracting and subcontracting, franchising and, lately, “gig economy” jobs. Research shows that while the spread of these jobs can provide new entrepreneurial opportunities, they have also led to more violations of wage and hour laws, ranging from not paying minimum wages or overtime, to outright wage theft. If you think of the existence of those labor standards as insulation against labor market exploitation, the proliferation of these alternative arrangements is evidence of the magnitude of the risks shifting unto the shoulders of workers.
A third example is retirement security, which is increasingly eroding for many Americans. Retirement insecurity has been heightened by the long-term shift from guaranteed pensions to retirement plans that depend on investment returns from 401(k) plans, and of course, many workers (including 46 percent of all workers and 76 percent of low-wage workers) do not participate in any retirement plan at work.
The burden of these growing risks, moreover, has particularly fallen on those least able to manage it. In a remarkably underappreciated reality, the U.S. economy has been at full employment only about 30 percent of the time since 1980, implying that labor market slack has been the norm rather than the exception over these years. Those hurt by weak labor demand are disproportionately people of color, the non-college educated (still two-thirds of the workforce), and those in the bottom half of the wage scale. These are the groups exposed to the risk of un- and underemployment and stagnant real wages and incomes in slack labor markets.
Unions, for example, have historically provided their members insulation from such risks by negotiating benefits, pay and providing a collective voice. But union membership has declined to just 11 percent of workforce.
Wealth, or net worth, is certainly one of the best insulators against the buffeting forces of economic change, yet research shows that after rising sharply during the 2000s housing boom, the real median net worth in 2013 of about $64,000 (most recent data) was the lowest it has been since 1969. African-American net worth was particularly hard hit by the housing bust, and in 2013, their net worth, at $1,700, was less than 2 percent of median white wealth of $117,000.
The current political landscape is worrisome in this regard, as much of the current agenda seems likely to exacerbate the exposure to risk and economic insecurity of vulnerable families. Plans to reduce health coverage, nutritional support, Head Start, housing assistance, worker training programs, Pell grants, child care, and more constitute a devastating reduction in a broad set of “insulators” that protect working families from a host of risks.
Most concerning is that this risk-ramp-up is occurring simultaneously with the advance of the disruptive forces noted above. Some of these changes reflect healthy, if unsettling, market forces: the “creative destruction” about which economists tend to get excited. And in terms of innovation, such forces can and do unleash exciting, dynamic advances. But as recent political outcomes confirm, people don’t like to cross the tightrope of disruptive change without a safety net to catch them if they fall. Or, better yet, a trampoline that helps them bounce back.
Somehow, as the insulation from risk has eroded, we’ve lost track of a simple reality: people inherently want to contribute, to be productive, to work in gainful employment for fair remuneration, to save and invest in themselves and their families. For many Americans, especially those whose skills are complementary to the dynamic changes taking place, this happens naturally. But for those who’ve failed to transition from dying industries, those victimized by discrimination, sexism, xenophobia, residential segregation, and those whose poverty traps them in economic deserts, there is no natural path to prosperity.
These are the people that social policy must target. We must reverse the risk shift on their behalf. If the jobs won’t come to them, we must either directly create job opportunities where they live or help them relocate to places with strong labor demand. If their skills are incompatible with contemporary labor demands, they must be retrained. If their limitations are such that they can’t work without supports—health care, housing, child care—such supports must be forthcoming. If millions of workers lack health and retirement benefits, then social insurance in those areas must be strengthened.
Yes, these ideas have a fiscal price tag. But an economy as wealthy as ours can afford to implement the policy agenda that engenders broadly shared participation and prosperity. It is only the horribly cramped politics of our time that leads some of us to conclude that such progressive efforts are beyond our capacity. Take a good look around at today’s America. We can do much, much better.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, he was the chief economist and economic adviser to Vice President Joe Biden. This post originally appeared at the Washington Monthly.