Donald Trump won the U.S. presidency in large measure by promising America’s working class a better life. A new paper on the lifetime earnings of American workers by several economists, including the University of Minnesota’s Fatih Guvenen, published by the National Bureau of Economic Research shows just how hard it will be to keep that campaign promise, especially to working men. Guvenen talked to the Star Tribune about American workers’ tough financial times and the need for the country to confront the inevitable change from a manufacturing to a service economy.
Q: Most people believe they will do better than their parents. What is different for American workers now?
A: We analyzed Social Security data from 1957 to 2013 and what we find is from 1957 to 1967 [American workers] are getting richer. But 1967-1968 turns out to be a turning point. From that point on, males are making lower lifetime incomes than their parents.
A: This can happen one of two ways. One is they could be entering with lower wages. Two, they may be entering with similar wages to their parents, but their [wage] growth over the life cycle may be smaller. For men, it is the first one. For a male worker at age 25, the wage level has been declining almost continuously from 1968 until 2013. The median male entering the workforce in 1968 is making $35,000 a year, adjusted for inflation. Today, the same-age male is making about $25,000.
Q: Is that because the skill set they bring is not as valuable as it was before?
A: We cannot say for sure. But what we can say is that other economists have documented the stagnation of median male wages before. We are showing that the decline is starting at very young ages. This changes the direction of debate from looking at factors that affect the labor market — things like unions, the decline of manufacturing, unemployment and welfare. These are factors that affect workers while they are in the labor market. We are showing that it starts at the entry point. So perhaps the discussion should go back to what is happening to young Americans before they enter the labor market. So it’s about the family. It’s about K-12 education. It’s about the way schooling is financed in America. These are the issues we should be focusing on.
Q: You usually hear that women make 80 cents for every dollar a man makes. Your research looks like the gender gap in reverse because it shows women’s wages growing faster than men’s. Why would working women be doing better than working men?
A: You have to be careful. When we say women are doing better, that’s very much in relative terms because men have been doing so poorly. In 1957, the median 25-year-old woman in our study was making $15,000. Today they are making about $20,000. But there has been no wage gain for entering women since 1970. There has been a different kind of gain from [the country’s economic] growth since 1970. Women’s wages were so low that this faster growth is just catching up to men. They still haven’t caught up. In 1957, the lifetime income of a woman was about 40 percent of the lifetime income of a man.
Q: Looking forward, do you think wages for working women will ever catch up to or surpass men?
A: With the disclaimer that we are not prophets, if you look at the most recent years, women continue to catch up. Part of it is because men continue to do quite poorly. If I had to guess, I would say yes, at some point that might happen. But the gap is still very big. So it’s not going to happen in the next five to 10 years or even 20 years at this rate.
Q: Let’s talk about whether workers, especially men, are entering the labor force without proper training or with the wrong skill set. What do you look for in terms of public policy that might address the situation?
A: What we are saying in this paper is that we should focus on: What is it about K-12 education? What is it about American families? What is it about the college system? The average American in 1950 without a whole lot of education could use physical strength and stamina to go and work in a manufacturing job. And you could make a pretty good living out of that. Fast forward 67 years and today, the value of those jobs has declined through automation and technological change. The value of brain has gone up as opposed to brawn. Unless you gain more cognitive skills, your wages are bound to decline.
Q: President Trump has talked a lot about bringing back manufacturing jobs. Are you saying a manufacturing job in 2017 is going to take a lot more cognitive skills and not just a strong back?
A: What I’m saying is if you go back 200 years there were no manufacturing jobs. Almost all of the U.S. economy was based on trade and farming. If you look at the 20th century, farming has declined and manufacturing grows. We call this structural transformation. Right now, what we are going through and what every developed country in the world is going through is the decline of manufacturing and the rise of services. Services require a lot more cognitive ability. High-end skills. I think bringing back manufacturing is not a realistic proposition. You can replace that with jobs that are high-paying and very rewarding. But they will require more knowledge that you can accumulate in school.
Q: So people out there who are waiting for the coal mine to come back or waiting for the factory to reopen, are they just fooling themselves?
A: Unfortunately, yes.
Q: If there is a structural transformation in the economy, doesn’t there have to be a transformation in education and preparation?
A: Absolutely. A lot of this can be taught, not just in K-12, but in appropriate college education. Being trained in the skills that are demanded today in the economy is the first order.