Restoring middle-class opportunities for more Americans

Nick Kristof’s recent column in the New York Times highlighted some of the economic and social challenges facing many working-class Americans. He focuses on an Oregon friend of his who has faced many economic and social challenges due to his upbringing and the lack of sufficient good-paying job opportunities.

As Kristof suggests, the first step to a solution is having some empathy for those with problems. But the next step is coming up with actual solutions that can work in a cost-effective manner, and that have some evidence of success. Kristof briefly mentions early childhood education, other efforts to boost education, and a higher minimum wage. In this blog post, I’ll flesh out some of those solutions a bit and add to the list of possible solutions.

If the problem is the lack of sufficient number of Americans in higher paying jobs, there are logically four ways to solve this problem:

(1) Labor supply solutions (e.g., early childhood education and other education programs) that augment the quality of Americans’ labor supply, with those higher skills helping to lead to more high paying jobs;

(2) Labor demand solutions (see below) that directly intervene with employers to encourage them to create more high paying jobs;

(3) Institutional interventions in labor markets to encourage more higher wage jobs (e.g., minimum wages and unions);

(4) After-market government subsidies (e.g., the earned income tax credit, subsidies for health insurance, child care subsidies) that provide supplements to market income to boost living standards.

I will focus in this blog post on items 1 and 2, labor supply and demand solutions, both in the interests of shortening the blog post and because there is plenty of writing about minimum wages, unions, and government subsidies.

As I have argued in past blog posts, high-quality early childhood programs can play a significant role in reducing income inequality.  Universal pre-K, combined with income-targeted high-quality childcare, can boost the future earnings of middle class children by about 6%, and the future earnings of lower-income children by close to 30%.  Income-targeted childcare will also directly raise the effective incomes of many working-class households, while also helping these families develop more on-the-job skills and go back to school to build long-run skills and earnings.

But other education programs can also help. Making higher education more affordable may boost post-secondary attendance and motivate students to do better in high school; local programs such as the Kalamazoo Promise provide one model.  High school career academies can help students better make a transition to well-paying careers without discouraging post-secondary attendance.  Evidence from the best charter schools suggests that longer school years, small group tutoring, better use of well-designed testing to improve instruction, and high expectations can significantly boost student achievement.

On the labor demand side, customized job training programs and manufacturing extension programs can help small and medium sized businesses to be more productive and competitive, and can thereby encourage these businesses to expand hiring and be able to pay higher wages. In economically distressed regions, wages subsidies for hiring coupled with public service improvements can significantly improve the economic environment and encourage needed job growth.

There are probably many other labor supply and demand interventions that could boost the availability of higher-wage jobs for more Americans. But the above list focuses on programs for which there is some reasonable empirical evidence for effectiveness, which I link to in the above discussion.

Once we have boosted skills and wages through labor supply and demand policies, institutional policies to boost wages such as a higher minimum wage would be more sustainable, because of higher worker skills. And policies to supplement worker wages, such as the Earned Income Tax Credit, would not need to be as large and costly to boost household income to adequate levels, as market wages and employment rates will be higher.

Restoring more middle-class job opportunities is a huge and challenging task. It will not be achieved by one policy, or in an instant. Rather, it requires a sustained commitment, a broad strategy,  and a willingness to experiment.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
This entry was posted in Economic development. Bookmark the permalink.