THE BUD VASE ECONOMY
OCTOBER 21, 1996
Talking with cab drivers, academics and a glass blower, Paul Solman helps to explain how America came to have an increasing income gap, and where we can expect it to go from here.
A RealAudio version of this NewsHour segment is available.
Sept. 6, 1996
Unemployment figures are at their lowest level in years. What does this mean for the economy and the average American?
March 21, 1996
Should government do something to ease the impact of economic change on today's working Americans?
March 20, 1996
Economics correspondent Paul Solman of WGBH-Boston investigates how different forms of capitalism produce very different results for stockholders, workers, and communities.
Browse the Online NewsHour's coverage of the economy.
PAUL SOLMAN: Economic inequality in America. In the past, we've used various graphic devices to depict it. Recently, we asked a glass artist, Professor Tom Kreager of Hastings College in Nebraska, to help us out with hot new visual metaphor for inequality. Now, while he's working on it, let's hear from the Republicans, who've been trying to generate some heat of their own on this issue.
SEN. BOB DOLE: What Clintonomics means is that the rich are getting richer, while the middle class gets left behind.
JACK KEMP: The affluent are doing very well in America; the haves, the have-nots, and the poor are being left behind.
PAUL SOLMAN: Now, as you may recall, Democratic candidates have been the ones complaining about economic inequality for years.
BILL CLINTON: Most Americans in this country and most people in this crowd tonight are working harder for lower wages than they were making 10 years ago, is that right? (applause)
MICHAEL DUKAKIS: High paying jobs being replaced by low wage jobs. Average weekly ages down over the past eight years.
PAUL SOLMAN: In the past, we've put inequality and income distribution in historical context, suggesting graphically that in ancient economies wealth and income were distributed very unequally, a broad base of workers supporting the wealthier members of society above them. The miracle of America, as we depicted it, especially after World War II, was far more equality, a diamond-shaped economy, with most folks in the bulging middle class.
But the shape of America's income distribution in recent years, it turns out, is kind of like a bud vase. So let's call it the bud vase economy. Some people at the very bottom, the majority somewhat above, at the top of the distribution, people at ever higher levels of income pulling further and further and further away from their fellow Americans. MIT Economist Frank Levy is an expert in inequality.
FRANK LEVY, MIT: The bud vase is a reasonable picture because what you're getting is really the top of the distribution is stretching out, and that is the thing that you see most in the numbers. If you compare 1973 say with today, you look at the middle of the distribution, the average family's income has only gone up a little bit, from about $39,000 to about $41,000, adjusted for inflation.
PAUL SOLMAN: But, says Levy, the distance between the top and the bottom has widened.
FRANK LEVY: And so today if you look at the bottom fifth of families, instead of making $11,500 on average make about $10,700, but if you look at the top of fifth of families on average, instead of making $85,000, they make about $120,000. So you get a bottom falling a little, the middle about the same, and then that top kind of stretching out, stretching out.
PAUL SOLMAN: Now, what was traumatic about inequality's upturn around 1973 was its subversion of the American dream--economic liberty and justice for all. And, in fact, we ran into the problem just last week in New York, when we landed at La Guardia, where private car services now seem to outnumber the more proletarian taxi cabs.
CAB DRIVER: Those limousine guys, they took, I would say, half the business.
PAUL SOLMAN: As a result, tax driver income has for years been heading in only one direction.
CAB DRIVER: Down, down, down, down, down.
PAUL SOLMAN: Do their fares now make more money relative to the cab driver than they used to?
CAB DRIVER: Yes, yes. I would say yes. The driver, he's making less now than he did a year ago, two years ago, three years ago, making less.
PAUL SOLMAN: Okay. Why couldn't a guy like this simply get a better job? Well, in the mid 70's, when he started driving, two basic trends started working against him. First, reasonably high-paying jobs became more sophisticated, thus demanding more education than ever. Those with less education earned less and less. A second trend, a wave of low-skilled immigrants competed for the less-sophisticated jobs, driving their wages further down, as did globalization, more competition from cheap labor abroad. Further pushing down low and middle income wages, women, who entered the work force in record numbers, typically at rather unskilled levels. All this has been widely reported, but one more crucial factor is rarely talked about--the good old baby boom, whose myriad members hit the job market at roughly the same time, thus adding to inequality, according to economic historian Jeff Williamson, age 61.
JEFF WILLIAMSON, Harvard: One of the reasons why we observe inequality is that older people make more than younger people, so there's a gap simply associated with age. If you generate a glut amongst the young, they tend--the job opportunities and the wages for the young diminish, and for those of us like me, who were born in the middle of the Great Depression, we're scarce, and we're scarce, so we get relatively high income.
PAUL SOLMAN: In other words, as people Jeff Williamson's age moved up the job ladder; they didn't face as much competition as the baby boomers subsequently have.
PAUL SOLMAN: So you mean when you and I--and I'm a year ahead of the baby boom--are entering our peak earning years, there are just fewer of us so we can demand more income.
JEFF WILLIAMSON: Absolutely.
PAUL SOLMAN: You mean--but so tenured professors or TV commentators, I mean, there's just--
JEFF WILLIAMSON: Absolutely.
PAUL SOLMAN: There's fewer of us.
JEFF WILLIAMSON: Oh, yeah. It's much easier for you and I to get tenure, you see, than it is for our children.
PAUL SOLMAN: Is that right?
JEFF WILLIAMSON: Yeah, that's right. Well, I got mine, you know, back in the 1960's, when it was very easy. There was an enormous demand for, for professors to teach the baby boomers, and so I got tenure very easily at age 26.
PAUL SOLMAN: You got tenure at age 26?
JEFF WILLIAMSON: Yeah, tenure at age 26, yeah.
PAUL SOLMAN: Today that would be virtually impossible, wouldn't it?
JEFF WILLIAMSON: You'd have to be a lot smarter.
PAUL SOLMAN: In economic terms then, inequality has been caused by greater demand for more educated, sophisticated workers, drawing them into the top of the income distribution and a greater supply, not only of less educated, less sophisticated workers but also baby boomers at various skill levels clustering them all nearer the bottom. So both education and age have contributed to inequality, which leads us to one final rather difficult question, what can would-be Presidents do about it? Well, unable to affect the increasing sophistication of work or fluctuating birth rates, a key solution to the inequality problem over which the current candidates differ is education, a specialty, as it happens, of Frank Levy's.
FRANK LEVY: The candidates have to start making parents focus on not just what's going on in school right now, but what's going to happen to their kids when they hit the labor market and to translate that into raising the kinds of skill teaching that their kids get right now.
PAUL SOLMAN: Well, but--when, I mean, Clinton talks about building a bridge to the 21st century and Internet hookup in every school and so forth, I mean, it would at least on the surface appear that he's addressing just what you're talking about.
FRANK LEVY: Those are really, to my mind, those are really add-ons. And the things that you need to start with are much higher requirements for math and for reading and for writing and for making oral presentations and for sort of being able to do written reports, the kinds of things you need to get a decent job today, and the kinds most high school kids don't get.
PAUL SOLMAN: Bob Dole, for his part, insists that vouchers, allowing for complete school choice and thus competition, will make education more responsive to the job market.
SEN. BOB DOLE: Let's give low-income parents the same right that people of power and prestige have in America and let them go to better schools.
PAUL SOLMAN: But do parents actually know how to pick the better schools, those that will best prepare their kids for the job market? They more often respond to obvious achievements like cleanliness, discipline, enthusiasm, according to Frank Levy.
FRANK LEVY: All of these things are important but none of them really speak to this question about what are you teaching vis-à-vis what the economy demands.
PAUL SOLMAN: But the real cure for inequality, according to the Dole-Kemp campaign, is renewed economic growth.
JACK KEMP: We should double the size of the American economy. This means more jobs, more wealth, more income, and more capital, particularly for our nation's poor and those left behind.
PAUL SOLMAN: Bill Clinton, meanwhile, is saying that under his watch, the income gap has at long last begun to narrow.
PRESIDENT CLINTON: We have the biggest drop in income inequality in 27 years in 1995, the average family's income has gone up over $1600 just since our economic plan passed.
PAUL SOLMAN: Frank Levy, however, is skeptical.
FRANK LEVY: All the good studies suggest that inequality is about the same, or maybe a little worse than 20 years ago. There's no evidence it's any better.
PAUL SOLMAN: There certainly wasn't any evidence at La Guardia last week. Back in 1970, when I drove a cab to make a living, I split my take with the owner, and cleared, adjusted for inflation, more than $100 a day. Today, a driver pays a daily fee to lease the cab and at the end of the day--
TAXI CAB DRIVER: Maybe I make $150, pay $90, $20-$25 gas, $15 eat--what do I make--$30, something like that--nothing.
PAUL SOLMAN: Now, as we said earlier, the reason for lower taxi wages is more competition from limos and more immigrants. Drivers lease their cabs from those who own medallions, official licenses to operate taxis in New York, and since so many immigrants are scrambling for low-skilled jobs, they have bid up the price of the daily taxi lease, benefitting the owners at the drivers' expense.
PAUL SOLMAN: How can they get away with raising the price? Cause you're willing to pay for it?
SECOND CAB DRIVER: A lot of people do it. Got to work. (laughing)
CAB DRIVER: Same story.
PAUL SOLMAN: Got to work?
CAB DRIVER: Have to work.
SECOND CAB DRIVER: If you don't work, you gonna be on the street.
PAUL SOLMAN: Again, in economic terms, there's simply been more demand for jobs at the bottom of the bud vase. As a result, owners have moved up the neck, while drivers have moved down, unless, of course, it happens to be a pre-baby boom driver who bought a medallion before inequality took off. And we met one who, like Prof. Williamson and myself, was at the right age at the right time, and got the equivalent of taxi tenure.
PAUL SOLMAN: You bought your cab--your medallion when?
UNIDENTIFIED CAB DRIVER: ‘61.
PAUL SOLMAN: And how much did it cost you?
UNIDENTIFIED CAB DRIVER: $20,000.
PAUL SOLMAN: And how much is it worth today?
UNIDENTIFIED CAB DRIVER: $175,000.
PAUL SOLMAN: So you'll do pretty well when you sell it?
UNIDENTIFIED CAB DRIVER: Yeah. That's true. But out of all those years I should have something. You know what I mean.
PAUL SOLMAN: Another person who, like the rest of us, has been an inadvertent part of the economic inequality story of recent years.