What’s the State of Economic Inequality in America?

BY Simone Pathe  December 27, 2013 at 5:10 PM EST

With emergency benefits for the long-term unemployed expiring Saturday, what does economic inequality look like in America and how is it tied to unemployment and mobility? The NewsHour explores that topic with former labor secretary Robert Reich and the Manhattan Institute’s Scott Winship on Friday. Economics correspondent Paul Solman has filed a series of ongoing reports on inequality, which you can watch above. And read more from our recent inequality coverage below.

Emergency unemployment benefits expire Saturday, cutting off assistance to 1.3 million long-term unemployed workers.

Yes, last month’s jobs report was largely positive — the economy added 200,000 jobs and the unemployment rate dropped to 7 percent. But, according to Bureau of Labor Statistics data, there are 2.9 unemployed people for every job opening. And for months now, 4 million people have been out of work for 26 weeks and longer.

So how is unemployment assistance going to change come Saturday? Since 1935, when unemployment insurance began, states and the federal government have funded up to 26 weeks of unemployment (with the amount coming from the feds depending on the state). But in 2008, Congress expanded the federal government’s authority to administer “extended benefits” (after states ran out of money), and it’s this emergency funding that the Congress has declined to renew this year. (Senate Democrats say they’ll raise the issue as soon as they return from recess.)

Effectively, this means that those states that have offered benefits for anywhere from under 26 to 73 weeks will now be limited to offering 26 weeks or less. (See what that looks like in these helpful maps from the Washington Post.)

At the very least, a temporary suspension of emergency unemployment assistance will delay benefit checks for these 1.3 million Americans, reducing their purchasing power — not to mention their standard of living. As Northeastern University economist Barry Bluestone points out below, when poorer people can’t spend money, the economy wallows and unemployment for everyone remains higher.


In light of the economic hit 1.3 million Americas are about to bear, we’re examining the state of economic inequality in America on Friday’s NewsHour. Is it a big deal? And to what extent is it related to unemployment and mobility in this country?

Like Bluestone, former Labor Secretary Robert Reich, who will appear on the NewsHour Friday, argues that inequality is a problem for everyone — not just those Americans who haven’t found a job in 27 weeks. It’s “Inequality for All” — the title of the recent feature film in which he stars. Watch his conversation with Paul Solman about the moral and economic case against inequality.

An unequal society, in which income wealth is concentrated at the top, cannot sustain an economy whose main driver is consumer spending, Reich and Bluestone agree.

But doesn’t that inequality have its purposes? Does it not spur those in society’s lower rungs to try to move up? That is, in part, the Republican argument against extending unemployment benefits: benefits disincentivize the poor from accepting the jobs that are available to them — or from working at all.

In 2011, libertarian law professor Richard Epstein of New York University School of Law explained how economic inequality drives innovation and motivates upward mobility.

But does that American dream — the idea that those with less can move up — still have a place in today’s reality?

Persistent income inequality is actually dampening upward mobility, the outgoing head of President Barack Obama’s Council of Economic Advisers Alan Krueger argued back in July. He introduced “The Great Gatsby Curve” to show that as equality increases across society, mobility across generations decreases.

Graph presented in Alan Krueger’s June 2013 speech at the Rock and Roll Hall of Fame: “Land of Hope and Dreams: Rock and Roll, Economics and Rebuilding the Middle Class.” Graph sources: Miles Corak (2011), OECD, CEA estimates.

But who’s to say that’s a causal relationship? As Harvard’s Greg Mankiw argued on this page, family dynamics as well as inherited characteristics, like IQ and talent, underlie a lot of the intergenerational transmission of economic status.

Those innate and family-based differences are important, but what the curve tells us, University of Ottawa’s Miles Corak concluded in the final installment of this summer’s three-part inequality series, is that “inequality heightens the income consequences” of those differences.

The relationship between where Americans live and their chances for mobility earned a fair amount of buzz in 2013 with the release of a new study concluding that some parts of America are lands of opportunity, while others remain — or have reverted to — lands of persistent inequality. NewsHour’s Jeff Brown spoke with one of the study’s authors, Harvard’s Raj Chetty, below.

For much more about economic inequality, watch the NewsHour’s discussion Friday, Paul Solman’s series of reports above, and, as always, stay tuned to the Making Sense page.


This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.