Posts tagged politics

Graph of the Day: Has the U.S. Fallen Behind in Higher Education?

Despite having the unfortunate distinction of being the first and only industrialized nation to amass over $1 trillion in outstanding student loan debt, the United States no longer leads the world in college graduates. According to the latest data from the OECD, sixteen countries now have a higher percentage of college graduates than the US, which had arguably the most educated workforce in the world during the postwar years. (The graph below does not include Japan, which also outranks the US.)

In absolute terms, the United States is not producing any fewer graduates than in the past. But as a percentage of the population, our numbers haven’t budged in a generation. Only 41 percent of 25- to 34-year olds held a college degree in 2009, the exact same percentage as their parents. The rest of the world, meanwhile, has surged ahead, leaving us 48th in math and science education, and near the bottom among industrialized countries on international math tests. Compounding the problem is the fact that just 60 percent of undergraduates actually complete their education within six years. The other 40 percent still have to repay their student loans—but with none of the added benefit of the college degree wage premium.

The story is essentially the same for high school graduates. While nine out of ten Americans aged 55 to 64 hold a high school or equivalent degree—far and away the highest percentage in the world—their children and grandchildren have fallen critically behind. Today just 88 percent of 25- to 34-year olds have graduated high school, fewer than ten other OECD countries, including Korea, the Slovak Republic, the Czech Republic, Poland and Slovenia.

It is difficult to draw conclusions from such data. US GDP per capita is higher than all but Norway and Luxembourg among OECD countries, despite its stagnant graduation rates. Germany, another powerhouse economy, also has seen little or no change in its number of high school and college graduates in the last 30 years. And the United States still accounts for over a quarter of the global 25- to 64-year old population with tertiary education—about the same percentage as the next three largest educators combined (China, Japan and the United Kingdom).

Still, these graphs are instructive. America’s economic hegemony in the second half of the 20th century was built on a strong, well-educated middle class, thanks to major investments in higher education like the GI Bill. That commitment has wavered in recent years, as states have cut back their funding for the state and community colleges that educate 75 percent of all US undergraduates, even as the cost of tuition soars. And if a growing number of Americans find themselves financially unable or educationally unprepared to enter higher education, what future can there be for such a middle class? “The net effect,” writes Joel Klein, former Chancellor of the New York City Department of Education, “is that we’re rapidly moving toward two Americas—a wealthy elite, and an increasingly large underclass that lacks the skills to succeed.”

Balancing the Budget on the Backs of the Poor

In recent weeks, Rep. Paul Ryan (R-Wis.) has suggested severe cuts to safety net programs like food stamps and housing assistance, in the spirit of the 1996 welfare reform that moved millions of struggling families off the dole and into poverty. Comparing the safety net to “a hammock that lulls able-bodied people to lives of dependency and complacency,” Ryan has proposed ”welfare reform round two,” which would similarly replace federal funding with fixed grants to states, allowing local politicians to slash poverty assistance programs when the budget is tight and spend the funds elsewhere. “Yes, we divert [welfare funds],” State Representative John Kavanagh, a Republican, told the New York Times, in a recent article about welfare reform in Arizona. ”Divert’s a bad word. It helps the state.” It’s certainly easier than raising taxes.

The practice of diverting welfare funds, and the human tragedy that invariably results, is hardly unique to Arizona. The percentage of families with children living in poverty who received cash assistance declined sharply throughout the United States after the 1996 welfare reform law, which transformed the New Deal-era Aid to Families with Dependent Children (AFDC) into the Temporary Assistance for Needy Families program. TANF, unlike AFDC, was designed to be a transitional program, relying on block grants and lifetime caps on aid to push recipients quickly out of the program. For a few years, the reform seemed to work. The late-1990s economic boom and an unemployment rate below 4 percent helped to reduce welfare caseloads while allowing states to use their TANF funding to plug unrelated holes in the state budget, guilt-free. But when the economy slowed down in 2001, and crashed in 2007, states were unwilling or unable to redirect TANF benefits back to families in need.

“Reformed” welfare—unlike the Supplemental Nutrition Assistance Program (SNAP), or food stamps—had lost its critical counter-cyclical function. From 1995 to 2010, the number of families with children living in poverty rose by 17 percent, from 6.2 million to 7.3 million. But instead of expanding to meet the increased need, as SNAP did, TANF continued to shrink. While food stamps reduced the depth of child poverty by an average 15.5% and its severity by 21.3% from 2000 to 2009, the percentage of families with children living in poverty who received welfare actually declined, from 68% in 1996 to just 27% today. Inflation has further eroded the value of TANF block grants by nearly 30 percent.

Researchers Luke Shaefer of the University of Michigan and Kathryn Edin of Harvard report similar findings: at the same time that the average number of welfare recipients declined from 12.3 million per month in 1996 to 4.4 million today (of whom just 1.1 million are adults), the number of households with children living on less than $2 per day per person has more than doubled, from 600,000 to over 1.4 million.

But for state legislators like the above-quoted Mr. Kavanagh of Arizona, cutting safety net funding has been a no-brainer. “We have reduced our caseload, and we don’t have people dying in the street. There were an awful lot of people who didn’t need it.” Republicans like Paul Ryan and Mitt Romney are likewise on the record in favor of extending the block grant structure for means-tested programs like Medicaid, housing subsidies, job training and food stamps.  “Welfare reform showed us how well a state-led approach can work,” Romney told a crowd in Detroit. “Let’s extend that conservative, small-government philosophy across the entire social safety net.”

We already know how that story ends. For the millions of Americans who struggle every day with hunger and poverty, Romney’s “small-government philosophy” is just another way of saying “you are on your own.”

Student Debt and the Middle Class (Part 3)

Part Three of a three-part series on student debt and the middle class. Click here to read Part One and click here to read Part Two.

With the price of a college education rising three times faster than median family income and total student loan debt exceeding $1 trillion, Congress must act quickly to reign in costs if our high-skill labor market is to remain globally competitive. Already, the United States has fallen behind Canada, Japan, and South Korea in the production of college graduates; experts estimate the U.S. must increase postsecondary access and degree production by 4.2 percent annually just to catch up.

The primary obstacle is the cost: a college degree is expensive, and controlling soaring tuition rates won’t be easy. State schools, which educate 75 percent of all undergraduates, including the 42 percent enrolled at community colleges, are largely dependent on government funding to subsidize what is supposed to be a public good. But when the Great Recession forced states to choose between raising taxes and slashing the budget for higher education, the majority of states chose the latter. According to the Delta Cost Project, nearly all public sector tuition increases in 2009 were the result of cost-shifting to replace declining state funding, raising troubling questions for the future sustainability of the entire public education model. At nearly every one of the 2,000 institutions surveyed in Delta’s eleven-year dataset, increased revenues from student tuition were used to offset disappearing subsidies; almost none was spent on the students or the cost of their education.    

Both public and private colleges must also find ways to cut costs and increase efficiency. Because student loan money is plentiful—and often guaranteed by the federal government—schools don’t necessarily have an incentive to make tough budgetary choices. Many students readily take on $20,000 or more in debt to pay for an undergraduate degree, making the demand for higher education both high and relatively inelastic (unresponsive to price increases). Research shows that private colleges in particular compete for undergraduates’ dollars by overspending on luxurious athletic facilities and residential amenities, helping students relax while the interest on their loans grows higher and higher. Absent government intervention, it is not clear what might change these market forces, which are pushing colleges in the direction of rising tuition, greater inequality, less efficiency, and higher student debt.  

President Obama has advanced several policies that could break that cycle. One proposal would divert federal aid from colleges that raise tuition excessively, and would include performance reviews of schools’ success at enrolling and graduating low-income students, their job placement rates for recent graduates, and students’ ability to repay their loans. At the same time, the president would expand funding for Federal Work Study, Supplemental Education Opportunity Grants, and the Perkins loan program by $10 billion, increasing the incentive for colleges to comply with the new standards. “You can’t assume you’ll just jack up tuition every single year,” Obama told a crowd at the University of Michigan in January. “If you can’t stop tuition going up, your funding from taxpayers will go down. We should push colleges to do better; we should hold them accountable if they don’t.”

Plenty of questions remain. Would the policy punish public colleges that hike tuition rates to compensate for reduced state subsidies? Could the plan end up hurting the low-income students it is designed to help, or lead to even greater disparities in quality between rich and poor institutions? It’s even less clear how the private market for student lending should be reformed. Virtually unlimited private loans ensure broad access to higher education for students willing to take the risk, leaving few incentives for colleges to increase productivity and reduce costs.

The president’s carrot-and-stick approach may increase experimentation and yield results. But in the short term, the fundamental question is whether the public is willing to consider increasing spending on higher education as a matter of civic duty. State tax revenues account for the majority of subsidies for the public and community colleges that educate three-fourths of all U.S. undergraduates. Until congressional legislation reforms the market for higher education, funding these programs remains the surest way for us to sustain the vibrancy of our nation’s middle class and invest in its future. 

Student Debt and the Middle Class (Part 2)

Part Two of a three-part series on student debt and the middle class. Click here to read Part One.

A trillion dollars of student loans may not be the next subprime crisis, but it is delaying traditional middle-class aspirations like home ownership. Around one million students will graduate college in debt this spring, with an average $23,000 to be paid off over a period of ten to twenty years; more than enough to discourage young people who might otherwise have taken on a mortgage on their first house.

According to Census data, less than half of those aged 25–34 years old are homeowners today, the lowest percentage since 1999. Despite a brief upsurge in young homeowners signing subprime leases during the heady days of the mid-2000s, on net nearly all of the 11 million unit household growth of the last ten years occurred among older households, while Millennials—children of the Baby Boomers born between 1982 and 2000—are now overwhelmingly choosing to rent or move home with their parents. That’s problematic because first-time buyers are critical to the health of the housing market, which depends on new blood to finance older sellers’ movement into the higher ranges of the market. It’s also a major contributing factor in the continued weakness of the construction sector: single-family housing starts for February were down 12.5 percent from the same time two years ago, while renter-friendly housing was up 197.5 percent.   

Although housing prices have fallen by about a third from their 2006 peak, and interest rates are near historic lows, just 9 percent of those aged 29–34 years old got a first-time mortgage from 2009 to 2011, compared to 17 percent a decade earlier. Of course, much of the slowdown in Millennial’s household formation is due to the recession: their employment-to-population is near 45 percent, the lowest it’s been in sixty years, and many of those with jobs are working part-time or at jobs that don’t require a college degree. But a trillion dollars in student loans has added an unprecedented debt overhang to the mix, worsening generational problems such as underemployment and low consumer spending. Those loans will be “a drag on the economy for the foreseeable future,” according to National Association of Consumer Bankruptcy Attorneys vice president John Rao. ”Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect.”

Century Foundation Fellow Dan Alpert also worries that student loans, which act as a tax on future wages, will cost the economy down the road: “Just as during the mortgage crisis, the increases in consumer debt—assuming limited growth over the next few years—is pulling forward consumption from future periods that will not be repeated because of the increased debt load.” Unfortunately, Americans have done a poor job of deleveraging since the recession; total consumer credit has actually increasedabout 9 percent since this time last year. But much of the increase in outstanding consumer credit has been driven by the outsized rise of student loan debt, which last year surpassed total credit card and auto loan debt. Experts believe this confluence of factors—debt overhang, high unemployment, changing patterns of consumer behavior—may lead to a “spending void” that Millennials will be unable to fill as their Baby Boomer parents retire. So while a trillion dollars of student debt may not be enough to topple Wall Street, the impact of Millennial debt on traditional middle-class consumer behavior—purchasing a home, buying a car and starting a family—may be more insidious and long-term than we yet realize.  

Student Debt, the Trillion Dollar Threat to the American Middle Class

Part One of a three-part series on student debt and the middle class. Click here to read Part Two and click here to read Part Three.

Although the American love affair with easy credit hit a rough patch during the recession as families delayed the purchase of new cars and ever-larger flat-screen TVs to collectively pay down nearly a trillion dollars in outstanding household debt, one sector of the credit market continued to grow unabated. Total student debt is up over 500 percent since 1999, and is predicted to reach $1 trillion this year, surpassing both total credit card debt and auto loans. By 2020, it could be as high as $1.4 trillion, leading some experts to warnthat student loans “could very well be the next debt bomb for the U.S. economy.”

Not all forecasts are so dire. Moody’s Analytics expects that “despite its rapid growth… student lending is not likely to turn into the next subprime crisis.” That’s because the student loan market is less than one tenth the size of the mortgage market that tanked the economy in 2007. And unlike residential mortgages, 90 percent of student loans are federally guaranteed. 

Still, the incredible growth of student debt has sobering implications for the future of the middle class and the U.S. economy. Last year, approximately one million students graduated a four-year college in debt—more than $23,000 on average and nearly $35,000 for those attending a private school. That’s one million young people whose entry into the middle class will be delayed by a decade of debt servicing. Unlike the baby boomers, who spent their 20s and 30s buying homes, creating families and investing in the economy, today’s youth face a trillion dollars in loan repayments, two-thirds of which is held by people under 39. It’s enough to discourage an entire generation. 

A weak economy and tough job market have made the situation even worse. Close to 25 percent of recent college graduates are unemployed, up from 19 percent in 2000. Of those employed, less than half work at a job that actually requires a pricey college degree.

The delinquency rate, too, has skyrocketed. Although the number of graduates behind on their payments was initially estimated to be around 10 percent—in line with the delinquency rate for other kinds of debt, like mortgages, car payments and credit cards—a new study by the Federal Reserve Bank of New York puts the true number at 27 percent, far higher than in other sectors of the credit market. As many as 47 percent of student loan borrowers are in deferral or forbearance while they wait for their luck to change. 

But it’s not just recent graduates who are struggling to repay their loans. Three-quarters of past due student loan balances—$85 billion in total—now belong to people over thirty, many of whom chose to go back to school and learn new skills during the recession. And while investing in an additional degree typically yields high returns in terms of future wages, a greater debt load also means delaying savings and putting normal patterns of consumption on hold. With close to $700 billion of student debt held by people over the age of 30, it may be a long time before we see middle class consumer behavior return to normal.

Part of the problem is that tuition rates have grown much faster than median family income, a trend that has accelerated in recent years. A lesser known problem, as noted in the Atlantic, is that too few students actually graduate on time, if at all. According to the National Center for Education Statistics, just 60 percent of undergraduates seeking a bachelor’s degree complete their education within six years. The other 40 percent still have to repay their loans—but with none of the added benefit of the college degree wage premium. Creating education policies that encourage these students to graduate on time could go a long way towards lowering the socioeconomic cost of their debt burden.   

Why Drilling Won’t Lower Gas Prices

With the unemployment rate dropping and the economic recovery picking up steam, Republican presidential candidates Mitt Romney, Rick Santorum and Newt Gingrich have redirected their invective at rising gas prices—and President Obama’s inability to lower them. But as has been widely reported, neither the president nor Congress have much control over what Americans pay at the pump. That’s because oil is a global commodity, and domestic drilling provides just 11 percent of world ouput. According to the Associated Press, even a 50 percent surge in U.S. production—an unrealistic increase that would require more than the combined output of Arctic drilling, a Canadian pipeline, and a dramatic expansion of drilling offshore and on public lands—would lower gas prices no more than 10 percent, or around 38 cents. 

As Obama mentioned in a recent speech about his energy policy, a new independent analysis shows that “over the last 36 years, there has been no connection between the amount of oil that we drill in this country and the price of gasoline.” But you can do the analysis yourself. Below, I’ve graphed domestic oil production and inflation-adjusted gas prices since 1976; data easily available from the EIA. Can you spot the correlation?

There isn’t one.

Here’s the same data plotted over time:

“Drill, baby, drill” hasn’t worked in the past, and it won’t work now. 

While expanding drilling and increasing our oil production would create new jobs and lower the unemployment rate, so would the expansion of any industry—including solar, wind and natural gas. And since there is nothing intrinsically better about petro-jobs, shouldn’t we choose to invest in clean energy technologies that are more likely to be a major growth sector in the decades to come?

Graph of the Day: President Obama, Fiscal Conservative?

A graph that purports to establish Bill Clinton and Barack Obama as the two most fiscally conservative presidents in modern history has been making its way through the blogosphere, after first originating on Century Foundation Fellow Mark Thoma’sEconomist’s View blog. Thoma’s submitter explains: 

Seeing the Krugman commentary comparing real government spending under Obama and Reagan made me curious about what it looks like if you express it in per capita terms?  In particular, how does the Obama period compare with other presidencies in terms of penury/austerity versus spendthriftness?

[…]

Ranking since Johnson (starting in 1968), and using the first-quarter comparisons, and calculating growth under Obama through 2011Q4, Clinton is the most austere, followed by Obama.  The most spendthrift are (1) Nixon-Ford, (2) Reagan, and (3) Bush II.

So, the story one frequently hears on the right about the massive expansion of government spending under Obama—and liberal profligacy in general—just doesn’t hold up to the facts. Still, there’s been some pushback from commenters wondering about the role of inflation, or whether the story changes when you divide government spending into separate categories for national defense and human resources (employment and social services, Medicare, Social Security, veterans benefits, et cetera). So here is my own version of the graph, which shows annualized growth in government spending on national defense and human resources througout the last seven presidencies, from Q1 to Q1. All of the data is from the Office of Management and Budget historical tables. 

And here is annualized real growth in government spending (adjusted using a composite deflator):

No matter how you choose to look at it, the story remains essentially the same. In both graphs, Clinton and Obama stand out as the relative fiscal conservatives next to their spendthrift Republican peers. You can state whatever objections or counterfactuals you like—Reagan was fighting the Cold War, Clinton benefited from a peace dividend, Obama inherited a recession—but, as The Atlantic’s Derek Thompsonpoints out, ”the bottom line is that it is really, truly time for the myth about Big Spender Obama to die.”

UPDATE: Thanks to Mark Thoma and Brad DeLong for retweeting my post, which helped it make the front page of Reuter’s counterparties blog.

President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…

— Mark Thoma (@MarkThoma) March 21, 2012

Graph of the Day: President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…

— J. Bradford DeLong (@delong) March 21, 2012

Graph of the Day: Infrastructure Austerity Hurts the Recovery

It has been nearly seven years since Congress last passed a major transportation bill. Since then, funding for surface transportation infrastructure has been extended eight times by temporary stopgap measures without any agreement on long-term legislation to maintain—let alone improve—America’s crumbling infrastructure. Congressional staffers now report that the House will not take up the $109 billion Boxer-Inhofe transportation bill that passed the Senate with bipartisan support Wednesday, requiring a ninth stopgap until at least mid-April.

“This used to be the easiest bill to pass on Capitol Hill,” Sen. Richard Durbin (D-IL) told reporters last week. “That’s why the House Public Works Committee has so many members–people couldn’t wait to get on that committee to pass this bill every five years.” But today’s hyper-polarized Congress can’t even agree on basic funding for the nation’s highways, bridges and railroads, which now require trillions in upgrades. Public spending on transport and water infrastructure is near historic lows at just 2.4% of GDP (less than half what Europe spends) and the cost of fixing the whole mess increases with every year we put it off. We’re not exactly “winning the future.”

That’s unfortunate because there has probably never been a better time to reinvest in America. The economy faces a massive aggregate demand shortage. The unemployment rate among construction workers is near 18 percent. And, thanks to negative real yields on treasury debt, money is essentially free. So a major investment in infrastructure should be a no-brainer for Washington, right?

Yet in the months since the recession ended and the stimulus ran out, federal grants to state and local governments have plummeted, causing real state and local investment to drop nearly 15%. Public spending on highway and transportation construction is stagnant or in decline, even as more than 1 million construction workers remain unemployed.

Even to fiscal conservatives it should be obvious that such infrastructure austerity is bad economic policy. America will have to rebuild its aging infrastructure eventually; why not right now?

Graph of the Day: Few Americans Prepared for Retirement

Few Americans are prepared for retirement, according to a national survey that finds nearly half of all workers with less than $10,000 in savings. Sixty percent of respondents to the 2012 Retirement Confidence Survey reported less than $25,000  in savings and investment (excluding their home and defined benefit plans) and 30% were living paycheck to paycheck with less than $1,000 in the bank.

The survey also showed a widening gap between the retirement readiness of high and low income households. Of the 1,003 workers and 259 retirees surveyed, those with low incomes were the least prepared for retirement and the most likely to have dipped into their savings to pay for basic expenses. While 93 percent of workers with income above $75,000 said they had saved money in 2012—the same percentage as in 2009—the number of low-income workers reporting savings declined sharply to just 35%.

It is difficult to estimate how much the average middle class household needs to save for retirement, but it can generally be assumed that a worker with a median income of $50,000 will spend at least half that amount annually during retirement. That puts the conservative pricetag of a ten-year retirement at $250,000—an amount just one in ten Americans have saved—and a twenty-year retirement at half a million. Numbers like those help explain why 87% of respondents worried they will not be able to afford medical expenses during retirement, with 37 percent expecting to work past age 65 to make ends meet. Seven percent said they will “never retire.”  

Report: Success of RomneyCare Shows Promise of ACA

Towards the end of this month, the Supreme Court is scheduled to hear six hours of oral argument on the Affordable Care Act, the longest such session since the Voting Rights Act was challenged in 1965. At stake is the constitutionality of the individual mandate—a key component of the ACA that requires individuals to purchase health insurance or pay a fine. Opponents of the law allege that power falls outside the purview of the Commerce Clause, which allows the federal government to regulate interstate commerce. And if the individual mandate is ruled unconstitutional, the entire ACA may become unworkable: because another part of the law prohibits insurers from discriminating against people with pre-existing conditions, experts expect the cost of premiums to skyrocket without a mechanism for persuading healthy people to buy insurance. The Supreme Court could also delay a ruling until 2014, when the mandate actually takes effect.

Until then, our best bet for assessing the long-term impact of the ACA is to look at how “RomneyCare” has fared in Massachusetts, where it is overwhelmingly popular—and, as it turns out, largely successful. According to new research by Charles Courtemanche and Daniela Zapata, former governor Mitt Romney’s 2006 blueprint for “ObamaCare” has already achieved significant improvements in self-reported physical and mental health for Massachusetts residents. Their working paper, “Does Universal Coverage Improve Health? The Massachusetts Experience,” notes a significant improvement in residents’ functional limitations, joint disorders, body mass indexes and physical activity, suggesting that near universal access to preventative care had a marked effect on quality of life. The reform’s effects were especially pronounced for women, minorities, near-elderly adults and low-income individuals, helping close the gap between blacks’ and whites’ self-reported health by 22 percent. 

The report’s authors are quick to emphasize the similarities between the ACA and the Massachusetts bill it is based on, suggesting the success of RomneyCare can be reproduced at the national level. Both laws rely on a strategy of “incremental universalism,” improving coverage through modifications to the extant system rather than the more radical single-payer approach many Democrats had initially hoped for. Both comprise three interrelated reforms—insurance market reorganization, an individual mandate, and subsidies—that Republicans supported throughout the 1990s. In Massachusetts, this combination lowered the number of uninsured to just 2% within four years, the highest rate of coverage in the nation. Can we expect the same from ObamaCare?

Lawsuits aside, the challenges facing the ACA are daunting. No health care reform of this size or scope has ever been implemented, and Courtemanche and Zapata worry that Medicare cuts included in the bill could mitigate the gains in health from coverage expansion. “On the other hand,” they note, “baseline uninsured rates were unusually low in Massachusetts” to begin with, so the potential coverage expansion under the ACA may offer corresponding health improvements many times greater at the national level. 

The Washington Post’s Ezra Klein adds another reason for optimism:

The national reforms, unlike the Massachusetts reforms, included major investments in comparative-effectiveness research, electronic health records, accountable care organizations and pay-for-quality pilots. If any or all of those initiatives pay off, they could dramatically improve our understanding of which treatments work and force the health-care system to integrate that new knowledge into everyday treatment decisions very quickly.

Photo credit John Shinkle/POLITICO

What Slowing Productivity Growth Means for Tomorrow’s Jobs Report

The U.S. economy went on something of a crash diet during the Great Recession, cutting millions of Americans from the workforce and squeezing dramatic productivity gains from those who remained. Unit labor costs dropped and output per hour rose as busiensses became leaner and meaner. But slimming down can only increase efficiency to a point, and as the economy has recovered, the pendulum has appeared to swing back in favor of workers. Revised estimates released yesterday by the Labor Department show that productivity growth slowed to 0.9 percent annualized at the end of last year, down from 1.8 percent in the previous quarter. And unit labor costs rose 2.8 percent, more than doubling earlier estimates.

That bodes well for tomorrow’s jobs report, which is expected to show modest gains throughout the economy. If productivity is slowing, than the only way businesses can expand output is to hire more people. Hopefully that will put sufficient pressure on wages, which have plenty of room to rise against price markup without any inflationary effect. 

But let’s not miss the forest for the trees—or in this case, the historic trend for the market correction. The graph below—which plots productivity growth against labor costs since 1990—shows that the divergence between efficiency gains and wage compensation is a long-term trend that is not likely to be altered by the recovering labor market. The underlying problem remains intensifiying income inequality, here expressed as workers’ decreasing share of corporate profits. Although tomorrow’s job numbers are likely to be another piece of good news for the economy—joining high consumer confidence and declining unemployment insurance applications on a growing list of positive indicators—it is critical that we do not allow the conversation about systemic inequality to fade into the shadows. The graph below illustrates a tectonic, not cyclical, shift. We’ll need more than a band-aid to correct our course.