Half Changed World

Today’s book is The Disposable American: Layoffs and Their Consequences, by Louis Uchitelle.  It’s the book from which his NY Times article about displaced airline mechanics came from.

The book alternates chapters in which Uchitelle discusses the overall growth of layoffs as a phenomenon with ones in which he profiles specific laid-off workers.  One of the the arguments he makes is that white-collar workers who lose their jobs to "downsizing" or "outsourcing" or who accept early retirement packages are as much laid-off as the blue-collar workers that we associate with the word "layoffs."  (He notes that the specific questions that the government uses to ask workers if they’ve been laid off refer to "plant closings" and make it less likely that a professional will answer yes.)

Uchitelle makes a convincing case that layoffs have extensive hidden costs — beyond the well-documented loss of earnings — especially the emotional toll on workers who are told that they’re no longer needed, and who often can’t find a job at a comparable wage.  He also argues that they often don’t provide the expected economic benefits to companies that use them, as the remaining workers are demoralized and less productive.

His discussion of solutions is less convincing.  Even a die-hard liberal like me finds it hard to believe that increasing the minimum wage to $12 an hour would automatically result in productivity increases enough to cover the costs.  He suggests massive governmental public works spending, prohibitions on compensating executives with stock options, and a complicated system of reporting all layoffs.  By contrast, he sees most of the political solutions of the past decades — promoting lifetime learning, increasing the portability of health insurance and pensions — as acquiescing to layoffs.

At times, Uchitelle’s criticisms seem simply contrary.  For example, he writes: "Like Stiglitz, and many other academics, he [Robert Reich] accepted the findings of empirical research concerning education.  In virtually all of this research, people with a college degree earned more than workers with only a high school degree."  The implication seems to be that it was a mistake to accept this empirical research, but Uchitelle doesn’t offer any explanation of his critiques.  (The problem is that there’s also been an increase in within-group inequality, so the averages don’t mean that a college education is a guarantee of security.)

So, yesterday was Equal Pay Day, the day when the average woman’s wages catch up with what the average man earned the previous year.  Evelyn Murphy is promoting a new organization, the WAGE project, to combat wage inequality.  The web site looks interesting.

I have to admit that I took Murphy’s book, Getting Even, out of the library, and only made it about half way through it.  Drawing mostly on court records, she discusses the various ways that gender discrimination is alive and kicking.  From blue collar workers whose gear was soaked in urine, to the Sears saleswomen systematically kept out of the high commission departments, to investment bankers facing the old boys’ network, she records case after case.  It’s depressing reading.

Without minimizing the role of discrimination in keeping women’s earnings down, I think Murphy goes too far in dismissing the role of self-selection and work-family issues.  Yes, the workers from which the 77 cents on the dollar figure comes are all full-time workers.  But male full-time workers work, on average, more hours than female full-time workers.  And — as we’ve discussed here before — women feel freer, for better or worse, to choose jobs for reasons other than making the most money possible.

For terrific discussion of these issues, see:

• Ampersand’s series on the wage gap at Alas, a blog
• Echidne’s of the Snake’s three part series on the gender gap in earnings.

Today I’m catching up on the last of the books that I’ve been sent by publicists and have been feeling guilty for not getting around to.  It’s The Number: A Completely Different Way to Think about the Rest of Your Life, by Lee Eisenberg.

When I got the email asking if I’d be interested in the book, I said sure, because we’d been strugging with the question of how to think about our long-term finances.  As I’m sure I’ve said before, we’re doing fine on one income in the short-term, but I worry about the long-term impact.  And when I consider switching to a job that pays significantly less than I currently make, I don’t have any sense of how to evaluate the implicit tradeoffs that I’d be making, down the road as well as today.  Having read the book, I can’t say that I have any better of an answer than I started with.  And I’m not sure that I’d do any better going to a financial planner, because Eisenberg makes it clear that the types of places that are interested in serving people at my income scale generally don’t do a whole lot of individualized hand-holding.

The most interesting parts of the book are at the beginning, when Eisenberg talks to real people about what they think their "number" — the amount they need to live happily ever after — is.  Eisenberg had an article in New York magazine last fall that focuses on this aspect of the book.  Among other things, this section gave me a new operational definition of rich — if you have a concrete idea of the difference it would make to your quality of life to have $7 million instead of $3 million, you’re rich. 

Overall, I was underwhelmed by the book.  I’m surprised that it’s been on some of the best seller lists.  Eisenberg’s "completely different way to think about the rest of your life" turns out to be not all that different after all, unless it’s a new concept to you that the quality of your retirement will depend as much on whether you’re doing things that are meaningful to you than on the number of zeros at the end of your IRA balance.  To be fair, I’m at least 15 years too young to really be in Eisenberg’s target audience.

In her comment on yesterday’s post, Jody wrote "it’s worth asking what we mean by a middle-class life."  She points out that, due to the declining cost of manufactured goods, even people with relatively low incomes can have many of the material markers of a middle-class life — televisions, cars, etc.  This is a fair point — when measured by stuff, even poor Americans are incredibly well-off by both international and historical standards.

The statistical definition of "middle class" as the middle quintile of the income distribution makes the question of "is the middle class diminishing?" meaningless since, by definition, 20 percent of the population is going to be in that quintile.  And most Americans continue to describe themselves as middle class, even when their income seems to suggest that they’re outside that range.

What do I have in mind, then?  It combines a bunch of economic and psychological variables.  Being middle-class doesn’t necessarily mean you own your own home, but it means that you can reasonably expect to do so at some point in your adult life.  (I think the rising cost of homeownership in big cities is one of the reasons that people whose income in the $80,000 and up range don’t think of themselves as upper class.)  It means that you can’t afford everything you want, but that there’s room in your budget for non-necessities — a vacation, cable TV, an occasional restaurant meal.  It means that something going wrong — a kid getting sick, a car breaking down — is a hassle, but not an immediate disaster.  It means paid vacation days, health insurance, and some plan for retirement that doesn’t involve working until you drop dead.  It means either employment security, or at least a decent chance of finding a comparable job if you get laid off.  It means decent schools for your kids, and an expectation that they’ll have at least as good a life as you do.

Is this what you mean by "middle class"? 

I don’t have the energy to tie this all together into a thoughtful post tonight, but I’ve been reading some interesting articles about displaced workers and the economy.  They’re particularly resonant this week in light of the huge buyout that GM is offering its workers.

First up is Louis Uchitelle writing in NYTimes about the limited success of job training programs for displaced workers.  It’s adapted from a book he’s written, which I’ve requested from the library.

Second is Mark Schmitt, writing more broadly about the limits of education as a strategy for reducing income inequality.  It’s worth both reading the posts that he links to, and the comments he received — there’s a bunch of very big names in economics joining in the discussion.

I really think we’re reaching the end of an era in which even skilled blue-collar workers could count on a solid middle-class lifestyle.   There just are going to be fewer and fewer jobs that pay $30 an hour plus benefits for people who don’t go to college.  (The exceptions are likely to be things like plumbing, that can’t be outsourced to India and aren’t subject to mechanization.  But there are going to be fewer repair-type jobs too, as it become cheaper to just replace things than to fix them.)  But going to college isn’t a guarantee of a middle-class life either.  It may be necessary, but it’s not sufficient.

When Terry Martin Hekker’s Modern Love column (non-select link, thanks to Jody) was published at the start of the month, Mieke emailed me to ask if I was going to blog about it.  I sort of shrugged, and emailed back "She needed a better lawyer; I don’t have much else to say."

I decided to write about it after all after reading Christine’s DotMoms post about her reaction to the article and Ellen Goodman’s commentary.  I was struck by how much Christine reads Hekker’s regrets about her choices as devaluing the housewife role:

"But, what’s wrong with being a housewife? Why do I feel a sense of inadequacy, a sense of broken dreams when I utter the term?"

I don’t think Hekker’s saying that either caring for her children or the volunteer work that she did when they were in school was not worthwhile, or in any way diminished her as a human being.  (In fact, she explicitly says that she wishes she had furthered her education after her youngest child started school.) She’s just saying that the sense of accomplishment she got won’t pay her rent.

Does the risk involved in stepping out of the labor force mean that no one should do it?  Of course not.  People do financially risky things all the time — from quitting corporate jobs to become schoolteachers, to starting their own businesses, to taking low-paid but flexible jobs so that they can work on a novel. 

As Anne and Laura pointed out when the article first came out, there are plenty of things that one can do to cushion the financial risks involved in being a SAHP, from signing a pre- or post-nuptual agreement spelling out the breadwinner’s obligations to keeping up your professional skills.  Warren and Tyagi would add that you should be keeping your fixed costs as low as possible, to increase the odds that the SAHP could cover them by returning to work if needed.  (They encourage families to consider having non-working adults seek employment if fixed costs are more than 50 percent of family income: "A family that is financially strapped and yet has an able-bodied adult who isn’t even looking for a job is, 9 times out of 10, a family that is living out the consequences of a decision that once made sense — but no longer works.")

I think we’re in denial about how ordinary risk is.  As a result, people often feel like they’re being criticized when someone points out that they’re making a risky choice.  (Alternatively, they feel like they’re special — see the new Peace Corps ad that asks "Has anyone ever called you crazy?")  The response is often denial ("Yes, 50 percent of marriages end in divorce, but mine won’t") rather than rational planning.

One time I was taking a self-assessment, and one of the questions was "what’s the riskiest thing you’ve done?"  My answer was having children.  That sounds bizarre, even to me.  How can something so conventional be considered risky?  But parenthood is an irrevocable commitment (much more so than marriage, as I’ve written before) and you don’t know what hand you’re going to be dealt.  And while most of the cards in the deck are good ones, there are some real heartbreakers in the pack.  I once compared being pregnant to being strapped into a rollercoaster as it slowly chugs up the first slope — nothing much is happening, but you know it’s leading up to a wild ride, and it’s too late to get off.

Today’s book is All Your Worth: The Ultimate Lifetime Money Plan, by Elizabeth Warren and Amelia Warren Tyagi.  Moxie has it on her list of "highly recommended" books on her sidebar, so I requested it from the library.

All Your Worth is basically an amplification of the financial advice provided in the last chapter of their first (mostly policy-oriented) book, The Two-Income Trap.  In that book, they argued that most families get into financial trouble not by overspending on shoes or lattes, but by committing too much of their income into fixed costs — especially housing — so that they have no ability to cope with unexpected emergencies — the loss of a job, a medical crisis.  Therefore, they propose a financial plan that won’t get you rich quick, but will keep you out of debt and bankruptcy.

Their plan is simple: Never spend more than 50 percent of your take-home pay on "Must Haves" — housing, insurance, car payments, and any other long-term commitments.  Save 20 percent (either in the form of obvious savings, or by paying off debt).  The remaining 30 percent can be spent on anything you want — nicer food, clothing, charity, electronic toys — as long as they don’t involve ongoing commitments.  Pay cash for your wants, and put at least 20 percent down before buying a house.  As Warren and Tyagi themselves say, their plan is in many ways a throwback to 30 or 40 years ago, when credit wasn’t readily available to everyone, and bankers wouldn’t loan you more money than they realistically thought you would pay back.  They’re explicitly encouraging you to live less luxuriously than most people at your income level — but to have the security of knowing that you won’t be knocked off course by a setback.

This isn’t rocket science — it’s very similar to the "60 percent solution" offered by MSN Money editor Richard Jenkins.   And Warren and Tyagi acknowledge that there are times that it’s not going to work — when you have a new baby, when someone in the family is seriously ill, when you’ve just lost a job, are going back to school, or are starting a new business.  But they argue that you should know when you’re in those special circumstances — and set a specific time when your budget will be back in balance.

Probably the least satisfying part of this book for me was the discussion of housing costs.  Warren and Tyagi argue that housing hasn’t, on average, appreciated any faster than inflation, so there’s no point in going into hock in order to get into the market sooner rather than later.  That may be true about the country as a whole, but certainly not if you want to live in a coastal urban area.  In their first book, they wrote quite poignantly about how people were going into hock in order to get their kids into good school districts; in this book, they simply say "don’t do it."

I haven’t done the exact calculations that Warren and Tyagi recommend, but I’m pretty confident that we’re within the proportions that they recommend.  So I can testify to their general point — if you keep the big expenses under control, you don’t have to scrimp on the little ones.  (We have memberships with both NetFlix and GreenCine.)  But I’m the first to admit that a lot of our "wisdom" is actually luck — we bought our house 8 1/2 years ago, and so our mortgage is very managable.  If we were buying for the first time today, we’d be in a very different situation.

I’ve been reading the article on Bill Gates and his efforts to fight disease in Africa from the October 24 New Yorker.  (Not available online, although they do offer a slideshow on the effects of malaria in Tanzania.)  Michael Specter writes about how shocked Gates was to learn that there were public health investments that weren’t being made where the cost per life saved was in the hundreds of dollars.

Specter quotes Kent Campbell, a former chief of the malaria branch at the US Centers for Disease Control as saying:

"I would love to believe that in the United States this effort is being driven by a decent desire to help, but I don’t think most Americans give a rat’s ass about the death of millions of African kids each year.  I don’t think they ever have."

The argument in favor of this is based on what economists call "revealed preference," the idea that you can tell what option people prefer by the choices that they actually make.  If we let millions of African kids die each year, we must prefer the world in which millions of African kids die to the one in which we pay higher taxes and provide more public health aid, or else we’d do something different.  QED.

But, there’s some evidence that people behave in ways that aren’t explained by revealed preference.  The best example I know of comes from studies of how much people choose to save in 401k and similar retirement plans.  One of the things that researchers have found is that people are much more likely to participate if the default option is that a small percentage of their salary, 3 or 5 percent, is invested than if the default is non-participation.  This isn’t terribly surprising when you think about it; many people find the whole concept so hard to think about that they just go with the default.

As a country, we tend to go with the default too.  In fact, I’d be willing to argue that much of the structure of Congress (especially the budgeting process) is designed to make it hard to move away from the status quo.  And it’s designed to make it a lot harder to accomplish things that a lot of people want, but aren’t passionate about, than it is to do things that a smaller group desperately cares about.

Some useful links:

• Roll Back Malaria
• Bread for the World
• Campaign to End Fistula

Landismom wrote yesterday about working as a waitress:

"And waitressing seems to cross class lines for a lot of women. I know a number of men–my husband included–who have never had a job in food service. But I don’t know any women who I can say that about–even women I know who have high-level corporate jobs have some kind of waitressing in their backgrounds."

I’ve never worked as a waitress.  Is that really so unusual?  I’ve worked as a babysitter, and as a camp counselor, and as a receptionist/file clerk/girl friday in a doctor’s office, but never in food service.

Part of the explanation is that I grew up in New York City, and I think those sorts of jobs are less open to teenagers there than in suburbia.  (I know Katherine Newman has written about how in Harlem, even fast-food jobs are hard to get.)  And part is that my parents were generous enough that I didn’t have to work while in college, and was able to take unpaid or low-paying internships over the summer.

I wonder if anyone’s ever done a study of the role of unpaid internships in transmitting class privilege.  Well-off students can afford to spend their summers doing things that look good on a resume, but pay little or nothing.  Students whose families are already reaching to send them to college can’t.  (Or have to moonlight at a paying job or two on top of their internships.)  I used to fantasize about organizing a strike of all the interns on Capitol Hill. I still think that politicians who consider themselves progressive ought to figure out a way to pay their interns at least enough to cover the cost of housing for the summer.

As I think about it, I suspect the main barrier to paying interns isn’t the cost of the stipend, but the time that it would take to wade through the pile of applications that you’d receive if you advertised a decent wage.  I know in my office (which far less a glamorous place to work than the Hill), the only interns we’re able to pay are those who come to us through various formal programs, which serve to prescreen the pool of applicants.

Sometime a month or so ago, I was checking out BlogPulse and I was horrified to find that most of the blogs it thought were in my neighborhood were pretty right-wing.  My dad’s theory was that I talk about economic concepts like "opportunity cost" and "signaling" and very few liberals use that sort of language.  (It was also fairly soon after I added my new URL, which I think confused its software.)

Well, liberals and progressives who want to learn how to throw economics terms around with the best of them should check out the Center for Economic and Policy Research’s free Economics Seminar.  If you’re in the DC area, you can attend in person.  If not (or if Thursday evenings are busy for you), you can download the audio files.  I haven’t listened to them myself, but they look like they should be interesting.

For a great example of how economic reasoning can be mis-used, check out this post on the elite colleges and SAHMs issue from Richard Posner at U Chicago.  He’s arguing that professional schools should discourage applicants who aren’t going to work as much as possible by charging more for tuition, but rebating a portion for every year they work.  It falls apart because of two fundamental flaws in his assumptions.

First, he assumes that the need/desire/ability to benefit from a good can be measured by willingness to pay for it.  This is a classic assumption of market economists, but it only holds if people have comparable resources.  If my son is willing to pay $5 for something, it means that he values it very highly, because that’s the full amount of his savings.  If I’m willing to pay $5 for something, it doesn’t mean much at all…

Second, he assumes that there are positive externalities to use of professional skills:

"while successful lawyers and businessmen command high incomes, those incomes often fall short of the contribution to economic welfare that such professionals make. This is clearest when the lawyer or businessman is an innovator, because producers of intellectual property are rarely able to appropriate the entire social gain from their production."

I think this is a highly questionable argument — a lot of people would argue that sucessful lawyers often produce negative externalities.  As Gary Becker, Posner’s blogging partner, responds:

"The private gain to a working lawyer or MBA graduate seems to capture pretty much all the social gain from their work. Posner stresses the potential innovations produced by these graduates, and the taxes they pay. But major innovations from graduates of these schools are surely rare, and taxes affect the incentives of everyone, not only professional school graduates."

This whole discussion is pretty ironic, since good parenting is among the best examples of an action where the person doing it captures very little of the social gain.