Mad Social Scientist

Jacob Hacker has an interesting take on inequality in America: it's not (primarily) the level of income disparity, but the variance in income over time that makes Americans feel insecure.

Voters say the economy isn't getting better because, as far as they're concerned, it's not. And perhaps the best explanation for this perception is that Americans are facing rising economic insecurity even as basic economic statistics improve.
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As Harvard Law Professor Elizabeth Warren and her daughter, Amelia Tyagi, have documented, middle-class families confront rising difficulties meeting basic expenses--such as housing and tuition--and they are going deeper and deeper into debt as a result. They are also working longer: According to Karen Kornbluh of the New America Foundation, the typical family spends 22 more hours per week at work than it did in 1969.

Yet, the income squeeze that families face is not exactly the same as insecurity. Insecurity is something larger--the risk of large drops in living standards caused by loss of income or catastrophic expense. And, my research suggests, insecurity is something that more and more Americans, even the relatively well off, are confronting.
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This great risk shift has gone surprisingly underreported. Though we've heard about economic hardship, most of the stories concern static measures--poverty, inequality, wages, joblessness. That's in large part because no standard economic statistic tries to assess the stability of family income. We know with great precision how many Americans are rich and poor at any moment and how large the gap is between the bottom and the top. But we know next to nothing about the extent to which their economic status changes over time or what causes these shifts.

In response, I have spent the last couple of years trying to assemble new figures on changes in family income, aided by Professor Nigar Nargis of the University of Dhaka. Our research has centered on the Panel Study of Income Dynamics--a nearly 40-year project that tracks the same families from year to year and, hence, provides unique insights into how and why incomes change over time.

What has become clear from this research is that family incomes rise and fall a lot--far more than one would suspect just looking at income distribution figures. As a result, a surprisingly big chunk of U.S. income inequality--perhaps as much as half--is due to transitory shifts of family income, rather than permanent differences across families.

When I started out, I expected to see a rise in the instability of family income. But nothing prepared me for the sheer magnitude of the increase. At its peak in the mid-'90s, income instability was almost five times as great as it was in the early '70s, and, although it dropped somewhat during the late '90s (my data end in 1999), it has never fallen below twice its starting level. By comparison, permanent income differences across families have risen by a more modest, if still troubling, 50 percent over the same period.

The full explanation for this dramatic rise in instability is still unclear, but two causes loom large. The first, and most obvious, is changes in the nature of work. In today's postindustrial economy, less skilled workers are much more vulnerable than when unionized, manufacturing labor was more of the norm. (Not surprisingly, instability is greater for families headed by less educated workers, though it has actually risen more quickly in the last decade for workers who went to college.) Workplace benefits, such as health insurance and pensions, have been on the chopping block. And corporate America increasingly relies on part-time, contingent, and contract workers--all of whom enjoy precious little security.

The second overarching cause of increased insecurity is a shift we often take for granted: the movement of women from home to work. As mothers have entered the labor force in increasing numbers, families have gained a second income, which most desperately need. But they've also had to take on new expenses and face the increased job insecurity of having two family members in the workforce.

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