Peter Orszag Pleads for Policies to Move the Distribution of Income in a Favorable Direction
I have three:
- A more progressive tax system.
- Free universal public education--as much and as long as people want--to increase the supply of educated and workers and decrease the education premium to create a more equal pretax distribution of income.
- More public investment to speed economic growth.
Peter Orszag:
As Kaldor’s Facts Fall, Occupy Wall Street Rises: Over the past two decades -- and especially since about 2000 -- the share of national income that flows into wages and other kinds of worker compensation has been plummeting…. In 1990, about 63 percent of business income in the U.S. took the form of wages and other types of labor compensation, according to data compiled by the Bureau of Labor Statistics. By 2005, that figure had dropped to 61 percent. And by the middle of this year, it had fallen to 58 percent…. The difference from 1990 to today -- about 5 percentage points or so of private-sector income -- amounts to more than $500 billion a year….
Why the drop? Part of the reason is that the advanced economies have been shifting toward certain types of services and advanced manufacturing that have lower shares of labor income. But that explains only a small part of the decline…. The two primary drivers are globalization and technological change. From 1980 to 2005, as the world became more integrated, the effective labor supply available on a global basis expanded….
Over the next decade, the global pool of labor is likely to expand rapidly…. Unless we are somehow going to cut ourselves off from the world, though, we face the prospect of a continued downward trend in the labor share. The trite response to this reality is to call for more education and better training for workers, and more investments in research and development as well as infrastructure. It’s true that all such actions would help. But they take time, and even then they would probably only take some of the edge off the decline, not fundamentally reverse it.
No wonder the frustrated Wall Street protesters lack any specific proposals for change: We are effectively missing $500 billion a year in wages, and no one has a credible set of ideas that would bring it back.
That education and investment are long-run policies and that income distributions are very hard things to move by policy may make them "trite". But they are still worth doing.
