Don’t Believe the Doom: American Workers Are Moving Up (#245)

The message people receive today is that hard work won't pay off, incomes won't grow, and they can't climb up the economic ladder. Politicians on both the left and the right agree on this.
There's not much they agree on, but they do agree on this. President Trump has been very clear, saying, prices are going to come down very substantially achieve incredible economic growth make america

wealthy again. And we will bring back most importantly, we're going to bring back a thing called the American dream.
The American dream is dead right now. The American dream is dead.
We're going to bring back the American dream. So vote for Trump on November 5th.
And Senator Bernie Saunders has said, and I quote, American workers are some of the most overworked, yet our standard of living has fallen. For many, the American dream has become a nightmare, unquote.
This pessimistic view is pervasive. What do the data and the facts actually show about American workers and families? Hi, everyone.
I'm Lynn Toman, and this is Three Takeaways. On Three Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers, and scientists.
Each episode ends with three key takeaways to help us understand the world and maybe even ourselves a little better. Today, I'm excited to be with Michael Strain.
He is currently a professor at Georgetown University and Director of Economic Policy at AEI, as well as a columnist for Project Syndicate. He has previously worked at both the Federal Reserve Bank and the Census Bureau.
His research and writing span a wide range of areas, including labor and social policy. His most recent book is The American Dream is Not Dead.
He is the perfect person to ask about how American workers and families are actually doing. Welcome, Mike, and thanks so much for joining Three Takeaways today.
Thank you for having me. It's great to be with you.
It is my pleasure. Is today's economy delivering for American workers? It is.
I think if you look at a broad range of indicators and you focus your attention on outcomes for typical workers, typical households, what you see is that hard work pays off. You see that wages and incomes are rising for typical workers and typical households.
You see the economy is continuing to create new employment opportunities for typical workers. You see that America is still upwardly mobile and you see sure but steady progress.
And so, yes, I think the economy is delivering. So, Mike, how have workers and families done over the last 10 or 20 years? Well, over the last 20 years, the wages for typical workers after adjusting for inflation have increased by 25 percent.
And over the last 35 years, they've increased by more than 40%. So considerable increases in purchasing power.
You know, not spectacular. The mission has not been accomplished.
Policy should be trying to do more to increase the pace of wage growth. But a 25% increase over the last 20 years is a considerable increase in the purchasing power of wages for typical workers.
That's great. There are clearly areas of challenges, but overall, it sounds like workers and families have been doing much better.
Yes, I think that's right. What's happened to the broader quality of life? Has it improved significantly for typical households over the past one or two decades? I think so.
And increasingly, you're hearing, you know, life was better in the 90s. And I find this to be puzzling.
If you think about access to medical care, if you think about what jobs were like, when you look at some of those indicators, heart attack survival rates have doubled over the last several decades. Air travel is much safer.
The average worker has a couple of weeks more vacation time than he or she used to. access to education, access to cultural resources, access to information, the quality of housing, all of these indicators point to really considerable progress in the broader quality of life.
It's hard to predict the future, but it feels like we are really on the cusp of even more rapid increases in the quality of life. A surprising fact to me is that the combination of a shorter work week, more paid time off, and longer retirement means that the fraction of people's lives taken up by work has fallen by 25% since 1960.
That's huge. Oh, absolutely.
When we set the retirement age at 65, it was, you know, the idea was you would enjoy a couple of years of retirement before you passed away. And now life expectancy is just so much longer than it was, certainly in the 30.
But but even in the 70s, 80s or 90s, people are spending a whole lot of their life not working. And yet they still have income.
Mike, what's happened to households in the bottom 20 percent? How have they done? Households in the bottom 20 percent have arguably done even better in terms of their income growth than typical households. Here we have to be careful and precisely define what we mean by income.
If you think of income holistically as the flow of financial resources households receive for use in consumption or savings, then you want to include transfer programs, programs

like Social Security or programs like food stamps or programs like housing assistance,

government transfer programs.

And there, if you include government transfer programs, income growth since the early 1990s

has actually been faster at the bottom than it has in the middle.

If you break Americans into three groups by household income, bottom group, families earning less than $35,000 a year, middle group, those earning between $35,000 and $100,000 per year, and then the third group, those earning over $100,000 per year. What's happened to those three groups?

It's mostly a story of upward economic mobility. And so if you look at the late 1960s or early 1970s and compare that to today, what you see is that, yes, the share of households earning middle incomes, defined as $35,000 to $100,000, has fallen by over 10 percentage points.
But you haven't seen an increase in the share of households earning less than $35,000. That share actually has fallen by around 10 percentage points as well.
Instead, you've seen a big increase in the share of households earning more than six figures. That share has tripled over this time period.
So yes, the hollowing out of the middle has been a disruptive process, but it's mostly been a story of upward economic mobility. That is just a story that is not being told.
That is so surprising. Yes, I agree.
What happens if all people hear from political leaders in both parties is that the game is rigged against them, that they are victims, that they are victims of the elites, of globalization, of free trade and of immigrants. And what they hear is that they can't succeed.
What is the

impact of that? I worry about that precisely because the game is not rigged and precisely because that central moral promise of capitalism that, yes, in a capitalist society, people have unequal outcomes, but those outcomes are largely driven by work effort, by choices, by risk tolerance, and by skills and talents. The fact that that central moral promise of capitalism holds actually means that if political leaders demotivate everybody in society or demotivate a large share of people and dim the aspirations of Americans, that will have an impact on economic outcomes.
If you tell everybody that the game is rigged, that hard work doesn't pay off, and that there's nothing they can do to better their economic outcomes, then they may aspire

to less.

They may work less hard. They may dim their aspirations.
And then you end up with the situation that you're concerned about, where people's wages are not growing as rapidly as we would like. Their incomes are not growing as rapidly as we would like.
There's less innovation in the economy than we would like. And so in kind of a perverse way, that populist rhetoric, that negative rhetoric can create the problems that it incorrectly argues exist.
How can we strengthen the American dream? Well, we can strengthen the American dream by calling people to their best selves, by challenging people and giving people the confidence that if they work hard and if they take risks and if they invest in themselves, that that will pay off. I think we can do some concrete things beyond those sorts of important cultural messages.
Top of the list is strengthening education, strengthening skill formation, especially for lower income Americans, helping them to get great educations and build their skills is probably the best thing we can do to increase their economic success. Creating policies that support scientific research and support scientific discoveries and innovation is just absolutely crucial and critical.
Those are some very important concrete policy goals. And what challenges do you see? Many.
Right now, the Trump administration is quite hostile to universities, which is the source of so much scientific research and innovation and dynamism. We need to be increasing our support for basic research and for scientific research, not decreasing it.
We need to be supporting the institutions where that research happens, not trying to damage those institutions. A concrete challenge on the education front is pandemic learning loss.
We were set back several decades in terms of reading scores and math scores for elementary school kids and middle school kids as a consequence of the pandemic. Lower income Americans, kids in lower income communities and lower income schools were hit disproportionately hard by the just disastrous decision to keep classrooms closed for so long in 2021.
This is a national emergency. Nobody is acting like it's a It's a national emergency.
And that's, I think, a major challenge in terms of educating our kids and helping them to have as strong of economic outcomes as possible. Before I ask for the three takeaways you'd like to leave the audience with today, is there anything else you'd like to mention that you have not already talked about? So much of our current public conversation is rooted in anxiety.
And that anxiety breeds nostalgia for what I would argue is largely an imagined past. That anxiety leads to a kind of zero-sum mentality where we want to put up walls around the nation and engage in commerce with other nations less.
We want to put walls around the nation and welcome fewer people born abroad into America. Internally, we are divided against each other.
And the anxiety that we feel leads us to identify enemies and try and engage in zero-sum conflict with them. I think anxiety was the natural response to the 2008 financial crisis.

And we saw that anxiety increase in other nations as well. Other nations went through their own populist spells.
Anxiety was a natural response to a once-in-a-century global pandemic. and anxiety was a natural response to the out-of-control price increases of 2021.
The message I would like to leave your listeners with is that all of that is in the past, and it's time to kind of kick the dust off our sandals and walk forward, so to speak. We should walk forward into the future with confidence, not with anxiety, with confidence that over the past several decades, we've seen substantial improvements in economic outcomes, that things getting better is the norm, not things getting worse, that public policies have supported improvements in economic outcomes, and we don't need to throw out the playbook of the last several decades.
We need to modify it and make it work better, but we don't need to start from scratch. And confidence that creative destruction creates as well as destroys, and the dynamism ultimately makes us better off.
And I think if we had more confidence

in the future, the present would be better. And what are the three takeaways you'd like to leave the audience with today? The first is that the American dream is not dead.
The second is that the central moral promise of capitalism holds. Hard work does pay off.
People do see improvements in their economic outcomes and in their broader quality of life. America remains an upwardly mobile society.
and the third is that people have agency and people can affect for the better and for the worse their economic outcomes. Thank you, Mike.
I very much enjoyed your book. The American Dream is not dead.
Thank you so much for having me. where you can also listen to previous episodes.
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I'm Lynn Toman, and this is Three Takeaways.

Thanks for listening.