Still, the discontents with the new economic order do not mean that it has completely abolished the old; it has often grafted itself onto the old. We are dealing with institutions, beließ and behaviors that have evolved over time. Familiar practices have been modified to meet changed circumstances, and the result is a confusing mosaic. True, corporate allegiance no longer counts for so much. Even in the 1980s, senior executives at 56 percent of major companies believed that "employees who are loyal to the company and further its business goals deserve assurance of continued employment." By the 1990s, only 6 percent agreed. But that does not mean that career jobs have vanished. They haven't. Many workers still form long-lasting employment relationships. The labor market has not yet shattered into a merciless free-for-all, with most people regularly pitched out and constantly needing new jobs. Persistent headlines announcing layoffs and "downsizings" depict wrenching change, but they also exaggerate the change and disguise the continuity. Among workers fifty-five to sixty-four in 2006, about a quarter had been with their current employer for twenty years or more (29 percent for men, 22 percent for women) and almost 70 percent had been with the same employer for at least five years (69 percent for men, 70 percent for women).9

Long-term job relationships endure partly because workers and firms have some shared interests. As people age, they generally want more stability in their lives to raise families, repay mortgages and build savings. For companies, their most important economic re source is often their workers' accumulated knowledge, experience and contacts. It's expensive to rehire and retrain workers. In the past, companies deliberately embraced employment practices intended to produce loyalty and long-term stability. In a well-known paper in 1979, economist Edward Lazear of Stanford argued that many companies underpaid younger workers and overpaid older workers relative to their worth. The reason, he said, was to induce workers to remain with the firm during their most productive middle years. Because rewards were skewed toward the final years of their careers, workers had strong incentives to stay. The big payoffs came at the end. Pension benefits typically increased with workers' tenure. Health insurance became more valuable as workers aged, because medical bills rose for their children and for themselves.

It's true that all these traditional bonding mechanisms have weakened. The Lazear-style implicit contracts are less powerful and widespread.* Job security remains strong, but—as Lardner observed—it isn't absolute even at highly successful firms. Many companies have also moved from "defined benefit" pensions to "defined contribution" plans. The first guaranteed workers monthly payments for as long as they lived, with benefits usually based on work

* Ironically, the advent of age-discrimination laws may also be to blame. Lazear argued that outlawing mandatory retirement might doom seniority arrangements by forcing companies to pay older workers more than they were worth for many years. This partly explains early-retirement "buyouts" for older workers. Prohibited from cutting older workers' wages, firms in effect bribe them to retire. Workers are offered one-time payments to leave.

ers' salaries and years of service. Under the second, employers make contributions to an investment pool (the most common: the 401 (k) plan) that becomes available to each worker on retirement. Retirees can tap their personalized investment pools, but when the funds are gone, retirees are on their own. In 1979,62 percent of workers with pensions were covered by defined benefit plans, only 16 percent by defined contribution and 22 percent by a combination of both; by 2005, the figures were reversed—63 percent had defined contribution plans, 10 percent defined benefit and 27 percent some combination. There's also been some erosion of employer-sponsored health insurance.10

What's occurred, contends Yale political scientist Jacob Hacker, is a "great risk shift." The web of formal and informal guarantees that protected many workers from joblessness, steep health-care costs and poverty in old age has shredded. The major corporations that once bore these risks have transferred them to the workers themselves, pensions being a clear example. Writes Hacker:

[E]conomic security strikes at the very heart of the American Dream. It is a fixed American belief that people who work hard, make good choices, and do right by their families can buy themselves permanent membership in the middle class. The rising tide of economic risk swamps these expectations, leaving individuals who have worked hard to reach their present heights facing uncertainty about whether they can keep from falling. . . . [T]he prospect of economic insecurity—of being laid off, or losing health coverage, or having a serious illness befall a family member—stirs up anxiety.11

The changes depicted by Hacker, though undeniable, are less dramatic and sensational than he suggests. They might be better labeled "the moderate risk shift," because the old order never achieved universal protections and the new order has not entirely abandoned collective protections. Most companies still make sizable pension contributions: In 1987, 58.4 percent of full-time workers participated in employer-based retirement plans; in 2004, the comparable figure was 56.6 percent. Similarly, most medium-sized and large firms still offer health insurance: In 2006, 92 percent of firms with 50 to 199 workers and 98 percent of firms with 200 or more workers did. It's true that workers' premiums have risen sharply, but that mainly reflects rapidly escalating health-care costs, not proportionately smaller company contributions.12

Peter Gosselin, a reporter at the Los Angeles Times who has done the most thorough examination of these trends, finds a mixed picture. Families' chances of experiencing a financial setback from common life experiences—unemployment, divorce, a major illness, the birth of a child, retirement or disability—actually decreased slightly between the 1970s and early 1980s and the early 2000s. This was particularly true of unemployment. But the consequences of setbacks had increased. A bit more than a quarter of the families suffering unemployment experienced a drop of 50 percent or more of their income; in the 1970s, the similar figure was 17 percent. Indeed, Gosselin found that large income swings—up and down—had become much more pronounced. "High school graduate families, families headed by those with some college but no degree, and those headed by college graduates have all seen their chances for big fluctuations in their incomes rise," he writes in High Wire: The Precarious

Financial Lives of American Families. Economic uncertainty is not just a headline; it's an everyday affair.13

Still, it's worth remembering that not all change is unwanted. Many people don't like feeling that they're chained to their jobs. For some, weaker Lazear-style contracts are preferable. Many quit for better wages. Others leave because they want more congenial or challenging work. Still others move because their personal circumstances have changed: They get married or divorced; they relocate; they graduate from school. A flexible labor market accommodates these changes. One recent study estimated that almost 30 percent of job changes in a typical three-month period, equal to roughly 4 percent of employment, are voluntary moves—workers leaving one job and starting another almost immediately. By this study, typical wage increases averaged from 5 percent to 10 percent. Defined contribution as opposed to defined benefit pensions also makes changing jobs easier; the retirement account can simply be moved to the new firm. Finally, the possibility that workers may quit is also a check on employers. It forces them to improve wages, fringe benefits and working conditions to maintain a qualified workforce.14

After insecurity, inequality is the other great indictment of the new economic order. Only a tiny elite is said to benefit. The rich are getting richer, the poor are getting poorer and the middle class is running in place. Here, too, the caricature is partly true. Look at the table below. It reminds us of the dramatic widening of income differences, especially since 1980. The table shows the average pretax incomes of the poorest fifth of households, the richest fifth and the median household income (the median household is precisely in the middle). Employer-paid fringe benefits are not included; nor are noncash government transfers such as food stamps, or cash raised by borrowing. All figures are in inflation-adjusted 2006 dollars.

household incomes, 1970-2006

(In 2006 Inflation-Adjusted Dollars)



1970-2006 1980-2006 1990-2006 2000-2006

+ 26 percent + 13 percent + 6 percent — 5 percent

+ 71 percent + 55 percent +29 percent + 1 percent

Source: Tables A-l and A-3, Income, Poverty, and Health Insurance Coverage in the United States: 2006 (Washington, D.C.: U.S. Census Bureau, August 2007).

On their face, these figures are shocking. In 1970, the incomes of the richest fifth were about eleven times those of the poorest fifth; by 2006, they were almost fifteen times higher. If the median household income is taken as the "typical household"—a standard convention, though a misleading one—then income gains for middle Americans since 1970 have averaged less than 1 percent annually;

between 2000 and 2006, there was a slight decline. Moreover, these figures miss huge gains for the top 1 or 2 percent. The Census Bureau surveys, on which these figures are based, have sample sizes too small to capture the very rich. Estimates by economists Emmanuel Saez and Thomas Piketty, based on tax returns, suggest that the share of the nation's income going to the top 1 percent nearly doubled from 1980 to 2005, increasing from 7.5 percent to 14.4 percent. The rich seem to be squeezing everyone else. Case closed? Not exactly. Here, again, the standard numbers conceal as much as they reveal.15 Just because the rich are doing best doesn't mean that no one else is doing well. By 2006, almost one-fifth of U.S. households had pretax incomes of $100,000 or more: a once-exclusive threshold that, after adjustment for inflation, is much higher than in 1980 (8.6 percent) and 1995 (14.2 percent). Moreover, "median household income" is no longer a good indicator of middle-class fortunes. Over the years, the nature of households has changed. There are more elderly, divorced couples, single parents and singles. There are more two-earner couples. These trends depress median incomes and increase inequality. If a $100,000 couple with two equal earners divorce, the result is two $50,000 households.* When households are examined by size—that is, by the way people actually live—income gains are larger. From 1990 to 2005, the median household income rose 6.8 percent. But median income rose 10.6 percent for house

* A "household" is a single person or two or more people living together, whether related or not; a "family" is two or more related people living together.

holds with three people, 15.8 percent for those with four people and 16.9 percent for those with five people.16

Lifestyle changes such as these—well-educated people marrying one another, people living longer or divorcing—explain at least as much about widening income inequality as wage differences do. In one study, economist Chulhee Lee attributed three-quarters of the increase of inequality from 1968 to 2000 to broad social changes. Married couples, most with two earners, dominated the richest fifth of families; in the poorest fifth, less than half were married and a third of heads—presumably old, disabled, unskilled or unmotivated—had no job. Studying the shorter period of 1979 to 2004, economist Gary Burdess of the Brookings Institution came to a similar conclusion, though he attributed only half the increase of inequality to social trends. To some extent, income gains are also understated, because more and more of pay is being diverted to employer-paid health insurance. By one estimate 35 percent of the increase in average compensation for full-time workers from 2000 to 2005 went to health benefits.17

Finally, immigration has also reduced median incomes and worsened inequality. In effect, we're bringing in people at both the top and the bottom, widening the gap between the two. Huge numbers of low-skilled Hispanics, both legal and illegal, have clustered near the bottom. They lower the median income (the midpoint) and increase the number of people below the government's poverty line ($20,164 for a family of four in 2006). The effect has grown over time, because Hispanics' share of all households has increased from 4.7 percent in 1980 to 11.2 percent in 2006. Meanwhile, smaller numbers of Asian immigrants and their descendants are concentrated closer to the top.18

The picture, then, is more complicated than the rich getting richer at everyone else's expense. Drive around most metropolitan areas: What you see is a broad-based prosperity. In some unmeasured ways, the social distance between the middle class and the rich has narrowed, because the gap between luxury items and their mass market equivalents is much smaller than the gap between something and nothing. The difference between a Chevrolet and a Ferrari is mostly status, especially if both drivers are stuck in traffic. Some causes of growing income disparities are perverse. Although new immigrants are mostly better off, their presence depresses reported U.S. incomes. The fact that people live longer is regarded as progress, but elderly households typically have less money in retirement than in their peak earning years (expenses are also usually much lower— child, work and housing costs are reduced or eliminated). Finally, it's worth noting that most of the poor aren't poor because the rich are rich. Family breakdown, low skills, bad work habits, poor health and bad luck are more likely causes. If the rich were poorer—and the market redistributed some of their income—the likely gainers would be the near-rich, today's upper-middle class.

None of this means that the frustrations and anxieties felt by countless Americans aren't genuine. But some are unavoidable. The very process of economic advance creates new "necessities," wants and desires. Being middle class is a moving target. What was ample yesterday no longer suffices today. Before 1920, a car was a luxury; after 1950, it was—for most Americans—a necessity. Before World War II, going to college was a privilege of the well-to-do or an honor for the gifted; after World War II, it became a middle-class staple. In 1985, a mobile phone was an expensive business accessory or personal indulgence; now almost everyone has one. In 2008, 70 percent of households had satellite or cable TV, 66 percent had highspeed Internet and 42 percent had flat-screen TVs.19 Twenty-five years earlier, the comparable figures would have been negligible or zero. The trouble is that our "needs" and wants often outrun our incomes, creating a sense of failure and of falling behind. This is one aspect of the new economic order that is no different from the old.

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