Kokomo Tribune; Kokomo, Indiana

Columns

February 16, 2014

MICHAEL HICKS: Changes in the middle class

Low-productivity, high-wage jobs are unsustainable.

My pre-vious three co-lumns on income inequality have touched on its causes, the role government and markets play in evening out consump-tion, and finally the extreme limits public policy plays in equalizing incomes. This week, I will focus more on the middle class.

For most of recorded history there was no real middle class. Cities, technological growth and political freedom brought to the world a merchant class, but it was not until the industrial revolution was in full form that a large number of households entered what we think of as the middle class today.

In America, and especially the Midwest, this middle class was built upon an unsustainable combination of low-productivity, high-wage jobs in large factories. That version of the middle class was never sustainable and has been unraveling for a half century.

The second half of the 20th century saw a new, different middle class emerge, with workers across many industries applying high value-added human capital to the production of goods and increasingly services. This is a sustainable middle class, built on work, in which most American households now belong.

Unsurprisingly, these new middle class jobs required greater human capital investment. This brought about two wholly predictable outcomes as a higher share of folks go to college. First, college becomes more expensive as less well-prepared students come to campus; and second, the return on the investment declines as more folks have a degree. It remains by far the best investment option available.

More time in school and more rapid technological change translates into greater income volatility among households. One statistical artifact of greater volatility is that a snapshot of income makes us look a lot more unequal than we are if we view earnings over a lifetime. My household provides a common example.

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