Despite recent economic troubles, the United States is an immensely successful nation and is home to one of the world’s most affluent societies. Yet income inequality remains problematic. As the U.S. economy begins to recover from the 2008 crisis, Isabel Sawhill says that we need to find ways to expand the middle class and make upward mobility a reality for families, and offers three ways to make that happen: more and better education, more work, and strong families. And it can be accomplished without adding to the deficit, she says.
On Wednesday, October 14, Isabel Sawhill, a Brookings senior fellow and co-author of the recent book Creating an Opportunity Society (Brookings Institution Press, 2009), answered your questions during a live web chat about what Americans can do to get ahead in today’s turbulent economy. Fred Barbash, senior editor at Politico, moderated the discussion.
The transcript of this chat follows.
12:30 Fred Barbash-Moderator: Welcome everyone to another POLITICO-Brookings chat. Thanks for participating. And welcome Isabel Sawhill.
Ms. Sawhill, a Brookings expert and co-author of the recent book Creating an Opportunity Society, is here to answer your questions for about an hour.
12:31 Isabel Sawhill: Hi Fred, thanks for having me.
12:31 [Comment From Xan] How have middle class families been faring in recent decades? And more specifically, how are they doing during the current downturn?
12:32 Isabel Sawhill: They have not done well. Even before the recession, their incomes were almost stagnant and any gains were due to more two-earner families.
12:32 [Comment From Suzanne (chevy chase)] are there any concrete steps people can take to ensure their economic future?
12:33 Isabel Sawhill: In our book, Creating an Opportunity Society, we argue that you need to get a good education, work full-time, and only have children once you are married or have a committed partner. People who do those three things do well in life.
12:33 [Comment From Guest] Can you please summarize the three most important things that state government can do to build an opportunity agenda?
12:34 Isabel Sawhill: I think state governments should focus on same three things I just mentioned — especially education. Postsecondary is increasingly important — community colleges are critical.
12:34 [Comment From Dave] How does economic mobility in the US compare to mobility in other countries?
12:35 Isabel Sawhill: America is supposed to be the land of opportunity but we’re not as great as we think. People in the U.S. don’t experience as much cross-generation mobility as people in some other advanced countries.
12:36 [Comment From Lester] Did you see the NYT article today about how a lot of places aren’t laying off workers, but cutting their salaries instead. Do you think this is a better way for employers to cut back without laying people off? And, how does this affect unemployment statistics?
12:37 Isabel Sawhill: I didn’t see it yet but I think it’s hard to generalize. I do think from an employee’s perspective, it’s good to keep working but from an employer’s perspective these hard times may be seen as an opportunity to cut back their least efficient or high-demand lines of business.
12:38 [Comment From Pari Sabety] But as work opportunities become more fragmented (courtest of Free Lance Nation) isn’t fulltime work a dream, not a reality for many new entrants to the workforce?
12:39 Isabel Sawhill: Yes, good point. Right now we need the government to be the spender of last resort and I give the current administration good marks on this front. Plenty to criticize, of course, but there’s a reason this is called “the great recession.”
12:39 [Comment From Matthew] What happened to training for people to go in to trades? There seems to be so much emphasis and support for sending people college these days that the trades seem lost. Thoughts? Would increased emphasis on trades help more people out of poverty?
12:40 Isabel Sawhill: Yes, I really agree with you and we talk about this in our book — especially apprenticeship programs which are much more common in other countries and which haven’t been well supported in the U.S.
12:40 [Comment From Erica] Is now a good time for adult Americans to go back to school (ie grad school)? Or is that becoming overly competitive as well?
12:41 Isabel Sawhill: Absolutely, it’s a great time to go back to school if you can afford to and then come back into the job market with a much more competitive background. But I would study something practical — even though I’m an academic myself!
12:41 [Comment From Michael Smith] Why is it that our tax structure punishes work rather than rewarding it? As an example we have regressive payroll taxes. Why not merge our income tax with payroll taxes? Also the current system punishes work by not letting people who work get a deduction for the use of their time, while the wealthy get to deduct their monetary investment. Why not change this?
12:42 Isabel Sawhill: Well, taxes is a huge topic but we do need a work-focused system and I am in favor of substituting a VAT for at least a portion of payroll taxes. See my oped in yesterday’s Wash. Post.
12:43 [Comment From larry stanton.] Please summarize career opportunities that are most in demand
12:43 Isabel Sawhill: I’m not a job counseler but health and education are growing sectors still.
12:43 [Comment From Ted] What would you say to Americans who were formerly financial stable, but have lost a lot during the recession? What can individuals do to recover?
12:45 Isabel Sawhill: Again, I don’t want to give personal advice and you shouldn’t take it even if I did. But it’s clear from our research that people haven’t been saving enough. Depending on your age, start saving. It’s never too late. And you’ll be thankful you did later. Of course, if you’ve lost your nest egg, all I can say is, I’m sorry.
12:45 [Comment From Maria] What has been the demographic group hardest hit by the recession?
12:46 Isabel Sawhill: We did an analysis of poverty rates and how they are likely to be affected by the recession and it showed that minorities and single parent families were especially hard hit. Also education provides some protection.
12:46 [Comment From Joe in NY] What would be so bad if the government payed every unemployed adult a full-time minimum wage salary. Aren’t they likely to just put that money back in the economy? It would just be like a stimulus!
12:48 Isabel Sawhill: It’s a provocative idea! Keynes used to say that you could pay people to dig holes in the ground and it would be a good thing to do during a recession. But we also have huge deficits in our future and we’d also have to worry about who would still want to work if they could get that money from the government. So I think the government needs to catalyze the private sector to start creating jobs again.
12:48 [Comment From Ray] It really bugs me that there are so many older folks out there rolling in cash, able to have multiple homes (a vacation home in florida and a real home up north, for example), while they don’t do anything to be productive members of society. This seems so unbalanced, especially when working-age americans are struggling to make ends meet. What’s your opinion?
12:50 Isabel Sawhill: This is probably my favorite question of the day since I’ve written a lot about intergenerational equity. Take a look at “Old News” in Democracy or on the Brookings website or the last chapter of my new book where I have a LOT to say about this. Bottom Line: We really need to start reallocating resources to the young.
12:50 [Comment From Ron] Health care reform: would it help or hurt families?
12:52 Isabel Sawhill: I think it will help, on balance, but I’m disappointed that it isn’t bolder and that we aren’t doing more to control costs. Here’s the really important point: if health care costs keep growing, it holds down wages since employers can’t afford both. That’s one reason the middle class hasn’t been prospering.
12:52 [Comment From Adam] In a September 30th piece you mention that health care costs are eroding wages and that government reform can ease this effect by lowering costs. Wouldn’t it be more transparent to eliminate tax-exemptions for employer coverage and encourage workers to take more interest in their own health spending?
12:53 Isabel Sawhill: This is a follow on to last question. How about: all of the above including what you’re suggesting.
12:53 [Comment From Terry] Is there any incentive out there for business to start hiring more people?
12:54 Isabel Sawhill: There’s a proposal to provide a tax credit to businesses for hiring and we had such a program in the 1970s. It was modestly successful but you end up paying for a lot of hires that would have occurred anyway.
12:54 [Comment From Chris] I really like this idea of “reallocating resources to the young”! Although my parents already kind of do that for my older brother!
12:54 Isabel Sawhill: 🙂
12:54 [Comment From Ron] If paying for health care hurts employers, why aren’t they rallying behind health care reform?
12:56 Isabel Sawhill: It doesn’t hurt them if they simply lower wages to make room for higher health insurance premiums which is pretty much what they have done.
But they also don’t like the “play or pay” aspects of reform — being told by the government they are going to have to cover people.
12:56 [Comment From Ray] So how exactly do you propose that we reallocate resources to the young?
12:58 Isabel Sawhill: I think it has to be done gradually over time and start with serious reform of Social Security and Medicare. We could increase the retirement age; we could have a slower growth in benefits, and so forth. If we then invested the savings in some combination of deficit reduction and effective programs for younger Americans (e.g., education), it would improve their productivity and make them better able to contribute to their own retirement costs.
12:58 [Comment From Ana] how do you think immigration – both illegal and legal – is affecting economic opportunities for americans?
12:59 Isabel Sawhill: In our book, we reviewed some of the evidence on whether immigrants harm opportunities for americans and I don’t think, for the most part, they do.
12:59 [Comment From Chris] Are social security and medicare really in danger? Or is it just a bogeyman created by people scared of big government?
1:00 Isabel Sawhill: No, they really are in trouble. I don’t expect them to disappear but they are going to have to be radically reformed or else we are all going to be paying taxes at about a 70% rate a few decades from now.
1:01 [Comment From Sasi] What’s your view on outsourcing and recent appeals for “bringing back the jobs”?
1:02 Isabel Sawhill: Outsourcing is here to stay and will probably increase in the future. But I don’t think you fight it with protectionism; I think you fight it by building a better, more educated work force here.
1:02 [Comment From Ben] It seems like there are currently lots of job openings for top-tier people and lower-tier people, with very little in between. have you done any research on this?
1:03 Isabel Sawhill: We review the research on this in our book. And it shows just what you described — at least since the mid-1980s. See an article by Autor, Katz, and Kearney on this — or our book!
1:03 [Comment From Omar] What do you think about interns in DC? Aren’t they just taking over entry level positions for young people?
1:04 Isabel Sawhill: Sensitive subject I’m sure but most interns are not competing that directly in my view with paid positions. It’s also a nice way to find a job and prove what you can do.
1:05 [Comment From Nate] how do you think economic opportunities in the US compare with those abroad?
1:06 Isabel Sawhill: I think I mentioned earlier that some other countries have more intergenerational mobility than the U.S. but in terms of right now, obviously all countries are being affected by the recession and I don’t know which ones are the least badly off.
1:06 [Comment From wes] do you think that there is a success “gene?” Is there some innate reason why some people are successful while others aren’t?
1:08 Isabel Sawhill: Not a gene per se although genetic endowment plays some role for sure. In our book, we say that early parenting matters, neighborhood matters (including the school), peers matter, but these early experiences interact with one’s genes to produce who we are.
1:09 [Comment From Sasi] Why is it that high tech jobs such as IT are not usually preferred by Americans. Apparently they are well paid but mostly filled by high skilled immigrants.
1:10 Isabel Sawhill: I don’t know the data on this but I suspect the problem is that we don’t do a great job of educating people in math and science. I know our students do poorly on tests in this area compared to students in other countries.
1:10 [Comment From Greg] It seems like our students are falling behind in math and science. What do you think are the major causes of our educational system failing our students?
1:11 Isabel Sawhill: I don’t have any really good advice except to say I admire your question. Maybe challenge them but also show them the relevance of what you teach?
1:12 Isabel Sawhill: This last response was to your question, Greg, about teaching. Forgot to pull up the question.
1:12 [Comment From Vera] What do you think about homeownership? Is that something all families should aspire too? It seems to have hurt our country. What about more rental assistance?
1:13 Isabel Sawhill: Yes, I think we got too enamored with home ownership and that rental assistance is a better way to go. Of course, it’s easy to say that now after the fact. But I’ve never been a fan of the mortgage interest deduction and other preferences for housing. If you can afford a house, great. If not, renting is not a bad way to go. Housing prices won’t always go up.
1:14 [Comment From Paul] In your research did you happen to look at gender too? Is there a large prosperity gap between the sexes?
1:16 Isabel Sawhill: What’s really interesting here is that women are now doing better than men on a number of fronts — education and college completion in particular. When we looked at intergenerational mobility, we found similar things for men and women — except in the past women got ahead by who they married and not just through their own work.
1:16 [Comment From Vera] Has the recession worsened the propsperity gap between the richest and the poorest?
1:18 Isabel Sawhill: That’s a really good question and I haven’t seen good data on it because of the lags in getting incomes reported. But I strongly suspect that it has increased inequality overall but with a twist. Some of the wealthiest americans have taken a big hit so incomes at the very top may have been hurt quite a
1:18 [Comment From Paul] What about the well worn argument that women make 75 cents on the dollar that men make? Is that still the case?
1:20 Isabel Sawhill: I don’t know the exact size of the gap right now but it’s still there. But it has narrowed a lot for the youngest men and women with similar levels of education. The NY Times reported some time ago that young professionals in NYC were experiencing a gap in favor of women.
By the way and in response to earlier question, men have been harder hit by recession than women.
1:20 [Comment From Kevin MN] Have the Baby Boomers destroyed the American economic system by taking as much as they could when they were younger (low-cost college, genurous social spending ) then giving as little as possible (voting for Reagan and greatly weakening our social safety net) when they were in the earning peak? Will we be able to withstand their rush back to Liberalism as they cash in on Social Security and Medicare? Does either major party represent the interest of young professionals?
1:22 Isabel Sawhill: You put it very strongly but let’s just say that the baby boomers didn’t do it intentionally but they are part of the problem and haven’t contributed a lot to the solution.
1:22 [Comment From Julia] When we talk about economic opportunity, which is more important – personal respnosibility or government assistance?
1:23 Isabel Sawhill: In our book which you will find on the Brookings website we argue that both are important and that the most successful policies are likely to be those that marry the two. For example, supplementing people’s wages when they work.
Thanks everyone; this was fun but time to sign off.
1:24 Fred Barbash: Thanks everyone for your great questions, and thank you Isabel for your thoughtful answers. Bye for now.