April 24, 2012 Global Interdependence Center, Philadelphia
Will the U.S. Cease to be a Middle-Class Country? Technology, Demographics and the Coming Political Storm
Peter Berezin
Managing Editor Bank Credit Analyst 1
INCOME SHARE OF TOP 1% HAS DOUBLED SINCE THE 1970s %
%
U.S. TOP 1% (INCOME ABOVE $368,000 IN 2008)
25
25
20
20
15
15
10
10 © BCA Research 2012
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2
A TALE OF TWO INEQUALITIES
• Well known fact: Incomes at the top of the distribution have surged. • Less well known fact: Workers in the middle of the income distribution have lost ground to both those at the top and the bottom.
3
MIDDLE-CLASS WAGE EARNINGS ARE BEING SQUEEZED
2.4
U.S. RELATIVE WAGES FOR MALE WORKERS, AT DIFFERENT PERCENTILES OF INCOME DISTRIBUTION 50/10 90/50
2.2
2.2
2.0
2.0 WORKERS AT THE 50TH PERCENTILE OF THE WAGE DISTRIBUTION HAVE LOST GROUND AGAINST THE 90TH PERCENTILE AS WELL AS THE 10TH PERCENTILE.
1.8
© BCA Research 2012
1979 4
2.4
1984
1989
1994
SOURCE: CONGRESSIONAL BUDGET OFFICE.
1999
2004
2009
1.8
AUTOMATION AND OUTSOURCING OF ROUTINE JOBS IS NO LONGER A PROBLEM JUST FOR LOW-SKILLED WORKERS • It is useful to break down the skill distribution of the workforce into three categories: A low-skill group of workers doing manual work (landscapers, restaurant workers, truck drivers). A middle-skill group of workers doing routine cognitive work (bookkeepers, legal clerks, certain types of computer programmers). A high-skill group doing non-routine cognitive work (CEOs, professors, doctors, lawyers). • Increasingly, the middle group is being pressured by outsourcing and automation (legal discovery now being done by computer, radiology being outsourced to India, etc).
5
TEST SCORES OF U.S. STUDENTS ARE BELOW THE OECD AVERAGE 2009 OECD PISA SCORES*
540 520 500 480 460 440 420
*AVERAGE SCORE ON MATH, READING AND SCIENCE.
MEXICO
GREECE
SPAIN
ITALY
PORTUGAL
SWEDEN
U.S.
FRANCE
IRELAND
DENMARK
U.K.
NORWAY
BELGIUM
GERMANY
SWITZERLAND
NETHERLANDS
AUSTRALIA
CANADA
JAPAN
NEW ZEALAND
6
KOREA
FINLAND
© BCA Research 2012
7 *AVERAGE SCORE ON MATH, READING AND SCIENCE.
MEXICO
U.S. (BLACKS)
U.S. (HISPANICS)
GREECE
ITALY SPAIN
PORTUGAL
SWEDEN
U.S.
FRANCE
IRELAND
DENMARK
U.K.
NORWAY
BELGIUM
GERMANY
SWITZERLAND
NETHERLANDS
540
AUSTRALIA
U.S. (WHITES)
NEW ZEALAND
CANADA
JAPAN
U.S. ( ASIANS)
KOREA
FINLAND
SIGNIFICANT VARIATION IN STUDENT PERFORMANCE BASED ON ETHNICITY 2009 OECD PISA SCORES*
520
500
480
460
440
420 © BCA Research 2012
NON-ASIAN MINORITIES WILL ACCOUNT FOR OVER 100% OF THE GROWTH IN THE U.S. WORKING-AGE POPULATION OVER THE NEXT 40 YEARS
U.S. WORKING-AGE POPULATION, CHANGE IN MILLIONS
(Million)
40 30
PROJECTED CHANGE IN WORKING-AGE POPULATION HISPANIC ASIAN BLACK NON-HISPANIC WHITE
+43
20 +10
10
-
+8
0 -10
-13 © BCA Research 2012
2010 2015 2020 2025 2030 2035 2040 2045 2050 8
NAEP AVERAGE SC ALE SCORE – MATH 17 YEARS OLD
NO CLEAR PROGRESS IN NARROWING THE ACHIEVEMENT GAP SINCE THE EARLY-1990s 320
300 280 260
NAEP AVERAGE SCALE SCORE – READING 17 YEARS OLD
MATH
300
WHITE BLACK
HISPANIC ASIAN
1978 1982 1986 1990 1992 1994 1996 1999 2004 2008 READING
280 260 240
WHITE BLACK
HISPANIC ASIAN
© BCA Research 2012
1980 1984 1988 1990 1992 1994 1996 1999 2004 2008 9
SOURCE: U.S. DEPARTMENT OF EDUCATION, BREAK IN 2004 REFLECTS SHIFT TO REVISED ASSESSMENT FORMAT.
HISPANIC EDUCATIONAL ATTAINMENT STALLS AFTER THE SECOND GENERATION % OF TOTAL
U.S. COLLEGE - COMPLETION RATE
30
SECOND GENERATION HISPANIC IMMIGRANTS MAKE SIGNIFICANT GAINS OVER FIRST GENERATION IMMIGRANTS, BUT PROGRESS STALLS THEREAFTER
25 20 15 10 5
© BCA Research 2012
NON-HISPANIC WHITE NATIVE-BORN
HISPANIC (1ST GENERATION)
HISPANIC (2ND GENERATION)
SOURCE: 2006 CURRENT POPULATION SURVEY.
10
HISPANIC (3RD GENERATION & HIGHER)
THE ELDERLY RECEIVE MORE THAN TWO-THIRDS OF FEDERAL GOVERNMENT TRANSFERS % 70
U.S. SHARE OF FEDERAL GOVERNMENT HOUSEHOLD TRANSFERS, BY AGE AND FAMILY TYPE
60 50
HOUSEHOLDS WITH CHILDREN ELDERLY CHILDLESS HOUSEHOLDS
40 30 20 10
© BCA Research 2012
1980
11
1985
1990
1995
2000
2005
OLD AGE DEPENDENCY RATIO SET TO SURGE % 36
U.S. POPULATION AGE 65 OR OLDER AS A PERCENTAGE OF THE POPULATION AGES 20 TO 64
34 32 30 28 26 24 22
20 © BCA Research 2012
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 12
SOURCE: CBO LONG-TERM BUDGET OUTLOOK (2011).
SPENDING ON THE ELDERLY IS SET TO INCREASE SIGNIFICANTLY % OF GDP
16 14
MEDICAID, CHIP AND EXCHANGE SUBSIDIES MEDICARE SOCIAL SECURITY
Up 1.3%
12 10 Up 2.2%
8
6 Up 1.6%
4 2
SOURCE: CBO LONG-TERM BUDGET OUTLOOK (2011).
13
2034
2032
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
© BCA Research 2012
THE RISK OF A FISCAL CRISIS IS GROWING
U.S. FEDERAL DEBT HELD BY THE PUBLIC
180 160 140 120 100 80
SOURCE: CBO LONG-TERM BUDGET OUTLOOK (2011).
14
2034
2032
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
© BCA Research 2012
THE REPUBLICANS ARE IN TROUBLE % 70
% 70
PERCENTAGE VOTE FOR: DEMOCRATS REPUBLICANS
NON-HISPANIC WHITES
60
60
50
50
40
40
30 % 70
30 % 70
60
60
50
50
HISPANICS*
40
40
30
30 © BCA Research 2012
1972 15
1976 1980
1984 1988 1992
1996 2000 2004
SOURCE: POPULATION DIVISION, U.S. CENSUS BUREAU. * GAP DUE TO MISSING EXIT POLL DATA FOR 1976.
2008
PROPORTION OF MINORITY VOTERS WILL INCREASE STEADILY %
%
80
80
60
60
SHARE OF VOTES CAST BY ETHNICITY: NON-HISPANIC WHITES HISPANICS AFRICAN AMERICANS ASIANS
40
40
20
20
© BCA Research 2012
2010 16
2015
2020
2025
2030
SOURCE: POPULATION DIVISION, U.S. CENSUS BUREAU.
2035
2040
2045
2050
DEMOGRAPHICS ALONE WILL GENERATE A 10-POINT SWING FOR DEMOCRATS OVER THE NEXT 40 YEARS %
%
ESTIMATED SWING IN FAVOR OF:
4
4
DEMOCRATS REPUBLICANS
2
2
0
0
-2
-2
-4
-4 © BCA Research 2012
2010 17
2015
2020
2025
2030
SOURCE: POPULATION DIVISION, U.S. CENSUS BUREAU.
2035
2040
2045
2050
TEXAS TO TURN DEMOCRATIC? IT’S ALREADY HAPPENING!
18
WILL A MORE IMMIGRATION-FRIENDLY PLATFORM SAVE THE GOP?
60
% OF HISPANIC REGISTERED VOTERS WHO SAY THE FOLLOWING ISSUE IS "EXTREMELY IMPORTANT" TO THEM: 58
54
50
51
40
35 31
30
29
27
20 10
19
SOURCE: PEW RESEARCH CENTER, 2010 NATIONAL SURVEY OF LATINOS.
WAR IN AFGHANISTAN
ENVIRONMENT
IMMIGRATION
FEDERAL BUDGET DEFICIT
HEALTH CARE
JOBS
EDUCATION
© BCA Research 2012
U.S. MEDIAN HOUSEHOLD NET WORTH $
$168,103
160,000 140,000 120,000
$134,992
2005 2009 $113,149
100,000 $78,066
80,000 60,000 40,000
$18,359
20,000
$6,325
© BCA Research 2012
WHITES 20
ASIANS
HISPANICS
$12,124 $5,677
BLACKS
HISPANIC VOTE IN 2010 CONGRESSIONAL ELECTIONS %
DEMOCRAT
REPUBLICAN
SPREAD
MALE
65
22
43
FEMALE
62
23
39
18-29
63
24
39
30-49
62
23
39
50-64
70
18
52
65+
66
26
40
LESS THAN HIGH SCHOOL
61
20
41
HIGH SCHOOL GRADUATE
63
23
40
SOME COLLEGE OR MORE
67
24
43
LESS THAN $30,000
69
18
51
$30,000 - $74,000
63
24
39
$75,000 OR MORE
62
24
38
NATIVE BORN
61
25
36
FOREIGN BORN
73
16
57
ENGLISH DOMINANT
56
30
26
BILINGUAL
71
19
52
SPANISH DOMINANT
68
17
51
GENDER
AGE
EDUCATIONAL ATTAINMENT
HOUSEHOLD INCOME
NATIVITY
LANGUAGE
21
CONCLUSIONS • Globalization and technological change is exacerbating inequality. • All the growth of the U.S. labor force over the next half-century will come from minority groups that have traditionally lagged behind in educational achievement. In the absence of a significantly improvement in educational outcomes, the U.S. is likely to experience weaker productivity growth and a further increase in income inequality. • American politics is at risk of becoming polarized by age and ethnicity. If this trend continues, it will undermine democratic institutions as we know them. • The best hope is that policymakers will have the sense to adopt policies that encourage people to think of themselves as Americans, first and foremost, rather than members of specific identity groups. 22