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Why the pain persists, even as incomes rise


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Incomes are up. Poverty is down. And job openings have hit a record high. But if the economy is so wonderful, why are so many Americans still feeling left behind?

The disconnect between positive statistics and people’s day-to-day lives is one of the great economic and social puzzles of recent years. It helped fuel President Donald Trump’s political rise and underpins the frustrations that played out in calls to build a Mexican border wall, reopen trade agreements and bring back well-paid work in coal mines and factories.

When the U.S. Census Bureau released its annual report on the country’s economic well-being Tuesday, it showed unmistakable progress: For the second year in a row, household incomes — clobbered by the 2007-9 recession — had grown. More Americans were working, and more had health insurance, in 2016 than the year before.

The findings suggest that the “American dream” — in which each generation is richer and better positioned than the previous one — is back on track.

For many Americans, though, the recent progress is still dwarfed by profound changes that have been building for nearly a half-century: rising inequality and rusted-stuck incomes.

“Over the past five decades, Middle America has been stagnant in terms of its economic growth,” said Mark Rank, a professor of social work at Washington University in St. Louis. In 1973, the inflation-adjusted median income of men working full time was $54,030. In 2016, it was $51,640 — roughly $2,400 lower. A big chunk of that group — white working-class men — formed a critical core of support for Trump, who spoke to their economic anxieties and promised changes in trade, immigration and tax policies as a solution.

As in an Agatha Christie mystery, the potential culprits behind the long-term trends are many — global competition, technological advances, trade imbalances, a mismatch of skills, the tax system, housing prices, factory shutdowns, excessive regulation, Wall Street pressure, the erosion of labor unions and more. Most of the suspects, if not all, are likely to have played some role.

But the forces undermining the middle class may reach back further than many economists have thought. The latest evidence comes from a group of researchers at universities and the Social Security Administration who have been tracking the earnings of hundreds of millions of individuals over their careers.

Starting with 1957, the team looked at actual earnings during the prime working years — the ages of 25 to 55. For a while, it saw a clear pattern: Younger men could expect to make more over their lives than older ones. Every year the starting rewards were higher and kept growing. So men who turned 25 in, say, 1960 would end up with a higher median cumulative income by 55 than men who had turned 25 in 1959. And the ‘59ers would, in turn, do better over three decades than those who had turned 25 in 1958.

But that steady progress stopped in the late 1960s. Then, instead of increasing, lifetime earnings for men made an about-face and began to decline. They have been dropping pretty much ever since. The result was that a 25-year-old man who entered the workforce in 1967 and worked for the next three decades earned as much as $250,000 more, after taking inflation into account, than a man who had the same type of career but was 15 years younger.

“That’s enough to buy a medium-size house in the United States,” said Fatih Guvenen, an economist at the University of Minnesota and a co-author of the study. “That is what you are missing from one generation to the next generation.”

And the trend appears to be continuing. “Every new cohort made less in median lifetime income than the previous one,” Guvenen said.

The result is widening lifetime inequality as well. That’s because nearly all of the financial gains have been funneled to those at the top of the income scale. For 4 out of 5 men, there was no real growth.

“And it all starts at age 25,” Guvenen said. The decline in lifetime earnings is largely a result of lower incomes at younger ages rather than at older ages, he said, and “that was very surprising to us.”

Most younger men ended up with less because they started out earning less than their counterparts in previous years and saw little growth in their early years. They entered the workforce with lower wages and never caught up.

According to one conservative measure of inflation, in 1967, the median income at age 25 was $33,300; in 1983, it was $29,000. Twenty-five-year-olds did better during the 1990s, but then the slide returned. In 2011, the median income for 25-year-old men was less than $25,000 — pretty much the same as it was in 1959.

The picture for women looks different because so many more of them started at a disadvantage: Few worked full time in the 1950s, and those who did earned below-average wages. As more women entered the workforce over the decades, their lifetime earnings rose. But more recently, as the share of women working has leveled off, their lifetime income gains, too, have slowed.

The result is that, since the 1950s, three-quarters of working Americans have seen no change in lifetime income. Health and retirement benefits have made up some of the lost ground but far from all of it.

The recent progress reported by the Census Bureau doesn’t conflict with this story. As the bureau explained, the income gains came mostly because more people were working full time. Roughly 2.2 million more adults had full-time jobs in 2016 than in 2015.

To Guvenen, the research indicates that the debates in Washington centered on earnings and employment have been too narrow. Given the early roots of lifetime income disparities, he said, more attention should be paid to what is going on even before people start entering the workforce.