Controversies within the Frame of Poverty
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
In class, we have framed poverty in four different ways: poverty in terms of deviance,
dependence, economic growth and capability, and political disenfranchisement. In this paper,
I will focus on the controversies within the frame of poverty in terms of economic growth and
capability, drawing from Peter Gottschalk’s “Inequality, Income Growth, and Mobility: The
Basic Facts” and Chapter two: “Changing Economy” of Rebecca Blank’s It Takes a Nation: A
New Agenda for Fighting Poverty. First, I will give some background on the relationship
between poverty and the economy. Poverty rates are closely tied to the economy. Historically,
an expanding economy has resulted in declining poverty rates and vice versa. For example, the
Great Depression during the 1930s created terrible destitution and poverty, while the 1960s
enjoyed a huge economic expansion and watched poverty rates plunge. This relationship
between poverty and the economy allowed the government to use economic growth to battle
poverty. Until the 1970s, this was a very popular strategy because it assisted the poor while
also benefiting the non-poor. Since then, this formula has broken down. No longer does the
“rising tide lift all boats.” The past two decades have suffered rising poverty rates despite
increasing mean income. Economists have pointed to many facts about the shifts in distribution
of earnings and employment. However, the real controversy lies in the explanation of these
patterns. Rebecca Blank believes that due to declining demand for less-skilled workers, the
nature of jobs available to less-skilled workers has worsened: wages have fallen, fringe benefits
and career opportunities have become more limited. Therefore, she concludes that
employment-based strategies are no longer as effective a way to fight poverty. Peter Gottschalk
believes that the growth in wage inequality is caused by the rise in the price of skill due to
higher wages for skilled workers and lower wages for less-skilled workers. Therefore, he says,
changes in the absolute income of the poorest are due to growing wage inequality and
decreasing wage mobility as the economy grows. He also points out that not only does the
rising tide fail to lift all boats, but that even people in the same boat do not stay together. Like
Blank, Gottschalk concludes that demand-side shifts are to blame: the rise in the price of skill
has led to the increasing inequality of the distribution of labor market income. While Blank
and Gottschalk have few direct disagreements, there are subtle differences in their approaches
in explaining the failure of economic expansion to reduce poverty. Rebecca Blank’s argument
describes how the changing economy for less-skilled workers has disrupted the relationship
between economic growth and poverty, and concludes that job earnings alone cannot push a
family out of poverty. She first explains how economic expansion led to reduced poverty rates
during the economic boom from 1961 to 1969. She then describes the changes in the economy
that led to the breakdown of this relationship. Blank cites falling wages as the prime factor; she
claims they account for the reduced involvement in the labor force and compound the negative
effect of the deteriorating nature of jobs. She also notes that job availability for the urban poor
has become more limited due to the geographical shift of employment opportunities from cities
to suburbs. Finally, she says that jobs are not the solution to poverty; the poor need additional
public and private support. Plummeting poverty rates during the 1960s can be traced to the
combined effects of increasing job availability and higher wages. Generally, the number of
available jobs increases during economic expansion. The unemployed or the discouraged
workers, who can now take advantaged of the increased job availability, benefit more than
those who are already employed. Another important factor was that wages rose with the
expansion. “Each one percent expansion in the economy over the 1960s was associated with a
$2.18 increase in weekly wages after inflation for workers in low-income families” (Blank 55).
Increased job availability and higher wages slashed the poverty rate from 22 percent in 1960
to 13 percent in 1970. Economic growth no longer reduces poverty because the previous
associations among economic expansion, wages and job availability no longer hold. From 1983
to 1989, the economy grew an average of 3.7 percent each year (it grew 4.3 percent per year
during the 1960s). Unemployment fell and low-income households were working more—at
faster rates than during the ‘60s boom—but the poverty rate only fell about four percent. The
difference this time around was that for the poorest ten percent of the population, weekly wages
fell 32 cents for each one percent expansion in the economy. From 1992 to 1993, poverty rates
actually rose even as the economy grew. Whereas wages and job availability rose together in
the 1960s, the last two decades saw falling wages offset the effect of lower unemployment. The
empirical evidence presented in this section clearly supports Blank’s claims about the historical
relations between poverty and the economy based on the effects of expansion on
unemployment and wages—and breakdown of those relationships due to the changes that
occurred in recent years. Blank claims that the declining wages have led to decreased
involvement in the labor force. It is reasonable to believe that as wages fall, the inclination to
work also falls. This has been especially apparent among less-skilled males. Besides the effect
of men who stayed in school longer, earned higher wages and retired earlier, the low
employment rates reflect the increasing number of males who are completely dropping out of
the labor force. The share of male high school dropouts in the labor force went from 86.8
percent in 1970 to 72.3 percent in 1970 despite a seven percent increase in GDP per capita over
the same period. Blank attributes this to the discouraging effect of falling wages: a 22.5 percent
decrease for high school dropouts from 1979 to 1993. “Over the 1980s…when wage
divergence became more acute, the decline in less-skilled men’s labor market behavior can be
almost entirely explained by the decline in their wages” (Blank 69). Among less-skilled
females, work opportunity and wages did not change much: wages for high school dropouts
fell 6.3 percent. Accordingly, their labor market involvement remained relatively constant:
from 1970 to 1993, the share of female high school dropouts went from 41.7 percent to 43.3
percent. Drops in wages and job options for the less-skilled have been accompanied by huge
increases for higher-skilled workers, both male and female. College-educated males saw a 9.8
percent increase in wages and involvement in the labor force remained constant: 94.1 percent
in 1970 compared to 92.7 percent in 1993. Women of the same skill-level experienced a 27.1
percent increase in wages and labor force involvement increased from 63.6 percent to 81.9
percent. Therefore, Blank concludes, wage trends are very important factors in work behavior.
“Those who have experienced wage increases in recent years are working more, particularly
the more-skilled men and women; those who have experienced stagnant wages show little
change in their work effort, particularly less-skilled women; those who have experienced
declining wages show declines in work effort, particularly less-skilled men” (Blank 72).
Blank’s statement about more-skilled men working more does not hold up according to her
graphs: the only section of the population with increased work force involvement were those
with some post-high school training, and that was only a 2.4 percent increase, compared to a
5.9 percent decrease for high school graduates and a 1.4 percent decrease for college graduates.
However, I believe this is a minor contradiction; her main point about the connection between
wages and work behavior mostly holds up. However, Blank’s argument concerning overall job
availability is somewhat confusing. She claims that employment has been growing right along
with the expanding labor force, and that overall job availability has not changed much over the
years. Confusingly, she also states that “while job availability may not have deteriorated
overall, it could still have declined for some” (Blank 58). She goes on to say that poor workers
face much more difficulty finding work than high-wage workers. For example, high school
dropouts have an unemployment rate five times the rate of college-educated workers. She also
notes that black workers for every skill level have unemployment rates twice that of white
workers, and that the rate for women has fallen more than it has for men. However, she claims
that over the long term, job availability has not deteriorated; it has merely failed to improve for
the less-skilled, blacks and Hispanics. “For the working poor, unemployment is as high and job
availability is as limited as it has always been” (Blank 60). Later, she states that geographical
changes in the labor market have resulted in increased problems for the inner-city poor. As jobs
move from the city to suburbia, less-skilled workers in urban communities are faced with
broken job networks and increased travel difficulty. When the job network breaks down, low-
wage workers are especially hard hit because most blue-collar jobs are obtained through
personal connections, claims Blank. Also, because blacks and Hispanics have been excluded
from suburban housing, and commuting from the city to the suburbs is costly and time
consuming, they are unable to join the network of suburban jobs. Exclusion from economic
opportunity has contributed to more limited job availability and increasing poverty for urban
poor. “Urban ghettos and their inhabitants have become more isolated from the regional
economies that surround them. Within these neighborhoods, job availability has become more
limited” (Blank 75). She seems to contradict her earlier claim that work opportunities for less-
skilled workers have not changed. I believe she is attempting a nuanced argument about job
availability while emphasizing that its overall stability indicates the importance of other factors
on poverty such as changes in work behavior and the nature of jobs, which she describes in
other sections. However, she needs to be more careful about not contradicting herself. While
she does not ever say this, it can be inferred that unemployment rates have not reflected rising
poverty and worsened work opportunities because people are simply dropping out of the labor
force. Her argument would be clearer if she stated this explicitly. Besides the drop in wages,
the nature of jobs available to less-skilled workers has deteriorated in other ways. Health
insurance provisions and pension benefits have decline over the past two decades, reinforcing
the negative effect of falling wages. Also, although career opportunities have improved for
females, they have worsened for males. No longer does the job ladder reach from stock boy to
company president; there is a gap at the more upwardly mobile entry-level management
positions, where MBAs and other post-college degrees are becoming increasingly required.
Blank claims that the decline in demand for less-skilled workers is the primary reason for
falling wages. She rejects two arguments that claim the problem is on the supply side: that less-
skilled workers are less prepared for jobs these days due to failing schools and broken families,
and that the increase in immigrants has pushed down the wage rate. High schoolers are
performing better on standardized achievement tests since 1970. And if family structure was
the problem, women would be affected in the same way as men, but they haven’t. She argues
that the workers’ skills are not changing, but job demands are: “the problem is that the jobs
open to these workers are demanding more (or at least different) skills than before. Strong
muscles, with limited literacy and numeracy, are not adequate for today’s jobs” (Blank 65).
What’s confusing about this statement is that earlier, she downplayed the effect of
deindustrialization on job availability for less-skilled workers. “Widening wage
distribution….is not driven by the shift from manufacturing to service sector jobs” (61). Her
claim about immigrants is that cities with larger amounts of immigrants do not show evidence
of greater wage inequality or higher unemployment among native workers. I don’t buy this
argument and she does not produce any statistics to support her claim. Blank claims that the
two primary explanations for declining demand for less-skilled workers are the increasing
internationalization of the U.S. economy and technological changes in the U.S. economy that
require a more skilled workforce. She explains that more involvement in the global labor
market introduces high competition for low-wage workers from developing countries,
disadvantaging U.S. workers with low skills. I don’t believe that this is an important enough
factor to contribute significantly to the decreasing demand for domestic workers. This would
only be a problem if U.S. workers were traditionally shipped out to foreign factories, foreign
workers were shipped in to work in domestic factories. Granted, U.S. companies set up shop
in developing countries (instead of in America where it would provide jobs for less-skilled
workers) because they can find cheaper labor there, but I believe these are jobs that would be
mostly filled by immigrants anyway. Blank claims that technological advances have replaced
less-skilled workers. She states that both manufacturing companies and the service sector have
begun to use machines and computers to reduce the need for human labor. However, this is
only one way of looking at the effect of advanced technology. In macroeconomics, we learned
that the economy always wants to increase productivity. Machines and computers allow fewer
people to produce the same amount. However, most companies are not satisfied with that end;
they want to produce more with the same amount of labor. Therefore, technological advances
do not necessarily indicate a drop in demand for human labor. Blank’s final point is that due to
falling wages and declining job opportunities for less-skilled workers, employment is
becoming a less effective solution to poverty. She gives examples of how much a less-skilled
worker in a single-parent family with two children, a two-parent family with two children and
a single adult would have to earn weekly in order to escape poverty, assuming no public or
private assistance. She found that only 22 percent of single mothers, 72.5 percent of married
fathers and 59.8 percent of single adults earn enough to escape poverty without assistance.
Therefore, she concludes, there must be some additional sources of income because
employment is not enough to escape poverty. Peter Gottschalk begins by stating that during
the 50s and 60s, increases in poverty during recessions were more than offset by decreases
during expansions. However, during the last two decades, the increases in poverty were larger
than the decreases as the economy went through recessions and expansions. From 1973 to
1994, a 27 percent increase in mean income per capita was accompanied by an overall 31
percent increase in poverty rates. He attributes this to the growth in wage inequality and
demographic changes such as the rise in single mothers. Gottschalk states that family income
includes several factors including private income sources, taxes, and other expenses, but he
focuses on labor market earnings to simplify his argument. Beginning in the 1970s, wage
dispersion increased rapidly as mean wages grew slowly, reflecting falling wages for the lowest
income groups and rising wages for the highest income group. Inequality increased in years
regardless of whether unemployment was rising or falling. Therefore, he claims, the steady rise
in inequality indicates a real shift in the economy rather than cyclical changes. The rapid growth
in dispersion—the rich got higher wages and the poor got lower wages—also accounted for the
phenomenon of rising poverty rates despite increasing mean income. He then discussed the
variance in changes in inequality across and within groups based on gender, race and education.
Among women, real weekly wages did not fall between 1973 and 1994 for any percentile
according to Gottschalk’s graphs, although the increases were tiny at the bottom and much
larger for the top (he does not explain what this percentile refers to, but I believe it has to do
with income levels). Note that Blank’s graph indicated a 6.3 percent decrease in weekly wages
for female high school dropouts from 1979 to 1993. Among men, however, all changes in real
weekly wages for the same period for those below the 78th percentile were negative. Similarly,
for males, only the college graduates experienced a positive change in weekly wages according
to Blank’s graph. It is interesting that the authors drew these graphs based on tabulations from
the same source: the March Current Population Surveys. I prefer Blank’s graphs because they
correlate percent changes in average weekly wages to skill level. Gottschalk’s vague
“percentiles” have no meaning for me, and do not indicate any further revelations that might
be useful in analyzing the changes in wages. Gottschalk’s other graphs are similarly frustrating.
His second graph shows that the percent difference in wages between the 90th and the 10th
percentiles among females decreased much more rapidly than they did among males, resulting
in a convergence of the lines around 1969/70. After 1970, the wage differential among males
increased faster than it did for females, but for both, inequality increased steadily until 1994.
His third graph charts decreasing wage gaps between males and females and blacks and non-
blacks, but this does not explain the growing wage inequality. These graphs only seem to be
useful in showing that race and gender do not account for the growing wage inequality.
However, skill level in terms of education and experience does show itself to be a significant
factor in the rise in inequality. The college premium has increased rapidly since the early 1980s,
indicating that the price of skills has been rising. Gottschalk says that between 1973 and 1994,
the “difference between the earnings of college and high school graduates with 1 to 5 years of
experience” more than doubled (Gottschalk 30). His graph clearly shows that the college
premium for recent college graduates with 1 to 5 years of experience went from 0.37 in 1973
to 0.53 in 1993. This increase is clearly less than double. I’m not sure how he interpreted his
own data, but his conclusion seems incorrect. Anyway, Gottschalk’s point is that there was a
huge growth in wage inequality because the increases in the college premium were due to two
factors: decline in real wages of high school graduates (20 percent) as well as the increase in
wages of college graduates (five percent). He mentions that the drop in wages for workers
without college education, coupled with the fact that they were increasingly dropping out of
the labor market, clearly indicated that high school graduates were facing a declining pool of
jobs. (Blank, if you recall, denied this claim, saying that job availability had not changed. But
she had also contradicted herself later, citing technology and geographical shifts as causes for
the decline in demand for less-skilled labor.) In macroeconomics, a drop in wages is associated
with rising unemployment because tougher competition for jobs drives down wages.
Gottschalk also mentions that the experience premium increased for both males and females
over the past three decades. However, the premium for males leveled off in the 1990s, while it
continued to increase for experienced females. Even so, the gap between males and females
has remained roughly the same since 1963. Gottschalk concludes this section by saying that
increased differences between different groups are not the only changes; differences within
groups with similar characteristics have also increased. Within groups of workers with the same
gender, race, education or experience, inequalities between the 90th percentile and the 10th
percentile were also large. Gottschalk claims that within-group inequalities accounted for 50
percent of the total increase in inequality for males and 23 percent for females. He admits that
this finding presents a difficult question, and offers two possibilities. One is that unobserved
ability (in addition to education and experience) was reaping a higher reward. This means that
groups of workers that seem similar actually do have an unobserved difference. The other
possibility is that jobs were becoming more unstable. He claims that a third of the increase in
within-group inequalities is due to fluctuations in yearly earnings. Gottschalk very briefly notes
the changes in the distribution of unemployment. He observes that the least skilled workers
experienced the largest drops in employment and weekly wages. He does not make the
connection between these two trends, as Blank did in describing falling wages as a factor in
declining involvement in the work force. Gottschalk’s final point is that mobility can reduce
the level of income inequality measured over several years. Measures of mobility are important
because they provide information about what percentage of low wage workers in a given slice
of time had low earnings in following slices of time. He stresses that only increasing mobility
can reduce a rising trend toward inequality. However, out of the few studies that have
researched earnings mobility, none has found any increase. Finally, Gottschalk concludes that
the rise in inequality reflects a decline in the earnings of less-skilled workers due to the rise in
the price of skill. Blank presented a very normative argument that emphasized falling real
wages to show that employment was no longer an effective solution to poverty. Gottschalk
focuses on describing the changes in inequality due to economic shifts in a more
documentational style with less commentary about why these changes were happening. He
notes that the primary academic focus is on labor market incomes because labor economists
were the first to notice the changes and because they are very capable of analyzing changes in
the relative supply and demand of less-skilled labor. For the most part, Blank and Gottschalk’s
data match up, but they focus on different aspects. I found Blank’s graphs and charts much
clearer and more supportive of her claims. Gottschalk’s graphs were more difficult to
understand quickly. I believe that despite some apparent contradictions, Blank offers a better,
more persuasive argument with data presented in a very clear way to supports her claims about
the relationship between education and wages. Gottschalk provides a very sound economic
argument to explain the growing inequalities; yet, his confusing graphs and vague wording
make it difficult to understand his points. His use of regressions and the scale at which he drew
them were not nearly as effective as Blank’s bar graphs and the scale at which she drew her
regressions. Also, Gottschalk merely states facts, which as Blank says, “virtually all analysts”
agree upon. I prefer Blank’s argument to Gottschalk’s because she provides a wider
examination of the causes that led to the anomaly of rising poverty during economic
expansion—and actually offers suggestions on why wages are falling.
