Reconnecting to Work: Policies to Mitigate Long-Term Unemployment and Its Consequences

Foreword: What Happened to Shared Prosperity and Full Employment and How to Get Them Back: A Seussian Perspective

vii Foreword What Happened to Shared Prosperity and Full Employment and How to Get Them Back: A Seussian Perspective Richard B. Freeman Harvard University and National Bureau of Economic Research The conference “Reconnecting to Work” was held on April 1–2, 2011, as the United States suffered its worst job market since the Great Depression. Reconnecting to work, indeed! With 9–10 percent unemployment and little sign of substantive job growth in the foreseeable future, American workers needed more help to find work than at any time since the 1930s. Even if job growth were to miraculously pick up, most workers would have trouble keeping their heads above water for years to come. For nearly four decades the benefits of economic growth have gone almost entirely to a small sliver of wealthy Americans. The vast bulk of workers struggled with stagnant real wages and high consumer debt to remain in the middle class. Inequality rose to levels off the map for a major advanced country and exceeded levels in most third-world countries. Contrary to what many Americans believe, social mobility in the United States was below that for most other advanced countries.1 Something or someone had taken shared prosperity and full employment from the American people. Something or someone was dismantling the road to the middle class on which the United States was built, and with it the American dream. Who or what could that be? The first place where economists seek an answer to changes in economic outcomes is in the operation of markets. Viewing the U.S. labor market as highly competitive and responsive to market forces, some economists explain the stagnation of real wages in terms of (unmeasured ) technologically driven shifts in demand for labor that favor viii Freeman the highly skilled over the less skilled. But changes in skill premium explain only a small proportion of increased inequality. Most of the rise in inequality occurs within observationally equivalent groups— among persons with the same age, gender, race, education, math and literacy test scores, and so on—rather than across skill groups. And it is difficult to understand why in a highly flexible job market firms cut employment rapidly in recession but failed to increase employment in the ensuing recovery. To fit the observed pattern of change, analysts must go beyond the basic flexible market model to consider institutions, unions, executive compensation, modes of corporate governance, and governmental policies. In the spirit of the interdisciplinary Reconnecting to Work conference , I explored what other social sciences said about the loss of shared prosperity and jobs crisis. Sociology focuses on the behavior of the poor and the measurement/meaning of class but also offers network analysis that quantifies the connections among the elite. Political science documents the importance of lobbying in determining the rules that govern how markets operate and of the revolving door between public service and lobbying activities. Social psychology shows how readily authority figures and settings can influence people to behave with little regard to others even without monetary incentives. But neither economics nor the other social sciences gave me the overarching vision or narrative about who or what was undoing the U.S. middle class. With the time for my presentation at the conference growing short, I widened my search. As a youth I read widely in literature, from the Greek tragedies to Alice in Wonderland to Charles Bukowski. Did the world of literature offer an analogy or a clue to the story? Eureka! Yes, there was one narrative that seemed to provide insight into the economics of lost prosperity and jobs, and it was by the world’s most famous and accomplished writer and poet of children’s verse—Dr. Seuss, master of the trisyllabic meter. Dr. Seuss? Many of the experts at the conference would recall The Cat in the Hat (1957a) and wonder what hat I was wearing when Seuss popped into my head as offering a framework for understanding the country’s economic woes. Hopefully the evidence would convince them (and you), as it convinced me, that the answer to who stole American prosperity and full employment lies in the classic Seuss tale How the Grinch Stole Christmas (1957b) and its successor stories. ix Foreword THE GRINCHES OF WALL STREET The Grinch is an illustrated book. Rereading your copy, you will surely notice, as I did, the uncanny resemblance of the illustrations of the snarly heartless cave...