Op-Ed

This essay is adapted from Michael Strain’s new book. The American Dream Is Not Dead (But Populism Could Kill It),” which will be published on February 25th.

What do President Trump and Bernie Sanders have in common? Or Fox News host Tucker Carlson, Nobel Prize-winning Clinton administration economist Joseph Stiglitz and billionaire investor Ray Dalio? Among many other prominent elected officials, commentators, public intellectuals and business leaders, they have all voiced concern about the death of the American Dream.

And they’re hardly alone. Concern about the decline of the American Dream is widespread and has been heavily influenced by the rise of populism. Frustration with “elites” has saturated the public debate. The game is rigged, we often hear, for everyone except those at the top. Wages and incomes have been stagnant for decades, we are told. The middle class has been permanently weakened. America is no longer an upwardly mobile society. Capitalism is broken.

But there’s a problem with this narrative: The American Dream is alive and well.

Freshman U.S. Sen. Joshua Hawley, Republican from Missouri and a rising star of conservative populism, gave a commencement address this past spring and declared that the majority of Americans “haven’t seen a real wage increase in 30 years.” The senator’s argument that wages and incomes have been stagnant for decades is common and is frequently cited as evidence that the American Dream is dead. But it is more wrong than right.

Consider the wages of “typical” workers—those who are not managers or supervisors. Roughly four in five workers in the U.S. economy fall into this group.

Have their wages stagnated for decades? No. Since the summer of 1990 (a peak in the business cycle), their wages have increased by 33%, after accounting for inflation. This is a considerable increase in the purchasing power of typical households.

True, it is less than the increase enjoyed by the top 1%. And Americans should not be satisfied with this pace of increase. Policy should do more to help ensure that workers can command higher wages in the labor market. But wages have not stagnated for decades.

The narrative of stagnation is persistent in part because for a considerable time it was true. The post-World War II labor market can be broken up into three periods. From the late 1940s to the mid-1970s, inflation-adjusted wages experienced rapid growth. Then followed two decades of stagnant, and even declining, wage growth. Since the mid-1990s, wages have largely been increasing for typical workers, even if more slowly than in the 1960s.

Wages are the most salient form of compensation, but they are far from the only component of income—that is, of the total flow of resources available to households for spending and saving. The nonpartisan Congressional Budget Office (CBO) computes a comprehensive measure of inflation-adjusted market income that includes labor market earnings, the value of employer-provided health insurance, and business and capital income. The median household saw market income gains of 21% between 1990 and 2016, the last year for which data are available. The CBO also computes inflation-adjusted income after taxes and government transfers, which grew by 44% for the median household during this period. Households in the bottom 20% saw their post-tax-and-transfer income grow by 66% over these years.

As with wages, these gains are solid. They aren’t spectacular. But income for typical households has not been stagnant for decades.

And while it’s true that households at the top have enjoyed faster income growth than those at the bottom, this is less true than the common narrative suggests. Using a standard measure of income inequality (the “Gini coefficient”), the CBO finds that the rich-poor gap in market income grew by only 2% between 2007, when concern about inequality increased at the start of the Great Recession, and 2016. When measuring income after taxes and transfers, the CBO finds that inequality decreased by 7%.

Or consider that between 2007 and 2019, the ratio of the 90th percentile of usual weekly earnings to the 10th percentile—a more straightforward measure of inequality—increased by only 2%. While the level of inequality is relatively high, its growth for at least a decade has been quite slow, or even declining.

When Sen. Elizabeth Warren announced her campaign for president a year ago, she argued that “America’s middle class has been deliberately hollowed out.” Conservative populists frequently make the same argument.

Of course, the middle of the labor market has not been deliberately hollowed out in the sense that populists on the left and right assert—by free-trade-supporting “elites” looking to enrich themselves at the expense of the working class. But hollowing out is a real phenomenon, and it has caused significant disruption.

Research by MIT economist David Autor finds that in 1970, total employment was split evenly among low-, middle- and high-wage occupations: 31%, 38% and 30%, respectively. Today, employment in middle-wage, middle-skill occupations has fallen to 23%.

The primary cause of this dramatic change has been advancing technology, not free trade. As the cost of computing has plummeted, companies have increasingly turned to robots and software to perform rules-based tasks and procedures. The jobs that have taken a hit—the jobs that were most easily automated—include production workers, machine operators and assemblers. These are precisely the sorts of jobs whose disappearance has such political salience today.

This shift is an example of the creative destruction wrought by economic dynamism. But the public debate has been focused on the destruction, not on the creation that has gone hand in hand with it.

As employment in these traditional middle-wage jobs has shrunk, employment in newer middle-wage jobs has increased. Using data from the U.S. Bureau of Labor Statistics (BLS), I calculate that the fastest-growing jobs in the “new middle” include sales representatives, managers of personal services, computer support specialists, event planners, health technologists and technicians, audiovisual technicians, chefs and head cooks, and food service managers. These jobs require relatively more situational adaptability, social intelligence, and administrative and communication skills than traditional middle-wage jobs.

Public policy needs to do better at making sure workers have the skills that they need to command higher wages in the 21st-century economy. And workers need to be willing to do what is necessary, though certainly very difficult, to take advantage of new opportunities. Businesses need to step up, as well—and they may find that investing more in their workers adds to their long-term value. This is the solution—not trying to turn back the clock by building protectionist walls or enacting an industrial policy to favor manufacturing. Such policies harm the very workers they are designed to help.

Another part of the story that is often overlooked: Hollowing out is mostly a story of upward mobility. Employment in high-skill occupations has grown as employment in middle-skill occupations has shrunk. On balance, the share of employment in low-skill occupations hasn’t increased.

Data from the U.S. Census Bureau from 1967 through 2018 shows a 12 point drop in the share of households with inflation-adjusted income between $35,000 and $100,000. The share of low-income households—those earning less than $35,000—has also fallen over this period, from 36% to 28%. And the share of households earning over $100,000 has tripled, rising from 10% to 30%.

Despite all the concern that capitalism is broken, the fact is that today’s economy is delivering for American workers. The headline unemployment rate is lower than it has been in 50 years. At its peak during the Great Recession, there were more than six unemployed workers for every job opening. Today, there are more job openings than unemployed workers. This fall, the employment rate for people between the ages of 25 and 54 surpassed its prerecession peak. Today’s economy is excelling at making sure that those who want a job can find a job.

After years of lackluster performance, economists at Goldman Sachs, using a measure that takes into account several different government statistics, calculate that wages are currently growing at an annual rate of 3.4%. This is arguably faster growth than what productivity growth and inflation would suggest. With consumer prices growing at less than 2% a year, that represents real increases in purchasing power for typical households.

Nor is the economy delivering only for those at the top. Data from the BLS show that weekly nominal earnings for workers in the bottom 10% have grown by 19% over the past four years—over one-third faster than growth at the median. The unemployment rate for workers without a high school diploma has dropped by more than 10 percentage points since its peak following the Great Recession. It is further below its long-term average than the unemployment rate for college graduates.

And the tight labor market has benefited a range of vulnerable workers. The rate of employment for people with a disability has increased by over 20% since its postrecession low in 2014. Burning Glass Technologies, a company that analyzes the labor market, reported in 2018 that fewer job postings are demanding that workers undergo background checks. As a headline in the Journal declared this past December: “Tight Job Market Opens Doors for Ex-Convicts.”

Nothing is more central to the American Dream than the expectation that our children will do better than ourselves. Using the Panel Study of Income Dynamics, a data set that tracks families over time and across generations, I calculate that around three-quarters of people in their 40s today have higher (inflation-adjusted) household income than their parents did when their parents were of similar age. Eighty-six percent of people raised in the bottom 20% have higher income than their parents did at similar ages, as well. Well over half of American men earn more in the labor market than their fathers did; this is true for 79% of men raised in the bottom 20% and 72% of men raised in the working class. These statistics suggest a considerable amount of upward mobility.

The U.S. continues to face serious social and economic challenges—declining workforce participation for men in their prime working years, the personal and social disruption caused by automation, towns and communities that have been left behind, slow productivity growth, inadequate schools and opportunities to build skills, slackened energy and dynamism, the opioid epidemic and a troubling increase in suicide, to name a few. But it is important not to confuse these problems for the broader picture of American life. America is doing better than our biggest problems.

Recent experience demonstrates that a hot economy benefits all workers, including the lowest paid, least skilled and most vulnerable. Hard work continues to pay off, and workers still enjoy the fruits of their labor and can improve economic outcomes for themselves and their families.

And that is precisely why the constant message that American capitalism is broken is so harmful. Messages matter. If all people hear is that the economy has failed them—is rigged against them, in fact—it dims their aspirations and saps their energy, hurting their economic prospects. The populist narrative that workers are victims without agency or personal responsibility may have political power in these unsettled times, but it is also deeply demoralizing and damaging.

This is not a call for complacency. The American Dream always needs to be renewed because every generation faces different challenges. The Dream needs to be strengthened, in part through limited but energetic government action to advance economic opportunity for those that need it most. But the Dream is not dead, and we shouldn’t let a populist scream convince us otherwise. Americans living today have every reason to be optimistic—and grateful.

This article appeared in the Wall Street Journal on January 31, 2020.