Income and Wages

The Real Story On The 1980s

It has become a matter of faith among some people that economic policies in the 1980s caused the earnings gap between the richest and poorest Americans to grow. A recent study comparing U.S. and German economic data from the 1980s confirms that income inequality rose and that the middle class shrank. However, the study, by economists Mary Daly, Amy Crews and Richard Burkhauser, shows that these trends occurred because the middle class got richer.

The researchers studied three groups:

  • Families with at least one person over 60 -- or with someone who depended on Social Security or a pension.

  • Younger families with at least one person in the labor force -- or with someone who depended on the job market.

  • Younger families with no one in the labor force -- or with someone who depended on welfare.

In both the U.S. and Germany, as the job markets thrived and more people reached retirement age, the only group who failed to benefit were those without someone in the work force. "Some connection to the labor market was the key to benefiting from economic recovery in both countries," the authors of the study found.

Some analysts believe such findings show how important work is for welfare reform because it makes the benefits of economic growth available to those who are not working, or who are stuck in government training programs until real work comes along.

Source: Perspective, "Up From Inequality," Investor's Business Daily, September 4, 1997.

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