‘There is no increase in inequality’

SeaTac’s narrow passage of Proposition 1, a bundle of employment law requirements including a $15 hourly wage for some transportation and hospitality workers, energized local activists. Even though the initiative faces legal challenges, it served to launch a debate that will dominate state and regional politics for months.

Last week, about 150 people marched from SeaTac to Seattle, symbolically bringing the high minimum wage to the city. Fast food workers across the country courted media attention with protests demanding the $15 wage. The actions coincided with the president’s speech warning of a “dangerous and growing inequality and lack of upward mobility.”

Meanwhile, in odd juxtaposition, we learned that University of Washington football coach Steve Sarkisian accepted a gig at the University of Southern California paying close to $6 million a year, money that used to get you a bionic man. The UW then signed the Boise State coach with a five-year $18 million contract.

It’s a lot of money for coaching college kids, but it pales compared to the $240 million 10-year deal the Mariners gave Robinson Cano.

The superstar economy comes with unfathomable compensation for the anointed few. Some are derided, others celebrated.

When Obama executed his latest presidential pivot to inequality, he didn’t inveigh against the stratospheric compensation of the tech titans, Wall Street wizards, celebrities and NBA stars he spends time with. Rather, he recycled concerns with CEO compensation and the increased share of the economy going to the top 10 percent. And he said he wanted to spend more on education, boost the minimum wage and strengthen collective bargaining. Call it a 360 degree pivot — he always ends up where he started.

It’s a mistake to conflate inequality and mobility. They are two different problems. Of the two, the latter should be our primary concern.

A misdiagnosis can lead to policy errors. Some of what we think we know about inequality is just wrong. Much of the reporting fails to account for economic assistance (housing subsidies, food stamps, Medicaid), noncash compensation, changes in household composition, and revisions to the tax code that have led to more reportable income among high earners.

“There is no increase in inequality,” says Diana Furchtgott-Roth, a former chief economist of the U.S. Department of Labor and senior fellow at the Manhattan Institute for Policy Research. To get past the faulty income data she looks at trends in household spending. She finds that per person spending by households in the top fifth of the income distribution is 2.5 times that of those in the bottom fifth, roughly what it a quarter of a century ago.

Sure, we have more superstars today, but they occupy a very small part of the income spectrum. Furchtgott-Roth is right to take a more expansive view.

Focusing on inequality is divisive, promoting redistributive policies rather than economic growth and a path out of poverty.

A healthier, more productive approach would concentrate on increasing economic opportunity. Here important work can be done. Upward mobility has declined for the poorest Americans. People born into the bottom fifth of the income distribution are more likely to be stuck there than in previous generations, according to research by Scott Winship of the Brookings Institution.

The first step out of poverty entails landing a good job, a starter job with starter pay. A $15 minimum wage will put that job out of reach for the least educated and experienced workers. Employers will be more selective in filling the higher wage jobs. The increased labor cost will lead them to automate and restructure operations, eliminating many jobs.

It’s already a tough job market for people with marginal skills. That’s why on-the-job training and education play a critical role in boosting upward mobility. Eliminating entry level jobs adds to the burden of young people trying to get ahead.

The Washington Post gave the president two Pinocchios for saying there was “no solid evidence that a higher minimum wage costs jobs.” It’s a function of scale. Size matters. Small hikes in a low wage can be absorbed. But no one disputes that a jump to $15 will destroy jobs and opportunity.

Still, union activists are undeterred. Of course theirs are not the jobs at risk.

Richard S. Davis is president of the Washington Research Council. His email address is rsdavis@simeonpartners.com

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