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  • Oren Levin-Waldman

Our National Divide: A Tale of Two Economies

A couple of weeks ago in this space I talked about the roots of polarization lying in the economy. It is almost as though we have two economies. A red economy where there are more skilled blue-collar workers and a blue economy where there are more professionals and managers at the top and more unskilled workers at the bottom. Given the transformations that have been occurring, there is perhaps little comprehension on the part of blue state politicians of the anxiety that blue-collar workers in red states have over the further decline of key industries like manufacturing for instance.


It certainly will come as no surprise that wages in blue states are on average higher than they are in red states. While it has been fashionable to talk in terms of the two-tiered economy in which the primary labor market is comprised of highly skilled and highly paid workers at the top and poorly skilled and poorly paid workers at the bottom, the reality is perhaps more complicated. We often talk about the forces of globalization, but those forces are really the product of what can be referred to as money-manger capitalism, whereby those who finance enterprises seek to get as much value from their investments.


Private enterprise is no longer proprietary in the traditional sense whereby firms are owned by people, rather they are owned by shareholders and run by managers who themselves may be shareholders. In their zeal to deliver more value to their shareholders, capital has often been relocated to places where wage rates are much less and consequently we have had greater inequality. On one level, we have had elites who are totally out of touch with ordinary workers, but on another level we have an economy that can be divided into four basic groups: Professional/Manager, Skilled Blue-Collar workers, Unskilled workers, and Other.


It is the professional/manager class that has grown in recent decades while skilled blue-collar workers have shrunk. And yet, tales of stagnating wages aren’t nearly as clear cut. Let’s consider the following. Median wages of professional/managers in blue state rose 26.7 percent from $53658 (2016 dollars) in 1990 to $68000 in 2016, while mean wages rose 37.7 percent from $64,057 in 1990 to $88,194 in 2016. In red states however mean wages for professional/manager rose 18.9 percent from $46,257 in 1990 to $55,000 in 2016 while mean wages rose 29.1 percent from $55,788 in 1990 to $72,000 in 2016.


For skilled blue-collar workers and unskilled workers, wage gains were greater in red states even though their wages were lower. Median wages for skilled blue-collar workers rose 7 percent from $37,006 in 1990 to $39,600 in 2016 while mean wages rose 9.3 percent from $40,085 to $43,829. In red states, median wages for skilled blue-collar workers rose 14.4 percent from $31,455 in 1990 to $36,000 in 2016 while mean wages rose 15.7 percent from $34,965 to $40,463.


For unskilled workers, median wages in blue states rose15 percent from $23,661 in 1990 to $27,200 in 2016 while mean wages rose 21.8 percent from $28,657 in 1990 to $34,895 in 2016. In red states, median wages for unskilled workers rose 23.5 percent from $19,428 in 1990 to $24,000 in 2016 while mean wages rose 21.8 percent from $23,774 to $28,964.


In blue states the ratio of the median of professional/managerial workers to the median of unskilled workers went from 2.3 percent in 1990 to 2.5 percent in 2016 in blue states. In red states it went from 2.4 percent in 1990 to 2.3 percent in 2016. Whereas the ratio dropped in red states, it increased in blue states, This is largely because there is slightly more wage inequality in blue states than in red states. When it comes to family income inequality, however, it is greater in red states than in blue states.


The largest percentage of skilled blue-collar workers can be found in manufacturing, which is even more the case in red states. In 1990, 54.9 percent of skilled blue-collar workers were in manufacturing in blue states compared to 47.1 percent in red states. In 2016, the percentage of skilled blue-collar workers in manufacturing was only 30.6 percent in blue states compared to 39 percent in red states. Already this tells us that there was a decrease of skilled workers in manufacturing of 44.3 percent compared to 17.2 percent decrease in red states.


The transformation characteristic of an increasingly more global economy was greater in blue states than in red states. It may be that the level of globalization experienced in blue states just isn’t there in red states. Put another way, the anxiety felt among those working in red states is ultimately anxiety felt over the forces of globalization. Whereas blue state elites appear to embrace globalization, red state workers do not.


Professional/Managers are making more money in blue states and their incomes have increased more in blue states than in red states. Meanwhile, the wages of skilled blue-collar workers have increased more in red states than in blue states. The loss of the manufacturing industry alone in red states would have much more profound consequences in red states than in blue states. Since the loss isn’t as great in blue states, those in blue states may not be able to relate to the anxiety that those in red states may have.


In the wake of the economic mess due to the COVID pandemic, there could be a renewed discussion about bringing manufacturing, especially from China, back to the U.S. As much as blue states would benefit from a rebuilding of the manufacturing base, this has been a key issue for red states. Many in blue states may not consider it to be that important because they have more skilled workers who could potentially work in high-tech jobs.


The pandemic has already highlighted differences between classes of workers in terms of who is essential and who is not, which in turn determines who is more likely to be exposed. The consequences of the COVID recession have not fallen evenly on these different classes of workers. Most professionals, for the exception of healthcare workers, can work remotely. Those in low paying and low skilled occupations cannot. It might behoove more politicians seeking to address polarization to view the economy as a single economy, rather than as a tale of two economies.

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