[Joint House and Senate Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-202

 
                 INCOME INEQUALITY IN THE UNITED STATES

=======================================================================

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 16, 2014

                               __________

          Printed for the use of the Joint Economic Committee



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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Kevin Brady, Texas, Chairman         Amy Klobuchar, Minnesota, Vice 
John Campbell, California                Chair
Sean P. Duffy, Wisconsin             Robert P. Casey, Jr., Pennsylvania
Justin Amash, Michigan               Mark R. Warner, Virginia
Erik Paulsen, Minnesota              Bernard Sanders, Vermont
Richard L. Hanna, New York           Christopher Murphy, Connecticut
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico
Loretta Sanchez, California          Dan Coats, Indiana
Elijah E. Cummings, Maryland         Mike Lee, Utah
John Delaney, Maryland               Roger F. Wicker, Mississippi
                                     Pat Toomey, Pennsylvania

                 Robert P. O'Quinn, Executive Director
                 Niles Godes, Democratic Staff Director


                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota....     1
Hon. Kevin Brady, Chairman, a U.S. Representative from Texas.....     3

                               Witnesses

Hon. Robert Reich, Chancellor's Professor of Public Policy, 
  University of California at Berkeley, Berkeley, CA.............     5
Dr. Scott Winship, Walter B. Wriston Fellow, Manhattan Institute 
  for Policy Research, New York, NY..............................     8
Dr. Melissa Kearney, Director of the Hamilton Project and Senior 
  Fellow at the Brookings Institution, Associate Professor of 
  Economics, University of Maryland, College Park, MD............    11
Dr. Aparna Mathur, Resident Scholar, American Enterprise 
  Institute, Washington, DC......................................    13

                       Submissions for the Record

Prepared statement of Hon. Kevin Brady...........................    38
Prepared statement of Hon. Robert Reich..........................    40
Prepared statement of Dr. Scott Winship..........................    61
Prepared statement of Dr. Melissa Kearney........................    73
Prepared statement of Dr. Aparna Mathur..........................    83


                 INCOME INEQUALITY IN THE UNITED STATES

                              ----------                              


                       THURSDAY, JANUARY 16, 2014

                    United States Congress,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:00 a.m. in Room 
216, Hart Senate Office Building, the Honorable Amy Klobuchar, 
Vice Chair, presiding.
    Representatives present: Brady of Texas, Campbell, Amash, 
Paulsen, Hanna, Carolyn B. Maloney, and Delaney.
    Senators present: Klobuchar, Casey, Jr., Sanders, Murphy, 
Heinrich, and Lee.
    Staff present: Hank Butler, Gail Cohen, Carroll Conor, 
Niles Godes, Colleen Healy, Christina King, Robert O'Quinn, and 
Patrick Miller.

  OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE CHAIR, A U.S. 
                     SENATOR FROM MINNESOTA

    Vice Chair Klobuchar. We are going to call this hearing to 
order, and I want to thank our witnesses for coming, and thank 
the Chairman. I think we are going to have good attendance at 
this hearing. And I want to thank everyone for being here this 
morning to discuss this very important issue about income 
inequality in our country.
    As we will hear today, income inequality in the United 
States has been growing for more than three decades and is now 
near a record high. If history means anything, that is not good 
for anyone in the United States of America.
    That is because 70 percent of our economy is consumer 
based, and if people do not have enough money to buy stuff it 
slows the entire economy down.
    Meanwhile, as the data has shown, the top 400 people in 
this country have more wealth than half of America. That is why 
we are having this hearing today, and that is why we need to 
make some changes.
    Now I would like to introduce our witnesses who have 
enormous expertise and insight on this subject.
    Robert Reich is the Chancellor's Professor of Public Policy 
and Senior Fellow at the Blum Center for Developing Economies 
at the University of California at Berkeley. He served as 
Secretary of Labor during the Clinton Administration from 1993 
to 1997. Time Magazine named him one of the 10 most effective 
cabinet secretaries of the 20th Century. I am laughing because 
I watched his movie recently and he went back through all of 
the Presidents he had served under, including President Carter, 
and then these young students in California. He said: Maybe you 
don't remember. And then he added, ``I also was an aide to 
Abraham Lincoln.''
    [Laughter.]
    But it is the 20th Century. He has written 13 books. His 
new movie, ``Inequality for All'' that I just referred to was 
released last week on DVD.
    Scott Winship, our next witness, is the Walter B. Wriston 
Fellow at the Manhattan Institute for Policy Research, where he 
focuses on economic mobility, living standards, and income 
inequality. Previously Dr. Winship was a Fellow at the 
Brookings Institute, Research Manager of the Economic Mobility 
Project of the Pew Charitable Trust, and a Senior Policy 
Advisor at Third Way.
    Melissa Kearney is the Director of the Hamilton Project, a 
Senior Fellow at the Brookings Institution, and an Associate 
Professor in the development of economics at the Department of 
Economics at the University of Maryland. Previously she was an 
Assistant Professor at Wellesley. Her research focus is on 
inequality and poverty.
    Aparna Mathur is a Resident Scholar at the American 
Enterprise Institute. Her research areas are tax policy, wages, 
and labor market outcomes. She has consulted for the World Bank 
and taught economics at the University of Maryland.
    As the data is going to show today, income inequality, as I 
mentioned, has been growing for several decades. According to 
the JEC report, which I released today, since 1980 the average 
income for the top one percent of households, as you can see, 
has grown more than seven times as fast as it has for the 
average household.
    So the average household is there in red, and you can see 
what has happened for the incomes for the top one percent. For 
the rest of America, income growth has stalled completely. The 
average American household earned less in 2012 than they did in 
1989. The middle class is shrinking and less secure, and this 
hinders economic growth.
    Growing inequality and low economic mobility do not reflect 
our values as a nation, and both are bad for the economy. At 
the same time, we know that it has gotten tougher and tougher 
because the costs have gone up. Costs of health care have gone 
up. The costs of college have gone up. And it has become harder 
to save for retirement. This has been especially true for those 
with less education.
    Stagnant wages and rising income inequality are also 
associated with lower levels of economic mobility. As you can 
see in our report and in other reports that have been done, a 
lot of people are stuck at the bottom.
    As the Secretary notes in his work, the United States is 
64th in the world in terms of income inequality. He also points 
out that 42 percent of kids born into poverty in the U.S. will 
not get out--42 percent.
    To give you some comparison, in Denmark the figure is 25 
percent. In Great Britain, it is 30 percent. Now there are a 
number of steps our country should be taking to make sure that 
our economy continues to grow for everyone. Raising the minimum 
wage would be a good start.
    At $7.25 per hour, the real value of the current minimum 
wage is now lower than it was in 1968 when I was 8 years old. 
If the minimum wage was raised to $10.10 per hour, as currently 
proposed in the Senate, 4.6 million people would be lifted out 
of poverty.
    We must also invest in worker training. We have to train 
our workers for the jobs of today and tomorrow. Congressman 
Paulsen and I are from Minnesota where we have a relatively low 
unemployment rate. Know that we have jobs that are open today. 
In fact, in a recent poll in our state of manufacturers, 60 
percent of them said that they do have job openings where they 
need workers with the skills to fill those jobs. So that is a 
piece of this.
    Increasing the number of STEM schools is a piece of this. 
Supporting policies that have proven to lift people out of 
poverty, including emergency unemployment insurance, something 
we are debating right now, the earned income tax credit, and 
the supplemental nutrition assistance program.
    Finally, we have to look at our Tax Code and make sure it 
is fair. I think we should implement the Buffett Rule, applying 
a minimum tax rate of 30 percent on people making more than $1 
million a year. Fairness in the Tax Code will ensure that a 
secretary does not pay a higher effective tax rate than the CEO 
in the corner office.
    It is estimated that such a rule, in addition to making the 
Tax Code more equitable, would raise more than $47 billion over 
10 years.
    In conclusion, the American economy continues to recover, 
adding private sector jobs for 46 straight months. Gross 
Domestic Product in the third quarter of 2013 grew at more than 
a 4 percent annual rate. We are making progress, but there is 
still more work to do.
    Our issue today is, as we make progress, to make sure that 
everyone is sharing in that progress, and that we continue to 
make the American Dream attainable for everyone in this 
country.
    Thank you very much, Mr. Chairman.

    OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Chairman Brady. And thank you, Vice Chair Klobuchar, 
Committee Members, and very distinguished witnesses today.
    Today the Joint Economic Committee will begin to examine 
the complex questions of economic inequality and mobility in 
the United States.
    We are not all blessed with the same talents, but in 
America we should all have an equal chance to climb the ladder 
of success--driven upward by our personal initiative, and not 
burdened by the deadweight of a bloated government.
    We know that too many families are struggling, even in a 
country where 9 of 10 children born to the poorest families 
will earn more than their parents.
    Economic mobility is very much alive. In America today the 
children of the poorest are more likely to climb up the ladder 
of success than the children of the wealthy are likely to stay 
where they are.
    Through hard work, today one in three American families 
live an upper middle-class lifestyle or better, more than 
double what it was just 40 years ago.
    Astoundingly, better than one in five Americans are likely 
to rise to the top two percent of earners sometime during their 
lifetime. The American Dream is still very much alive.
    Do some Americans earn more than others? Absolutely. I 
cannot fathom how Madonna earned $125 million last year, or how 
actor Johnny Depp will earn nearly a half a billion dollars 
from the Pirates of the Caribbean series.
    We can all appreciate, though, how Mark Zuckerberg became 
the world's youngest billionaire launching Facebook from his 
college dorm room, or how Mary Kay Ash of tiny Hot Wells, 
Texas--frustrated with the glass ceiling in a male-dominated 
industry--built Mary Kay Cosmetics into an international icon 
with other a half a million entrepreneurs.
    The real challenge that we face today is too many Americans 
no longer believe the ladder of success is available to them. 
They have lost hope that if they work hard and play by the 
rules tomorrow will be better than today.
    And who can blame them? Thanks to the weakest, most 
disappointing economic recovery in a half century, millions of 
Americans cannot find full-time work, and millions more have 
simply given up looking for work. Proportionately, fewer adults 
are working today than when the Recession ended four years ago.
    These struggling Americans have not benefitted from the 
White House's controversial stimulus which failed to fulfill 
its promise of getting them back to work by now. They watch as 
the Federal Reserve has pumped up Wall Street with trillions of 
dollars, while Main Street and middle-class families are left 
behind.
    In the past five years, college costs have soared and 
energy costs have doubled. And while some Americans, no doubt, 
are being helped by the Affordable Care Act, millions more have 
been forced out of the health insurance plans they liked and 
are being forced to pay even more for plans that they did not 
want.
    While President Obama should not shoulder all the blame, 
out of fairness he should accept--some of the responsibility 
for why so many Americans believe the ladder of success has 
been pulled from their reach.
    He should not divide America further, pit one American 
against another based on their success, or fuel resentment and 
jealousy in the pursuit of political gain. That is just not an 
America we can be proud of.
    I admit I cannot imagine how Washington bureaucrats that 
have never met you or even know your name can ``equalize'' your 
income. Can the same incompetent government that brought us the 
bungled Affordable Care Act Web site be trusted with your 
dreams and your children's dreams?
    What we will learn from today's hearing is that respected 
economists disagree about the issue of economic inequality. For 
example, by using a definition of ``income'' that excludes both 
taxes that reduce disposable income and government programs 
like Social Security, Medicare, and unemployment insurance that 
boost it, economists Piketty and Saez found large and growing 
income inequality. You saw the chart earlier.
    Other economists, by using a more realistic definition that 
considers the effects of taxes, government programs, 
employment-provided health insurance benefits, and the changing 
size of the modern family, found a very modest change in income 
inequality over the past 20 years.
    Still other studies that measure what families actually buy 
and consume reveal that the ratio between the consumption of 
the poorest fifth and the most successful fifth of Americans 
remained stable for the past quarter of a century.
    I hope we will agree that personal decisions affect every 
American's ability to make a better life. A college degree, 
steady work, marriage, and children within the marriage, 
increase the odds of climbing the ladder of success--although 
in our great country some have succeeded beautifully without 
any of those.
    I also hope that we can agree that education and skills 
drive high wages, especially for those earning a college, 
graduate, or professional degree.
    For example, Pew Research found that children from families 
in the bottom fifth of earnings have a 1 in 10 chance of 
climbing into the wealthiest fifth of Americans with a college 
degree--1 in 10 can go from the very bottom of the economic 
rung to the top of that ladder with a college degree. But 
without it, they have only a 3 percent chance.
    Similarly, children from families in the second fifth 
have--of the bottom of the economic ladder, have nearly a 1 in 
4 chance of climbing to the top rung with a college education, 
but merely a 9 percent chance without it.
    So finally, how should the government act to help restore 
Americans' belief in opportunity?
    We can heed the advice of President Abraham Lincoln, 
perhaps the greatest ``equalizer'' to inhabit the White House. 
In his message to Congress on July 4, 1861, he made clear the 
proper role of government in promoting economic opportunity is, 
quote, ``to elevate the condition of men--to lift artificial 
weights from all shoulders--to clear the paths of laudable 
pursuit for all--to afford all, an unfettered start and a fair 
chance, in the race of life.'' End quote.
    We must do more to ``lift the artificial weights'' off our 
poorest families and get Washington out of the way so that 
every American truly has ``an unfettered start and a fair 
chance in the race of life.''
    I yield back, Vice Chair.
    [The prepared statement of Chairman Brady appears in the 
Submissions for the Record on page 38.]
    Vice Chair Klobuchar. Thank you, very much.
    We will start with our witnesses.
    Secretary Reich.

   STATEMENT OF HON. ROBERT REICH, CHANCELLOR'S PROFESSOR OF 
PUBLIC POLICY, UNIVERSITY OF CALIFORNIA AT BERKELEY, BERKELEY, 
                               CA

    Professor Reich. Vice Chair Klobuchar and Chairman Brady, 
and Members of the Committee:
    Thank you very much for having this hearing on what the 
President has said is the defining challenge of our time. The 
Pope has said it is a moral challenge affecting countries 
around the world. It is not just the United States.
    In the interest of brevity, I will submit my testimony for 
the record. I also had prepared some wonderful, dramatic 
slides, but in the interest of brevity I will also provide 
those for the record.
    Let me just, in the limited time I have, talk about what is 
at stake. The data are not controversial. The Congressional 
Budget Office, the Bureau of the Census, almost every agency 
that has looked at the issue, almost every policy analyst and 
economist who has looked at the issue, has come to the 
conclusion that, however you divide and slice the data, 
inequality is growing particularly between the top and 
everybody else, but the entire income and wage ladder is 
getting so elongated that we have got three huge and growing 
problems.
    Now I am not arguing--and I do not think anybody is 
arguing--a respectful argument, that we have to in any way 
avoid inequality, or that inequality--some inequality is not 
necessary or inevitable. For a growing economy, if you are 
going to have the right incentives, obviously there is going to 
be some inequality.
    The issue is: Are we getting to a tipping point where the 
extent of inequality is harming our economy, hurting the ideal 
and undermining the ideal of equal opportunity, and undermining 
our Democracy?
    And I want to argue that in all three domains we are 
getting to that tipping point, if we are not already over that 
tipping point.
    In terms of the economy, Mr. Chairman, one reason that the 
recovery is so anemic is that 95 percent of the economic gains 
since the recovery started have gone to the top one percent.
    There is no way that the middle class, or those aspiring to 
join the middle class, have enough purchasing power to keep the 
economy going if they are not going to have money in their 
pockets. They cannot go deeper and deeper into debt any longer.
    It is no coincidence that the 2 years over the last 100 
years where there was the most pronounced inequality in terms 
of the 23.5 percent of total income going to the top one 
percent were 1928 and 2007.
    If those do not tell you something, I do not know what 
does. You see, in both of those eras leading up to 1928 and 
2007, you had a middle class that was going deeper and deeper 
into debt to keep up basically with the fact that most of the 
gains of the economy were going to the very top.
    And in both of those years, you had a kind of penultimate 
and unfortunate bursting in the year following of debt bubbles. 
We are now living with the consequence of the second of those 
great bursting debt bubbles.
    Over the last 30 years, what has happened to the American 
middle class is they have coped with stagnant or declining 
incomes by women going into paid work, by working longer hours, 
and then by going deeper and deeper into debt. All of those 
coping mechanisms are exhausted. And so we have no choice but 
to face the reality now of stagnant or declining real incomes 
for a huge percentage of Americans.
    The median household income has been dropping even as 95 
percent of the gains have been going to the top.
    What is a business-friendly strategy to create jobs? It is 
to create customers. Business executives and Wall Street 
traders are not job creators. The job creators in the United 
States are customers. And if the vast middle class and the poor 
do not have enough money in their pockets, they cannot be 
customers.
    The most business-friendly thing we can do is raise the 
minimum wage, provide extended unemployment benefits, encourage 
unionization, give people the bargaining power they need to 
have a strong middle class and a growing middle class that 
includes a lot of poor people in this country. That is a 
business-friendly strategy.
    So the first problem with inequality of the degree we are 
now seeing is that it robs the economy of the aggregate demand 
the economy needs to get out of in this case the gravitational 
pull of the Great Recession.
    Problem number two has to do with equal opportunity. Madam 
Vice Chair, as you pointed out, 42 percent of Americans' kids 
born into poverty will never get out of poverty. That is a 
higher percentage than in any other advanced country.
    Now there is controversy about the measure upward mobility. 
A lot of policy analysts and economists have come to different 
conclusions about the rate--that is, the velocity--of upward 
mobility in this country.
    But even if you take the heroic assumption that the 
velocity--that is, the rate of upward mobility--is the same 
today as it was 30 or 40 years ago, which I think is very 
questionable, you can see logically how as the income and 
wealth ladder get longer and longer, even at the same rate you 
are not going to get very far up the ladder. And that is at the 
least what has happened today.
    One of the charts that I show you shows the high 
correlation--one of the charts in my testimony--shows the high 
correlation between inequality and slow mobility. The nations 
with high inequality have the slowest upward mobility.
    Problem number three has to do with the democratic process. 
And again, here I tread on delicate ground, or thin ice, 
because I do not want to be heard to in any way impugn the 
integrity of any Member of Congress. But we all know that money 
counts. And when more and more money is lodged in a smaller and 
smaller number of people at the top, political power inevitably 
gravitates upward.
    As the great Justice Louis Brandeis said in the late 19th 
Century at a time in our history that is not all that 
dissimilar to what we have today in terms of the gap between 
the wealthy and everybody else, a time when we had robber 
barons and the lackeys of the robber barons literally 
depositing sacks of money on the desks of pliant legislators, 
Louis Brandeis said: We can either have great wealth in the 
hands of a few, or we can have a democracy, but we can't have 
both.
    So number three, the last really important argument against 
high inequality is what it is doing to our democracy. In 
summary, there are many things that we can do. Raising the 
minimum wage it seems to me is critical. Enlarging the Earned 
Income Tax Credit is a good companion to raising the minimum 
wage. Minimum wage is now 30 percent below what it was in 1968. 
If we simply raised it adjusted for inflation, it would be over 
$10. If we adjusted it relative to productivity improvements 
since the late 1960s, it would be $15 an hour.
    But that is not all. We have got to invest in education, 
invest in infrastructure. We have got to strengthen unions. We 
have got to constrain Wall Street.
    Too many of those banks are too big to jail, too big to 
fail, and too big to curtail.
    We have got to limit the size of the big banks so that they 
do not do what they have already done to the American middle 
class and the poor. We have got to resurrect the Glass-Steagall 
Act--I think very, very important.
    We have also got to have a tax system that is progressive. 
And I do not mean ``progressive'' in a political progressive 
way; I mean simply in an economic sense. If you look at the 
income tax, and add in the payroll tax, and add in sales taxes 
at the state and local level, look at the entire tax system, it 
is regressive. That is, the poor are paying, and the middle 
class are paying a higher percentage of their income than the 
wealthy.
    Finally, let me just say there should be no debate at all 
over extending unemployment benefits to the long-term 
unemployed. Since 1970 we have never debated it. It has not 
been a partisan issue. We have not seen--we have not even 
searched for offsets. It is an emergency.
    We have got 37 percent of the unemployed in this country 
who right now have been unemployed for more than six months; 
1.3 million have run out of unemployment benefits; another 
72,000 are running out of them every week. This should not be a 
partisan issue.
    We have got to do this. And if we actually have to have an 
offset--and I hope we don't--I have a nomination.
    The Carried Interest loophole for hedge fund managers and 
private equity managers, closing that would yield as much money 
as we need for extending unemployment benefits for some of the 
most disadvantaged and hardest-up families in America.
    And on that upbeat note, thank you very much.
    [The prepared statement of Hon. Robert Reich appears in the 
Submissions for the Record on page 40.]
    Vice Chair Klobuchar. Thank you very much.
    Dr. Winship.

   STATEMENT OF DR. SCOTT WINSHIP, WALTER B. WRISTON FELLOW, 
     MANHATTAN INSTITUTE FOR POLICY RESEARCH, NEW YORK, NY

    Dr. Winship. Chairman Brady, Vice Chair Klobuchar, and 
Members of the Committee:
    Thank you for inviting me today to discuss the topic of 
income inequality in America. I am going to use my time--I have 
also submitted written testimony that I will submit into the 
record, and use my five minutes to rebut as much as I can from 
what we heard from the Secretary, respectfully, or you can cede 
me 20 or 30 minutes. Barring that, I will move forward with my 
oral testimony.
    With long-term unemployment historically high and still 
pervasive economic insecurity in the wake of the Great 
Recession, it is understandable that many Americans have grown 
more concerned about the Nation's levels of inequality.
    Too many families struggle in poverty. Too many workers 
have given up on finding full-time work. And too many young 
adults have graduated into a weak economy that will lower their 
lifetime earnings.
    At the same time, it is important to note that it is the 
fragility of the economy that lies behind concerns with 
inequality. Inequality was high and it was rising in the late 
1990s, but because the growing economy was largely benefiting 
everyone, few people were worried about income concentration at 
the top at the time.
    In long-run perspective, living standards have improved, 
despite what we have heard so far this morning, have improved 
for the poor and middle class even as income inequality has 
grown.
    And contrary to claims that rising income inequality has 
hurt inequality of opportunity, the evidence of a link between 
the two is weak. Allow me to elaborate.
    As I demonstrate in my written testimony, income inequality 
within the bottom 80 percent of households has grown only 
modestly, primarily during the 1980s, and hardly at all since 
then. This is Census Bureau data, so this is not anyone doing 
any funny business with the numbers.
    Indeed, a wealth of research, including by the 
Congressional Budget Office, including by Emmanuel Saez, one of 
the folks who created the inequality measures that Vice Chair 
Klobuchar showed, a wealth of research indicates that earnings 
and income inequality between the middle class and the poor 
have not risen since the mid- to late-1980s. It actually 
includes research by my colleague Dr. Kearney.
    Nor can the modest rise in middle-poor inequality be 
attributed to income stagnation. Average income in the middle 
fifth rose 66 percent between 1969 and 2007 and by 55 percent 
of the bottom fifth.
    Congressional Budget Office figures show since 1979 
increases of along the lines of 40, 45 percent for both of 
those groups.
    It is true that this growth was much slower than the 1950s 
and 1960s, but for reasons I discuss in my written testimony 
there is little reason to think that the slowdown should be 
attributed to rising income concentration.
    Here I will just note that the slowdown began in the 1970s 
before income concentration started to take off, and it 
affected the top one percent as well.
    Even when it comes to income concentration at the top, 
there are good reasons to believe that the increase has been 
overstated, especially since the 1980s again.
    The oft-cited estimates of Thomas Piketty and Emmanuel 
Saez, and of the Congressional Budget Office are problematic 
for a number of reasons that I describe in my written testimony 
that I am happy to elaborate on in questioning.
    Earnings concentration estimates from another paper by 
Emmanuel Saez are less problematic and show that the top one 
percent share rose only from 11 percent in 1989 to 13 percent 
in 2004, versus 14 to 20 percent in the Piketty and Saez income 
data.
    A careful recent paper coauthored by economist Richard 
Burkhauser found that household income concentration at the top 
fell between 1989 and 2007. It is a minority view, for sure, 
but I give it even odds that it will actually hold up over 
time.
    Not only has income inequality not grown as much as many 
suggest, but intergenerational mobility has probably not 
declined much, if at all, in the last three decades. To be 
clear, no research shows a sizeable increase in mobility since 
the mid-20th Century, but the most common finding is a change 
so modest up or down as to be statistically indistinguishable 
from no change at all.
    In my own forthcoming research I find that today's 30-year-
olds have experienced no less mobility than did 30-year-olds in 
the mid-1970s.
    Faced with such an unsupportive research base, some 
proponents of the view that inequality has hurt mobility have 
turned to cross-national evidence, which the Secretary 
mentioned, a line of argument that culminated in the Obama 
Administration's popularization of the ``Great Gatsby Curve.'' 
This chart, showing a strong statistical relationship between 
countries' inequality levels and the extent of mobility that 
their citizens enjoy, is problematic as evidence for a number 
of reasons that again I lay out in my written testimony, but 
the most damning shortcoming is that it uses a measure that by 
construction produces lower mobility when the growth in 
inequality is greater than another country's.
    Recent research by economist Miles Corak, the originator of 
the ``Great Gatsby Curve,'' measures mobility by focusing on 
the relationship between parent and child rankings. So the 
differences in inequality between nations do not mechanically 
affect mobility comparisons.
    Corak finds that Sweden and the United States have the same 
mobility levels by this measure--repeat, the United States and 
Sweden have the same level of mobility by this measure. These 
two countries have the lowest and highest levels of inequality, 
respectively, in the Great Gatsby Curve. The implication is 
that there may be no cross-national relationship at all between 
inequality and mobility when the relationship is not baked in 
mechanically.
    In closing, while upward mobility has not diminished over 
time, and while it has not been hurt by rising income 
inequality, it has nevertheless been stuck at unacceptably low 
levels for decades. If past patterns hold, 70 percent of poor 
children today will fail to make it to the middle class as 
adults; 4 in 10 will be mired in poverty themselves in midlife.
    These are not the kind of odds that those of us solidly in 
the middle class would accept for our children. The American 
Dream is in poor health if children who grow up in the bottom 
can aspire only to fill the same sorts of jobs their parents 
did, even if better paid than their parents were.
    The challenge is to identify real solutions to the problem 
of limited upward mobility. Fifty years after Lyndon Johnson's 
declaration of War on Poverty, we should establish a second 
front against immobility. Attacking inequality, however, is 
unlikely to mitigate either problem.
    Thank you, very much.
    [The prepared statement of Dr. Scott Winship appears in the 
Submissions for the Record on page 61.]
    Vice Chair Klobuchar. Thank you very much.
    Dr. Kearney.

  STATEMENT OF DR. MELISSA KEARNEY, DIRECTOR OF THE HAMILTON 
    PROJECT AND SENIOR FELLOW AT THE BROOKINGS INSTITUTION; 
   ASSOCIATE PROFESSOR OF ECONOMICS, UNIVERSITY OF MARYLAND, 
                        COLLEGE PARK, MD

    Dr. Kearney. Chairman Brady, Vice Chair Klobuchar, and 
other distinguished Members of the Joint Economic Committee:
    Thank you for inviting me to participate in today's hearing 
on income inequality. This is an issue on which I have focused 
my academic research over the past decade, and also an area of 
focus for the Hamilton Project which I currently direct.
    There are three main points I want to make about the high 
level of inequality we are experiencing today.
    First, the trends in inequality we have witnessed over 
recent decades are largely the result of structural changes in 
the labor market that have favored the very highly skilled.
    The Great Recession has exacerbated these issues, but the 
dominant forces were present long before the Great Recession 
and they likely will not go away when the economy fully 
recovers.
    Since the late 1970s, the U.S. labor market has experienced 
increased demand for skilled workers, and the supply of highly 
skilled workers has not kept pace with the rising demand, 
especially among men.
    The result has been that those with more than 16 years of 
education have seen their wages rise steadily. Those with 
exactly a college degree or some college have seen some 
improvement, but not to the same extent.
    High school graduates and those with less than a high 
school degree experienced falling real wages through the late 
1970s and 1980s. Their wages rebounded a bit in the early 
1990s, and have basically remained stagnant since.
    In addition to growing wage disparities, there has been a 
related trend of job polarization. We have seen expanded job 
opportunities in high skill, high wage occupations on the one 
hand, and low skill, low wage occupations on the other. 
Employment prospects for the middle skill have eroded, and this 
is true in both white collar and blue collar occupations.
    This employment polarization is not a uniquely American 
phenomenon and has been experienced in Europe to at least as 
large a degree. This implies that there are global economic 
forces that have led to a restructuring of the labor market. 
Our main policy response should be a committed focus on skill 
upgrading.
    Ultimately we need to equip our workforce with the skills 
that are demanded and rewarded in today's global economy.
    Second, the growing levels of income inequality have 
translated into sizeable gaps in educational achievement 
between the children of the rich and the poor. While the racial 
gap has declined significantly over time, gaps between low and 
high income students in terms of educational achievement have 
increased. This is true for K through 12 education, and college 
completion.
    And these gaps in educational measures appear early in 
life. Marked differences between kids from rich and poor 
families appear by the time they enter kindergarten. The class 
of highly educated, high-income individuals are marrying one 
another and showering advantages on their children. That is not 
a problem.
    The problem is that children born into the bottom half of 
the distribution are falling behind. Here I want to raise the 
issue of family structure. The diverging destinies of children 
from low-income and high-income homes is in part driven by the 
divide in race of nonmarital child bearing, and this matters.
    Children from single-mother homes are five times more 
likely to live in poverty than children in two-parent homes. We 
cannot ignore this uncomfortable issue. But I also want to 
emphasize that the dissolution of the family should be 
considered a market of social and economic problems, as opposed 
to a primary cause.
    A decrease in the economic prosperity of low-skilled and 
low-educated men leads to lower rates of marriage among this 
population. The most effective way to increase marriage rates 
at the bottom end of the income distribution is going to be 
through increased economic security for these men.
    Third, income inequality has the potential to interact with 
poverty in ways that perpetuate disadvantage. In ongoing 
research with my coauthor Phil Levine I've been investigating 
this particular issue for some years now and have come to some 
striking conclusions.
    Low-income youth, both males and females, are more likely 
to drop out of high school if they live in a place where the 
gap between the bottom of the income distribution and the 
median is wider. The same goes for rates of early nonmarital 
childbearing. Young women are more likely to become young 
unmarried mothers if the gap between the bottom and the middle 
is greater.
    A leading explanation as to why is because inequality 
exacerbates the economic isolation and hopelessness that comes 
with being poor. Simply put, these individuals do not see 
promising opportunities, and so they essentially give up.
    This all leads me to the conclusion that it is of the 
utmost urgency that we make the necessary investments to ensure 
that all Americans can participate productively in the global 
economy and be rewarded with genuine economic security.
    There is no silver bullet policy prescription, but we have 
many policy levers available to us. The Earned Income Tax 
Credit has been shown to be a very important program, and has 
encouraged work among single mothers and led to long-term 
improvements of the well-being of these families and children.
    SNAP, the food stamp program, is the quintessential safety 
net program and has proven to be responsive to weak economic 
conditions in exactly the way it should. Researchers have 
documented the long-term health and economic benefits of this 
program to low-income children and families.
    Expanded access to higher education has been important to 
keep the supply of college-educated workers from falling even 
further behind. And there is more that we should do. We need 
effective intervention in early childhood, including expanded 
access to high-quality child care and preschool. We need to 
keep adolescents and older teens engaged in school. For the 
one-quarter of American youth inclined to drop out of high 
school each year, we need to find ways to equip them with the 
skills necessary to become productive workers and citizens.
    We need to think seriously about a role for vocational 
training and employment apprenticeship. In general, we must 
maintain and expand programs and policies that constitute 
investments in the health, education, and skills of individuals 
from broad swaths of the population.
    Thank you for the opportunity to testify. I would be happy 
to take questions.
    [The prepared statement of Dr. Melissa Kearney appears in 
the Submissions for the Record on page 73.]
    Vice Chair Klobuchar. Thank you. Dr. Mathur.

  STATEMENT OF DR. APARNA MATHUR, RESIDENT SCHOLAR, AMERICAN 
              ENTERPRISE INSTITUTE, WASHINGTON, DC

    Dr. Mathur. Chairman Brady, Vice Chair Klobuchar, and other 
Members of the Committee:
    Thank you for inviting me to testify on the important issue 
of income inequality. The discussion of income inequality often 
tends to get very focused on definitional issues, and my 
testimony explores these in detail. But I also argue that the 
reason we care about income inequality is because it tells us 
something about the well being of people at the bottom of the 
income distribution.
    The fundamental issue is about poverty. To this end, my 
testimony discusses how low-income individuals are faring 
today, particularly given the weak recovery of the last few 
years and what policies can we put in place to alleviate the 
problems.
    To begin, let me first talk about the definitional issues. 
Researchers have come up with different responses to the 
question: Is income inequality trending up or down? On the 
basis of very different definitions of ``income.''
    As per the latest 2010 data from the Congressional Budget 
Office, trends since 1979 suggest that households at the very 
top of the income distribution have increased after-tax incomes 
at a much faster pace than households at the bottom.
    The much cited paper by economist Thomas Piketty and 
Emmanuel Saez confirms this trend, though it fails to account 
for taxes and transfers. Other economists, however, countered 
these results by using a different definition of income.
    In a 2013 paper, Richard Burkhauser and colleagues contend 
that using a broader measure of income that includes accrued 
capital gains, income inequality has narrowed between 1989 and 
2007.
    The results for widening income inequality are further 
weakened when we use consumption as the measure of household 
welfare. In my own research, coauthored with Kevin Hassett, we 
find that consumption inequality is a lot narrower than income 
inequality.
    Further, we document that there has been an increase in 
material standards of living even for low-income households, 
resulting in a narrowing of inequality in terms of access to 
everyday household appliances and electronic devices.
    However, it is true that, despite these secular 
improvements in living conditions, the Census Bureau documents 
that more than 47 million people live in poverty in America 
today.
    We are now in the 5th year of an economic recovery that 
does not seem like a recovery to most people in the labor 
market. There are more than 10 million unemployed workers, of 
which nearly 4 million have been jobless for longer than 27 
weeks.
    In addition, there are another 10 million who are either in 
involuntary part-time jobs, or are too discouraged to look for 
work. Therefore, I would argue that the focus on income 
inequality is somewhat misplaced.
    Fundamentally, this is a problem of poverty. And when these 
high rates of poverty exist in an economy with low economic 
mobility, the problem is exacerbated.
    What policies can we encourage in order to improve economic 
mobility and the access to high-wage, high-skill jobs that are 
one of the primary drivers of economic success?
    Access to high-quality education and schools is extremely 
important as an investment into children's futures. Poor 
quality schooling can limit an individual's earning ability. 
Research has shown that the quality of local public education 
has improved in areas where there is more competition due to a 
larger number of school districts, or a greater availability of 
nonpublic education.
    The labor market poses serious concerns about the future 
livelihoods of millions of unemployed workers, particularly 
those who are long-term unemployed.
    One solution that is being proposed is the extension of 
unemployment benefits to the long-term unemployed. I believe 
that the unemployment benefit programs have to be supplemented 
by skills' training and greater help with matching workers to 
jobs.
    Towards this end, workers who have been long-term 
unemployed should be provided skills training and placed in 
jobs through wage subsidy programs that allow some share of the 
wages to be paid by the employer and the rest to be paid by the 
unemployment insurance program.
    This would allow employers to test and see if the match 
with the prospective employee is a good one, while at the same 
time it would allow workers to receive on-the-job training and 
gain experience, with the likelihood that they will be able to 
keep the job.
    Raising minimum wages is a particularly bad idea when we 
think of high youth and teenage unemployment rates. Workers 
under age 25 make up half of those paid the federal minimum 
wage or less. Instead, research suggests that internship or 
apprenticeship programs may improve employment prospects and 
also boost college attendance.
    Minimum wages are also not a tool to fight poverty. Less 
than 25 percent of minimum wage workers live at or below the 
poverty line, based on family cash income. An alternative to 
the minimum wage is the Earned Income Tax Credit Program.
    The EITC arguably is one of the Federal Government's most 
efficient means of encouraging work and fighting poverty. As 
per the Census Bureau, the EITC has lifted 5.4 million people 
above the poverty line in 2010. While the EITC has some 
significant disadvantages such as the tax penalties on earners 
in the phase-out range, it has been shown to encourage labor 
force participation for single mothers, and has lifted millions 
of adults and children out of poverty.
    To conclude, the bulk of the evidence suggests that 
programs that enable people to work or transition to work are 
more effective at fighting poverty than simple cash assistance 
programs. As such, wage subsidy programs that combine skills 
training and tax credit programs like the EITC are a better bet 
today to get the unemployed back in the labor market and 
improve the lives of low-income individuals.
    Thank you.
    [The prepared statement of Dr. Aparna Mathur appears in the 
Submissions for the Record on page 83.]
    Vice Chair Klobuchar. Thank you, very much.
    Dr. Kearney, why don't we start with you. I am looking 
forward to seeing your research, because certainly I have seen 
this in my old job as a prosecutor and other places where you 
have these areas where there is a lot of inequality, and people 
see less hope. But I did want to ask you about something you 
did not mention.
    I know you have analyzed the minimum wage recently and 
found that raising the minimum wage will have a ripple effect 
and might actually raise wages for about one-third of the 
workforce, about 35 million workers.
    Could you tell me more about the impact of the minimum wage 
on workers who currently make more than the proposed minimum 
wage?
    Dr. Kearney. Thank you for the question.
    So indeed as you mentioned, the Hamilton Project has 
recently put out work showing that 35 million people could 
potentially be impacted with higher wages if the minimum wage 
were raised.
    And what I want to emphasize here is that I think there is 
reasonable, or compelling academic evidence that we can--the 
labor market could absorb a modest increase in the current 
federal minimum wage, and many states and localities, given the 
level of wages in where they are, the labor markets there could 
absorb an increase in the minimum wage such that low-wage 
workers will receive higher wages with very modest, minimal I 
should say, disemployment effects.
    The worry of course is if we raise the federal minimum 
wage, or a state minimum wage, too high--then that of course is 
where we need to consider the employment effects more 
seriously.
    But I would emphasize, along with what my colleagues said, 
this is a policy that is sort of a first step in allowing these 
workers to take home higher wages. But we should think about 
minimum wage jobs as an entry job into the labor market, and 
really should focus on skill upgrading so that these people can 
move up the wage distribution.
    Vice Chair Klobuchar. Agreed. Thank you very much.
    Secretary, one of the most striking statistics in your film 
is the increased concentration of wealth in the country, the 
idea that 400 people, the top 400 people now hold the same 
amount of wealth as the bottom half, as 50 percent of this 
country.
    And I thought the argument you make from that is how we 
traditionally got our economy moving, and why we are where we 
are today, is that the wealthy, those 400 people, or even the 
top 1 percent, or 5 percent, can only buy one or two pair of 
jeans a year. Or they can only buy, you know, one or two pair 
of tennis shoes a year. And if you have half the country not 
able to do that every year, you have a huge problem in an 
economy that is 70 percent consumer-based.
    Could you elaborate on that?
    Professor Reich. Yes. Right now we have 65 percent of 
Americans living paycheck to paycheck. Almost all the savings 
in our system are coming from the very top, which ordinarily is 
a good thing. But we are not in ordinary times.
    For one thing, it is a global economy and these savings are 
going around the world to wherever they can get the highest 
return.
    For a second, we have a demand-side crisis. We do not have 
enough aggregate demand. And if government is embracing 
austerity, we are not getting the demand out of government 
spending.
    So the vast middle class and everybody wanting to join the 
middle class who are poor, if they do not have enough money in 
their pockets, there is simply not enough demand for buying 
goods and services.
    I mean, why is it that American companies, sitting on $1.5 
to $1.7 trillion of cash, are not expanding? They are not 
creating new jobs.
    Well, there are many responses but the major response from 
every survey of businesses is that they cannot justify adding 
jobs because they do not have enough customers. They do not 
have enough sales and revenues.
    The reason they do not have enough customers, sales, and 
revenues is because the vast middle class does not have the 
purchasing power to justify those sales and revenues. This is 
something that Henry Ford understood in 1914. He doubled his 
factory wages, thereby creating in other factories a demand to 
double their wages, and thereby generating a demand for the 
products that his factory, Model T Fords, and other factories 
were producing.
    It was a virtuous cycle created by companies that raised 
their wages. The Confederation of British Industries, just two 
weeks ago, urged industries in Britain to raise wages as a way 
of promoting economic growth.
    Vice Chair Klobuchar. And one of the most striking graphs 
that you had was that bridge graph where you showed, right 
before the Great Depression, that there was this high amount of 
inequality, and then it got better, and then it's coming up 
again, and here we have what we call the Great Recession. And 
so, just my last question would be, as you look through 
history--and I think we can learn a lot from history--and you 
said what country can we best look at to figure out how to fix 
this, and you said: Our own country.
    Because if you look at what we did after World War II, we 
did a lot to bring up the middle class and our whole economy.
    Professor Reich. Yes. And here's I think a very important 
lesson for us that we forget. For three decades after World War 
II we had a recipe. We invested huge sums in education--not 
only K-12, but public higher education. We invested in 
infrastructure. The biggest infrastructure project in the 
history of this Nation, the National Highway Building Defense 
Highway Act, we had strong unions. We regulated Wall Street. 
And we had a high marginal income tax that was never below 70 
percent, and an effective rate, if you include all deductions 
and tax credits, of over 50 percent on highest income earners.
    After 1981, we did just the opposite. We cut back, 
relatively speaking in terms of per capita as a percentage of 
our economy, on education, on infrastructure. We deregulated 
Wall Street. We had a much less progressive tax system. We 
essentially enabled corporations to bust unions. We have a much 
smaller percentage of unionized workers than we did in the 
1950s.
    And what do you expect when we turn our back on the 
successes of the first three decades after the Second World 
War? The net result is a huge and, with due respect to my 
colleague sitting next to me, the consensus, the overwhelming 
consensus with regard to looking at the data and understanding 
the data, is that inequality has been growing and we are 
surging to greater inequality.
    And if you don't want to play a numbers game, just walk out 
the door.
    Vice Chair Klobuchar. I think that is why we have a lot of 
people here today, and we will turn it over to Chairman Brady. 
Thank you.
    Chairman Brady. Well I want to thank you all. The testimony 
was great that you presented, as well as the testimony today.
    Secretary Reich, you will be surprised to know I agree with 
you. I think the majority of economic benefits in this recovery 
has accumulated to the wealthy, and it is by government's 
design that that has occurred.
    The stimulus was not aimed at infrastructure. Certainly not 
jobs skills. It did not stimulate new job creation along Main 
Street. It was focused at bailing out state governments and 
other areas.
    The Federal Reserve has pumped trillions of dollars toward 
Wall Street. Wall Street is roaring. Good for them. Middle 
Street, middle class families' Main Street, not so much.
    Just consider this. Wall Street's index value has almost 
doubled in this economic recovery, but Main Street, middle 
class families, their incomes have barely budged. Think about 
this. In this terribly weak recovery, historically weak, the 
worst, frankly, in the last half-century, if it would have just 
been average, just C Grade, just nothing much to speak of, 
every family of four in America would have $12,000 more in 
their pocket today than they do. $12,000 more to pay utilities, 
$12,000 more to shop at that local business, $12,000 more to 
pay down student debt, or avoid it in the first place.
    So I lay much of the blame and responsibility for middle 
class struggling with this government, and the President shares 
some of the responsibility, much of that, for that.
    I think the problem is joblessness. I do not think income 
inequality is dragging down the economy. I think this weak 
economy is dragging down income equality.
    People just are not finding good-paying jobs. Certainly 
this Congress and White House are not focused on that. And I 
think that is where our greatest effort needs to be: getting 
Washington out of the way to allow our small businesses to 
grow.
    The Washington Post blogger and columnist Ezra Klein, I 
notice he argues inequality is not the defining issue of our 
time. He says joblessness is. The fact so many million 
Americans have given up on work, and many more are stuck in 
jobs and are underemployed.
    So I guess, Dr. Winship, Dr. Mathur, to begin, why isn't 
joblessness--why isn't this poor recovery really the focus of 
why we should be here today? Dr. Winship?
    Dr. Winship. Thanks for the question.
    So I think what the Administration has done that has been 
unproductive has been to frame everything in this inequality 
frame. And I think, with all respect, the Secretary does that 
as well.
    All of the ills of the economy are sort of laid to rest at 
things that progressives like to think that have worsened over 
time. But the bottom line is that if we could get back to the 
1950s and 1960s, it is pretty clear what we need. We need the 
productivity growth that we had back then.
    We never saw it before that. We have never seen it since. 
It is hard to imagine a story where inequality is the main 
factor behind that. And the best thing that we could do to 
reduce the unemployment rate to move people out of long-term 
unemployment into work would be to expand economic growth. And 
I think the way to do that is not by talking about inequality 
and demonizing folks at the top who are doing a lot of business 
investment.
    I think the way to do it is to try to get some consensus 
around things that would grow the economy that would not be 
polarizing. I think we can agree on things like high-skilled 
immigration. I think we can agree on a deregulation agenda. I 
know the Chairman supports a consumption tax. I think that that 
would be a very pro-growth reform to pursue.
    And inequality I think just is divisive. It is essentially 
ensuring that nothing gets done. It is using, it is using a 
political issue to guarantee gridlock through the rest of the 
President's term, and sort of hoping that with small-sized 
policies like unemployment insurance extension, a minimum wage 
which I agree with my colleague, Dr. Kearney, that a modest 
minimum wage might not do any damage and might actually be 
helpful, a 40 percent increase to an unprecedented historical 
level, which is what $10.10 would be, there is some dispute 
about what the level was in 1968 depending on how you adjust 
for the cost of living, $10.10 would be unprecedented, and the 
40 percent increase would be something that we have not seen in 
a long time, in a recovery that is sort of still fragile.
    I think it is just a terrible idea. We ought to stop using 
these divisive frames and agree on some consensus that everyone 
would agree would move the economy forward.
    Chairman Brady. Thank you.
    Dr. Mathur.
    Dr. Mathur. Thank you. I would agree with Secretary Reich. 
You know, it is a demand problem. There are consumers out there 
who do not have the money to buy things. But I think the seed 
of all that is coming from joblessness. I mean, this is 
something that has happened over the course of the Recession 
that people do not have the money, and there does not exist 
enough demand. And I think a lot of it is coming from the fact 
that they have lost value in their homes, and they are out in 
the labor market.
    They do not have jobs, and they do not have the wages and 
the salary to earn enough income to be able to go out there and 
buy things. And I think, you know, the current policy is to 
extend let's say unemployment benefits, which are intended to 
help people. I think, you know, the intentions are great. I 
think they are intended to help people who have been out of the 
labor market for so long that they have little hope of finding 
a job.
    I think we could do much more than simply extending cash 
assistance benefits for, you know, 72 weeks, or 99 weeks. I 
think after a worker has been unemployed for 4 to 5 months, 
they need active help in finding a job. And so coming up with a 
program that would actually match workers to jobs, you know, 
either with a subsidy program or, you know, sort of skills 
training, or just on-line searches of helping workers find 
jobs, would be much more effective than simply, you know, 
extending benefits, and what happens at the end of the 99 weeks 
when the worker is still unemployed.
    Chairman Brady. Thank you. Dr. Kearney, I know my colleague 
from Minnesota wants to talk about the value of education and 
skills and climbing the economic ladder.
    Secretary Reich, you were so good--are so good to be here 
today. Let me ask you about the minimum wage. I come from a 
Chamber of Commerce background, so helping create small 
businesses and building a business community. And I know, you 
know, when you force a small business with 10 workers to pay 
$5,000 more a worker each year, no change in productivity, no 
new customers, just $50,000, it may be in fact the whole profit 
for the year.
    Not only does it discourage new hiring, it often leads to 
cutting workers' hours. I notice, too, that forced into that 
situation that small businesses will look to new workers, young 
workers. They are more likely to hire those who have had the 
advantages of a middle class family, and education, and a work 
ethic, and all that goes with sort of creating advantages. They 
are less likely to take chances on a younger worker from a 
poorer community, you know, that perhaps has not had those 
chances.
    So we in effect, in my view, not only do we make small 
businesses make terrible decisions on hours for the workers, 
make it tough for them to survive, but I really think we remove 
the lowest rung of the ladder for especially young, minority 
people.
    So my question to you is: As you look at income inequality, 
have the years that have raised the minimum wage, has that 
lowered income inequality in raising minimum wage over the 
number of years? Has that changed it? Decreased it? Shrunk it?
    Professor Reich. Mr. Chairman, the last--or one of the last 
times I testified before this Committee was in 1995, and the 
subject was do we raise the minimum wage? Many members of the 
Committee, particularly Republican members but not exclusively, 
were concerned about raising the minimum wage because they were 
concerned about its negative effect on job growth.
    At that time, I presented evidence that a raise in the 
minimum wage, not a gigantic raise but a substantial raise, 
would actually help job growth in terms of creating, as I 
talked about before, more money in the hands of people who 
could turn around and buy stuff, and thereby have a positive 
multiplier effect.
    Now we did an experiment----
    Chairman Brady. And I don't want to interrupt, but 
specifically to the issue of income inequality, has raising the 
minimum wage shrunk the income--the difference between 
earnings?
    Professor Reich. Well I was just about to get to the point, 
Mr. Chairman. In the short term what we discovered is that 
raising the minimum wage actually was correlated in 1996, 1997, 
1998, 1999 with increases in employment, not decreases.
    But in a larger--in the larger time horizon, we have not 
raised the minimum wage. The minimum wage is still 30 percent 
now below what it was in 1968. Had we merely maintained the 
1968 minimum wage, adjusted for inflation, it would be today 
substantially above $10 an hour.
    So the answer to your question, the larger scale answer to 
your question, is that we have not, in inflation-adjusted terms 
since 1968, really raised the minimum wage. In fact, the 
decline of the minimum wage has contributed to widening 
inequality particularly among women, because most minimum wage 
workers are women.
    If we raised the minimum wage, we would get about 4.6 
million people, a conservative estimate, out of poverty.
    Vice Chair Klobuchar. Okay----
    Chairman Brady. Excuse me, if I could give just a quick 
response. It just seems to me, you know, our focus should not 
be on raising the minimum wage; it should be getting people off 
it, and education and skills and better jobs is how we do it.
    Vice Chair Klobuchar. Okay. Since we were citing The 
Washington Post blogger, I wanted to note that Bill O'Reilly 
has come out strong for increasing the minimum wage.
    Professor Reich. Well if Bill O'Reilly has come out 
strongly for increasing the minimum wage, I've got to rethink 
my position.
    [Laughter.]
    Vice Chair Klobuchar. And also, just to clarify, what you 
are saying is that back when we had adjusted for inflation, the 
minimum wage in 1968 was much higher than it was today, and 
back then we did not have near the income inequality that we 
have today.
    Professor Reich. Exactly. And also back then most minimum 
wage workers were teenagers. Today most minimum wage workers 
are providing a substantial part of family income. They are 
major bread winners.
    Vice Chair Klobuchar. Okay, very good.
    Chairman Brady. Without the skills.
    Vice Chair Klobuchar. Senator Heinrich.
    Senator Heinrich. Secretary Reich, I want to give you an 
opportunity to take a crack at Chairman Brady's other question, 
which was, is the problem inequality, is the problem 
joblessness, and how you see those as related.
    Professor Reich. We could reduce joblessness by taking the 
low road in this country--and that is, reducing wages. That is 
pretty much what we have been doing, with essentially 
production workers--that is, hourly wage workers, the median 
hourly wage continues to drop adjusted for inflation.
    Median household incomes, even including two-income earners 
in those households, keeps on dropping, adjusted for inflation. 
Now we could theoretically create more jobs by eliminating the 
minimum wage, people working $25 an hour, and continuing to 
drop real incomes.
    That is not a success story. In other words, what we want 
in this country is more jobs, but more good jobs. 
Unfortunately, most of the jobs created in recent years have 
been in retail, restaurant, hotel, hospital, surface 
transportation, child care, and elder care. Jobs paying low 
wages, close to the minimum wage.
    Most of the jobs we lost in the Great Recession paid more 
on average than the jobs we have gained since the recovery. So 
the vast middle class and the poor are on a downward escalator.
    We do not want to add to that burden by simply saying, all 
right, the way to get more jobs is to reduce wages and benefits 
even further. That is a--that is a recipe for a low wage, low-
skilled, low secure, insecure workforce even more than we have 
now.
    Senator Heinrich. Well it seems like that takes us to 
education, which is one of the things that there is some 
agreement on, you know, across this panel from one side to the 
other. And I would love to get all of your thoughts in the 
limited time that is left, starting with Secretary Reich and 
just going down the line, on what you think in particular we 
can do about early childhood education to make sure that this 
early disparity that we see is mitigated.
    And then, what we should be doing to create better policy 
to incentivize the sort of long-term skills and vocational 
training that makes sure that people are well matched to the 
jobs that are there.
    Vice Chair Klobuchar. And that is a good question, if 
everyone could try to keep their answer to about a half a 
minute because I know the House is going to have some votes 
here coming up. Thank you.
    Professor Reich. Senator, very quickly, there is a great 
deal of evidence that early childhood education pays off 
enormously in terms of lower dropout rates in primary and 
secondary school, lower social problems, more people going on 
to higher education. It is a good investment.
    Number two, we do need to have a world class technical and 
vocational education track. It is ridiculous to assume that the 
only way into the upper middle class is through a four-year 
college degree. That is a conceit that is not fair to many, 
many of our young people. We do not have that vocational 
technical track.
    Germany does, and that is one reason why Germans--the 
Germany economy, even with the huge cost of incorporating East 
Germany, is doing so well relative in terms of wages and 
productivity.
    Thirdly, we need to invest in public higher education. And 
I can tell you from being both a professor at Harvard at one 
point, and now at the University of California Berkeley, one of 
the preeminent public higher education institutions, that there 
is a difference. Public higher education has much more economic 
diversity.
    A third of my students are Pell Grant eligible. We need to 
help more public higher education.
    Mr. Chairman, you were referring to Abraham Lincoln before, 
the Land Grant Institutions that President Lincoln actually 
instigated were the Nation's first major investment in public 
higher education, and that was a huge benefit for the future.
    Vice Chair Klobuchar. Okay.
    Professor Reich. Thank you.
    Vice Chair Klobuchar. Dr. Winship.
    Dr. Winship. Well I think that early childhood programs 
need to be an important part of an opportunity agenda, 
actually. I think the problem is that I think, contrary to what 
a lot of folks who advocate for these programs say is there is 
not a lot of great evidence for models that consistently work, 
especially when you scale them up.
    And I am thinking of a really interesting book by David 
Mulhausen at the Heritage Foundation who has evaluated all of 
the programs that have been randomly evaluated at the federal 
level across multiple sites. And it is a really depressing 
read.
    So I think that we do not know the way to move the lever. I 
think we need to be prepared to make it a priority and try to 
discover more successful models. But paired with that, we've 
got to be prepared to shut down models that do not work because 
we are just throwing money away in that case.
    Vice Chair Klobuchar. Dr. Kearney.
    Dr. Kearney. Thank you. So I will start with early 
childhood education, and I agree with Dr. Winship completely. 
It is not enough to offer preschool to 4-year-olds. We need 
really high quality preschool, and that is a lot harder and 
more expensive.
    K-12 education, money is not the problem. Teacher quality 
has been shown time and time again to be the key determinant of 
children's outcomes and success. And so we need high teacher 
quality. We need to retain good teachers, and we need to 
eliminate bad teachers.
    Vocational training, I agree completely with Dr. Reich. It 
is just, you know, it is laudable that we want everyone to go 
get a four-year degree, but we have a quarter of our high 
school students dropping out of high school every year. 
College, four-year college, is simply not for everybody.
    Perhaps it will be when they are older, but not at that 
time. And we need to retain those students in the educational 
system.
    And finally on the issue of college, I would applaud the 
efforts of our government and policies like the Pell Grant. I 
think we have worked to address the issues of cost and access.
    We need a larger emphasis on college completion and 
retention. Disadvantaged students have very low completion and 
retention issues. And I would need more than 30 seconds to 
address that.
    Vice Chair Klobuchar. Thank you. Very good. Dr. Mathur.
    Dr. Mathur. So I would like to echo the sentiments of my 
colleagues here. I think access to early--good quality early 
childhood education is extremely important. It is a big 
investment into childrens' future.
    And I think, you know, the fact that we have poor quality 
schools, the one way around, the research suggests and models 
suggest, would be if we had more competition among schools. So 
I think, you know, even if at the early stage if people had 
more access to different school districts maybe, to different 
types of schools, you know, that would be one way to get higher 
quality education at that level.
    Vice Chair Klobuchar. Thank you. I want to let my 
colleagues ask some questions.
    Mr. Paulsen.
    Mr. Paulsen. Thank you, Vice Chair Klobuchar.
    I appreciate hearing all of your testimony today. Let me 
ask you this: First of all, we all know that the essence of the 
American Dream is economic mobility and opportunity to succeed. 
There is no doubt about that.
    And by most measures, Americans are better off today than 
they have been in past decades. And there still is significant 
opportunity for all individuals--including low-income 
individuals--to move up the economic ladder.
    I want to focus some of my comments as well on education, 
because a couple of you touched in particular on that as part 
of your testimony. And in particular the skill upgrading 
concept you mentioned, Dr. Kearney.
    Information technology has boosted the marginal 
productivity of highly skilled and college-educated workers. 
This has caused the real wages paid to these workers to 
increase more rapidly over time as the demand for them grew 
more rapidly than the supply. And at the same time, information 
technology directly competes with some generally less skilled 
and less educated workers, causing those real wages then to 
stagnate.
    Economists have called this phenomenon skill-based 
technological change and estimated that it could account for a 
majority of the increase in income inequality both in the 
United States and around the world.
    Dr. Kearney, I will just start with you. Would you agree 
that skill-based technological change is a major cause of 
income inequality, not only in the United States but in other 
countries as well?
    Dr. Kearney. Yes. I am firmly in the camp among labor 
economists who subscribe to this notion of skill-biased 
technological change. But it is a nuanced view.
    The computerization and information technology has 
certainly accentuated the skills in a positive way, increased 
the return to skills for the higher educated. But in the most 
recent decade, in the 1990s, in contrast to the 1980s, it 
actually did have some positive effects on the earnings of the 
lowest skilled, or I should say folks in the service sector. 
Truck drivers have better GPS systems, for example.
    And where it has really hurt is right at the middle. And 
those are blue collar and white collar jobs that are more easy 
to automate, for example. Those are the jobs that have gotten 
hit by this skill-biased technological change.
    To Chairman Brady's earlier question, I will say that while 
I believe that skill bias technological change and essentially 
the supply and demand of skills are the primary drivers of our 
patterns of income inequality, there is strong evidence that 
the erosion of the minimum wage during the 1980s contributed to 
the decline in low wages at the bottom during the 1980s.
    Now of course in the 1990s, as I mentioned, those wages 
rebounded without a coterminous increase in the minimum wage.
    Mr. Paulsen. And, Dr. Kearney, would you also say that 
education would be the most effective long-term solution to 
closing that growing gap between skills that employers seek and 
the skills that workers actually have?
    Dr. Kearney. Yes. It is a focused education. It is a smart 
education. It is an education that is committed to STEM 
education, right, and educating and training the students for 
the jobs of today's global economy.
    Mr. Paulsen. And Dr. Mathur, maybe you can add some 
comments, but I also wanted to ask if you actually agreed with 
Dr. Kearney that retaining good teachers and dropping bad 
teachers should be a policy that we should consider to help 
with education?
    Dr. Mathur. Absolutely. I think, you know, the more we 
create high quality education, the better off people are, the 
better off children are.
    But again, also talking about the minimum wage issue that 
came up, I mean the most recent research suggests that it is 
not sort of the single important thing that has been 
responsible for income inequality.
    I think there is some evidence suggesting that, you know, 
over certain time periods the minimum wage was highly 
correlated with female wages, which is what it affects the 
most, but I think if you look at the long period starting in 
1986 to 2005, there is no correlation between female wages and 
the increase and decline in the minimum wage. So it is not 
clear that that is the single smoking gun that has been 
responsible for the rise in income inequality.
    Mr. Paulsen. Thank you, Madam Chair. I yield back.
    Vice Chair Klobuchar. Thank you very much, Representative 
Paulsen.
    Senator Sanders.
    Senator Sanders. Thank you, Madam Vice Chair.
    One of the interesting aspects of discussions about the 
economy or income inequality inside the Beltway as opposed to 
back home in the real world is the very different tone that we 
hear.
    The idea that anybody could suggest that we are not seeing 
massive increases in income and wealth inequality is beyond my 
comprehension. If you go outside of the Beltway, there is no 
debate about that. The idea that anyone could suggest that 
today the economy for the middle class is anywhere near where 
it used to be is beyond comprehension I think for the vast 
majority of the American people.
    The reality that we are seeing today is that the middle 
class in this country is disappearing. Median family income is 
going down. We have more people living in poverty today than at 
any time in the history of the United States of America. And as 
Secretary Reich pointed out, between 2009 and 2012, 95 percent 
of all new income generated in this country went to the top 1 
percent.
    And in terms of wealth, the situation is even worse. Maybe 
some of the panelists might want to defend the situation where 
the top 1 percent in America owns more wealth than the bottom--
that the top 1 percent owns 38 percent of the wealth in this 
country, and the bottom 60 percent owns 2.3 percent of the 
wealth.
    Does anybody on that panel--and I would ask that question 
in a moment--think that that makes moral sense, or economic 
sense? Does anybody think it makes moral or economic sense that 
one family, the Walton family, owns more wealth than the bottom 
40 percent of the American people?
    Now in terms of government action, we have heard that the 
stimulus package presumably had no impact. Well that was not 
true in my State, nor was it true in America. By investing in 
our economy, in our kids, in infrastructure, according to the 
CBO, the Recovery Act, the stimulus bill created or sustained 
up to 3.6 million jobs, a 4.2 percent boost for GDP in the 
first quarter of 2010, and a reduction in the unemployment rate 
of up to 2.1 percent in the last quarter of 2009--at a time we 
needed the jobs the most.
    The last point that I want to make, and I want to ask a 
question on this one, the Walton family is the wealthiest 
family in America. Does anybody on the panel think that they 
need significant welfare help?
    And yet it turns out that they are the largest recipient of 
welfare in America. Because when you pay workers starvation 
wages, which is what Walmart does, how do the workers at 
Walmart, or McDonald's, or Burger King, survive? Well, they get 
Medicaid for their kids and for themselves.
    They get food stamps. They live in government-sponsored 
affordable housing. So I start off with my question to Dr. 
Winship, and we will go down the line.
    Do you think the Walton family, worth $144 billion, is in 
need of welfare from the middle class of this country? Or do 
you think maybe we should raise the minimum wage so that those 
workers can earn a living wage and not have to get Medicaid, or 
food stamps?
    Dr. Winship.
    Dr. Winship. Thank you, Senator.
    So let me start with your earlier question about defending 
the wealth distribution that we have.
    Senator Sanders. Well actually my question was on the 
Walton family. Do you think they need welfare?
    Dr. Winship. So I would not use the word ``welfare.'' I 
think it is stigmatizing.
    Senator Sanders. Do you think their workers in large 
numbers should have to get Medicaid or food stamps?
    Dr. Winship. What I think is that Walmart has the low 
prices, which----
    Senator Sanders. Please answer my question.
    Dr. Winship. I'm sorry, repeat the question for me?
    Senator Sanders. The question is: Do you think the 
wealthiest family in this country, the Walton family, should 
have employees, large numbers of employees, who depend on 
government help--Medicaid, food stamps, affordable housing--in 
order to get by? Or should they pay their workers a living 
wage? And should we raise the minimum wage to make sure that 
they do that?
    Dr. Winship. I think that we should not raise the wage 
above levels that's going to cause Walmart to not hire their 
workers. The only way that they are able to have the prices 
which benefit low-income people more than people up on the 
income distribution is by paying wages that are not as high as 
you or I might like.
    Senator Sanders. So I'm hearing your answer to be that the 
middle class of this country, through increased taxes, should 
be subsidizing the wealthiest family in this country who are 
paying inadequate wages.
    Secretary Reich, what is your take on that?
    Professor Reich. Senator, I do not think that taxpayers in 
this country ought to be subsidizing the wealthiest family in 
this country, or any company and any corporation that is paying 
its workers so little that those workers, in order to have a 
decent living, have got to rely on food stamps, Medicaid, 
subsidized housing, and so on. That is a corporate welfare of 
the worst kind.
    But more broadly, let me simply say that Walmart is the 
largest employer in the United States. It is paying its 
workers, if you include its part-time workers, on average $8.80 
an hour.
    Now compare that to 1955 when the largest employer in the 
United States was General Motors, and it was paying its 
workers, in today's dollars, $37 an hour.
    Senator Sanders. That is a huge point. I do not have much 
time----
    Vice Chair Klobuchar. No----
    Senator Sanders. But Dr. Kearney and Dr. Mathur, if they 
could answer the question, should the taxpayers----
    Vice Chair Klobuchar. Quickly.
    Senator Sanders [continuing]. Of this country be 
subsidizing the----
    Vice Chair Klobuchar. Thirty seconds each.
    Senator Sanders. Thirty seconds is fine.
    Dr. Mathur. So I don't think we should be subsidizing 
Walmart, but I think the workers have a choice about where they 
want to work. If they are choosing to work at Walmart, you 
know, that is their choice and we should not decide for them 
whether it is a good choice.
    The program subsidizes workers. You know, these are poverty 
programs that, you know, benefits go directly to workers. So, 
you know, if you think that they're creating jobs and people 
are able to work and earn enough benefits to survive, I think 
that's a good thing.
    Senator Sanders. Dr. Kearney.
    Dr. Kearney. When Walmart came to Washington, D.C., the 
number of job applicants per job, there were more than dozens 
of people willing to take each job. I think Walmart is a 
brilliant innovation, and I have no beef with the Walton 
family.
    It would be great if people could move up the wage 
distribution faster at Walmart and aspire to management 
positions, and better incomes for themselves and their 
children.
    Vice Chair Klobuchar. Okay. Thank you.
    Next, Mr. Campbell.
    Mr. Campbell. I thank you very much. You know, in politics 
these days we want to do everything in sound bites, and we want 
to come up with a solution for every problem.
    This issue, income inequality, mobility limitation, 
joblessness, whatever thing you want to deal with, is extremely 
complex, multi-faceted and international, as many of you have 
mentioned.
    It does not lend itself well to that. And I think we do the 
problem a disservice when we try to say it can be solved with a 
single thing, or a single solution.
    I also think we do it a disservice if we use it to further 
divide America. If people bring it up and try and say that it 
is somebody against somebody else, that whenever that is used 
it not only does a disservice to the country but it does a 
disservice to solving the issue.
    The third problem I think we have with this--which I am 
hearing on this panel, frankly--not there, here, well to some 
degree there--is if we use this issue to simply justify the 
policies that one party or the other have advocated for 
decades, we are not being serious. And we are also not looking 
for a real solution.
    We are simply using the issue to justify the things we 
already believe, and that perhaps the other side does not 
believe.
    So I think when we do any of those things, we are being 
counterproductive--and I think the issue is too important. I 
think it is too significant to trivialize it and reduce it in 
that manner.
    Now that being said in the five minutes of this sound bite, 
I cannot engage in a thorough discussion, but I did hear some 
interesting things that we have not discussed much.
    Secretary Reich, you mentioned about vocational and 
technical training and educational conceit. I do not think that 
is necessarily something where either party has staked out 
ground where they cannot move.
    Dr. Kearney, you mentioned about devolution of the family 
and social issues. Those are difficult. I understand. They are 
emotional. They involve other things. But they cannot be 
ignored. And in one way or another people need to discuss it.
    One thing I wanted to bring up is whether--you know, I have 
spent much more of my life in the private sector than in 
public, and I never worried about how much somebody else made, 
as long as I was making what I felt I ought to earn.
    When you look at the top incomes these days--and I am not 
going to go into either business people or into entertainment, 
because that politicizes it--but I always like to bring up 
sports, because that tends to depoliticize the thing. And if 
you look at any major sport today, the players in those sports 
make way, way more money adjusted for inflation and anything 
else than they did in the 1960s and prior.
    And you talk to people who were huge names in those eras 
and they say, well, you know, I got out just before the really 
big salaries came up, the really big income. That, by the way, 
will apply to team owners as well in some of what they do and 
what these teams are worth.
    Why is that? Dr. Kearney, or anybody?
    Dr. Kearney. Thank you for your serious attention to this 
very difficult and nuanced problem. I think a focus on the top 
1 percent and why those folks have, you know, such enormous 
wages and incomes is a fascinating question. In some sense it's 
an academic question. Why has it become okay in a question of 
norms for a CEO to make so much more----
    Mr. Campbell. Keep it to sports, please.
    [Laughter.]
    Dr. Kearney. On sports, now we have a global television 
market. The revenues to these sports franchises are larger, and 
so some would argue that they are earning it because of the 
value brought into the sports team, and the TV licenses, et 
cetera.
    But I do want to say, this I think distracts us from the 
real policy question. Those are fun questions to talk about, 
right, but the bigger issue, and the one that we need to do 
something about is the inequality between people with different 
education levels. College workers make twice as much as those 
with a high school degree. We could do something about that.
    Mr. Campbell. So is what you're saying is we should ignore 
that? Unfortunately, this thing has focused--a lot of people 
focus on the pitcher that gets $240 million.
    Dr. Kearney. Of course, because it's so fascinating. It's 
huge.
    Mr. Campbell. But it distracts from the real issue, does it 
not?
    Dr. Kearney. I would tend to agree. I would tend to agree.
    Mr. Campbell. Okay. My time is up. Thank you.
    Vice Chair Klobuchar. Okay, next, Representative Maloney 
from the State of New York.
    Representative Maloney. Thank you. It is very good to see 
you again, Secretary Reich. In your entire career you have 
shown a spotlight on the problems of income inequality, and 
your ideas and concern are gaining momentum I would say here on 
Capitol Hill. Both parties are expressing concern. Major 
leaders, Pope Francis has been very critical of the trickle-
down economy. Warren Buffett and others.
    And you testified about the way, the economy we had after 
World War II that lowered that gap. And actually in the Clinton 
years you were working hard to lower that gap. And you 
mentioned those long-term goals of education, infrastructure, 
tax structure, stronger unions, people working together.
    Is there anything that we can do in the short term that 
would gain--that we could take advantage of this renewed 
urgency that we are feeling in the country to do something now? 
Or is it just a long-term goal? Is there something we could do 
right now that would help us move forward?
    Professor Reich. I think there is no magic bullet. It is 
going to take years. There is no substitute for the public as a 
whole understanding the dimensions of the problem.
    In the short term, I would recommend an increase in the 
minimum wage. I think that can be done. It would be helpful. It 
is not going to solve the problem entirely, but it is a major 
step in the right direction.
    I also want to mention something with regard to the issue 
of divisiveness, because this is important. Even the wealthy in 
this country would do better with a smaller share of a rapidly 
growing economy, growing rapidly because the middle class and 
the poor had more purchasing power and therefore there was more 
aggregate demand than they are doing now with a large share of 
an economy that is barely growing.
    It is not a zero sum game, in other words. And I do not 
think anybody up here, or anybody who has thought about this 
issue, sees it as a zero sum game. It should not be. It should 
not be even a partisan issue.
    Representative Maloney. But many of my Republican 
colleagues have been critical of government programs. They call 
them trapping people in poverty. Not building their future. Not 
a job. But these programs, such as increasing the minimum wage, 
extending unemployment insurance, Medicaid, Medicare, the 
nutritional program. There was at one point a proposed $40 
billion cut to nutrition.
    Yet all of this goes back into the economy and helps move 
many people out of poverty, and helps increase the purchasing 
power. And, believe me, everyone who gets an unemployment 
insurance check is going to plow every single dollar back in. 
Every minimum wage earner is going to plow every single dollar 
back into the economy.
    So what would your response be when the pushback on minimum 
wage and the extension of unemployment insurance, which you so 
eloquently have argued would be positive for growing our 
economy, how do we convince and move forward to do these things 
which we can do now in the short term to help the overall 
economy for everyone?
    Professor Reich. Representative Maloney, let me just say 
that in my career as Secretary of Labor and before then, and 
since then, I have not met anyone who does not want to have a 
job. People want to work. They want to contribute. They want 
the dignity of having a job.
    Right now there are three people without jobs for every job 
opening in the United States. It is absurd to think that under 
these circumstances extending unemployment benefits are 
deterring people from looking for work.
    In fact, the only way you qualify for extended unemployment 
benefits is you are actively looking for work. The big problem 
we face right now is so many people are dropping out of the job 
market because they are too discouraged even to look.
    Representative Maloney. My time is up. We have heard 
statements today that people made a choice for a minimum wage 
job. No one is making that choice. That is the only choice 
they--the only job they can find. Someone else said that people 
gave up their job. They did not give up their job. They wanted 
to work. They lost their job.
    But all of the social safety net programs help provide the 
economy and the safety net to move forward. How would you--how 
would you answer the critique of the safety net as being part 
of answering the job growth in our country?
    Vice Chair Klobuchar. Okay, we will have that answer for 
the record because we have a vote coming up, if that is okay, 
Representative Maloney, and I want to try to get our last two 
House Members, including Representative Delaney, in.
    Representative Hanna.
    Representative Hanna. Thank you. What is clear to me is 
that we cannot have a peaceful society as long as some young 
people born in poverty have a 40 to 70 percent chance of dying 
in poverty.
    What is also clear to me is the last industrial revolution 
provided a lot of jobs. The automation of cognitive work has 
made pre-K education vital, if we are not going to have long-
term structural unemployment.
    Also, as Dr. Reich said, 98 percent of the jobs we have 
created in this country in the last 20 years are jobs that no 
one in this room would consider a living wage or a job they 
would want.
    So the theme here today is education. The theme here is 
transcendence and how do we do that? And I do not think there 
is a person in either party who does not understand the value 
of their own education, therefore the value of that education 
towards others.
    Is it the case that if we do not recognize the need--and 
Secretary Duncan has a bill out now to provide quality pre-K, 
quality education with competitive opportunities between 
schools and between teachers, et cetera, that we can ever get 
away from the structural--and you would have to agree that it 
is structural and becoming more so--how can we get away from 
that? And how can we create the society we want in terms of 
what is everyone's notion that you have an opportunity. The 
aspirational nature of upward mobility is in many ways as 
important to the peace of a society as is the reality, although 
not quite as much.
    So I just want to know--and it is kind of answering--I am 
asking you to answer my question in reverse--do you think we 
have structural unemployment that is going to grow if we do not 
recognize that? And the automation of cognitive work is 
increasingly not matching up to employment like the industrial 
revolution.
    Dr. Reich.
    Professor Reich. Yes. We do have a structural problem. It 
is primarily technological. It is not entirely technological. 
It does have to also do with the globalization of production.
    And those forces have been exerting a divisive force on the 
American workforce, undoubtedly. Education is critical, but I 
just want to suggest to this panel that, although education is 
critical, it is not the sole issue we have to deal with here.
    Education can take us so far. But we are also seeing in 
this country an extraordinary degree of segregation by income 
in terms of where you live. And that geographic segregation has 
in it problems not only of education, but public services, the 
failure of young people to see models of adults who are 
ascending into professions, the failure of many of our 
institutions to respond to what many lower middle class, what 
we used to call working class, and poor people in this country 
need.
    It is a complicated bundle of problems that have got to be 
addressed if we are going to maintain a strong middle class and 
achieve many of the other objectives that I think everybody who 
has spoken today shares.
    Dr. Kearney. I agree with Secretary Reich completely on 
that.
    Dr. Mathur. I agree. I think the interesting thing is that 
if you do any poll, I think people still believe that 40 to 50 
percent of people still believe that if you work hard, you get 
a good education, you can still, you know, move up. It does not 
matter what the statistics say.
    And I think reinforcing that through better education, 
through higher job finding rates, would be great for the 
economy.
    Dr. Winship. I agree with you entirely, Congressman, about 
the importance of pre-K. I think there are a lot of useful 
things that could be done for higher education, but the truth 
is that we have 50 percent dropout rates today. A lot of that 
is because people are not prepared, and so I think----
    Representative Hanna. But doesn't that relate to--I mean, 
isn't that----
    Dr. Winship. Absolutely. So I think----
    Representative Hanna. It is one and the same.
    Dr. Winship. Yes. I completely agree. So I think to the 
extent that we are focusing on marginally increasing people 
into getting people into college, but not reducing the dropout 
rate, it would be much more productive if we could have an 
impact at the beginning.
    On technology, I am more bullish there. Technology does 
destroy jobs, but to the extent that it does it reduces prices, 
which then other people--it means other people can afford to 
spend more, and that creates other jobs. So I actually think 
that there is a risk of worrying too much about that.
    Representative Hanna. Thank you.
    Vice Chair Klobuchar. Okay, we have one last House Member. 
The vote has been called.
    Mr. Delaney.
    Representative Delaney. Thank you very much.
    And, Secretary Reich, I enjoyed your last comments. It 
reminded me of the book Coming Apart by Mr. Murray, which I 
thought summarized the segregation issue quite well.
    But what I wanted to ask the panelists in there is an 
agreement or a consensus around what the real problem is, and 
what the macro solutions are.
    You cannot solve a problem unless you describe it. It seems 
to me the big problem we have here is what was touched on 
throughout the testimony today, which is the effects of 
globalization and technology.
    I think 30 years ago there were a billion people in the 
global world, now there's 5 [billion] active in a global 
economy, and computing power has grown 100,000 fold over the 
same period of time. And this has really helped people with 
great educations, and it has helped people with access to 
capital, which is why they are doing so well.
    And it has been enormously disruptive to everyone else, 
which is why we have income inequality, however we want to 
frame these things. And so in my opinion that is the center of 
the center in terms of our problem.
    And if we agree that that is the problem, it seems to me 
there are some obvious things we have to do. One, we have to 
realize we are in this very competitive global technology-
enabled world, and we have to compete in that world. And to 
compete in that world we have to make, in my opinion, massive 
investments in our infrastructure--because it is a good 
investment. It creates jobs in the long term. It creates jobs 
in the short term.
    We have to reform education to prepare people for that. We 
have to do the immigration reform we have discussed. We have to 
do tax reform so we can pay for some of these things and make 
sure that companies don't keep trillions of dollars overseas, 
and bring it back to the country.
    And those four portfolio solutions, which I will describe 
as infrastructure, education, immigration, and tax reform, are 
long-tail solutions. Meaning, if we did them all right now it 
would still take a long time before it makes a difference.
    So to deal with the short-tail problem, we need government 
programs to keep people, give them a helping hand as we try to 
fix this in the long term.
    So my question--really quickly, for each member--almost a 
``yes'' or ``no'' answer, is: Do you agree that this is the 
central problem? And do you agree that this, on a macro level, 
without getting into the details, this portfolio of solutions, 
are the right solutions? And I will start with our good 
Secretary.
    Professor Reich. Yes, I agree that the central challenges 
are globalization and technological change. And I also agree 
that the portfolio you referred to--that is, education, 
infrastructure, tax reform--I would describe it as toward a 
more progressive income tax, not just corporate tax reform.
    I would also add financial reform. Because I think 
financial markets have gotten out of control and the burden has 
fallen tremendously on the middle class. But if I may, just----
    Representative Delaney. I am going to switch to Dr. Winship 
quickly because we have to get through this, and I have to run 
and go vote, if you don't mind.
    Professor Reich. Okay.
    Representative Delaney. Thank you, Mr. Secretary.
    Dr. Winship. I agree completely on education. 
Infrastructure to me does not feel necessarily like a sure 
thing for growing the economy, short term or a longer term.
    I think people were disappointed in what infrastructure 
gave us for a bump over the last year.
    Representative Delaney. But you agree with the problem 
being----
    Dr. Winship. Globalization.
    Representative Delaney [continuing]. Globalization and 
technology?
    Dr. Winship. Absolutely. I think that is absolutely right.
    Representative Delaney. And don't you think we need a more 
competitive portfolio of transportation, logistics, energy, 
communication, and educational infrastructure to compete 
against that backdrop?
    Dr. Winship. I guess I feel like the human capital 
challenges that we have related to global development are much 
more important than the sort of physical capital
    Representative Delaney. Okay, so keep going through your 
list of solutions.
    Dr. Winship. Tax reform I think is important. We actually 
spend a lot of money in the Tax Code to promote upward 
mobility. The problem is it is sort of upside down. We 
subsidize a lot of purchases that people who could have 
afforded to make them anyway----
    Representative Delaney. What about helping people as we 
deal with these bigger issues? Government programs to support 
people while----
    Dr. Winship. Yes, I mean we need a safety net. I think it 
can promote work, and marriage, and savings a lot better than 
it does.
    Representative Delaney. Thank you.
    Dr. Kearney.
    Dr. Kearney. Yes, I agree with your characterization of the 
problem. The four items that are issues that you have laid out 
I think are perfectly sensible, and I would agree with all of 
them.
    I would amend a little bit your characterization of the 
safety net as merely something to support people in the short 
term. Well designed safety net programs are investments.
    Representative Delaney. Yes, and I did not really mean to 
treat it that way. But we have to acknowledge that the 
solutions are long-tail solutions, right?
    Dr. Kearney. Yes.
    Representative Delaney. If we got them all right today----
    Dr. Kearney. That's right.
    Representative Delaney [continuing]. It would take a long 
time before they really had a meaningful effect on a lot of 
people.
    Dr. Mathur. So I agree that globalization is an issue, and 
I think the focus on technology and the fact that, you know, 
some skilled workers are able to get access to those 
technologies and improve, that is an issue.
    I think the local issue is sort of distinct also from the 
global--you know, what's happening in the global markets. I 
think we have a very challenging current labor market crisis 
that is not completely driven by what is happening in terms of 
globalization.
    In terms of solution, yes, I think education is, you know, 
the first step towards encouraging people to, you know, make an 
investment in human capital and be out in the labor market.
    Tax reform is important. I think government programs work 
if they are effectively designed----
    Representative Delaney. You mean like infrastructure 
investment?
    Dr. Mathur. I think it is a long-term solution--it might be 
a long-term solution.
    Representative Delaney. Thank you very much.
    Vice Chair Klobuchar. Thank you very much, Representative 
Delaney.
    Senator Lee.
    Senator Lee. Thank you very much, Madam Chair, and thanks 
to all of you for joining us today.
    This past summer, the Equality of Opportunity Project 
released a study looking at the state of economic opportunity 
in the United States throughout various regions. One issue in 
the study looked at the geographic variation in 
intergenerational poverty, the question of how likely one's 
parents' income at the time of one's birth might be an accurate 
predictor of where one ends up on the economic continuum later 
in life as an adult.
    I am pleased to say that Salt Lake City and the surrounding 
area in my home State of Utah out-performed every other major 
metropolitan region in the country in that regard in this 
important metric.
    Children growing up in Salt Lake City, in other words, see 
a greater potential for economic mobility during their 
lifetimes than children born, really, almost anywhere else in 
the world.
    So I would like to ask a couple of questions to kind of 
follow up on this. Let's start with Dr. Winship. You know, I 
think Utah provides an example of what success in the area of 
economic mobility might look like.
    Could you comment on how strong institutions, robust civil 
society, and a successful private welfare system might factor 
into this equation?
    Dr. Winship. Sure. Thank you for the question, Senator. I 
do think that when people look at the fantastic mobility rate 
that Salt Lake City does have, those are the things that make 
sense. Especially if you talk to people on the ground, I think 
that it is these social capital strengths that the local area 
has.
    So among the most--among the strongest predictors of 
mobility in the data set that you are talking about are a 
number of indicators of sort of family strength and stability. 
Dr. Kearney raised this earlier. I think it is an important 
issue that we need to take seriously.
    Utah fares very well on those sorts of measures. Broader 
social capital measures like how integrated people are into the 
community that they live. Even, you know, the book Bowling 
Alone, you know, has sort of found these correlations between 
even how many people are in bowling leagues and economic 
outcomes.
    So it does seem to make a big difference. And there are 
these cultural components that I do not think we understand 
well, where you do find pockets of people that have assembled a 
society that seems to work. I think you find that in places 
where there are a lot of Scandinavians for some reason.
    Vice Chair Klobuchar. Thank you.
    [Laughter.]
    Dr. Winship. That's right.
    Senator Lee. Because they like to bowl?
    Dr. Winship. I have not established an empirical link 
between the two, but you do sort of tend to find similar 
outcomes among Swedish Americans, Norwegian Americans, and 
looking at actually in Norway and Sweden. I do not think it is 
well understood yet.
    Senator Lee. What about policies encouraging robust hiring 
and providing strong incentives for work?
    Dr. Winship. Well I think incentives for work are very 
important, and I think you are seeing a lot of energy among 
some prominent conservatives such as yourself, Senator Rubio, 
Congressman Ryan, around reforming our safety net programs to 
fix the disincentives that we currently have to make it clear 
to folks that taking work will benefit them.
    And in fact to do that in a way where taking work does not 
necessarily benefit them under today's systems. We have these 
incredibly high marginal tax rates where the argument is not 
that the poor are receiving these benefits or are bad people 
somehow, they are behaving as you and I would behave faced with 
the same incentives.
    There is very little reason in a lot of these programs to 
actually look for work and take that job when you are going to 
lose all these benefits. So I think the exciting thing among 
some of the proposals on the right is to think very seriously 
about poverty, but also to remedy these disincentives that are 
not good for anyone.
    Senator Lee. It is a nice segue to the question I was going 
to ask to Dr. Mathur. There is some consensus that our federal 
welfare system is clunky and poorly designed, uncoordinated 
phase-outs of means tested programs where individuals with 
modest incomes may see astronomical effective marginal tax 
rates are part of the problem.
    Would you agree with the fact that they are a part of the 
problem? And what do you think we ought to do about that?
    Dr. Mathur. I think there is truth in the fact that even 
though let's say the Earned Income Tax Credit Program, which 
has really high marginal tax rates in the phase-out, says 
people who are earning higher incomes are suddenly faced with 
extremely high marginal tax rates.
    You know, those do create a disincentive to work, or at 
least to put in more hours. It might be an hour's impact. So I 
think, you know, designing those better, or designing them so 
that people do not face these huge disincentives to work could 
actually go a long way towards getting more people into the 
labor market, and sort of keeping them there.
    Senator Lee. These, in other words, create effectively 
poverty traps in which people feel compelled not to do that 
which might be for their long--inure to their long-term 
benefit, but in the short term they might face penalties. And 
if we could coordinate these phase-outs so that they are more 
carefully designed----
    Dr. Mathur. Absolutely.
    Senator Lee [continuing]. We could avoid those.
    Dr. Mathur. You could avoid those situations.
    Senator Lee. I see my time has expired. Thank you, Madam 
Chair.
    Vice Chair Klobuchar. And thank you, Senator Lee, for being 
willing to discuss this issue. We may not agree on every 
solution--the two of us chair, or co-chair the Antitrust 
Subcommittee of Judiciary, so we have worked on a lot of things 
together, and I think it is a nice end here.
    I think we have had a civil hearing. We have approached an 
issue, as Secretary Reich and I were discussing before this 
hearing, there are a number of Republicans that are being 
willing to talk about this issue this time, which I think is 
really important as we go forward.
    I did want to note, Senator Lee, I was checking out our 
report. This is now my time to hawk our products. Secretary 
Reich has a movie out that is on DVD, right? What is the name 
of it?
    Professor Reich. It is called ``Inequality for All.''
    Vice Chair Klobuchar. ``Inequality for All.''
    Professor Reich. iTunes, DVD, On Demand.
    Vice Chair Klobuchar. And coming out on Netflix?
    Professor Reich. Late February.
    Vice Chair Klobuchar. Very good. And then we have a report 
for the Joint Economic Committee on the Democratic site here on 
Income Inequality In The United States. It is not as exciting 
as the movie, but pretty good, right here. And I was looking as 
you were talking about Salt Lake City, and in fact this is 
supported by our report. We looked at the quintile, the lowest-
income quintile, lowest 20 percent, and the chances of reaching 
the highest quintile. And in fact of the 13 States that are 10 
percent or higher, Utah is one of the highest. I will also note 
that Minnesota is in the group.
    And I would also note that California is in the group, 
interestingly enough. And the highest one is, can anyone guess? 
In what state do you have the best chance of going, right now, 
at this moment in time from the bottom 20 percent to the 
highest 20 percent? North Dakota, with all of the energy work 
that is being done there.
    So that is at 18.3 percent. So I think that being said, the 
fact that we only have 13 states that you have about a 1 in 10, 
1 in 11 average chance of going from that quintile to the top 
is still a reason to be concerned.
    One of the things I did want to end here with is that there 
was some talk of people trying to divide over this issue. I do 
not think that is what Senator Lee is trying to do. I do not 
think that is what Chairman Brady was trying to do. And I think 
that this is an issue that we must address in our country.
    We may have some disagreements on what exactly the data 
shows, but I think we know there is a problem. And I think we 
clearly have some disagreements on the solutions, but I am 
looking for some common ground here. And I really appreciated 
the tone of the witnesses and how we were able to approach this 
issue. And I am actually quite excited to be working on it.
    So the record is going to stay open for five business days 
for any Member who wishes to submit an additional statement or 
any additional questions.
    Thank you very much to our witnesses. The hearing is 
adjourned.
    (Whereupon, 11:49 a.m., the hearing was adjourned.)


                       SUBMISSIONS FOR THE RECORD

Prepared Statement of Hon. Kevin Brady, Chair, Joint Economic Committee

    Vice Chair Klobuchar, Committee Members, and distinguished 
witnesses, today the Joint Economic Committee will begin to examine the 
complex questions of economic inequality and mobility in the United 
States.
    We're not all blessed with equal talents, but in America, we should 
all have an equal chance to climb the ladder of success--driven upward 
by our personal initiative, and not burdened by the deadweight of a 
bloated government.
    We know that too many families are struggling, even in a country 
where nine of ten children born to the poorest families will earn more 
than their parents.
    Economic mobility is very much alive. In America today the children 
of the poorest are more likely to climb up the ladder of success than 
the children of the wealthy are likely to stay where they are.
    Through hard work, today one-in-three American families live an 
upper middle-class lifestyle or better--more than double what it was 
just forty years ago.
    Astoundingly, better than one-in-five Americans are likely to rise 
to the top two percent of earners sometime during their lifetime. The 
American Dream is still very much alive.
    Do some Americans earn more than others? Absolutely. I can't fathom 
how entertainer Madonna made $125 million last year, or how actor 
Johnny Depp will earn nearly a half billion dollars from the Pirates of 
the Caribbean series.
    We all can appreciate, though, how Mark Zuckerberg became the 
world's youngest billionaire launching Facebook from his college dorm 
room, or how Mary Kay Ash of tiny Hot Wells, Texas--frustrated with the 
glass ceiling in a male-dominated industry--built Mary Kay Cosmetics 
into an international icon with over a half million entrepreneurs.
    The challenge that we face today is too many Americans no longer 
believe the ladder of success is available to them. They've lost hope 
that if they work hard and play by the rules, tomorrow will be better 
than today.
    And who can blame them? Thanks to the weakest, most disappointing 
economic recovery in a half century, millions of Americans can't find 
full-time work, and millions more have simply given up looking for 
work. Proportionately fewer adults are working today than when the 
recession ended over four years ago.
    These struggling Americans have not benefited from the White 
House's controversial stimulus, which failed to fulfill its promise of 
getting them back to work by now. They watch as the Federal Reserve has 
pumped up Wall Street with trillions of dollars, while Main Street and 
middle-class families are left behind. In the past five years, college 
costs have soared and energy costs have doubled. While some Americans, 
no doubt, are being helped by the Affordable Care Act, millions more 
have been forced out of the health insurance plans they liked and are 
being forced to pay even more for plans they didn't want.
    While President Obama should not shoulder all the blame, out of 
fairness he should accept some of the responsibility for why so many 
Americans believe the ladder of success has been pulled from their 
reach. He should not divide America further, pit one American against 
another based on their success, or fuel resentment and jealousy in the 
pursuit of political gain. That's not an America we can be proud of.
    I admit I can't imagine how Washington bureaucrats that have never 
met you or even know your name can ``equalize'' your income. Can the 
same incompetent government that brought us the bungled Affordable Care 
Act Web site be trusted with your dreams and your children's dreams?
    What we'll learn from today's hearing is that respected economists 
disagree about the issue of income equality. For example, by using a 
definition of income that excludes both taxes that reduce disposable 
income and government programs like Social Security, Medicare, and 
unemployment insurance that boost it, economists Piketty and Saez found 
large and growing income inequality. Other economists, by using a more 
realistic definition that considers the effects of taxes, government 
programs, employment-provided health insurance benefits and the 
changing size of the modern family, found a very modest change in 
income inequality over the past twenty years. Still other studies that 
measure what families actually buy and consume reveal that the ratio 
between the consumption of the poorest fifth and the most successful 
fifth of Americans remained stable over the past quarter century.
    I hope we will agree that personal decisions affect every 
American's ability to make a better life. A college degree, steady 
work, marriage and children within the marriage increase the odds of 
climbing the ladder of success--although in our great country some have 
succeeded with none of these.
    I also hope we can agree that education and skills drive high 
wages, especially for those earning a college, graduate or professional 
degree. For example, Pew research found that children from families in 
the bottom fifth of earnings have a one-in-ten chance of climbing into 
the wealthiest fifth of Americans with a college degree, but only a 
three-percent chance without it. Similarly, children from families in 
the second fifth have nearly a one-in-four chance of climbing to the 
top rung with a college education, but only a nine-percent chance 
without it.
    Finally, how should the Federal Government act to help restore 
Americans' belief in opportunity?
    We can heed the advice of President Abraham Lincoln--perhaps the 
greatest ``equalizer'' to inhabit the White House. In his message to 
Congress on July 4, 1861, he made clear the proper role of government 
in promoting economic opportunity is ``to elevate the condition of 
men--to lift artificial weights from all shoulders--to clear the paths 
of laudable pursuit for all--to afford all, an unfettered start and a 
fair chance, in the race of life.''
    We must do more to ``lift the artificial weights'' off our poorest 
families and get Washington out of the way so that every American truly 
has ``an unfettered start and a fair chance in the race of life.''

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