Understanding economic inequality and growth at the middle of the income ladder

Recent shifts in our economy hit middle class families in ways that may directly affect both current and future productivity. Families in the middle of the income spectrum experienced very little income growth over the past several decades despite working more and often irregular hours. Between 1979 and 2007, the incomes of these families grew by just under 40 percent (after adjusting for inflation), but over that same time period their hours of work also increased.

Compared to 1979, middle class married couples in 2007 put in an average of 11 extra hours of work per week.Much of this added employment is due to the increased employment rates of women and mothers. Most dramatic is the increase in the share of mothers who work full-time, full-year (at least 50 weeks per year and at least 35 hours a week), which rose from 27.3 percent of mothers in 1979 to 46 percent of mothers in 2007 before declining somewhat to 44.1 percent, in the wake of the 2007-2009 recession.


The dramatic increase in women’s working hours certainly boosted household earnings. Middle class households would have substantially lower earnings today if women’s employment patterns had remained unchanged. And U.S. gross domestic product—the largest measure of economic growth—would have been roughly 11 percent lower in 2012 if women had not increased their working hours as they did. In today’s dollars, this translates to over $1.7 trillion less in output—roughly equivalent to total U.S. spending on Social Security, Medicare, and Medicaid combined in 2012.

But as more women enter the workforce and most men continue to work outside the home, parents are increasingly strapped for time. Given the importance of early childhood for a child and our nation’s future human capital, understanding how trends in our economy affect the next generation of workers is key to future economic growth. Economists have spilled a great deal of ink seeking to understand female employment patterns and what greater maternal employment means for families and, particularly, children’s wellbeing and development.  Over the past decades, economists have begun focusing on how a child’s experiences between birth and starting kindergarten affect their future employment and earnings.

The three essays in this section of our conference report—by Stanford University sociologist Sean Reardon, Stanford’s Clayman Institute sociologist Marianne Cooper, and the Vice President and Director of the Children & Families Program at Next Generation, Ann O’Leary—explore how middle-income families are trying to balance work/life while providing their kids with the best opportunities available and how government policy can help create institutions that allow all workers to both contribute in the workplace and at home. —Heather Boushey is executive director and chief economist of the Washington Center for Equitable Growth

Download the full 2014 conference booklet, with full citations included for all of the essays, including those addressing the top of the income ladder on this page

Income inequality affects our children’s educational Opportunities

by Sean F. Reardon

One of the clearest manifestations of growing economic inequality in our nation today is the widening educational achievement gap between the children of the wealthiest and the children of everyone else. At first glance, this sounds like an obvious outcome. After all, wealthier families are able to afford expensive private schools, or homes in wealthy public school districts with more educational resources.

But a closer look at this education achievement gap over the past 50 years or so shows that the gap only began to widen in the 1970s, right about the time that wealth and income inequality in our nation also began to grow. The past 30 years have seen a sustained rise in inequality in wages, incomes, and wealth, leading to more and more income and wealth accruing to those at the top of the economic lad­der, pulling the rich further away from those on the other rungs.

At the same time, the growing educational gap became ever more apparent. In the 1980s, the gap between the reading and math skills of the wealthiest 10 percent of kids and poorest 10 percent was about 90 points on an 800-point SAT-type scale. Three decades later, the gap has grown to 125 points. This widening gap is largely due to differences in how well prepared children are for school before they enter kindergarten or even pre-kindergarten. In this era of economic inequality, wealthier parents have far more resources, both in terms of time and money, to better prepare their children to succeed in school and later in life.

This widening educational achievement gap may threaten our future economic growth. With only a select few individuals receiving the best education and enrichment, we are not effectively developing the economic potential of our future workforce. To grow our economy we must provide educational and enrichment opportunities for children across the income spectrum, rather than only a select few at the top.

Wealth and income largely define the educational gap today, more so than race and ethnicity. In the 1950s and 1960s, the opposite was true. Back then, racial discrimina­tion in all aspects of life led to deep racial inequality. Economic inequality, in contrast, was lower than at any time in U.S. history, according to extensive research done by economists Thomas Piketty at the Paris School of Economics and Emmanuel Saez at the University of California-Berkeley. But anti-discrimination and civil rights legisla­tion and school desegregation led to improved economic, social, and educational conditions for African Americans and other minorities beginning in the late 1960s. As a result, the gap today between white and black children is about 70 points on an 800- point SAT-type scale, 40 percent smaller than it was in the 1970s, and about half the size of the gap between rich and poor children, but still unacceptable.

The growth of the socioeconomic achievement gap appears to be largely because more affluent parents are increasingly investing more time and money in their kids’ educational enrichment—and at earlier periods in their children’s lives—than hard-pressed low-income and middle class families. Indeed, surveys show that the amount of time and money parents invest in their children has grown sharply over the past four decades among both affluent and non-affluent parents. But the increase in these investments has been two to three times greater among high-income fami­lies. Economists Richard Murnane of Harvard University and Greg Duncan at the University of California-Irvine find that between 1972 and 2006 the amount high-income families spent on their children’s enrichment activities grew by 150 percent, while the amount spent by low-income families grew by 57 percent.  In part, parents are spending more on their kids because they understand that educational success is increasingly important in today’s uncertain economic times, a point that sociologist Marianne Cooper at the Clayman Institute makes in her recent book “Cut Adrift.”  But low- and middle-income families can’t match the resources—both the money and flexible time—of the rich.

As a result, rich and poor children score very differently on school readiness tests before they enter kindergarten. Once they are in school, however, the gap grows very little—by less than 10 percent between kindergarten and high school. Thus, it appears that the academic gap is widening because rich students are increasingly entering kindergarten much better prepared to succeed in school than low- and middle-class students. To be sure, there are important differences in the quality of schools serving low- and high-income students, but these differences do not appear to be as salient as the differences in children’s experiences prior to kindergarten.

The socioeconomic education gap is likely to affect us for decades to come. Think of it as a leading indicator of disparities in civic engagement, college enrollment, and adult success. Indeed, family income and wealth have become increasingly correlated with a variety of positive adolescent activities, such as sports participa­tion, school leadership, extracurricular activities, and volunteer work, according to research conducted by Harvard University political scientist Robert D. Putnam and his colleagues.

Not only are the children of the rich doing better in elementary and high school than the children of the poor, they also are cornering the market on the seats in the best colleges. In a study that I conducted with several of my graduate students, we found that 15 percent of high-income students from the 2004 graduating class of high school enrolled in a highly selective college or university compared to only 5 percent of middle-income graduates and 2 percent of low-income graduates. Because these colleges provide educational opportunities and access to social networks that often lead to high-paying jobs, children from low-income families risk are being locked out of the upper end of the economic spectrum. For low-income children, the American Dream is further out of reach.

This is bad news for our future economy and society because we need well-edu­cated workers in order to sustainably boost economic productivity and grow the economy. So how can we prepare every child, not just those most affluent ones, to be productive members of society? First of all, we must acknowledge that educa­tional problems cannot be resolved by school alone. The achievement gap begins at an early age. To close it, we must invest in children’s early childhood educational opportunities. This means investing not only in preschool but also in parents. Specifically, we need to:

  • Invest in high-quality early childhood education programs (pre-schools, day care) and make them affordable for all families.
  • Invest in programs that help parents become their children’s first and best teacher.
  • Provide policy solutions to help all parents have the time to be teachers through paid leave, paid sick days, workplace flexibility, and income support programs that ensure that families can focus on their children even in hard economic times.

In short, we can narrow the socioeconomic education gap through public policies that help parents of all incomes provide enriching educational opportunities for their children in the way that only affluent parents can do today. —Sean F. Reardon is a sociologist at Stanford University

One nation under worry

by Marianne Cooper

As study after study shows, the rich are doing better than the rest of us. But surprisingly, they don’t always presume that their wealth will protect them or guarantee their children’s futures. In talking with families across the class spectrum about how they coping in an uncertain age for my new book, “Cut Adrift: Families in Insecure Times,” I learned that even the affluent families don’t think they have enough and strive to attain more. In contrast, the working- and middle-class families I spoke with realize they can’t do much to improve their situa­tions so they lower their expectations and try to get by on less.

This is the new face of economic inequality in the United States today. Most every­one is dealing with economic insecurity, yet the ways in which families on different rungs of the income ladder are doing so may be fueling greater economic inequality.

Take Paul Mah, a technology executive with assets of more than $1 million. “We are probably in the top 1 percent of all American households,” says Mah, “so I can’t complain, but I still don’t feel rich.” Only accumulating millions more, he says, would enable him to stop feeling anxious about his financial future and the prospects of his children.

In contrast, Laura Delgado, a struggling single mother of three who works as a cashier, has zero savings, but in many ways is less concerned. “Having nothing isn’t always a bad thing,” she says, noting that things could always be worse. To cope with her financial trouble, Delgado scales back her definition of security to just the basics (food, shelter, clothing) and filters out bad news by always trying to look on the bright side of things. Her approach enables her to control the anxiety she feels about her difficult economic situation.

These are just two of the emotional stories behind the statistics documenting that we live in precarious times. As Americans scramble to hold on to jobs, deal with pay cuts, afford rising college tuition, fund retirements, manage debt, weather the costs of medical emergencies, and give their children an edge in an increasingly competi­tive world, there are deep psychological reverberations—for us all.

Of course these reverberations look and feel differently for different groups of Americans. As economic insecurity grows—a reflection of the many changes and challenges in our economy today—so too has the divide in our country between the haves and the have-nots. This means families face different obstacles and can overcome them, or not, depending on the resources at their disposal.

Like Laura Delgado, many middle- and working-class families I talked with are so beaten down that they are letting go of their dreams for a better life. Instead, they try to make the insecurity they face more tolerable. When Laura must choose whether to pay the power bill or put food on the table for example, she makes light of the lack of heat in her home by telling her kids it’s just “camping.”

Affluent families respond differently. Rather than trying to adjust to greater inse­curity, they seek to protect their families by continuing to climb the wealth-and-income ladder. Security for some of the wealthiest families I talked with meant accumulating a net worth of more than $10 million. Such eye-popping definitions of security leave many affluent families more worried at times than their less fortunate compatriots further down the ladder.

In our go-it-alone age, we all adopt ways of coping—ways of thinking and feel­ing—that help us navigate through choppy and dangerous waters. These different approaches to managing insecurity reveal that in hard times the divisions among us are not just economic, they are also emotional.

Emotional disparities like these have real consequences. As the rich push for more and everyone else tries to accommodate to less, we actually make inequality worse. Because we treat economic insecurity as a personal problem rather than a social problem that we can solve collectively, we are unable to muster the will to stop it. —Marianne Cooper a sociologist at The Clayman Institute, Stanford University

Our future depends on early childhood investments

by Ann O’Leary

It is startling to think that even before a child sits down on her first day of kindergarten and reaches for her crayons, we can already reasonably predict what she will earn as an adult. Research shows that early language develop­ment, understanding of math concepts, and social emotional stability at age five are the greatest predictors of academic success in school. In fact, skills learned before age five can forecast future adult earnings, educational attainment, and employment.

These findings have real implications for our economy. Human capital—the level of education, skills, and talents of our workforce—is a main driver of economic growth, so in order to ensure we have a healthy workforce and thriving economy in the decades to come, we must begin by developing human capital during early childhood.

Yet rising economic inequality and unstable economic growth define our society today. Children have different enrichment experiences during this critical time period based on where their families sit on the income ladder. About half of children In the United States receive no early childhood education. These different experiences translate into a growing educational achievement gap between poor and rich children.

One study—often referred to as the famous “30 million word gap” study by University of Kansas child psychology professors Betty Hart and Todd R. Risley—finds that children living in poverty hear 30 million fewer words by age four than higher-income children.3 On average, a child from a low-income family knows 500 words by the age of 3, compared with 700 words for a child from a working-class family and 1,100 for a child from a professional family. Research by Stanford University infant psychology professor Anne Fernald and her colleagues found that by even age two, there is a six-month gap in language proficiency between lower-income and higher-income children.

In short, the educational achievement gap between poor and rich children begins well before kindergarten.

How can we better prepare our nation’s youngest generation for success? According to University of Chicago economist James J. Heckman, educational and enrichment investments during early childhood yield the highest return in human capital compared to other investments over time. Why? Because as the brain forms, children learn cognitive skills such as language and early math concepts as well as “soft” skills such as curiosity, self-control, and grit. Both skillsets are critical for later academic and workplace success. By the time a child enters Kindergarten, the gap in school readiness is large and well established, growing by less than 10 percent between Kindergarten and high school.

School readiness is enhanced by what happens in preschool, but the two factors that most explain the achievement gaps are parenting styles and home-learning environ­ments. Yet many parents are unaware of the importance of early brain development and of the tremendous impact they can have in building their young child’s brain and early vocabulary with simple actions such as talking, reading and singing.

Even if parents are aware of the importance of these activities, they may have difficulty carving out time at home with their children as they juggle jobs and their children’s needs. Today, more children than ever are raised in single-parent families or in homes where both parents work. Parents today are constantly balancing work and family care often without access to family-friendly workplace policies to balance the two.

To be sure, if parents are unable to provide enriching home experiences then children can gain valuable developmental and learning support in quality child care and preschool settings. Yet many simply cannot afford childcare. In 2011, the average cost for a 4-year-old in professional childcare ranged from about $4,000 to $15,000 a year. Such costs put a major strain on family budgets, especially for low-income families, which spent nearly a third of their income on childcare (30 percent) in 2011, compared to middle- and higher-income families, which spent less than one-tenth (8 percent) of their income.

What’s more, low-income families who do strain to pay for child care often find that the care they can afford is, at best, a safe place for their child to stay while they are at work rather than an enriching environment for their young child to learn critical skills. Sadly, these families often discover that the affordable childcare provider offers poor or mediocre support to help their child in the critical stages of early childhood development.

In order to have a productive workforce and thriving economy tomorrow, we need to invest in our children today. There are viable policy solutions that could expand early childhood education and enrichment opportunities to all, rather than a select few at the top. First, voluntary home visits by child development profession­als could increase awareness among working-class parents of how they can foster their children’s development at home, such as talking, reading, and singing to their children before bedtime.

Second, it is important to expand access to high-quality, affordable early child­hood education. These programs better prepare children for school, putting children more than a year ahead in mathematics and other subjects. Low-income families would greatly benefit from expanded access to quality childcare, Early Head Start, and high-quality preschool programs.

Lastly, parents can only be better first teachers of their children if they have the time to be with their children. Policies such as workplace flexibility, paid family and medical leave, and paid sick days could help all working parents better manage work and family obligations and spend more time with their children. Today, pro­fessional workers are the most likely to have access to these policies, often consid­ered additional employee “perks” by employers.

The importance of investing in early childhood matters for our overall economic competitiveness. The United States should be making smart economic invest­ments in early childhood to ensure that all children have an equitable start before their first day of school. For the American Dream to shine well into the 21st century, it is no exaggeration to say that every American, young and old, needs our youngest ones to be the best and the brightest as adults no matter their family background and income level. —Ann O’Leary is vice president and director of the Children and Families Program at NextGeneration

October 23, 2014


Economic Inequality

Connect with us!

Explore the Equitable Growth network of experts around the country and get answers to today's most pressing questions!

Get in Touch