SHERK: The American dream lives

By James Sherk | Sunday, September 7, 2008

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COMMENTARY:

To listen to the pundits, America is no longer the land of opportunity. Turn on the TV or pick up the newspaper, and you hear Americans can no longer expect to work hard and get ahead.

It's true we are enduring trying economic times. The fact that filling up your car for under $4 a gallon now seems a bargain only shows how painfully expensive energy has become. The collapse of the housing bubble has cost homeowners hundreds of billions in home equity. These troubles have weighed down the economy, and job losses have mounted.

But the ups and downs of the business cycle do not mean the American dream has died. The U.S. economy has always experienced highs and lows. Today's economic woes are nothing compared to the stagflation of the 1970s. Those problems didn't herald an end to the American dream, and neither will our current ones.

Quite the contrary: Today's economy gives workers more opportunities to advance than a generation ago. Good jobs are actually more available today than in the past.

This is largely because of technological changes that have transformed the American workplace. Machines have automated many rote, repetitive tasks formerly done by hand. Bad science fiction aside, however, machines can't think for people. Brains trump brawn, and jobs are moving from the assembly line into the office.

The share of Americans working in what the Census Bureau calls "professional specialty" jobs (such as nurses or engineers), as well as executive or managerial, and technical or sales positions, has expanded 10 percent since 1980. The jobs of the future are software developers, health specialists, designers and financial managers. Simultaneously the share of Americans working as operators, fabricators or laborers has fallen sharply. Fewer Americans weld, assemble machines, or handle freight for a living.

This is good news. Few workers enjoy repetitive manual labor. Knowledge jobs are safer and allow individual initiative impossible on the assembly line. They also pay more. Between 1993 and 2006, the median annual earnings of American born workers rose by one-sixth.

Workers also have more control over their retirement. Company retirement plans haven't disappeared - pension coverage has not changed over the last couple decades. But employer retirement plans have been transformed.

In the past, most companies offered workers "defined benefit" plans that promised workers a fixed benefit based on their years of service. Unfortunately, most defined-benefit plans backload their benefits, penalizing workers who switch jobs. Pensions have often acted like golden handcuffs, chaining workers to jobs they would rather leave. Worse, as too many steelworkers and airline employees can attest, those promises are good only if the company stays in business.

Today most companies offer 401(k)-style "defined contribution" pensions. Once an employer contributes to a 401(k), the employee legally owns it. No bankruptcy court can take it away. These 401(k)s give workers significantly more to retire on than traditional pensions. And they are perfectly portable between employers, giving employees who want to change jobs the freedom to do so.

That is a freedom that employees increasingly take advantage of. Workers - especially workers with pensions - are much more mobile today than in the past. Employees are more than a third more likely to voluntarily leave their employer for another company than in the 1970s. Workers today are less tied to jobs they dislike, and have more opportunities to seek work they enjoy.

Workers who find a good job are also much less likely to lose it. This may be surprising, because the press is filled with stories about mass layoffs and outsourcing, but these are anecdotal reports. Factual studies reveal job security has increased throughout the economy. Employers are significantly less likely to fire or lay off workers than in the past. Workers have less reason to fear finding themselves unemployed.

The economy does face important challenges, most notably skyrocketing health-care costs. Since employers care only about the total compensation they pay their workers, not its division between wages and benefits, rising health-care costs are taking an ever larger bite out of take-home wages. Still, controlling for increased immigration (very few illegal immigrants have employer-sponsored health insurance, for obvious reasons), the proportion of workers with employer-provided health coverage is the same today as in the mid-1990s.

The American dream isn't dead. The knowledge economy is creating more good jobs and paths for upward mobility, and employees have more control over their retirements. Workers are both more mobile and more secure, likelier to voluntarily switch jobs and less likely to get a pink slip.

Economies always weather downturns, but when this one ends Americans will have more chances to get ahead than ever before. So ignore those negative pundits. America remains a land of opportunity.

James Sherk is the Bradley Fellow in Labor Policy at the Heritage Foundation (heritage.org).

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