Check out the podcast or its transcript below to find out Strain’s thoughts on the wage gap, the Trans-Pacific Partnership and more.
Nick Thiriot: Well good afternoon and welcome, my name is Nick Thiriot. I’m a Communications Specialist with the Kem C. Gardner Policy Institute here at the University of Utah. I’m here today with Dr. Michael Strain, who is a resident scholar at the American Enterprise Institute where he studies Labor Economics, Public Finance and Applied Microeconomics. He’s here in Salt Lake City doing a couple speaking engagements with the University of Utah among others. We’re happy to have him here for our inaugural Newsmaker Breakfast. So Dr. Strain, welcome to Utah.
Michael Strain: Thank you so much for having me. It’s wonderful to be here.
Nick Thiriot: First time in Utah?
Michael Strain: Yes, first time, getting used to your altitude.
Nick Thiriot: That’s right. We are nearly a mile high here, not quite, but we are up there. So we’ll just recap here. A minute ago you spoke to our group of local policymakers — public and private sector — and we talked about several issues, one of them being inequality in America. We talked about the growing inequality, the forces behind it. You mentioned a couple of things, but if you just want to give us a recap. What is the role of technology among other forces affecting inequality, demographic and so on in the country? What’s your take on it?
Michael Strain: Well it’s obviously a very complicated issue, and it has a myriad of causes. To boil it down really simply, income inequality is the gap between the rich and the poor. What we’ve seen over the last several decades are changes in the economy that have allowed people at the top of the income distribution to earn more money and be more productive. So the introduction of computers, for example, has made highly educated people even more productive, that’s meant that their wages have gone up. At the same time, we’ve seen increased competition among lower-income Americans; the Americans with less education. The opening of U.S. labor markets to global competitive pressures has pushed those wages down along with other factors. And so, we’ve seen changes that have allowed people at the top of the income distribution to do better, changes that have made it harder for people at the bottom of the income distribution to do better, and we’ve seen the gap between the rich and the poor increase.
Nick Thiriot: How much of this do you attribute, as far as demographics go – essentially what is the role that demographics are contributing? You mentioned technology and whatnot, but how do you see demographics affecting that?
Michael Strain: Well, I mean demographics certainly play a role and the aging of the population has changed the composition of the workforce in ways that certainly affect inequality. Immigration certainly changes the composition of the workforce and the demographic makeup of the workforce in ways that affect inequality. And so, anything that affects the productivity and the wages of highly educated workers, anything that affects the productivity and wages of lesser educated workers has a downstream impact on inequality. It’s one of the reasons why it’s such a complicated issue.
Nick Thiriot: You talked about several policies in terms of how we might be able to address some of the economic issues facing America, one of them being the earned income tax credit (EITC). If you just want to give a quick rundown, EITC 101 so to speak. How do you see that shaping and having an impact on today’s economic landscape in America?
Michael Strain: Well, the earned income tax credit is a conceptually simple program. Our basic idea is that if you’re working and you are earning money in the job market, and if your total household income is below a certain level, then the federal government or state governments will subsidize your labor market earnings. So if you have a couple of kids at home and you’re out there working the minimum wage and say you make $10,000 that year and you’re the only income earner in your household, then the government will give you a supplement to your earnings. It’s a way to kind of top your earnings off. This has an effect of incentivizing work. It increases the financial return to working. It makes working pay. What we’ve seen through rigorous research over several decades now is that the incentives actually work. We see that when the Earned Income Tax Credit is expanded, people enter the workforce who otherwise weren’t working. So it has its intended effect of encouraging work and supporting work. We also see that it is an extremely effective anti-poverty program. Every year, the Earned Income Tax Credit lifts millions of people out of poverty, including several million children, both through increasing the amount of income that a household receives and through encouraging people to work and to earn income in the labor market through a job.
Nick Thiriot: Other policy remedies you mentioned, education, we all understand the importance of education, particularly in today’s global society. Talk a little bit about education and what we see in terms of a four-year college degree versus other skills training and so on and so forth. What impact does that have on inequality?
Michael Strain: Yeah, so something I think that we need to have is a more vigorous policy debate above what we’ve seen, or how we can increase vocational and technical education in the United States. So we value four-year college degrees in the United States, and that’s seen as a path into the middle class. We have less emphasis on Associate’s degrees or on professional certificates or on the type of education and training that can help someone be a master craftsman. The idea would be that you’ve got somebody graduated high school, who’s not going to go on to a four-year degree, how can you get that person to acquire more skills beyond his or her high school diploma, but that don’t involve a traditional four-year bachelor’s degree. Equipping more Americans with those kinds of skills will help more Americans to earn a middle-class living, and that’s something we should all want.
Nick Thiriot: We’ve covered a few things now in terms of policy remedies for some of the issues, growing issues we see facing the American economy and equality among them. This leads us into Decision 2016. Can you go ahead and give us your take on Mr. Trump and Secretary Clinton and what we can expect in the weeks and months to come regarding the candidates and their positions on these important economic issues?
Michael Strain: I think I’m in a similar position to many Americans about this. I think Secretary Clinton has a pretty comprehensive detailed plan about what she wants to do in terms of policy specifics and what her overall vision is for where she wants to take economic policy in the United States. Mr. Trump has offered much less by the way of specifics and, really, I think less of a well-defined vision for where he wants to take the United States.
Nick Thiriot: What are the hot button issues in this election has been TPP (Trans-Pacific Partnership), trade issue and obviously focusing on those nations in the Pacific including, of course, the United States. You gave an interesting answer earlier. I want you to maybe talk about your thoughts on TPP and how it plays into the election and what can we expect of this issue in weeks and months to come.
Michael Strain: Well sure. So I think the TPP would be good for the U.S. economy. I think it, on balance, would be positive. I don’t think that the effects of TPP would have a significant impact on the U.S. economy. You would not see massive changes to the U.S. economy as a consequence of TPP. I really think of TTP more as a foreign-policy issue, asserting American leadership in the Pacific with respect to international economic policy that will have downstream benefits for decades to come and that decades from now could have really significant economic benefits depending on what the global economic situation is at that time.
Nick Thiriot: One final question. You’ve spent only a couple of days here in Utah. It’s your first trip, but I know you spent a little time on Capitol Hill here in Salt Lake City and also spent some time with some economics students and some professors here at the University of Utah. What’s your take, if any, on the Utah economy and where we stand in terms of all of these issues and where the local economy stands?
Michael Strain: Well, the Utah economy seems to be doing a little better than the United States’ economy at large, which is something for the good people here of Utah to celebrate. I think Utah has some challenges. There are issues with workforce participation here in Utah. There are issues with poverty here in Utah. The intergenerational poverty is of concern to a lot of folks up at the state capitol as I think is appropriate. And so, Utah is doing well, but Utah could be doing better and that should be the goal of all the good people of Utah.
Nick Thiriot: Dr. Michael Strain, American Enterprise Institute. Thank you for joining us today.
Michael Strain: Thank you.
Nick Thiriot: I am Nick Thiriot with the Kem C. Gardner Policy Institute. Thank you very much for joining us.