The Consequences of Economic Restructuring

An extensive literature has emerged which seeks to better understand the consequences of economic restructuring. Among the more prominent aspects of this literature are models that provide insights on the poverty and inequality consequences of economic restructuring. These models maintain that the consequences of economic restructuring are largely a result of basic differences between manufacturing and service jobs. Briefly defined, manufacturing involves transforming agricultural products and other raw materials into products that are much more valuable than the original raw material (Amsden 2001). In contrast, a service is intangible; it is produced and consumed simultaneously, and the customer generally participates in the production. Most often, the producer and the consumer are face-to-face, or intimately communicating through some other medium (Macdonald and Sirianni 1996). The most critical difference between manufacturing and service employment is that most manufacturing jobs in the U.S. could be described as middle income, while service jobs are much more diverse. The emergence of millions of middle-income manufacturing jobs resulted from processes that unfolded over several decades. Through the years, American manufacturing used increasingly advanced technology which allowed them to produce high quality products rather cheaply and then market these products throughout the world (Chevan and Stokes 2000). With high productivity and high demand, unions were then able to seek and attain relatively high wages for a large segment of the industrial work force. As a result, family incomes, adjusted for inflation, doubled in the two decades following World War II. The highly productive manufacturing sector made possible the historically unique role of allowing relatively high levels of affluence for ordinary workers (Danziger and Gottschalk 1995). The consequence was a large middle class and relatively low levels of inequality.

In contrast to the largely middle income manufacturing sector, service jobs are much more diverse. Some service jobs are high quality (Sassen 1990), but most could be described as low-pay, low-skill, temporary and seasonal (Kassab and Luloff 1993). With the prominence of low-quality service jobs, the decline in earnings between the jobs lost (mostly middle-income manufacturing) and the new jobs that have been created (mostly low-income service) has reached $10,000 per year (Morris and Western 1999). The obvious outcomes of replacing middle income manufacturing jobs with service jobs that are much more diverse include poverty and inequality. Two important theoretical models have been developed to describe the process through which economic restructuring results in increased poverty and inequality. Each will be briefly described below.

The William Julius Wilson Model of Poverty

This model was discussed earlier when describing models that provide cultural explanations for structural theories of poverty. The basis of this model is economic restructuring where the decline of manufacturing and the rise of low-wage service-sector employment have started a complex process where the end result is poverty and institutional decline and values and attitudes incompatible with success in the modern world (Wilson 1987).

The Kuznets' Inequality Curve

An additional significant body of literature has argued that the extent of inequality in a society is predictable from the industrial structure and the level of economic development in that society. This literature is founded on the pioneering work of Kuznets (1953; 1955). Writing during the 1950s, Kuznets conjectured that the relationship between economic development and inequality would follow a pattern that generally resembled an inverted U. That is, during the early stages of industrialization, inequality would increase, eventually reach a peak, level off, and then decline. In the case of the United States, Kuznets found that inequality increased during the 1800s as industrialization progressed, reached a peak in the 1890s, remained stable for a few decades, and then began to decline in the 1920s (Alderson and Nielson 2002). Subsequent research provided general support for this model in the United States and other advanced societies (Lindert 2000; Lindert and Williamson 1985; Nielson 1994; Nielson and Alderson 1995).

As expected from the Kuznets model, inequality in the United States continued to decrease through the 1950s and 1960s. Then in the 1970s, researchers began noticing a major departure from the Kuznetsian scenario as income inequality began to increase in the United States and other advanced societies. This phenomenon was labeled the "great U-turn" by Harrison and Bluestone (1988). This increased inequality was apparent in the data presented in Table 1. Using the expected relationship with economic structure as a base, a prominent argument has been that some advanced societies have developed beyond a dependence on manufacturing, and have become "postindustrial". That is, these societies no longer primarily rely on manufacturing for employment and income, but they are now more dependent on service sector employment. Specifically, since the 1970s, there has been a significant decline in manufacturing employment and an even greater increase in service-sector employment (Bluestone and Harrison 1982; Sassen 1990). For the remaining manufacturing jobs, the wages of U.S. workers have declined in order for these workers to compete in an increasingly global economy. Further, as imports from less developed countries, produced with cheaper labor, increasingly enter the U.S., the prices of similar U.S. produced products are forced down, which subsequently cause further reductions in the wages of U.S. workers (Cline 1997). Using the expected relationship with economic structure as a base, a prominent argument has been that the loss of largely middle-income manufacturing jobs, and replacing them with service jobs that are both high quality and low quality, is resulting in higher levels of inequality. With advancing economic development resulting in increased levels of inequality, it seems that Kuznets' inverted U is beginning to resemble an N (Alderson and Nielson 2002). Studies of U.S. counties (Nielson and Alderson 1997) and nonmetro counties (McLaughlin 2002) have found support for the expectation that increased service employment is related to higher levels of inequality.

Changing Social Conditions, Poverty and Inequality

The economic restructuring of the United States economy has been paralleled by significant social changes. Some scholars argue that these social changes, rather than economic restructuring, are the major reason for increased income inequality (Chevan and Stokes 2000; Morris and Western 1999). Like economic restructuring, these changing social conditions are likely to exert strong pressure for higher poverty and inequality levels in the future. Among the social trends most relevant for poverty and inequality are the changing participation rates of men and the increased entry of women into the labor force, growing minority populations, the increased prevalence of single-parent households, and the changing age structure of the population. Each will be briefly discussed next.

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