A Changing Economy in two minutes
- IBM sold its personal computer in 1981, the first handheld cell phone went on sale in 1984, the World Wide Web opened in 1991, and the iPhone arrived in 2007.
- Productivity growth sped up after 1995, and the economy grew for ten straight years until 2001, with unemployment at 3.8 percent in April 2000. Many dot-com companies then failed.
- Globalization grew with trade deals: NAFTA took effect in 1994, the World Trade Organization began in 1995, and China joined it in 2001. Companies outsourced work, and consumers gained cheaper goods.
- Deindustrialization hit the Rust Belt. Factory jobs fell by about eight million from 1979 to 2010 because of automation, minimills, foreign competition and trade, while service jobs grew by tens of millions.
- Union membership in private companies fell by more than half. Since 1979 productivity grew much faster than typical pay, and the federal minimum wage stayed at $5.15 from 1997 to 2007.
- Inequality widened. Since the 1970s the richest one percent's share of income more than doubled, returning by 2007 to its 1928 level, while families kept up by working longer and borrowing.
- On the exam: Questions ask for causes and effects of deindustrialization and globalization, and compare this period with the Gilded Age. Inequality and the decline of unions are common continuity-and-change prompts.
Topic 9.4 key terms
- Homestead Strike
July 6, 1892. Steelworkers at the Homestead Works fought armed Pinkerton guards who came up the river to break their union. The workers lost, and the mill had no union until 1937.
- Labor union
Workers organized to bargain with their employer over pay, hours, and conditions. Homestead's union was defeated in 1892. United Steelworkers Local 1397, chartered in 1937, had the mill under contract again by 1979.
- Deindustrialization
The long decline of factory work. From the late 1970s, mills and plants closed, and manufacturing became a smaller share of American jobs.
- Service sector
Work in stores, restaurants, hospitals, offices, and other businesses that sell a service. Most new American jobs after 1979 were here, and many paid less than factory work.
- Personal computer
A computer built for one person, at a desk or at home, rather than a machine shared by a whole office. IBM's version, announced August 12, 1981, was the one other companies copied.
- Internet and the World Wide Web
The internet is the network of computers, begun by the Defense Department in 1969. The World Wide Web is the linked pages on that network. Tim Berners-Lee opened the web to the public on August 6, 1991.
- Digital mobile technology
Phones that carry a computer in a pocket. The first handheld cell phone went on sale in 1984. It cost $3,995 and talked for about half an hour. By June 2007 a phone could show a web page, a map, a photo, and a song.
- Productivity
How much a worker produces in an hour. When productivity rises, the same hours of work turn out more goods, or the same goods take fewer hours.
- Y2K
The year-2000 bug. Many older programs stored the year as two digits, so 00 could be read as 1900. Fixing that code, before January 1, 2000, sent piles of American programming work to firms in India.
- Globalization
Economies linked across borders by trade, money, and communication. Here: NAFTA with Canada and Mexico (in force January 1, 1994), the World Trade Organization (January 1, 1995), China in the WTO (December 11, 2001), and digital lines that let U.S. firms hire and sell abroad.
- Digital divide
The gap between people with computers and internet access and people without them. In the late 1990s it tracked income, schooling, race, and whether you lived in a rural place or a city.
- Rust Belt
The Midwest and nearby regions of closed mills and factories. The phrase was in print by 1982. On September 17, 1984, in Cleveland, Walter Mondale called the industrial Midwest a rust bowl.
- Union membership
The share of wage and salary workers who belong to a union. It fell from 20.1 percent in 1983 to 11.9 percent in 2010. In private companies it fell from 16.8 percent to 6.9 percent.
- Minimum wage
The lowest hourly wage federal law sets for most covered jobs. It stayed at $5.15 from September 1, 1997 until July 24, 2007.
- Real wages
Pay after prices. If prices rise as fast as the paycheck, real wages stay flat. Average real hourly pay for production and nonsupervisory workers was $9.27 in 1973 and $8.90 in 2010, in 1982–84 dollars.
- Income inequality
How unevenly income is shared. The top 1 percent's share of pre-tax income, including capital gains, went from about 10 percent in 1980 to 23.5 percent in 2007, near the 1928 peak of 23.9 percent.
- Gilded Age
The late 1800s, named in an 1873 novel by Mark Twain and Charles Dudley Warner, when a small share of Americans held a huge share of the income. By 2007 the top 1 percent's share was back near its 1928 peak.
Transcript
Quotes are from the historical record and name their source. Lines marked Dramatized are reconstructions.
Shift Change
1892 · 1979 · 1999
Key terms: Homestead Strike, Labor union, Deindustrialization, Service sector
Homestead, Pennsylvania · the Monongahela River
In July 1892, steelworkers fought armed Pinkerton guards on this riverbank to save their union. They lost. The mill ran without a union for forty-five years.
By 1979 the union was back, and the Homestead Works ran around the clock. A job here could pay for a house, a car and a pension.
Then the orders slowed down. In July 1986, the mill closed. By 1999, a shopping center stood where it had been.
The new stores needed people. Fewer people, and not at the old pay.
Where did the good jobs go? And who came to do the new ones?
Machine of the Year
1981–2007
Key terms: Personal computer, Internet and the World Wide Web, Digital mobile technology
While the mills slowed down, a new machine sped up.
On August 12, 1981, IBM started selling a personal computer. The basic model cost $1,565, and that didn't include a disk drive.
On January 3, 1983, Time magazine picked its Man of the Year. It picked a machine.
In Homestead, the magazine lay on kitchen tables next to the want ads. By 1983, much of the mill stood idle.
The first handheld cell phone went on sale in 1984. It cost $3,995, talked for about half an hour, and people bought it anyway.
In 1991, British scientist Tim Berners-Lee worked at a physics lab near Geneva. He opened his World Wide Web to the public on August 6.
In 1993, a student and a staff programmer at the University of Illinois released Mosaic. It was free, and it put pictures on the page.
Amazon opened on July 16, 1995, as an online bookstore. Its founder built the first desks out of doors.
Americans started shopping, banking, arguing and falling in love online. In June 2007, the phone went into their pockets.
In 1984, one home in twelve had a computer. By 2010, three in four did, and seven in ten had internet at home.
The World on the Line
1987–2001
Key terms: Productivity, Y2K, Globalization, Digital divide
The same wires that brought the web home carried work away from it.
For years, computers didn't seem to make offices more productive. In 1987, Robert Solow joked.
You can see the computer age everywhere but in the productivity statistics.
After 1995, the computer age showed up. Output per hour grew almost twice as fast as before.
Cables under the oceans let an American company hire far away. Engineers in India. A call center in the Philippines. A factory in China.
Fixing the Y2K bug sent piles of American programming work to Indian firms.
Trade deals opened the doors: NAFTA in 1994, with Canada and Mexico. The World Trade Organization started in 1995. China joined in 2001.
The economy grew for ten straight years, a record at the time. By April 2000, unemployment was 3.8 percent.
Investors poured money into almost any company with dot-com in its name. Pets.com went public in February 2000. That November, it announced it was closing.
Even the boom had losers. In San Francisco, a reporter wrote:
Willing to pay whatever price landlords name, the dot-coms have driven up rents while displacing longtime tenants.
In 2000, President Clinton warned about Americans being left offline.
That means we must close the digital divide between those who've got the tools and those who don't.
Was it good for Americans? Panos Mourdoukoutas, in Forbes, pointed to:
more product choices at ever-lower prices.
Grace Lee Boggs had watched Detroit's factories close for decades. The old jobs weren't coming back:
because of the ability of corporations to fly all over the place and begin setting up— all this outsourcing.
The Last Shift
1979–2010
Key terms: Deindustrialization, Rust Belt, Union membership
Back to the plate mill in Homestead. Why did a mill that had run since 1881 close?
Part of the answer was the machines. In 1980 a ton of American steel took about ten hours of work. By 2000, about four.
New minimills melted scrap in electric furnaces, with far fewer workers. The biggest, Nucor, started in South Carolina in 1969. None of its mills had a union.
Newer mills in Japan and South Korea often sold steel for less than mills like Homestead.
Switch between two years on the same ground. On July 25, 1986, the last two dozen men drove out the gate on Amity Street.
Across the country, factory jobs fell by eight million between 1979 and 2010. Service jobs grew by nearly 48 million. The new work was in stores, hospitals and offices.
In 2008, Pittsburgh's tallest building, built for U.S. Steel, got new letters on its roof. They spelled the name of a hospital system, the region's biggest employer.
In private companies, union membership fell by more than half.
NAFTA made it cheaper to build car parts in Mexico. Imports from China after 2001 cost about a million factory jobs. Economists still argue over trade and machines.
In January 1983, more than one worker in six around Pittsburgh was out of work. Down the Ohio, in Beaver County, more than one in four.
The Great Divergence
1973–2018
Key terms: Minimum wage, Productivity, Real wages, Income inequality, Gilded Age
In 2006, the federal minimum wage was $5.15 an hour. It had been $5.15 since 1997.
For a generation after World War II, pay rose with productivity. Then the lines split. Since 1979, output per hour has grown almost three times as fast as typical pay.
Adjusted for prices, most workers earned a little less an hour in 2010 than in 1973.
Meanwhile, the richest one percent's share of the nation's income more than doubled. By 2007 it was right back where it had been in 1928.
Some people called it a second Gilded Age.
Economists still argue about why. Most name technology that paid more for a degree, competition from abroad, weaker unions, and tax and wage policy.
Families kept up by working more hours, adding a second paycheck, and borrowing.
It wasn't all loss. In the late 1990s boom, pay rose at every level. TVs, clothes and computers kept getting cheaper.
Still, from 1980 to 2018, the top fifth's share of income grew, and every other fifth's shrank.