Call It the Family Risk Factor
By JACOB S. HACKER

NEW HAVEN, Conn.–On the heels of Friday’s glum Labor Department report, Americans have a right to be confused. Soaring growth, stocks and consumer confidence have heartened investors. And yet, the country remains mired in a jobless recovery. The reality is that the economy has become more uncertain and anxiety-producing for most of us — not just over the past three years, but over the past 30. But by fixating on the day-to-day ups and downs, analysts have largely missed the more telling trend: an increasing shift of economic risk from government and corporations onto workers and their families.

Signs of this transformation are everywhere: in the laid-off programmer whose stock options are suddenly worthless, in the former welfare mom who can get a job but not health care or day care, in the family forced into bankruptcy by the sickness of a child. But these episodes, while viewed with sympathy, are usually seen in isolation, rather than as parts of a larger problem. This blinkered view stands in the way of both diagnoses of the causes of the new economic insecurity and prescriptions for its cure.

Consider the accompanying chart. The line traces the year-to-year instability of family income from 1972 to 1998, based on the University of Michigan Panel Study of Income Dynamics. It measures the extent to which a family’s income from both government and the private sector fluctuates from year to year, controlling for the size of the family and the general rise of income among all Americans (so as not to confuse upward mobility with instability).

The formula captures both changes in the income of families and changes in families themselves, like divorce and separation, that alter their standard of living. What it shows is that family finances have grown much more insecure. Although insecurity dropped in the booms of the late 1980′s and late 1990′s, the long-term trend is sharply upward. In fact, the instability of family incomes was roughly five times greater at its peak in the 1990′s than in 1972.

Optimists point out that Americans are much richer than they were in the 1970′s. But while they are as a whole, incomes have grown little for the middle class and working poor — even as wages have become more unstable, the financial effects of losing a job have worsened, and the cost of things families need, from housing to education, has ballooned. Yet government and the private sector aren’t just ignoring these problems, they are making them worse. Many programs for the poor, for example, have been substantially cut. And middle-class programs like Social Security have steadily eroded.

The truly staggering changes, however, are taking place in the private sector. The number of Americans without employment-based health benefits has been rising for decades. Employers are also restructuring workplace benefits to impose more risk on workers. Once, for instance, workers lucky enough to have a pension enjoyed a guaranteed benefit. Now, with so-called defined-contribution plans like 401(k)’s, workers have to put away their own wages and the returns of the plan depend entirely on their own investments.

What might be done to help families cope with the new economic insecurity? The essential first step is to shore up existing policies to ensure broad-based and secure unemployment, pension and health benefits.

Yet simply upgrading present efforts is not enough. I believe we need a new, flexible universal insurance program to protect families against catastrophic expenses and drops in income, before families fall into poverty. Universal insurance would, in turn, be coupled with tax-subsidized savings accounts that would help middle and lower-income families manage these expenses before they reached catastrophic levels.

Our economy is in the throes of a great transformation — from an all-in-the-same-boat world of shared risk toward a go-it-alone world of personal responsibility. Protecting families from the greatest “hazards and vicissitudes of life” — in Franklin Delano Roosevelt’s still relevant words — is necessary and possible, and it offers perhaps the best hope for reviving a constructive role for government, on bold new terms, in this new century.