The ever shrinking middle class…

Middle class incomes have been stagnant for at least a generation, while the wealthiest Americans have seen their income surge ahead at warp speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. 20 years later not much had changed, the average income was still just $33,000 in 2008, according to IRS data. During that same time the richest 1%, those making $380,000 or more,  of the country have seen their incomes grow 33%.

One of the causes for wage stagnation that experts point to is the decline of unions and other labor protections, said Bill Rodgers, a former chief economist for the Labor Department, now a professor at Rutgers University. Through deals struck by way of collective bargaining, union workers have traditionally earned 15% to 20% more than their non-union counterparts, Rodgers said.

But union membership has declined rapidly over the past 30 years. In 1983, union workers made up about 20% of the workforce. In 2010, they represented less than 12%.

“The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation,” Rodgers said.

Without collective bargaining pushing up wages, especially for blue-collar workers, average incomes have remained flat.

International competition is another factor. While globalization has lifted millions out of poverty in developing nations, it has had a negative affect on middle class workers in the U.S.

Factory workers have seen many of their jobs shipped to other countries where labor is cheaper, putting more downward pressure on American wages.

“As we became more connected to China, that poses the question of whether our wages are being set in Beijing,” Rodgers said.

Finding it harder to compete with cheaper manufacturing costs abroad, the U.S. has emerged as primarily a services-producing economy. That trend has created a cultural shift in the job skills American employers are looking for. 50 years ago, there were plenty of blue collar opportunities for workers who had only high school diploma, now employers seek “soft skills” that are typically honed in college, Rodgers said.

While the average American was losing ground in the economy, the wealthiest were capitalizing on these issues.

Globalization has been a major issue for the countries labor force, but it’s also been a major win for corporations who’ve used new global channels to reduce costs and increase profits. New markets around the world have also created greater demand for their products.

“With a global economy, people who have extraordinary skills… whether they be in financial services, technology, entertainment or media, have a bigger place to play and be rewarded from,” said Alan Johnson, a Wall Street compensation consultant.

As a result, the disparity between the wages for college educated workers versus high school grads has widened significantly since the 1980s. In 1980, workers with a high school diploma earned about 71% of what college-educated workers made. In 2010, it was 55%.

Another driver of the rich has been the stock market. The S&P 500 has gained more than 1,300% since 1970, which has helped the American economy grow but the benefits have been disproportionately reaped by the wealthy.

Over the last 30 years regulation of the financial industry has been on the decline. President Regean was very much anti-regulation, but it was during the Clinton years in which barriers between commercial and investment banks, enacted during the post-Depression era, were removed. In 2000 the Commodity Futures Modernization Act also weakened the government’s oversight of complex securities, allowing financial innovations to take off, creating unprecedented amounts of wealth both for the overall economy, and for those directly involved in the financial sector. Tax cuts enacted by the Bush administration and extended by President Obama have also been a major windfall for the wealthy. Former Federal Reserve chairman Alan Greenspan brought interest rates down to new lows during the last decade and the housing market experienced explosive growth.

“We were all drinking the Kool-aid, Greenspan was tending bar, Bernanke and the academic establishment were supplying the liquor,” Deutsche Bank managing director Ajay Kapur wrote in a research report in 2009.

We all know what was the end result of these economic policies. The worst economic crash since the great depression.

The unemployment rate is still higher than 9% and the real estate market is showing few signs of rebounding, meanwhile corporate profits are at historic levels and the stock market continues to charge ahead. The wealthiest people continue to eclipse their middle-class counterparts.

“I think it’s a terrible dilemma, because what we’re obviously heading toward is some kind of class warfare,” Johnson said.

Anyone still having a hard time figuring out what Occupy Wall st. is all about?

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2 Comments

  1. I love the post and the sentiment. There is no longer a middle class, merely haves and have-nots. I would also try to find a way to use the interactive chart from “StateofWorkingAmerica. org” It is worth looking at.

    http://www.stateofworkingamerica.org/pages/interactive#/?start=1983&end=2008

  2. Hey Mike, thanks for the comment and the info, appreciate it…


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