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News
• How the
middle class became the underclass (USA).
Are you better off than your parents?
Probably not if you're in the middle class.
Incomes for 90% of Americans have been stuck in neutral, and it's
not just because of the Great Recession. Middle-class incomes have
been stagnant for at least a generation, while the wealthiest tier
has surged ahead at lighting speed.
In 1988, the income of an average American taxpayer was $33,400,
adjusted for inflation. Fast forward 20 years, and not much had
changed: The average income was still just $33,000 in 2008,
according to IRS data.
Meanwhile, the richest 1% of Americans -- those making $380,000 or
more -- have seen their incomes grow 33% over the last 20 years,
leaving average Americans in the dust. Experts point to some of the
usual suspects -- like technology and globalization -- to explain
the widening gap between the haves and have-nots.
But there's more to the story.
A real drag on the middle class.
One major pull on the working man was 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.
Because of deals struck through 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 work -- average incomes have stagnated.
International competition is another factor. While globalization has
lifted millions out of poverty in developing nations, it hasn't
exactly been a win for 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.
Whereas 50 years earlier, 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.
A boon for the rich
While average folks were losing ground in the economy, the
wealthiest were capitalizing on some of those same factors, and
driving an even bigger wedge between themselves and the rest of
America.
For example, though globalization has been a drag on labor, it's
been a major win for corporations who've used new global channels to
reduce costs and boost profits. In addition, new markets around the
world have created even 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, that number fell to 55%.
Another driver of the rich: The stock market.
The S&P 500 has gained more than 1,300% since 1970. While that's
helped the American economy grow, the benefits have been
disproportionately reaped by the wealthy.
And public policy of the past few decades has only encouraged the
trend.
The 1980s was a period of anti-regulation, presided over by
President Reagan, who loosened rules governing banks and thrifts.
A major game changer came during the Clinton era, when 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 during the Bush administration and extended under
Obama were also a major windfall for the nation's richest.
And as then-Federal Reserve chairman Alan Greenspan brought interest
rates down to new lows during the decade, 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.
But the story didn't end well. Eventually, it all came crashing
down, resulting in the worst economic slump since the Great
Depression.
With the unemployment rate still excessively high and the real
estate market showing few signs of rebounding, the American middle
class is still reeling from the effects of the Great Recession.
Meanwhile, as corporate profits come roaring back and the stock
market charges 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.
The above article was extracted from Yahoo:
Annalyn Censky, staff reporter, On Wednesday February 16, 2011.
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