The news about growing inequality and middle-class decline – in the Midwest, in the country, even abroad – keeps flowing in. As promised, we’ll keep an eye on this news and, from time to time, will pass on the more interesting and insightful articles.
Josh Lehner, an economist analyst based in Oregon, has pulled together national statistics on which jobs are being created – and which aren’t. He concludes that jobs indeed are being created as the recession recedes. But they’re all in low-paying occupations or highly-paid jobs. The middle class is missing out.
Specifically, Lehner’s graphs show strong job growth from 2010 to 2012 in low-wage jobs such as restaurant workers, home health aides, building maintenance, and cashiers, and in such high-wage jobs as finance, healthcare practitioners and management. Taken together, they account for about 75 percent of all recent job growth.
Lehner splits the middle class into two groups – lower middle class, which includes trucking, factory work and sales, and upper middle class, which includes machinists, mechanics, construction, and teaching. This lower middle class embraces no less than 40 percent of all Americans, but accounts for just 26 percent of all new jobs. The upper middle class includes nearly 20 percent of all jobs – but none of the new ones.
The slow job growth in the middle is only part of the problem, Lehner says. The middle class lost more jobs and income in the recession, so are recovering from a lower base. Some aren’t recovering at all.
Some other statistics in Lehner’s report: the biggest growth is recorded in jobs paying less than $21,000 and more than $85,000.
“This, by definition, is job polarization,” he says.
Thousands of miles away, in England, the story is the same. The Economist magazine reports that in England, the epitome of austerity economics, inflation is up nearly 20 percent since the recession began but median hourly earnings have fallen steadily and are about where they were in 2001. This means that real earnings are falling behind inflation: in other words, they’re shrinking.
Again, there’s some job growth but at the bottom: four out of five jobs created in the past two years are in low-wage sectors, the magazine says.
Given this growing impoverishment, how do people keep going? The old-fashioned way, the Economist says: they borrow. Credit card use is up, household savings are down – to the level that existed when the recession began. One cause of the recession, of course, was unrestrained and unregulated borrowing, on mortgages, on big-ticket purchases, on daily expenses. If you think that this sounds like another bubble in the making, you may be right.
American young people are being left behind by this changing workforce, and may never catch up. That’s the conclusion of a report by Diana Carew, an economist at the Progressive Policy Institute in Washington.
Using the latest report from the Bureau of Labor Statistics, Carew says that only 36 percent of young Americans aged 16 to 24 who are not enrolled in schools are working fulltime – a drop of 10 percent from summer of 2007, just before the recession began.
Those aged 20 to 24 are doing better than younger workers, but their relative drop is just as big, Carew says. Six years ago, 61 percent of this group were working fulltime: today it’s 50 percent. Only 15 percent of those aged 16 to 19 are working full time, down from about 21 percent in 2007.
This younger cohort includes a lot of high school dropouts. The workforce participation rate for college graduates is 66 percent, but only 14 percent for high school dropouts. Staying in high school helps, but is no magic bullet: only 37 percent of high school grads are working.
This problem may be permanent, Carew says. If it was all the fault of the recession, we’d see some recovery by now. But the BLS figures show that the workforce participation rate at all age levels dropped about between 2007 and 2009, and have stayed there.
About 65 years ago, the seminal American economist Paul Samuelson (Larry Summer’s uncle) proposed his “factor price equalization theory,” which is a long name for a simple idea. If widgets can be made in Country A by workers earning $20 an hour and in Country B by workers earning $2 an hour, then (assuming that all else is equal and trade is relatively free) those wages will balance out somewhere in the middle, at about $10 per hour. This is great news for the workers of Country B, but not so hot for those in Country A.
It’s happening now. John Schmid, writing in the Milwaukee Journal Sentinel, found that median American wages are falling and Chinese wages are rising. In the past year, BLS statistics show U.S. wages down 1.1 percent, and Chinese wages up 12.5 percent. Obviously, they’ve got a long way to go before they reach a Samuelson-style equilibrium, but they’re getting there. Chinese wages are rising steady, to the point that the country is losing some manufacturing jobs. Average U.S. wages have fallen every year since 2009.
As Schmid reported, Wisconsin wages are down 2.2 percent in the last year, twice the national rate.
“Water finds its equilibrium, its own level,” Jeff Joerres, CEO of the global staffing company Manpower Group Inc. According to Schmid, Joerres called this a “global labor arbitrage” and said that “it’s happening so fast on a global scale that it’s scary.”
In other words, some jobs that were outsourced to China are coming back not only because Chinese wages are rising toward U.S. levels, but because American wages are falling toward Chinese levels.
Will this trend reverse itself? Not if Doug Oberhelman, the hard-charging CEO of Caterpillar Inc., has anything to say about it. Caterpillar has been driving down workers’ wages and getting by with it, because the global economy enables it to shut plants, fire obstreperous workers and moves their jobs somewhere else. But at what point does Caterpillar feel it’s gone far enough?
Never, as Oberhelman told Bloomburg Businessweek. “I always try to communicate to our people that we can never make enough money. We can never make enough profit.”
Finally, I recommend a beautifully-written article from Ground Zero in this new Age of Inequality. It’s datelined Port Clinton, Ohio, an old factory town where Robert D. Putnam, the Harvard professor who wrote “Bowling Alone,” grew up. Putnam’s article talked about the destruction of his home town’s middle class and, in its place, a new underclass, apparently mostly white, and a new, fabulously rich upper class.
Putnam’s article is entitled, “Crumbling American Dreams.” I hope you’ll read it.