GOODBYE, MIDDLE CLASS, Part 2: Declining Wages. Or, Why the Poor Get Poorer

Continued from Part 1: Our Growing Inequality. It's Worse than You Think.

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt

The long post-war period of the 1940s to the mid-1970s is known as the Great Compression because differences in incomes and living standards were compressed; with Americans from the top to the bottom of the income scale closer together than ever before or since.

This was our most democratically shared prosperity in U.S. history.

That great equalizing is sadly a thing of the past, with much of our society restructured to funnel fortune only to the top.

How did our economy tilt in such unfair favor to the wealthy?

The overwhelming majority of journalists, economists, and historians point to one direction: the conservative, pro-business, free-market movement that began in the 1970s, firmly planted itself in the Reagan administration, and has continued through every administration since.

“As a country, we have declined from an era of middle-class prosperity and middle-class power from the 1940s to the 1970s to an era of vast fortunes and mass economic insecurity,” explains Hedrick Smith in Who Stole the American Dream? “We have fallen from being the envy of the world, with the most widely shared economic prosperity and the most affluent middle class of any place on earth, to losing our title as the land of opportunity. It is now easier, in fact, to climb the economic and social ladder in several Western European countries than it is in the United States. Americans work longer hours, often for lower pay and benefits, and make up the difference with the highest ratio of two-income households of any advanced economy in the world.”

William Kleinknecht confirms such in The Man Who Sold the World: “Americans now work more hours on average than our counterparts in any other developed nation, for reasons closely linked to the Reagan Revolution: the stagnation of middle-class wages and the insecurity of corporate employment... In a world where the next round of corporate downsizing is always just around the corner – as CEOs seek to impress Wall Street with their ruthlessness – it becomes a matter of survival for employees to stay at their desks as long as their coworkers.”

According to the OECD, in 2015, Americans worked an average of 71 hours more a year than the Japanese, 84 hours more than Canadians, 122 hours more than Brits, 125 more than Australians, and 419 hours (nearly 10 weeks) more than the Germans. This speedup is the result of offloading: when companies cut jobs and dump the work onto the remaining staff, with no additional compensation. This trend gained traction during the Great Recession.

However, in only three years, corporate profits were better than ever (up 22% from 2007), while the over-taxed workforce never regained the adequate headcount, as reported by Mother Jones in August of 2011.

And for all of those in the media who think Gen X and Gen Y are slackers, think again.

According to Tamara Draut in Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead, “Gen X employees are also working longer hours than their Baby Boomer counterparts did at the same age. In 2002, Gen Xers worked on average 45.6 hours a week, nearly three hours more than young Baby Boomers worked in 1977.”

Young adult men aged 25-34 have the highest rate of multiple-job holding of all male workers. The highest rate overall goes to young single women. And they are all living paycheck to paycheck, with too many at minimum wage.

According to The Atlantic’s CITYLAB, the minimum wage peaked in 1968 at $8.54 an hour, adjusted for inflation.

This means the pay of a typical male worker is lower today than in the 1960s and 70s.

The current $7.25 an hour is far too low for the 3 million hourly workers who earn at or below that threshold.

But wait, you may think. Aren’t minimum wage jobs just meant to be a stepping stone, somewhere people go for experience, not a livelihood?

The fact is that 50% of minimum age workers are over age 25. Nearly a quarter of the 3.2-million minimum-wage workers in 2014 were over 40, according to Nate Silver’s

“Despite these shifts in employment patterns, most brand-name retail, service and restaurant chains…insist they are still offering hobby jobs for kids. Never mind that the service sector is now filled with workers who have multiple university degrees, immigrants unable to find manufacturing jobs, laid-off nurses and teachers, and downsized middle managers. Never mind, too, that the students who do work in retail and fast food…are facing higher tuition costs, less financial assistance from parents and government and more years in school. Never mind that the food service workforce has been steadily aging over the last decade so that more than half are now over 25 years old,” writes investigative journalist Naomi Klein in her breakthrough book No Logo: Taking Aim at the Brand Bullies.

“This internalized state of perpetual transience has been convenient for service-sector employers who have been free to let wages stagnate and to provide little room for upward mobility, since there is no urgent need to improve the conditions of jobs that everyone agrees are only temporary,” continues Klein.

“Large chains such as Wal-Mart, Starbucks, and the Gap, as they have proliferated since the mid-eighties, have been lowering workplace standards in the service sector, fueling their marketing budgets, imperialistic expansion and high-concept “retail experiences” by lowballing their clerks on wages and hours. Most of the big-name brands in the service sector pay the legal minimum wage or slightly more, even though the average wage for retail work is several dollars higher…McDonald’s and Starbucks staff…frequently earn less than employees of single-outlet restaurants and cafes, which explains why McDonald’s is widely credited for pioneering the throwaway ‘McJob’ that the entire fast-food industry has since moved to emulate…To the large chains, which seem at least for now to have bottomless resources to build superstores and to sink millions into expanding and synergizing their brands, the idea of paying a living wage is rarely considered.”

Klein documents how the American labor force has been destabilized, with factory jobs being outsourced, temporary contracts replacing full, secure employment, CEOs opting for shorter stints in corporations, breezing in just long enough to purge half of the employees before they go. “Every corporation wants a fluid reserve of part-timers, temps and freelancers to help it keep overheads down and ride the twists and turns in the market…Offering employment – the steady kind, with benefits, holiday pay, a measure of security and maybe even union representation – has fallen out of economic fashion.”

“America has entered the age of the contingent or temporary worker, of the consultant and subcontractor, or the just-in-time work force – fluid, flexible, disposable,” declares Lance Morrow in Time magazine. “This is the future. Its message is this: You are on your own… This is the new metaphysics of work. Companies are portable, workers are throwaway.”

One of the key problems facing the service sector employees is its reliance on part-timers, which has tripled since 1968. Naomi Klein explains, “Starbucks…staffs its outlets almost exclusively with part-timers while only 1/3 of Kmart’s workforce is full-time.” While this flexibility is helpful for mothers and students, a key reason so many employers utilize part-time positions is to keep wages down and avoid benefits and overtime. Wal-Mart is notorious for this practice. Not coincidentally, Wal-Mart defines full-time as 28 hours, Borders at 37.5 hours, Gap at 30 hours, and Starbucks between 35 and 39.

However, the U.S. Government defines full-time as 40 hours, which means working less than 40 hours does not guarantee paid leave or benefits.

“Ticket clerks, back-office workers, and bank cashiers as well as factory workers have been pushed out of full-time jobs and then hired back by the old company as theoretically “independent contractors” at lower pay as temporary or part-time workers with few or no benefits,” explains Hedrick Smith in Who Stole the American Dream?

In the 1990s, these temp workers became the fastest growing segment of the U.S. workforce. “In 2005, roughly 30% of the labor force – 42.6 million people – were classified as contingent workers, paid lower wages and lower benefits than regular workers and highly vulnerable to layoffs. By late 2011, more than 8 million Americans were working part-time against their will. Tens of millions more were hired through temp agencies as “independent contractors” to keep them off the company payroll but permanently on the job, doing the same work as regular employees for years on end but at lower pay and benefits,” continues Smith.

These permatemps are the wage serfs of the new economy.

“The use of temp labor in the U.S. has increased 400% since 1982,” explains Klein. “According to a 1997 study, 83% of the fastest-growing American companies are now outsourcing jobs they once hired people to perform – compared with 64% just three years before…In the U.S. 29% [of temp employees] stay at the same posting for a year or more. Their agencies have become full-service human resource departments for all your no-commitment staffing needs, including accounting, filing, manufacturing and computer services…More companies are contracting out entire functions and divisions – work previously performed in-house – to outside agencies... The percentage of Silicon Valley workers employed by temp agencies is nearly three times the national average.”

Naturally, part-time and hourly work often translates to minimum wage.

MIT has released a new Living Wage Calculator, which maps the difference between minimum wage and basic costs of living across the U.S. [to access map Click Here]

Not a single county in the U.S. has a minimum wage that matches the local cost of living.

In counties like Marin or San Francisco, earners would need to earn $20 more an hour to support a family, or roughly three minimum wage paychecks.

Wanna really throw up your Top Ramen?

In 2012, the average income of the bottom 90% of Americans fell to the level of 1966.

The only way the middle class has maintained its income is because women entered the workforce to compensate.

Consider these statistics from Elizabeth Warren in Divided: The Perils of our Growing Inequality:

  • American families spend 32% less today on clothing than in the 70s.

  • American families spend 18% less today on food than in the 70s.

  • American families spend 52% less today on appliances.

  • Owning a car today costs 24% less than in the 70s. This money (purchase/repairs/insurance/gas) has gone to spending 23% more on electronics.

  • Families must now have two cars, as both parents must work. This creates a need for childcare.

  • In one generation, mortgage payments have doubled.

It’s easy to blame people for not living within their means. But when you adjust for inflation and consider where our money goes, the statistics tell a different story.

We’re living like we always have; it’s the money that’s not going further.

Thus, when you spend like your parents did, your money goes only half as far. This is why today’s two-income family has less cash left over than its one-income parent had a generation ago.

And as salaries decline, poverty increases. As we’ll see next in… Part 3: Increasing Poverty, Declining Health