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The Great Middle Class Squeeze

Thu, 03/08/2012 - 8:57am
Mike Collins, Author, Saving American Manufacturing

What ever happened to all the good family wage jobs?

Back in the early sixties when I got out of high school there were a lot of good “family wage jobs.” By family wage, I mean one person was working and able to support a family without the wife working. My friends, who had no aspirations for college got jobs as warehousemen, lift truck drivers, operators at paper mills, and longshoremen. Some kids who were technically sharp went into the trades and became journeyman machinists or electricians.

Some women worked for the airlines where the women were paid the same as the men and had good benefits. Young people who lived in states with auto plants could start right out of high school and make excellent wages, good benefits, with long vacations. Almost all of these jobs had unions.

Wages and upward mobility were good and every worker was sharing in the growing prosperity. This growth and prosperity went on from World War II to the mid seventies — but then things began to change.

In July of 2011, an article in the Financial Times by Edward Luce, noted that “the annual incomes of the bottom 90 percent of U.S. families have been essentially flat since 1973.The data from the U.S. Census Bureau on the Median Household Income in the U.S. really tells the story of the middle class.

They adjust the median household income for inflation so they can compare each year. Starting in 1973 (the end of the post war) income growth and the median household income was $46,109. At the end of 2010, the median household income was $49,445, or a growth of $3,336 over 37 years. So income for the middle class has hardly budged and consequently, the purchasing power to buy what the economy is able to produce is simply not there. Since consumption is 70 percent of our economy these numbers do not bode well for the future.

How did this happen?

 

There is no simple answer and there are many contributing factors:

 

  • Automation – The blue collar jobs that many of my friends found after high school have been mostly eliminated by automation. I was in the automation business for many years manufacturing palletizers and robots for production lines that would eliminate at least one person per shift. So, the low skilled jobs for the high school graduate are a rarity and the new problem for manufacturing is to find highly skilled workers to maintain and troubleshoot all of this automation equipment.
  • Technology – This is not just a problem for low skilled blue collar workers. Automation and technology are also eliminating white collar jobs. Work that is repetitive and can be digitized can be sent over the Internet and done in other countries. According to data provided by Moody’s, nearly 300,000 office and administrative support positions gradually disappeared form 2004 to 2009. In addition, jobs in engineering, software, accounting, IT, and medical professionals can be done by highly qualified people in foreign countries at 1/5 of the cost.
  • Outsourcing – Millions of manufacturing jobs have been off-shored, mostly by the multi-national corporations.
  • Immigration – The flood of Latino workers coming across our border has not just taken the farm and agriculture jobs. They are ambitious workers that work very hard and they have moved up the economic ladder into the physically hard jobs. They are now dominant workers in roofing, wallboard installation, framing, landscaping, painting, carpet installation, and other physically demanding jobs. The average American worker simply cannot compete with these workers in terms of price or output.
  • The Decline of Unions – In the late 1970s the big corporations got together and decided to eliminate unions and reduce wages over the long haul. They have been very successful. The percentage of workers who are represented by unions (non-government) has declined from 29 percent in 1970 to 11 percent in 2011. Collective bargaining through unions had allowed workers to earn 15 to 20 percent more than people in non-union jobs. The erosion of collective bargaining has been a key factor in the decline of household income for the middle class.
  • Big Company Focus on Two Tiered Wages – The big corporations also focused on finding ways to reduce workers income. Some clever manager came up with the idea of a two tier wage system. During collective bargaining the company offers the workers a two tier wage system where the current employees get to keep their current wages and benefits, but all new employees start out at reduced wages and benefits. The current employees like the deal because they don’t see very much reduction, and the union likes it because they get a lot of new members when the low-paid, new workers are hired. Over the long haul, as current employees retire, the overall cost of labor is significantly reduced.

 

A good example is the United Autoworkers who negotiated with Chrysler and GM to reduce the pay of a new worker from $26 to $14 per hour. The same approach was used in the airline industry, chemical industry, for 60,000 grocery workers in California, beer industry, and 22,000 building cleaners in New York City.

It remains to be seen whether this is going to work for manufacturers. When the person next to you is doing the same work and you are being paid $14 per hour and he is making $26 per hour, there are bound to be resentments, which could affect the working team and productivity. Manufacturers need highly skilled workers and there is already a shortage. The two tier wage system has worked on low skilled workers but manufacturers may have to pay the price to get the people they really need in the future.

At the same time that wage reductions were being strategically introduced there was a similar effort to reduce taxes and increase the incomes of the well paid managers and owners. It began with President Reagan in the early 1980s when the tax laws were changed by Congress (supported by Democrats and Republicans). People in the 70 percentile tax bracket were suddenly allowed into the 28 percent tax bracket. President Bush gave these same people another break with another 5 percent tax reduction in the decade 2001 to 2011. Both of these programs were sold as benefitting the average worker but most of the money went to the wealthy. The real winners were the top 20 percent (5th quintile) whose income grew 55 percent over the period. But the top 1 percent of households went from $337,100 to $1.2 million per year or a gain of 256 percent.

A Pew Research poll showed that “41 percent of American believes that younger adults have been hit harder than any other group, and a wide majority of the public — at least 60 percent — also said it’s more difficult for today’s young adults than their parents’ generation to pay for college, find a job, buy home, or save for the future. Fewer than half of young adults who are currently working say they have the education and skills necessary to advance their careers.”

Harry Holzer, co-writer of Where Are All of the Good Jobs Going says, “It’s the good paying production and clerical jobs that are disappearing.” There is still opportunity in the professional jobs such as doctor, lawyers, scientists, CPAs, etc., but it requires a lot of advanced education and the minimum requirements to get into these schools are very high.

There is also a growing need for people with vocational training and specialized skills such as auto mechanics, electrical technicians, medical technicians, and machinists at the community college level and President Obama wants to invest $8 billion into community college education and training.

But the new economy has fewer and fewer jobs for high school and college graduates with general degrees. This is particularly true in manufacturing where there is little need for low skilled jobs but a growing need for people who can acquire journeyman skills.

There is a growing hostility, as seen in the “Occupied” movement, that the system is unfair and that there is simply too much inequality. This has created doubts in many minds about the American dream, and is part of the frustration leading to the “Occupied” movement. Many workers, particularly younger workers, feel that they are working longer hours for less money, reduced job security, reduced benefits, and fewer social services.

The pendulum of economic and political reform swings slowly back and forth over decades. The last time the middle class was in serious trouble was during the Great Depression, which resulted in many reforms driven by big government. Since Congress seems incapable of doing anything that might help the middle class, it will probably take a serious populist revolt to bring reform. This could lead to a progressive income tax, legislation to help unions, restrictions to banks and Wall Street, higher minimum wage, more government, and other reforms that big business won’t like.

The ladder of upward mobility for the middle class has not collapsed, but the rungs of the ladder are much further apart. It will take aggressive, ambitious and perhaps acrobatic workers to get to the top and realize the American dream.

Mike Collins is the author of Saving American Manufacturing. his website is www.mpcmgt.com.

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