INCOME & WEALTH DISPARITY – PART IV – THE SHRINKING MIDDLE CLASS – HOW BAD IS IT?

Just as we hear a lot about “income equality,” we are also hearing a lot about the “shrinking middle class.”  We thought it would be worthwhile to take a closer look at who exactly is the middle class and how bad it is for them.

To begin any conversation, we have to define our terms; and here are some easy-to-find definitions of “middle class.”

From Merriam-Webster:  The social group between the upper and working classes, including professional and business workers and their families.

From President Obama in December:  A “basic bargain” that is eroding.  You could have some confidence that if you gave it your all, you’d take enough home to raise your family, send your kids to school,  have your health care covered and put a little away for retirement.”

And my favorite and most acccurate from Wikipedia:  Sociologists such as Dennis Gilbert of Hamilton College commonly divide the middle class into two sub-groups.  Constituting roughly 15% to 20% of households is the upper or professional middle class consisting of highly educated, salaried professionals and managers.  Constituting roughly one-third of households is the lower middle class consisting mostly of semi-professionals, skilled craftsmen and lower-level management.  A middle class person commonly has a comfortable standard of living, significant economic security, considerable work autonomy, and relies on their expertise to sustain themselves.

That’s about 50% of all households in the U.S.

So how bad is it?  Well, from our research, the answer is not too good.  Some examples come from U.S. Census Bureau, which reported median household incomes falling from $55,627 in 2007 to $51,107 in 2011.  That’s an 8.1% drop and doesn’t bode well for the middle class.

Then there’s globalization and outsourcing—the ability of businesses to move jobs virtually anywhere in the world where labor cost savings justify such a move.  This not only affects factory-level, but also professionals working in fields such as accounting, programming and architecture, to name a few   This outsourcing of labor disproportionately affects the middle class.

Technology and automation also play a role in making it more challenging for the middle class. For example, you must have noticed self-checkouts at Home Depot, Lowes, as well as your favorite local supermarket.  This technology allows one employee to support four to eight checkouts, displacing otherwise well-paying, (usually) union jobs.  In addition, technology, like TurboTax, is thinning the ranks of accountants as this program is quite capable of preparing the tax returns of most Americans for as little as $39.

And there’s the loss of middle class wealth from the tumble in real estate values since 2007, increasing costs annually for health care and the challenge of ever-increasing college tuition.

Add to that our weak recovery from the last recession.  A recovery that in every way encouraged businesses to hire fewer workers (as they could get more productivity from existing workers who were just happy to have a job) and because of Obamacare to hire more part-time or temporary workers rather than full-time, permanent.  And one shouldn’t expect much of a raise in these stagnant times.

And finally there’s inflation.  Even though the published government inflation numbers indicate relatively low inflation, around 2006 the method of calculating inflation was changed such that a lower inflation rate is now presented.  One only needs to shop regularly to know that food prices have been going up.  And remember some six short years back when gas prices were between $2.00 and $3.00 a gallon?

According to a recent Pew Research study, 85% of middle class Americans say it is “more difficult to maintain their standard of living now than it was a decade ago.”

Put these facts together and we can  understand why so many in the middle class are suffering and doing all they can do to hold onto their middle class standard of living.

The solutions currently offered by the Obama administration and the disparity advocates won’t solve the problem and do nothing to narrow the gap in income.  Encouraging growth in enrollment in food stamps; increasing the minimum wage to $10.10 per hour; providing health insurance to all through Obamacare; extending unemployment benefits to 99 weeks; and the almost doubling of folks qualifying for disability payments through Social Security Disability insurance since 2007 won’t do it.

What’s needed are more jobs and upward job mobility.  We all know that and we’ve heard talk about it for years, but no serious government policies have been enacted to make it happen.

There are many things our federal government can do to help.  And, yes, Washington has created a lot of well-paying government jobs, but one must remember that all government jobs are created on the backs of working folks.  It’s the private sector—large businesses, small businesses, entrepreneurial start-ups and nonprofits—where we need the growth and a change in direction in national policies can really help.

For example, with the stoke of his pen, President Obama can approve the Keystone Pipeline, which will immediately create thousands of high-paying construction jobs while helping us achieve energy independence.  He could also support tax policy that would repatriate billions of dollars US companies hoard overseas, dollars that could be used to create jobs in America.  We will discuss these and other policies our government can and should enact to ease the financial challenge to our middle class in our last blog on summation and solutions.

The middle class has definitely been shrinking for reasons we’ve described.  Why the disparity advocates keep trying to include this problem as part of their crusade about income disparity we don’t understand.  There does not appear to be any connection.

Our blog next week will start getting to the crux of this whole subject; what are the consequences, real or imagined?

ArtSchwartzSig

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3 Comments

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3 responses to “INCOME & WEALTH DISPARITY – PART IV – THE SHRINKING MIDDLE CLASS – HOW BAD IS IT?

  1. Won’t all this change now with everyone going to college and the minimum wage increase?

  2. I see you are trying to solve this problem that we agree exists.

    That’s a good start because if the Rs and Ds in Congress can agree the problem exists maybe they would be open to regulating some sensible solutions whether or not they benefit their individual districts.

    Just be aware the private sector—large businesses, small businesses, entrepreneurial start-ups and nonprofits—grow the fastest when they land those plump government contracts. Yes, tax and spend. It’s good for business!

    I believe it is a fact that a national policy supporting more government spending is better than more government tax cutting. We just need to make sure the spending is NOT CORRUPTED or WASTEFUL.

    It appears you will be getting your way and President Obama is going to
    approve the Keystone Pipeline. However, your prediction that “thousands of high-paying construction jobs” remains to be seen. What do you predict will be the longevity of these pipeline construction jobs? By the way, we are already producing more domestic energy than ever before. It appears Obama’s goal of energy independence will likely be reached before he leaves office.

    Believing cutting taxes would repatriate billions of dollars US companies hoard overseas and would be used to create jobs in America is a trickle down economy dream. Look at how many corporations are carrying huge cash assets on their books (thanks to the government economic stimulus the past 5 years) and doing nothing more than creating a few jobs (probably because of Obama’s bullying them to do so).

    Your memory of $2 and $3 gasoline 6 years ago is unfounded.
    The reality is that In late 2005 the price of gasoline went from just over $2.00 to just over $3.00 – a 50% increase – in about three months. It came back down, but then spiked dramatically again into mid-2006 and once again in 2007. (This was about the same time President Bush was giving us back our money that was left over from the Surpluses created during President Clinton’s years. My tax rebate went straight into my gas tank. What did you do with yours?)

    If we just go back to January 2002 (Democratic President) the price of gasoline was just above $1.00 per gallon. It actually reached a price peak of over $4.00 per gallon in mid-2008 (6 years ago – Republican President) based on all of the speculation in the oil markets, dropping dramatically over a three month time frame into the end of 2008. Never down to the $2 or $3 you mention.

    One last point to remember. Thanks to new government regulations since the auto industry bailout – also on Obama’s watch – newly made autos and trucks are REQUIRED to get an average of 35 MPG by 2016.
    To date, Detroit is reporting it has achieved an average of 27 MPG. Do the math and you will see if you get more miles per gallon, you spend less dollars overall even with gasoline at its current $3.50 to $3.60 per gallon.

  3. Art Schwartz

    To the Prof .. Not everyone goes to college and even if they did it would have no effect on the income disparity. Raising the min wage, may have some merit bit it will have ZERO effect on the disparity … ART

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