Squeezing the middle class

04/13/2014 12:00 AM

04/12/2014 11:25 PM

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The comfortable world that I lived in as a child – where the middle-class families we knew were not burdened by a sense they were running in place or slipping backward financially – has largely vanished.

Back in the 1950s and ’60s, mushrooming costs for health care, education and housing were not topics of worry in my home or in the homes of my friends. The expectation was that people’s hard work produced a cocoon of economic stability where both livable wages and advancement were attainable.

In those days, some very wealthy people lived in my hometown of Santa Monica, but the income gap between rich and poor never felt as pronounced as it does today when I see so many mansions squatting where modest homes once stood.

The old world, taken for granted by many, is now mostly a memory.

Today, workers struggle with stagnant wages, employees find fewer avenues for promotion and more people readily fall into poverty, while legislation raising the federal minimum wage is stalled and corporate executives reap salaries of stupefying proportions.

Since the late 1970s, workers’ wages have not grown at the pace they did after World War II. Simultaneously – one can grasp the connection – the number of unionized workers has fallen sharply: Today unions represent only about 11 percent of workers, compared with a third of the workforce in the mid-1950s.

Living in this harsher world, much of the middle class finds itself in an anxiety-inducing squeeze while the nation’s top 1 percent garner more and more of the income pie. These trends play out right under our noses: A recent study reports the city where I live, San Francisco, has one of the nation’s biggest income gaps between rich and poor. The study also found Sacramento’s income gap has grown.

Looking at this bleak economic tableau, we seem like a nation that has lost our way when it comes to assuring that all Americans can earn enough for a decent way of life.

President Franklin Delano Roosevelt addressed this concern in 1937 by sending to Congress a federal minimum wage bill to give “all our able-bodied working men and women a fair day’s pay for a fair day’s work.”

Republican leaders in the House of Representatives today are not moved, however, by arguments like FDR’s or by polls showing strong public support for a federal minimum wage increase. They are blocking a vote on legislation that would raise that minimum wage from the current $7.25 level to $10.10 by 2016.

Rep. George Miller, D-Martinez, author of the legislation, told me that 195 House Democrats have co-sponsored his bill, but “the Republican leadership refuses to bring the bill up for consideration on the House floor. When it comes to the floor, it will pass.”

Last year when the minimum wage legislation was first introduced, Sen. Tom Harkin, D-Iowa, author of the Senate version of the bill, said its opponents would argue that the measure would have a catastrophic effect on business. Harkin said that Roosevelt had a strong rejoinder to those foes when he stated, “Don’t let any calamity-howling executive with an income of $1,000 a day, who is turning his employees over to the government relief rolls in order to preserve his company’s undistributed reserves, tell you … that a wage of $11 a week is going to have a disastrous effect on all American industry.’’

When economists and other experts talked to me about the need to increase the minimum wage and about how the middle class has become so squeezed, they cite a number of factors, including the loss of millions of good-paying jobs due to technology and globalization, and a flattening of workers’ wages.

“It is quite visible why we have had this erosion of the middle class – because we have become this low-wage nation with globalization and technology fostering foreign competition and easing the way for U.S. businesses to move jobs out of the country,” Peter Edelman, author of the book “So Rich, So Poor: Why It’s So Hard to End Poverty in America,” told me.

“Higher-paying jobs in the auto and steel plants were replaced by this flood of low-wage jobs, and in the last 40 years, the wages for the bottom half of the workforce only grew by 7 percent,” said Edelman, a Georgetown University law professor who is director of the school’s Center on Poverty, Inequality and Public Policy.

At the same time, the chasm between households at the top and bottom has grown.

Take Sacramento, which has an income gap close to the national average: The city ranked No. 27 among the 50 largest cities that the Brookings Institution analyzed recently when evaluating inequality. Alan Berube, a Brookings senior fellow who wrote the report, told me that in 2012 a Sacramento household “in the 20th percentile of income distribution earned $17,900, while a household at the 95th percentile earned $169,000, or 9.4 times more.” In 2007 in Sacramento, the 95th percentile made 7.4 times the income of a household in the 20th percentile. Berube noted that the increased spread between the top and bottom reflects the fact that between 2007 and 2012 the households in the 20th percentile lost income at a rate about four times greater than households in the 95th percentile.

Looking at San Francisco, the Brookings report explained why it has one of the nation’s largest income gaps between rich and poor by noting the city’s “ratio is high because its wealthy households have very high incomes, considerably higher than in any other major city” – about $353,000 at the 95th percentile.

Who are these wealthy Americans?

Emmanuel Saez, a University of California, Berkeley, economics professor who is director of that school’s Center for Equitable Growth, told me: “In the early 20th century, top incomes were mostly derived from wealth accumulated during the Gilded Age. In contrast, in the early 21st century, a large fraction of top incomes is derived from work.”

Many economists and public policy people who have looked at income inequality in America see increasing the minimum wage as a key step toward diminishing the ranks of the poor. But no one touts this move as a complete fix.

People need to become more politically active, Edelman said. “That means doing things like being out on the street to push Wal-Mart for change.”

Berube, the Brookings senior fellow, says at the local level “officials can generate smarter economic opportunities by bringing business, education and labor leaders together to prepare younger workers for good jobs in the sectors that drive their cities’ economies. Chicago is doing this by focusing each of its community colleges on a particularly strong sector for the local economy.”

So, confronted with the growing financial spread between the top and the bottom, stagnating wages, and the middle class’ and poor’s struggle to achieve a financial stability, how are the American people reacting?

Thomas Frank, author of the 2004 polemic “What’s The Matter with Kansas? How Conservatives Won the Heart of America,” advances a theory that a brand of conservatism he calls “the backlash” has won over many by mobilizing “voters with explosive social issues, summoning public outrage over everything from busing to un-Christian art – which it then marries to pro-business economic policies.”

Frank blames backlash leaders for reducing corporations’ tax burdens and “generally facilitating a return to a 19th century pattern of wealth distribution. … Thus the primary contradiction of the backlash: It is a working-class movement that has done incalculable, historic harm to working-class people.”

Though the tenor of Frank’s analysis often seems too strident, I agree with many of his dark pronouncements.

Just at the moment, though, when I doubt whether Americans will awake to the need to focus public policy and dollars on those who are struggling to get by, there are some good signs.

For starters, large segments of the populace support an increase in the minimum wage. Many states have set pay higher than the federal $7.25 minimum wage, including California (now $8, increasing to $9 July 1 and $10 in 2016). Some cities (San Francisco $10.74) and businesses (The Gap $9, increasing to $10 next year) have made similar moves.

Some business support exists as well. “Right now, many businesses are reporting that weak demand is a main factor holding back their ability to hire and invest,” Miller told me. “As a result, small-business owners overwhelmingly support an increase in the minimum wage … Raising the minimum wage is a pro-growth policy that is good for workers, good for businesses and good for the economy.”

These developments make me encouraged that many voters hopefully are accepting of the fundamental truth that Roosevelt spoke when he sent the first minimum wage bill to Congress: “A self-supporting and self-respecting democracy can plead … no economic reason for chiseling workers’ wages.”

Edelman’s comments about the process of change in America are also heartening to those who hope Americans can come together behind political change with some sensibility about helping the people on the bottom. “The change we need will come when enough voters see what’s what and demand that candidates speak to their needs,” he said. “History proves that these periods of bright light do appear now and again. People power is a strong weapon when circumstances unleash it.”

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