What Has Happened To Our Middle Class?

Posted on June 27, 2012

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First let’s talk about the meme that the “rich get richer and the poor get poorer”. That the rich are getting richer is without a doubt true. So, I won’t even go there. But, what about the poor? Are they really getting poorer? That would be a difficult case to make in America.

In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year. So, why does it seem that the percentage of our population that is classified as being poor never changes? Bruce McQuain of Questions and Observation uses a recent CATO Institute study to give us the answer.

The federal poverty rate is the percentage of the population below the federal poverty threshold, which varies based on family size.

A point that needs to be raised here is the poverty rate isn’t going to change no matter how much we spend because revisions to the threshold will always be such that about 15% of the population will be considered poor.

But are the people classified as being poor really poor?

Well, I’m not sure and neither is anyone else.  That’s because of the way poverty is measured in the US.  Essentially it is based solely on income.

The official poverty measure counts only monetary income. It considers antipoverty programs such as food stamps, housing assistance, the Earned Income Tax Credit, Medicaid and school lunches, among others, “in-kind benefits” — and hence not income. So, despite everything these programs do to relieve poverty, they aren’t counted as income when Washington measures the poverty rate.

So guess what remains the same?  The poverty rate.  If “in-kind benefits” were included in income calculations for those receiving them, a lot fewer of them would be considered “poor”.   And since it’s only based on income, many elderly who receive retirement incomes below the “poverty” threshold are considered to be poor despite the fact that they own paid off assets like houses and cars and live comfortably on that retirement income.  But they pad the stats and help to continue to justify the programs and expenditures.

I don’t question that there are some Americans who have fallen through the cracks and are definitely poor by any definition. However, it is not 15% or anything close to 15%.

What about the middle class?

Rick Moran at American Thinker wrote last month: Middle class wages dropping faster under Obama than Bush. Although that is true, back in 2010 The Daily Reckoning quoted this from a Financial Times article:

“Dubbed ‘median wage stagnation’ by economists, the annual incomes of the bottom  90 per cent of US families have been essentially flat since 1973 – having risen  by only 10 per cent in real terms over the past 37 years. [...] In the last  expansion, which started in January 2002 and ended in December 2007, the median  US household income dropped by $2,000 – the first ever instance where most  Americans were worse off at the end of a cycle than at the start. Worse is that  the long era of stagnating incomes has been accompanied by something profoundly  un-American: declining income mobility…

And, last year CNN Money put out this graph:

income inequality

From the CNN link they wrote:

Incomes for 90% of Americans have been stuck in neutral, and it’s not just because of the Great Recession. Middle-class incomes have been stagnant for at least a generation, while the wealthiest tier has surged ahead at lighting speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.

CNN being CNN, you won’t be surprised that they put the blame on the decline of unions. Do you agree?  I spent a lot of years in the corporate world of the mining industry. All of our mines were non-union and we worked hard to create an environment for are workers so they would not want to unionize.  There were five attempts to unionize our workers and each time they were voted down. In part this was due to the fact that we always tried to keep our wages and benefits a little better than our unionized competition. maybe the company I worked for was an exception. Maybe there is an element of truth that the decline in unions has  reduced the competition in the labor market. How much of a factor that would be, I have no idea. But, competition in the labor market doesn’t come solely from unions. Low unemployment causes competition for labor as well and over the last thirty years America has seen periods of low unemployment but there is no evidence that wages raised during those periods.

So, what is going on? Are the Occupy crowd correct? Are the one percenters nothing but a bunch of greedy bastards?  The CNN article linked above had this to say:

Meanwhile, the richest 1% of Americans — those making $380,000 or more — have seen their incomes grow 33% over the last 20 years, leaving average Americans in the dust.

Maybe there is something to what the Occupy folks say. Corporations keep setting records for their profits and upper management is being well taken care of; but the rest of their employees are seeing their wages stagnate at best.

There is, however, well defined labor market prices. There are a number of companies whose business is to produce wage data for almost every class of worker for every region of the country. It is reasonable that no company wants to be the price leader in the labor market; yet they know they must be competitive. I recall a young women who I had recently promoted to the position of Chief Account back in the early eighties. She was doing a first class job, she was very efficient and, she put in all the hours necessary without any prodding from me. In her new position, she was privy to the salaries of all our staff. One day she came to me to complain that she had a college degree and was a professional accountant and she didn’t understand why a maintenance supervisor without a highschool degree was making more than she was. I had to explain the job market to her. I told her that I could replace her, if she left, with an equally qualified person at the same pay than I could if the maintenance supervisor were to leave. The maintenance supervisors position, due to supply and demand, commanded a higher salary. That is the way the world works. But, I am not willing to let our so-called “capitalist captains of business” off the hook. While making record profits, they are missing out on what i believe would be a good business decision by not reinvesting some more in their workforce. A thriving middle class would be could for all businesses. If they don’t want to be a price leader in the labor market, I think they should consider giving vacation bonuses or Christmas bonuses. More money in the pockets of the corporate workforce would indeed stimulate our economy and they would probably see their profits grow even more. If the current trends continue, the one percent will be fine and the rest of us will be on food stamps. That would make Obama happy.

Well, that’s what I’m thinking. What are your thoughts?

Posted in: Middle Class