Tuesday, August 10, 2004

The Middle-Class Squeeze

When I was growing up, many workers were part of the middle-class; most of them, in fact. Today that's not the case. Wages have been static for a quarter-century while costs have, of course, risen markedly during the same period. This piece discusses why this has been less noticable than you might have expected, and why it's now beginning to loom as a real crisis.

Middle-Class Tightrope
It's More Dire Than The Numbers Show

By Jacob S. Hacker
Washington Post, Tuesday, August 10, 2004; Page A19

In an election dominated by terrorism and Iraq, the outcome may not come down to what Democrats are calling the "middle-class squeeze," but no one should pretend that the issue isn't real.

Of course, the Bush campaign and its allies are claiming just that. They note that unemployment and inflation are low and that the economy is growing at around 3 percent -- far from stellar but also far from a recession.

Family incomes rose across the board in the lead-up to the recent downturn, and housing wealth -- most families' main asset -- increased handsomely. Even the jobs picture, seen as Kerry's biggest weapon, has shown some improvement, though last week's figures demonstrate how shaky it remains. As a result of all this, many commentators have joined the Bush campaign in openly wondering what the continuing fuss is all about.

But the commentators, and the numbers, are missing the deeper story -- a story reflected in the continuing anxiety about the economy that survey after survey shows. Over the past two decades, two great transformations have been on a collision course -- the rise of the two-earner family and all but stagnant real wages for most workers. The sluggish economy of the past few years has made the resulting strains unmistakable. By many measures, American families in the middle of the income ladder are stretched thinner today than at any point since the early 1980s. Perhaps more important, their economic situation has, in ways both big and small, become notably more precarious.

This may come as a shock, but it shouldn't. Middle-class earnings are up, but this is mostly because women have moved into the workforce. Without the huge one-shot boost of a second breadwinner, according to Jared Bernstein of the Economic Policy Institute, most families would barely have moved upward since 1980.

And that might have been fine -- if the cost of a middle-class lifestyle had remained stable. It has not, as Harvard Law professor Elizabeth Warren and her daughter, Amelia Tyagi, argue in their book "The Two-Income Trap." Two-earner families need to spend more, not less, than the "Leave It to Beaver" set. They need child care, help when kids are sick, a second car.

Plus, they pay more in taxes. (It's rarely noted that two-earner families are the ones hit by the "marriage penalty"; traditional one-earner families usually get a "marriage bonus.") Above all, the things that Americans value most -- health care, housing, college -- have simply gotten much more expensive. These higher costs often bring major benefits. But they mean that being middle class is a lot more costly than it used to be.
My own recent analyses of income statistics, for instance, suggest that family incomes have become two to three times more unstable in the past three decades, even for well-educated workers and two-earner families. The causes are multiple: Jobs are less secure, wages are more volatile, government programs and employment-based benefits have been cut, and families with two earners in the workforce are more exposed to job instability than one-earner families. But what seems clear is that many of the arrangements that once protected the middle class from economic risk -- not just public programs but also private workplace benefits and help from within communities and families -- aren't doing the job today.

If America is to remain a nation in which economic security isn't just the province of the affluent, these arrangements must be rebuilt. The most daunting task will be to encourage strong, broadly distributed growth, and this goal will require private leadership as well as public policy. But government can and should deal with the pervasive risks that mark our postindustrial economy -- and, indeed, only government can deal with many of them. America's ever more creaky structures of risk protection must be adapted to the new realities of work and family. Expanding health coverage and helping families with major expenses is an important start. But the task we face today is greater, and more necessary, than even Kerry and Edwards may realize.

The writer is an assistant professor of political science at Yale and a fellow at the New America Foundation. He is completing a book on economic insecurity, "The Great Risk Shift."

(Thanks to Just a Bump on the Beltway)