The Slow Erosion of the Middle Class:
Unfortunately, it seems doubtful. According to a recent article from Fortune Magazine featured on CNN Money, the issue goes much deeper than any policy set forth by the Obama or Bush administration. Consider the following turn of events:
• Up through the 1970’s, many Americans went to college and became some of the best educated workers.
• After the 1970’s, both high school graduation and college enrollment rates dropped. This is when America began to stop keeping up with the economic market demand for employees with higher-level education and skills.
• As we moved into the new millennium and technology became more prevalent, this only amplified the productivity of those who had the necessary skills and further widened the gap between those in lower-skilled positions.
Breaking the Basic Bargain:
In one of the better books I read last year, author Robert Reich also has his own theories on this phenomenon. The book “Aftershock: The Next Economy and America’s Future” largely suggests that an unwritten code which he refers to as “the basic bargain” has been broken. The basic bargain was the notion that employers should pay workers well so they will have the means to buy from your economy and thus keep it going. If not honored, it could only mean that the middle class will not be able to sustain our economy.
As Reich points out, the median income in American has been little unchanged over the last 30 years. Thus, market corrections like the housing crisis and Great Recession are fundamental examples of the repercussions of this broken basic bargain.
Who Is At Fault?
So is it corporate America that has rigged “the system” and put the power in the hands of the few? “Aftershock” would certainly suggests this. But the article from Fortune has a much simpler explanation:
• The problem is that the middle class isn’t supplying the new skills that the world is demanding.
To quantify this explanation, consider that the demand for so-called middle class skills has shrunk from 75% to 66% between the dates of 1980 to 2009. Explanations for this trend point to the combination of rising demand for high and low skilled workers while technology rendered typical middle-class routine positions to become obsolete.
Which Do You Think Is the Real Issue?
So is the real issue that the middle class’s wages aren’t keeping up with the times? Or is our perception of “worth” changing right under our nose, and, as employees, we’re failing to keep up with the changing rules of the economic game?
Related Posts:
1) Book Review: “Aftershock: The Next Economy and America’s Future” by Robert B. Reich
2) What Will Be Our Next Economic Bubble?
3) Guess What – You Might Be Richer Than You Think!
Photo Credit: Woodleywonderworks, on Flickr
I’m not going to say that wages aren’t related to this issue, but I firmly believe it has MUCH more to do with how we handle money and what we deem as “normal” today.
The rich get richer and the poor get poorer is a very true statement. This is two-fold: (1) it takes money to make money and (2) the rich people know how to build wealth, be frugal, invest wisely, and save whereas the middle class/poor don’t.
Our lifestyles and luxuries that we take for granted are what have hindered the middle class more than anything. No question in my mind.
Our generations ignorance about how to handle money was one issue that never came up in any of the articles or even in Aftershock book. Yet, I agree with you that it is entirely significant! In fact, it was one of the reasons I started this blog! I really don’t believe people are doing enough to take destiny into their own hands!
I think there’s SO many factors here. And none of them are looking good. First, college is EXPENSIVE. The costs are absolutely out of control. Especially for children who grew up in the middle class and therefore are denied many loans and scholarships. They end up not going or going into debt over it. Then there’s the issue of how good is the quality of the education being provided? Not that great. So even if you graduate with a degree, you might not be as good for the position as a foreigner. During the recession, Google and silicon valley in general had TONS of jobs open…they just couldn’t find anyone to fill them. So maybe instead of majoring in Liberal Arts, college students should be looking to study computer science and other advanced technologies. My last rant is that the gov’t needs to stop subsidizing minimum wage via the EIC. Make these companies pay workers more…not through tax rebates funded by the tax payers, but through the funds the company makes at the benefits of the employees’ labor. When minimum wage starts to seriously rise, I’d have to hypothesize that pay in other sectors would, too.
Great response! You should save this comment and use it as an outline for a possible future book about our economic issues 🙂 But seriously, everything you say here is true! I do recall during the Recession headlines where companies were looking for employees but couldn’t find qualified people to fill them. And how can they when college costs so much that people are really starting to weigh whether it is worth it anymore.
I think another factor is the increase in qualifications from immigrants. As foreign countries develop more, their citizens are getting much more educated and moving to other countries to pursue more profitable opportunities. The thing is, what is profitable to them is a lower wage than what the US middle class is accustomed to. So the increase in competition for those kinds of jobs is driving down the salaries or at least limiting growth. In some of those fields it is become an employer’s market with more supply than demand.
That has certainly been an increasing trend over the last decade, even from my own limited observation. I think the enthusiasm for this has slowed slightly ever since the Great Recession. But with the way that technology is playing into the future, I think the rest of the world is going to be catching up with the US and the playing field will be much more level.
Keith Cameron discusses this to a certain extent in his book, The Top 10 Distinctions Between Millionaires and the Middle Class. His argument is that the middle-class fail to follow the same thinking patterns and action steps of the rich.
The poor and middle-class think short-term while the rich think long-term. This means that the rich do better financial planning than the middle-class.
Sounds like this book seconds Jason’s comment! Although I haven’t read Keith Cameron before, I have also heard this same distinction between the rich and middle class. In fact, it is one of the principles I try to exercise. I’d love to see some sort of data that suggests whether or not the younger generation is doing as much as the older generation to take investing (and their futures) into their own hands. Unfortunately, I doubt the trend is very reaffirming.
Great post. I think it is the violation of the “basic bargain” (acomplished through the demise of the single-earner househould). The problem isn’t that we don’t have skilled workers, we don’t have jobs for the “unskilled” (blue collar).
There will be a major correction.
There definitely was a demise to the single earner household. In fact, I remember several friends’ households where the dad was blue collar and the only one that worked. Now a single income family is almost scarce. I’m hoping that correction comes before the two adults in the house have to each have two jobs.
“I have to live for others and not for myself: that’s middle-class morality.”
-George Bernard Shaw
Quite a bit of truth to that quote! In some regards it is honorable to serve others, and for a time workers did well for themselves. But unfortunately I feel as though the rules have been rewritten. And unless we start paying ourselves first, we may not ever make anything for ourselves.
I don’t think that it’s a violation of the basic bargain in a corporations-are-being-evil kind of way….I believe it was a slippery slide. Because of technology (World is Flat) employers were able to farm work to much cheaper areas. So the middle class had tons more competition….which caused the income freeze.
There definitely was a slow, slippery slope to this process. And globalization certainly poured gasoline on the fire and did not help our position. The rules have definitely changed.
I think wages and job availability have something to do with. I agree with FemmeFrugality, college is so expensive. You go into debt to get a degree – then you can’t even get a job. So, really it’s a gamble to even go into debt to get a degree.
Since small business account for so many jobs and the economy is down, those small business’s can’t afford to pay higher wages.
There are just so many things to factor into it.
Agreed! It is a very big mess. On college, the last five years is the first time I’ve ever heard of people questioning whether it is even worth it to go anymore. I can hardly think what I’ll have to pay for my kids when they start in just under 10 years. But even still, I don’t think this will change the demand for the skills employers will want. So yet again you’ll see an even bigger gap between those who “have” and those who “have not”. All we can do as individuals is take our own destinies back into our hands by staying ahead of the curve!
I read the previous comments and happen to agree with many of them. I definitely think that the rich think more “long term” and many have mastered ways of “hiding their money.” While the middle class pays their fair share of taxes, the rich find ways to hide their true earnings. Buffet’s secretary (makes a little over 200K/year) pays taxes at a rate of 35.8% while Buffet pays a rate of 17.4%…go figure!
The rich have definitely got a system figured out with hiding from taxes and making more money off the money they already have. If we all stopped believing that investing was incredibly difficult and sought out the better options that were available to us, I think our culture would be in a whole different state of being.
“The problem is that the middle class isn’t supplying the new skills that the world is demanding.” — that’s the reason why middle class is not seeing rise in income. It’s all about acquiring knowledge that is in demand. That’s it. Great post.
I just wish my fellow middle-classers would wake up and realize this fact. As the rules change, so must we.
i think there are jobs out there that will stay pay middle class salaries.. my company has been looking to hire qualified IT engineers for months, but can’t find anyone who has the skills and experience.
the problem is that the skillset of americans doesn’t really match the jobs that are available anymore.
Unfortunately it seems those with true talent get retained at their current positions when they’re employers realize they have a Golden Goose. Those without those true skills hop job to job. My company also just ran an ad to hire some new employees, but nearly 95% of the resumes were completely useless.
Middle class is backbone of any society. They struggle a lot to improve there circumstances. Every time they suffer or make mistake, they learn from it. For example – After this meltdown I have seen that financial awareness of people have greatly improved. So middle class knows to recover from its mistakes.
I think creation of small/middle sized enterprises would help to solve the problem
so Govt should promote education and entrepreneurship among people
This is true, but I worry that the Middle Class forgets their lessons just as quickly. And as they do, those above them rise higher and higher without warning. I wish people would take a more active interest in their own finances.
Wow, this is a loaded question – I’ve enjoyed reading the other comments. I think the blame lies with the government (not doing enough to promote education and the right fields), big business (which artificially suppresses income for the middle class), and the middle class itself (we got lazy and complacent). How to fix it? Now, if I could answer that, I wouldn’t be part of the middle class anymore!
Good points. The blame certainly goes around. What do you think about advertising and consumerism? Don’t you feel like these things also play into keeping us down?