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MSN Money, September 24, 2004
America's "jobless recovery" faded into history a year ago
when the economy started to add jobs again after a brief recession.
But the middle class is still feeling a squeeze -- what Michael Alter
calls the "pay less" economy.
He's president of SurePayroll, a company in Skokie, Ill., that services
payrolls for some 13,000 small businesses across the country. His
analysis of those payrolls shows businesses are hiring new people,
but at lower pay.
"It's different from past recoveries. It's not normal,"
he says of this pattern of salary deflation.
His aren't the only numbers on worker salaries, and economists see
some pickup in wages since May. But recent Census data confirm that
the median household income -- a level where half of U.S. households
earn more and half less -- fell by $1,500 between 2000 and 2003.
Behind the salary slump that Alter sees is a broader challenge to
America's middle class -- the core of America's consumption-driven
economy. As George W. Bush and John Kerry spar over who can best help
ordinary Americans prosper, many workers are finding upward mobility
harder to achieve.
The shrinking middle
Economists don't have a standard definition for the "middle class."
But the percentage of households having a pretax income of between
$25,000 and $75,000 -- a group occupying roughly the middle half of
Census income tables -- has declined by 1.2 percentage points since
President Bush took office, after adjusting for inflation.
In the same 2000-2003 period, those making less than $25,000 grew
by 1.5 percentage points to 29% of households. Those making more than
$75,000 declined by 0.4% to 26% of all households. These numbers were
crunched by FactCheck.org, a project of the University of Pennsylvania's
Annenberg Public Policy Center to examine campaign statements for
accuracy.
The trends in wages are linked to the question of job creation. Even
though the recovery may no longer be "jobless," economists
say employers need to hire more vigorously -- picking up the slack
in a growing labor market -- before workers will be able to command
higher wages.
"These are not great times for the middle class," says Isaac
Shapiro, an economist at the Center on Budget and Policy Priorities.
The big squeeze
"My rent is up; gas prices are up," complains Miguel Aguilar,
a banquet waiter at the Sheraton Universal in Los Angeles. His last
wage increase was 45 cents an hour, smaller than in years past. The
hotel now takes $40 a month from his paycheck for health insurance
-- and that could rise once ongoing labor contract negotiations are
resolved.
Donald Wilson, a chef at the Century Plaza Hotel in Century City,
Calif., charges that corporations are "squeezing the little guy
and shrinking the middle class, which can't live on these tiny salaries.
. . . Jobs are disappearing while the CEOs are getting richer and
richer."
Democratic candidate John Kerry is sounding a similar theme on the
campaign trail. "Our great middle class is shrinking," he
has said.
The group FactCheck.org says that charge is "looking a lot better"
since the Census Bureau came out with its income figures last month.
Still, not everyone sees the economy struggling.
Martin Regalia, chief economist for the U.S. Chamber of Commerce,
says it's not unusual for the median income to decline in a recession.
And in 2003, the tiny drop in median income was statistically insignificant.
Further, 2004 data is not yet available for household income.
The economy is "doing very, very well," he holds. And that
should boost incomes.
"American workers are much better off now than they were a year
ago," states Jerry Jasinowski, president of the National Association
of Manufacturers.
New jobs are being created this year and that might be bolstering
the middle class -- even though the new job rate is at a slower pace
than forecast.
Wages, at least, are now keeping pace with inflation. Since May, nominal
wages have risen at an annualized rate of more than 3.5%, higher than
the inflation rate, says Heather Boushey, an economist at the Center
for Economic and Policy Research, a Washington think tank.
Still, for the past 12 months, nominal hourly wages are up by 2.3%.
And that's less than the 3% rate of inflation. So real wages are down
in that period.
Corporations prosper; workers don't
One problem is that the gains in overall national income lately have
been going disproportionately onto corporate profit ledgers rather
than into worker paychecks, finds economist Isaac Shapiro.
In the 2½ years of the current recovery, wages and salaries
have received just 15% of the overall increase in national income.
That compares to an average of 49% in other recoveries since World
War II. Meanwhile, corporate profits have received 47% of the income
increase, compared with an average 21% in other recoveries.
John Sweeney, president of the AFL-CIO, says the middle class is being
damaged by changes in overtime rules, increased numbers of workers
not covered by health insurance, reduced benefits and outsourcing
of jobs overseas.
The future of the middle class hangs heavily on whether jobs being
created today pay poorly or more handsomely. Job quality has become
a hot issue in the presidential campaign.
In the large and economically diverse state of California, an "hourglass
economy" is developing, with more growth in high-wage and low-wage
jobs than in middle-income jobs, according to a recent study by the
Berkeley Center for Labor Research and Education. People in the middle
have kept up only by having two incomes per household.
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