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Autopsy of the American Dream

September 17, 2004 | Pages 6 and 7

THE 2004-2005 edition of the Economic Policy Institute's (EPI) State of Working America is out, and it depicts the social crisis resulting from Corporate America's 30-year war on workers. Analyzing new data on the 2001 recession and the terribly weak job market that followed, authors Lawrence Mishel, Jared Bernstein and Sylvia Allegretto show how the "miracle economy" of the late 1990s evaporated without fundamentally changing long-term trends of wage stagnation for workers, longer hours, persistent poverty and greater inequality.

Actually, those boom years of the 1990s saw the gap between the rich and the rest of us grow to its biggest point since 1929--the start of the Great Depression. "Using newly available income data that goes all the way back to 1913, income in 2000 was only slightly less concentrated among the top 1 percent of households than during the run-up to the Great Depression, which was the worst period of uneven income concentration in the last century," the authors wrote.


The economy begs another comparison with the 1930s: the job market. While the recession of 2001 wasn't close to the scale of the 1930s, continued job losses--two years into a recovery--are the worst since the Great Depression era.

LEE SUSTAR looks at the findings in this important book--and the corporate agenda that's driving the relentless attack on working people.

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Income and wages

PROPAGANDISTS FOR Corporate America often point to the long-term growth in family income as evidence that the American Dream of constantly rising living standards still exists. Yet a closer look at the statistics in the State of Working America shows that increases in family income in recent decades have come about almost entirely as a result of women's additional work in families where men also hold jobs.


The trend towards greater female participation in the workforce began during the long economic expansion following the Second World War. The women's movement pushed open the doors to some traditionally male-dominated, better-paying jobs for women.

Since the early 1980s, however, married women have increasingly felt financial pressure to work as a result of stagnant or declining wages. By the year 2000, some 47.7 percent of all families were two-earner, married-couple families, up from 41.9 percent in 1979. This trend kept median family income growing, if slowly, over this period--but it masked the stagnation or decline in men's real wages.

This is particularly true for those in the poorest 20 percent of the population. Over the 1979-2000 period, income for this group increased 7.5 percent thanks to married women's income. Without it, income would have plunged 13.9 percent. Better-paid workers faced the same pressures. Their income grew 24 percent over the same period, but without wives' earnings, the gains would have been just 5.1 percent.

The higher income came at a cost. Moderate- and middle-income families saw their total work hours increase by the equivalent of three months a year, ratcheting up the pressure to obtain affordable child care and generally raising the level of family stress. Overall, household work hours increased 11 percent between 1975 and 2002 as families scrambled to compensate for stagnant wages.

In fact, it took until 1997 for the median hourly wage to surpass the previous high level of 1979. The tight labor markets of the late 1990s boom did lift real hourly wages by an average of 1.8 percent a year between 1995 and 2000--the fastest such growth since the late 1960s.

Real hourly wages continued to grow, though slowly, during the recession and after--but the decline in hours worked led to a drop in annual wages from 2000-2002. The recession of 2001 and the weak recovery led to a sudden drop in work hours, especially for workers whose income was in the bottom fifth, or quintile.

Hours for those workers dropped by 6.7 percent in the 2000-2002 period. For workers in the second-lowest quintile, the decline was 2.9 percent. The reduction in work hours hit family income hard, resulting in a real decline of 2.4 percent between 2000 and 2002. The drop in work hours exposed how nearly two decades of stagnant wage growth made workers more vulnerable to the effects of recession--even when they held onto their jobs.

Jobs and joblessness

THE SHARP downward swing in wages and family income since the mid-1990s--along with the impact of the terrible job market--highlights the harsh impact of free-market policies on the U.S. working class. Since the late 1970s, U.S. workers have seen the quality and security of their jobs continuously eroded through deregulation of industry, privatization of public-sector jobs, cuts in social spending, "flexible" labor policies and free-trade deals.

Known as "neoliberalism" to much of the world, these policies have been pursued by both Republican administrations (Ronald Reagan's and George W. Bush's tax cuts and frontal attacks on unions) and Democratic ones (Jimmy Carter's deregulation of airlines and telecommunications, and Bill Clinton's championing of NAFTA and abolition of the federal welfare system).


The combined effect of these policies has given employers the leverage to compel workers to toil harder and longer for less, while the gains of higher productivity have flowed away from labor to capital. Again, this is a long-term trend that began in the late 1980s--and accelerated as pre-tax profit rates peaked in 1997 at their highest level since the 1960s.

The increase in capital's share of overall income in this period meant that the economic gains of higher productivity went overwhelmingly to the top. The authors of the State of Working America calculate that in the boom year of 2000, for example, the increase in pre-tax returns on capital compared to 1979 levels was the equivalent of a $56.8 billion transfer from labor to capital.

This squeeze on income continued during the recession and weak recovery up to 2003, the authors found. "These shifts from labor to capital are large, comparable in size to the loss of wages for the typical worker due to factors such as the shift to services, globalization, the drop in unionization or any of the other prominent causes of growing wage inequality," the authors wrote.

The 1990s boom did benefit the lowest-paid workers in the U.S. The percentage making poverty-level wages fell from 30.5 percent to 25.1 percent--the lowest level since 1973. Apologists for the Clinton boom--and now the Bush bust--use such figures as evidence that a rising economic tide lifts all boats.

The problem is that the boats of the working poor are leaky--and easily sink in rough economic seas. As the authors of the State of Working America put it, "Those earning very low wages still represented 9.8 percent of the workforce in 2000, 4.9 percent more than in 1979...[A] large share of the workforce, roughly a fourth, still earns poverty-level wages."

The author's analysis of wages by race and gender also sheds light on the interplay of racism and sexism in the low-wage, Wal-Mart economy. Some 30.4 percent of Black workers earned poverty wages in 2003. For Hispanic workers, the figure was 39.8 percent. White male workers have also suffered from some of the same trends. About 15.1 percent of white men earned poverty-level wages in 2003, while another 10.6 percent were close to the poverty line.

Black men in particular have suffered disproportionately from the loss of good paying, unionized manufacturing jobs in such industries as auto and steel. What authors call a "dramatic downward shift" for Black men can be seen as a statistical reflection of the deindustrialization of the inner cities in Detroit or Gary, Ind.

This trend is sometimes obscured by the fact that a visible layer of Black men--thanks to the civil rights and Black Power movements--have been able to break into well-paid skilled or professional jobs. Vastly greater numbers of Black men, however, are forced to take service jobs that pay miserably--if they can get work at all.

Black unemployment at the height of the economic boom in 2000 was still 7.6 percent, double the 3.5 percent figure for whites. It shot into double digits in the recession of 2001. Measured another way--from the standpoint of workforce participation--the real unemployment situation for African American men is simply shocking. Black men's participation in the workforce was 73.7 percent in 1973, but only 67.7 percent in 2000--and it dropped to 64.1 percent in 2003 as the recession rapidly drove large numbers of African American males out of the labor market.

This is the sharpest expression of what the State of Working America authors call the "missing workers"--some 2.5 million people who, based on population growth and the experience of the late 1990s, should be in the workforce, but who were forced to the sidelines by the worst jobs picture since the Great Depression of the 1930s. If these people were included in the official statistics, the jobless rate in June 2004 would have been 7.3 percent, rather than the 5.6 percent figure calculated by the federal government.

And the job losses didn't end with the end of the recession. They continued for the first two years of the recovery, with the technology industry crash leading to white-collar layoffs and global overcapacity in industry that triggered 41 consecutive months of losses in manufacturing jobs.

By June 2004--39 months after the last economic peak--job gains were just 0.2 percent, by far the weakest gain at similar points following recessions since the Second World War. This is why long-term unemployment among the jobless reached the highest percentage since the recession of 1983, when the unemployment rate was much higher.

The bad news on jobs doesn't end there. The net increase in employment in recent months is made up of jobs that typically pay less and have fewer benefits than ones that were eliminated.

Some 13 percent of all jobs created since growth in employment resumed have been in the temporary employment industry. This is part of a larger trend called "nonstandard employment"--those who work part-time, are self-employed or are under contract. These jobs typically pay about 10 percent less than their full-time counterparts, and they are much less likely to have benefits such as health insurance--adding to the numbers of the 45 million without health care coverage.

About 31 percent of women and 22.8 percent of men were in this category in 2001. The authors of the State of Working America view this as part of a trend towards "just-in-time" work, which includes the tendency of employers to force overtime work out of existing employees rather than hire new workers. The push towards labor "flexibility" is a hallmark of neoliberalism--and it's driving the Bush administration's attempt to rewrite overtime pay rules to exclude millions of workers.


THE OVERALL impact of these trends has been, unsurprisingly, to dramatically increase social inequality. The statistics are stunning. The wealthiest 1 percent of all U.S. households control one-third of the wealth of the entire country, while the bottom 80 percent of household have just 16 percent.

Turns out that the claims during the late 1990s about popular ownership of stocks were so much hype--the top 1 percent of stockowners hold nearly half of the total value of all stocks, while the bottom 80 percent have just 5.8 percent. The percentage of households with net wealth of $10,000 or less was 30.1 percent in 2001--not much of improvement from the 34.3 percent in 1962.

Wealth statistics also show the reality of racism in the U.S.--with the average Black household having a net worth of just 14 percent of the average white household (largely due to the disparity in home ownership). As the authors of the State of Working America put it, "The data on net worth reveal the highly unequal distribution of wealth by class, which is further exacerbated by race.

"A large share of the population has little or no net worth, while over the last 40 years at least, the wealthiest 20 percent has consistently held over 80 percent of all wealth, and the top 1 percent has controlled close to 40 percent."

But for tens of millions of workers, their wealth--mainly homes--isn't free of risk. Mortgage debt totaled 74 percent of all debt by 2003. Overall, debt was 114.5 percent of disposable annual income. In other words, people spend more than they earn.

The banks know that this isn't a stable situation--which is why they've been pushing hard for a "bankruptcy reform" bill that would keep people permanently on the hook for debts. The bill has bipartisan support and would have passed years ago but for a push by Republican conservatives to gain exceptions for anti-abortion activists who are forced into bankruptcy by lawsuits.

Where's the debate?

THE WORSENING conditions facing working people in the U.S. are only discussed superficially in mainstream political debate--especially during the 2004 presidential campaign. While Democrats hammer George W. Bush for a terrible performance on jobs, there's an underlying bipartisan consensus shaped by the corporate backers of both parties--which is why significant numbers of Democrats in Congress backed Bush's tax cuts.

So don't expect Democrats to raise proposals for a government-funded jobs creation program, an increase in the minimum wage big enough to lift millions out of poverty, or a nationalized, universal health care system. Fortunately, the State of Working America provides an invaluable tool for those who do want to expose the endless attacks on the working-class majority--and to organize to do something about it.

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