These days, millions of Americans are feeling a lot like Hensler. Lower-middle-class workers, who didn’t get their fair share during the booming 1980s, feel like they’re falling further into the economic abyss. Other Americans, many of whom have done quite well over the past decade, are starting to question whether they really have it all that good. As the economy continues to sputter, the great middle class-and that includes families who earn generous salaries by anyone’s measure-is worried about keeping up with mortgage payments, paying for kids to go to college and even putting away enough money for retirement nest eggs.
The malaise is clearly reflected in a new NEWSWEEK POII, which reveals that only 62 percent of U.S. households are satisfied with their current standard of living-by far the lowest level since 1963. And while most upper-income Americans still expect to be better off financially a year from now, fewer than half of those with incomes under $50,000 agree. Just over a year ago, only the lowest-income group was so pessimistic about the future.
It isn’t just the latest economic headlines that have people anxious. The slow and steady erosion of many Americans’ living standards is finally hitting home. “They have suffered a tremendous decline relative to their parents and relative to what they expect,” says Katherine Newman, a Columbia University anthropologist who is studying young families in New Jersey. “They’re angry about it: angry at politicians, angry at people who are doing better than they think they should, angry at people who make claims on tax dollars.”
Of course, plenty of people are far from suffering. Until recession struck in 1990, the average American’s disposable income was higher than it had ever been (page 25). But a more detailed look offers a very different picture than those national averages. The income gaps among American families have widened considerably in the 1980s. The top half of nonelderly households– those with incomes of more than $35,000–are, as a group, still gaining. The rest are not. And even among families making $60,000 a year, income growth is almost imperceptible,
Why is the middle class struggling? Reaganomics is part of the story. But the pressure on wages dates back to the oil crisis of 1973 and the “stagflation” that followed: two years of recession and a prolonged bout with inflation. Back then, the average nonsupervisory worker in the private sector earned $8.55 an hour (in 1982 dollars). Six years later, after wages had tumbled and then almost recovered to their 1973 level, the second oil shock dealt them another blow. It still reverberates. Today, in those same 1982 dollars, the average hourly wage is $7.46–a stunning 13 percent drop over 18 years. The decline is partly due to employers spending more on health insurance and other benefits, leaving less for wages. Still, the average worker’s pay, adjusted for inflation, is slimmer than it was 18 years ago. The trend is especially pronounced for men: in most nonelderly families, the male’s real income is less now than in 1979.
Families on the bottom half of the income ladder earn less, after inflation, than families on the same rungs did in the la 1970s. How much their living standards have fallen is another question. Harvard University economist Lawrence Katz contends that the average consumption of families headed by high-school dropouts is falling, but his findings are hotly debated. The truth is that the concept of “living standards” is so vague that it’s hard to know whether people are living better or worse. “The relationship between how people live and their incomes is very weak,” says University of Chicago economist Susan Mayer.
Single parents like Patricia Bassey of Indianapolis, who recently removed her 8-year-old son from parochial school because she couldn’t afford the tuition, have been feeling the squeeze for a decade. Until recently, however, many two-parent families hardly noticed. For one thing, a drop in average pay was not always readily apparent. Most workers did better each year than they did the year before; after all, age and experience still count for a lot in the labor market. Wives went to work-70 percent of married women between 25 and 44 are now employed, up from 50 percent in 1975-which kept household incomes climbing. With fewer children in the average household, income per person continued to rise. It’s only when workers considered how parents or older siblings had fared at a similar age that they began to wonder just how well they were really doing.
But new ways to protect a family’s welfare have been exhausted. The flood of women into the labor force is spent: about three quarters of married women with children older than 6 already work outside the home. The birthrate is rebounding, too. As a result, the fall in real wages is biting at last. In the long run, University of Maryland economist Frank Levy says, the dropoff in wages must translate into less disposable income per person. Adds Levy: “I think we’ve reached the long run.”
Now even citizens like Scott McDonald of San Antonio are feeling the pinch. “When I was in college, if someone had told me I was going to make $60,000 a year, I would have thought I was going to be a rich man,” the 38-year-old band teacher says. But on a combined income of $60,000, McDonald and his wife, Cindy, who have five children, feel like they’re just scraping by. “We just keep repairing old cars. We’ve cut out all red meat. We try to eat more vegetables and we try to use as little electricity as possible,” Scott says. “We feel like we’re almost at our limit.”
Some couples like Richard and Teresa May of Atlanta have changed their plans to have more children. Richard, 36, and Teresa, 32, both manage retail stores. Their total income is $43,000. They would like a third child, Richard says, “but we have to look at the [financial] reality of it, too.”
In today’s economy, workers with only menial or easily replaceable skills can all but forget about getting ahead. Only “the highly educated are doing fine,” says Syracuse University economist Timothy Smeeding. Harvard’s Katz found that in 1987, the average white male college graduate with six to 10 years of work experience earned 70 percent more than the average white male high-school graduate with similar experience. Not since World War II have the less educated fared so poorly. And today’s young adults are victims of the trend: even as college grads are in high demand, the proportion of men 25 to 34 who’ve attended college is smaller now than it was 10 years ago.
The decline of labor unions has helped widen the wage gap between ordinary workers and the well-to-do. Only one in eight young men with blue-collar jobs belongs to a labor union; 20 years ago that figure was three times as high. That has helped depress wages: assembly-line workers don’t have the bargaining power they once did, and nonunion companies rarely feel the need these days to pay high wages to keep unions out. Harvard economist Richard Freeman reckons that the weakening of labor unions accounts for one fifth of the increase in the wage gap since 1978.
Taxes have also played a part. The complicated federal income-tax changes of the 1980s were less favorable to working-class families than to the wealthy, and higher social-security tax rates hit middle-income families hard. Trade has played a role, too: the 1980s import boom helped living standards by holding down the prices of cars and clothing, but it forced down wages in manufacturing and eliminated many low-skill jobs. The rise in immigration during the 1980s also has hurt less-skilled workers, with whom many immigrants compete for jobs.
Underlying all these factors is one devastating trend. Productivity in the U.S. economy has been growing slowly, so the economic pie isn’t getting larger very fast. It would be easy enough for Congress to even out the distribution of income; raising taxes on high-income Americans would do the trick. But improving incomes for the bottom half of U.S. families without pulling down the top half will be hard so long as productivity growth remains sluggish. It will be politically dicey, too, since many families in the $40,000-$60,000 bracket feel themselves hard pressed as well. As Frank Levy puts it bluntly: “There’s no substitute for making the pie grow.” The public sector can help by upgrading the country’s decaying infrastructure. The reality, however, is that productivity growth depends mainly on the independent actions of tens of millions of businesses and workers. Simple solutions from Washington–including all of the tax proposals now under debate–are unlikely to make much difference.
That does not mean, however, that Americans are condemned to watch their living standards fall. The sense of decline is as much psychological as it is economic; according to NEWSWEEK’S POII, financial fears are spread across all income groups. After wave upon wave of corporate restructurings and downsizings, even seemingly well-situated families don’t feel secure. Consider the Gilsons of Minneapolis. John Gilson, 58, an electrical engineer, has been laid off from jobs three times in a decade. His 57-year-old wife, Laura, a computer programmer, recently lost part of her retirement nest egg in the collapse of Executive Life Insurance Co. The couple still pull down a hefty $80,000 a year, but they feel like they’re on the edge. Admits Laura, “We’re sitting around waiting to be laid off.”
The Gilsons shouldn’t have to feel so vulnerable. In Western Europe, many of the same economic trends prevail: income differences are growing, unions are declining and corporate restructurings are becoming more common. Yet worries about falling living standards are far less widespread. Why? European workers know that if they lose their jobs, they will still have access to retraining, health care and retirement pay. Their governments make sure of it. “They are much more confident about the safety net,” says Chicago’s Susan Mayer.
While European programs may not work in the United States, it’s clear that something needs to be done to revive Americans’ faith that they can retire comfortably and make things better for their kids. An upward turn in the business cycle would help, but it may not be enough to restore confidence in the American Dream. Catie Curtis, 26, an aspiring singer who survives as a social-services worker in Boston, looks at it this way: “The American Dream is that you buy a lot of lottery tickets and hope you win.” Unfortunately, the odds of winning the lottery aren’t very good-and right now the odds that middle-income Americans will soon make up the ground they have lost don’t look much better.
PAUL AND DEE DEWALT - $62,000 Paul and Dee DeWalt may earn $62,000 a year-but it takes three jobs to bring in that much. The couple’s biggest fear is that they’ll b unable to afford college for children Christopher, 12, and Katie, 9. “Every parent’s philosophy is to… provide your child with more than you had,” says Paul, a Kansas City, Mo., firefighter. “But I’m just not certain people can still do that.”
A decade ago, Patricia Bassey had enough money to go to the movies every weekend. Now she feels like she’s splurging when she rents a $3 video. As her bills piled up, the Indianapolis single mother had to transfer 8-year- old Gabriel from a parochial school to a public school in a rough neighborhood. “I am constantly worried about his self-esteem,” she says.
Dan and Valinda Kane of Ft. Lauderdale didn’t expect to be struggling at this point in their working lives. “If we had known that in 24 years we’d be making this kind of money, we’d have thought we’d be living on the ocean,” says Valinda. Far from oceanfront living, the Kanes can’t even afford a vacation. Their household includes children Brian and Lori and Valinda’s mother, Jennie Sylvia. Valinda hopes to become a nurse. “There’s no way we are going to realize the American Dream without both of us having a lucrative job,” she says.
Millions of families are losing the struggle to improve their living standards, as the affluent consume a larger share of the nation’s wealth. 1. Although Most Families Are Middle Income… Distribution of Families, by Income Level, 1990 $100,000 and more 5.4% $75,000-$99,000 6.9% $50,000-$74,999 18.2% $35,000-$49,999 20.1% $25,000-$34,999 16.2% $15,000-$24,999 18.4% $10,000-$14,999 7.5% $5,000-$9,000 5.8% Under $5,000 3.6% 2… A Majority of Money Goes to the Affluent… Distribution of Total Family Income, 1990 $75,000-$100,000 44.3% $35,000-$74,000 23.8% $25,000-$34,000 16.6% $10,000-$24,000 10.8% Under $5,000-$9,000 4.6% 3… And the Gap Has Widened Percent Change in Distribution of Total Family Income, 1975 to 1990 LOW -0.8% MIDDLE INCOME -1.0% , -0.3% HIGH +3.2%
