The NewStandard ceased publishing on April 27, 2007.

Labor Day Report: Working Class Strained by Low Wages, Inequality

by Madeleine Baran

A report released today by the Economic Policy Institute details the “State of Working America,” pointing to trends of increased economic disparity, poverty, and low paying jobs.

Sept. 6, 2004 – While the Bush administration applauded recent job growth, many economists and historians say the numbers hide more sweeping long-term changes in job quality, wages and the gap between the rich and the poor.

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A massive report issued by the Economic Policy Institute (EPI), a think tank that seeks to include the needs of low and middle-income people in policy debates, paints a grim picture for working people. "The State of Working America 2004/2005," compiled using available economic data from the Census Bureau and the Bureau of Labor Statistics, depicts an America where most working people continue to suffer from decades of growing economic inequality.

The report notes that the economy has never taken so long to regain jobs lost during a recession -- at least not since the government first started tracking employment statistics in 1939. The jobs being added are also increasingly low-paying service sector jobs, like retail and food service work, instead of traditionally higher paying jobs in manufacturing and information technology.

"Wal-Mart and McDonald’s jobs, what we call ‘McJobs,’ are being created in this economy," AFL-CIO spokesperson Sarah Massey said. "We also need manufacturing jobs and high-tech jobs. We’re just not seeing that in this economy."

EPI analysts say the weak labor market has also driven down wages and income, as workers are willing to accept lower pay. "Unfortunately, families don’t eat GNP [Gross National Product]," EPI policy analyst and report co-author Lawrence Mishel said. "They eat compensation, and that hasn’t done so well."

Although workers are producing faster than ever, the company tends to reap most of the benefits.

Far from a temporary trend, many economists and historians say the economic downturn has its roots in economic policy dating back to the Reagan administration. Peter Rachleff, a labor historian at Macalester College, said that strong institutional reforms enacted during and after the Great Depression, including the welfare state, an increased governmental role in the economy, and a unionized work force, helped keep many working people out of poverty. "[However,] starting with Reagan’s presidency, we have been systemically tearing down those reforms, and we are now reaping the consequences," he said, adding that he believes the decline continued during the Clinton presidency, in which welfare reform was enacted, and union membership continued to drop alongside manufacturing jobs .

Some trends noted in the EPI report date even further back. Perhaps most surprisingly, the report shows that increased productivity has not directly led to increased pay for workers since the early 1970s. Although workers are producing faster than ever, the company tends to reap most of the benefits. While from 1947 to 1973 income and productivity increased at the same rate, from 1973 to 2000 median family income grew at only one-third the rate of productivity growth. These figures challenge the widely-held notion that productivity growth benefits workers.

Economist Doug Henwood, author of After the New Economy and editor of the Left Business Observer, notes that the negative aspects of productivity are rarely discussed. "It’s also about over-work and squeezing people as hard as possible," he said. "It’s a class war for one side -- the rich against everyone else. And they’ve been very successful."

The EPI report also argues that the deficit between productivity and worker pay has contributed to the increasing gap between the rich and the poor. The top one percent of Americans controlled almost as much wealth in the year 2000 as their counterparts did in 1929, right before the Great Depression.

The report notes that, adjusting for inflation, between 1979 and 2000 the income of households in the poorest twenty percent grew only 6.4 percent, while the incomes of the richest twenty percent grew 70 percent. The richest one percent of households saw their earnings increase 184 percent.

Measured in terms of wealth, or income and assets minus debt, the disparity between the rich and the poor is even greater. In 2001, the richest one percent controlled over 33 percent of national wealth, while the bottom 80 percent accounted for only sixteen percent.

Despite both political parties’ praise of the "American Dream," exemplified by the belief that hard work will result in increased income, the EPI report argues that class mobility in the US is rare. Over 50 percent of workers in the bottom fifth in the late 1980s were still there a decade later, and 24 percent moved up only slightly, remaining in the bottom 40 percent, the report notes.

EPI analysts say that rising CEO compensation helps to account for the widening gap. From 1989 to 2000, median CEO wages grew 79 percent, and compensation, which includes all wages, benefits and stock options, grew 342 percent. Although the stock market decline over the past three years caused CEO compensation to drop by 36 percent, in 2003 CEOs still earned 185 times as much as the typical worker, compared to 26 times the average worker in 1965.

Many analysts also blame the Bush tax cuts, which gave an average $67,000 to the top one percent, just under $600 to middle-income workers, and about $61 to workers in the bottom fifth, according to the report.

"The policies that this administration has pursued have been remarkably ineffective in dealing with the persistent labor slack we’ve had in the last few years," Mishel said. He added that, although President Bush argued for tax cuts specifically to generate jobs, the cuts have yet to reverse the 1.65 million net private-sector job loss since he took office.

Although the EPI report and other similar studies depict an increasingly impoverished America, many economists believe the economy can be reformed and made more equitable for working people. However, EPI analysts caution that the economy will not fix itself. "Whether we soon return to a more equitable job market remains an open question," the report notes.

Henwood, along with many other progressive economists, advocates repealing the tax cuts for upper-income people and reducing military spending. The money, he said, could then be used to aid state and local government and increase funding for job training and job creation programs. He freely admits that such a program would involve a massive amount of federal money, but added: "The tax cuts for rich people are also massive. The increase in military spending is also massive. If we just spent those massive sums in different ways, we’d not only get more economic stimulus, we’d also help people who are suffering."

In the meantime, almost 36 million Americans continue to live in poverty. At one in eight people, the US’s poverty rate tops those of over a dozen leading industrialized nations, including France, Germany, Japan and Canada.

For the full text of the report, click here.
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The NewStandard ceased publishing on April 27, 2007.


Madeleine Baran is a contributing journalist.

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