|July 31, 2013
The reality is that we're hollowing out the middle class by wiping out well-paid jobs with benefits and replacing them with low-wage ones that often lack them. That's damaging not only to people who are living on smaller paychecks – or who are indeed unemployed – but also to the health and viability of the overall economy.
No matter what New York Times columnist Thomas Friedman and his followers say, we are not living in a "sharing economy". We are living in a zero-sum economy – in which a handful of investors and owners win at everyone else's expense.
But ultimately, it will catch up with investors, too. The US economy is engaged in a vicious cycle in which low-wage jobs and under-employment stimulate little demand, giving companies little reason to hire workers. Would-be workers then get discouraged and drop out of the workforce. They lack money to buy things, so consumer spending sags and companies don't hire or offer raises to workers they know they can keep. Repeat.
So, sorry Friedman et al: you can strain your brains for as many offbeat ideas and back-of-taxicab discoveries as you like, but the only way to break the cycle is to ensure everyone can work – and that those workers get more of the fruits of their labor. Until we address the following 10 problems head-on, the idea that the economy is truly recovering will remain a fantasy.
Problem 1: wages are falling
The recession caused a giant drop in consumer demand, but the culprit wasn't just a loss of housing wealth. Wages for most workers are either stagnating or declining. In fact, real median wages fell by about 2.8% between 2009 and 2012. That's bad for workers and bad for the economy. It's also insulting because the drop happened even as productivity increased 4.5%. So much for the sharing economy.
What's worse, lower-wage workers – who are already struggling to keep up – saw bigger declines than those in the middle and higher end. Those earning between $10.61 and $14.21 per hour saw real wages drop by 4.1% on average.
As Reuters' Felix Salmon points out in his crafty analysis of the data, hairstylists and cosmetologists earned $12 an hour on average in 2009. But by 2012, they earned just $10.91 an hour – a drop of more than 9%. Restaurant cooks lost 7.1% over the same period.
Problem 2: the middle class is losing ground and getting hollowed out
The most recent census data shows that while a small group of rich people are getting richer, the middle class is taking a serious beating. US median income fell to $50,054 in 2011, the most recent full year in which that data is available. That's down 8.1% since 2007, just before the great recession started. Overall, median income has fallen 8.9% from its peak in 1999. Meanwhile, the middle class is shrinking, as many Americans slide down the economic ladder – the very inverse of the American dream of economic mobility.