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Erosion of middle class

December 7, 2012
The Daily Mining Gazette

To the editor:

Thanks to Clayton Roberts, whose recent letter highlights the central economic fact of our times: erosion of middle class purchasing power.

"Median" male income is the midway point: half of all males in the workforce earn less, half earn more. From the end of the Civil War until the eve of the Great Depression, a period of 60 years, that median income measured in constant dollars tripled, from $4,000 to $12,000. It tripled again to $35,000 by 1973, a period of only 40 years, a faster rate of increase, and one that exactly matched the productivity gains of the economy. Then a funny thing happened. The economy continued its productivity gains, greater wealth was generated, but the median wage didn't budge for the next 40 years. In fact in 2010 that median wage was back to the level of 1968 at $32,000. If salaries had continued to rise with productivity, the median male wage today would be about $53,000.

It's not a question of inflationary wage demands, it's a question of how a growing pie is divided. Henry Ford, though later anti-union, recognized in 1914 that auto workers would only become auto customers if they earned a good wage as he announced the then unheard-of minimum wage of five dollars a day for his employees. Ford profits doubled by 1916.

With wages flatlining for the last 40 years, anything whose price in constant dollars rose became increasingly unaffordable: housing, education and health care, to name three major items. How did people maintain their standard of living? By taking on unprecedented levels of debt. Household debt peaked at $15 trillion by 2008. But aggregate demand sustained by taking on debt must finally collapse and that's where we are now, in a "balance sheet recession" that will last at least a decade if Japan's experience is any guide.

In the recent election much ink was devoted to jobs and which candidate could create more. Certainly we need more jobs, but jobs alone are not enough. Clayton Roberts is right, unions played a major role in wages rising with productivity. Some readers will shake their heads, convinced that unions are the problem, not the solution. But if you oppose unions, you're obliged to suggest another way for wages to increase with productivity because unless and until that happens, the hollowing out of America's middle class will grind on remorselessly, generation after generation.





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