The Shrinking Buying Power of the Middle Class
According to the Merriam-Webster’s Online Dictionary, the middle class is “a class occupying a position between the upper class and the lower class; especially: a fluid heterogeneous socioeconomic grouping composed principally of business and professional people, bureaucrats, and some farmers and skilled workers sharing common social characteristics and values (Merriam-Webster). In the United States, their family incomes would generally range from $25,000 to about $99,999 and the median is about $45,000 per year (Census). Nowadays, the middle class workers are less likely to work in manufacturing companies, although there were many of them in factories before three decades ago.
It would seem that the middle class workers are earning a good amount of money but Louis Uchitelle of The New York Times reports that “In the New York metropolitan area, you can have six-figure incomes and still feel like you are struggling” (A1+). The middle class workers have been declining in the sense of living standard because a middle class lifestyle in the United States has become more difficult to achieve with each passing year.
The middle class workers emerged during the Industrial Revolution period in the first few decades of the 19th century (Encarta). The rise of the United States economy has created new jobs for the middle class workers. The most popular and profitable industry in this period was the manufacturing industry. Many middle class workers were earning high income and the economy was prospering from the industry. By the 1970s, the manufacturing industry has reached its maturity stage and was followed by deindustrialization, which is the reduction of industrial activities. In their report “Growth in Family Income Inequality,” Chevan and Stokes identify that “industrial restructuring, often called ‘deindustrialization’, is the single most powerful and direct cause of the growing income inequality and the declining fortunes of the working classes” (365). During the deindustrialization period, many middle class workers lost their jobs and the country suffered from the rapid growth of family income inequality.
The rapid growth of computers and technologies have caused the tremendous growth in manufacturing productivity, which means that less and less workers are needed for more production (Philips). Machines and computers replaced the workers’ task and jobs. The manufacturing companies had to progress through technological enhancement to keep up with the constantly increasing minimum wage. When machines replace workers, the companies and consumers benefit from lower cost of output but the workers suffer from work displacement. The output of manufacturing and service industries has grown roughly around the same rate in the United States but the productivity of manufacturing industry grew roughly around twice as fast as productivity of service industry (Chevan & Stokes). Technological changes accounts for these differences. Most of the workers retrenched from manufacturing companies do not have the capability to work in modern service industries. As a result, unemployment rate increased and most of the unemployed belong to the middle class. When the middle class workers lose their jobs, their earnings drop, and household incomes decline, therefore increasing family income inequalities (Philips).
The United States Census Bureau reports that the percentage of all middle class employed in the manufacturing industry declined from 26.4% to 17.9% between 1970 and 1990 (Census). As the United States grows richer, people tend to buy less manufactured goods and relatively more services. This is one of the main reasons why the manufacturing industry has declined and the economy is shifting to the service industry. Total employment in the service industry rose from 25.9% in 1970 to 32.6% in 1990. The upper class, or the richer society, were enjoying a better living standard but the middle class, especially workers in the manufacturing industry were suffering from declining buying power and living standards. Practically all gains in household incomes goes to the rich. Since the early 1970s, National income and wealth have grown but because of the growth of income inequality, only the top 20 percent of families are in advantage. There was not much change for the bottom 60 percent and in fact some actually suffered income loss (Rogers and Teixeira 11). With the rich in control of the economy, the middle class has to work harder but still lose their buying power and living standards.
As a result of deindustrialization, the United States unemployment rate has increased. Chevan and Stokes report “From 1970 to 1990, for example, the U.S. unemployment rate increased, on average, by 44% (Chevan & Stokes). Economists have long ago related inflation to the growth of income inequality and inflation. Unemployment has been shown to have increase income inequality by increasing the rate of inflation. The Inflation Calculator, based on “Statistical Abstracts of the United States,” shows that what cost $1 in 1973 would cost $2.97 in 1990. While prices have increased significantly, income level for the middle class remained barely unchanged. When the cost of goods and services goes up, the same amount of money will buy less of goods and services, which means the decrease in consumer spending. This means that corporations are less profitable, which eventually lead to retrenchment of workers and unemployment. According to the U.S. News & World Report in 1981, “Inflation now appears to be far more discriminating about its victims” (U.S. News & World Report 39). The “victims” are of course the middle class workers who were not able to stay ahead of inflation. While these people have struggled to maintain their living standards, the higher-income people were not even affected by inflation.
The growth of economy has created additional needs and demand for the middle class. Welfare has increased together with the economy and is costing more for everyone. According to Louis Uchitelle, “What stresses them, sociologists and economist say, are the other outlays of middle-class life: new clothes, child care, lessons for the children, restaurants, movies, home decoration, computers, big-screen television sets, stereo systems, Christmas gifts, and savings for college and retirement” (A1+). These expenditures were considered as luxury a few decades ago but are now essential for every middle class household. The middle class workers are constantly pressure by these extra expenses.
According to Uchitelle, “Most middle-income people have only a high school degree or a year or two of college” (A1+). This statement refers to the lower segment of the middle class, typically older people who are still working. Relating this to the shift of economy from manufacturing to services, the lack of education is the main reason why the middle class workers are losing their buying power. The service sector covers economic activities such as banking, insurance, medicine and other professional services (Encarta). They require skilled workers who have obtained a four-year college degree or at least job training. Without a good educational background, it is very hard to adjust to the shift of economy. The Economist state “Deindustrialization causes problems in economies unable to absorb the workers released by manufacturing” (78). Many middle class workers that have been displaced could not afford to go into college again, especially with the constantly increasing cost of living in the United States. Even if the workers did have savings and severance pay, the money would be inadequate to support the family.
With the growth of family income inequality and shrinking buying power of the middle class, it has been reported that housewives are now forced to work in the labor market, husbands now have to work as much overtime as possible, and everyone has to save more than ever before. Even dual income families with workers having more than one job strain to live a middle class life (Uchitelle A1+). The involvement of housewives in the work place has attracted more and more females in the labor force. Unfortunately, the growing number of females in the workforce has further increased family income inequalities. According to Chevan and Stokes, “because of assertive mating, more highly educated and higher-income women are likely to be married to men with similar characteristics” (368). While the income of men in the middle class has steadily decreased over the decade, more eligible women of the middle class will be married to the upper class men, therefore causing greater family income inequalities and ultimately the declining buying power of the middle class.
The conditions of the middle class workers in the United States seem poor enough and it will get worse in the future (U.S. News & World Report). We are aware that big companies are laying-off workers, and unfortunately the first ones to be eliminated are the middle management people, which are the middle class workers. Corporate officials are sacrificing the workers’ jobs and income for the sake of greater profit for themselves. The trend is not to have a huge company with thousands of workers but a more efficient company with an optimal amount of workers. Although the labor market is very tight now, the demand focuses on the new generations with college degrees. As the economy continue to evolve into the information age, the middle class will continue to decline as keeping up with technology is getting more and more difficult for them.
“America’s Middle Class: Angry, Frustrated and Losing Ground.” U.S. News & World Report 30 Mar. 1981: Volume 90, p39-45
Chevan, Albert and Randall Stokes. “Growth in Family Income Inequality, 1970-1990: Industrial Restructuring and Demographic Change.” Demography Aug. 2000: Volume 37-Number 3, p365-380. Proquest. Gleeson Lib. University of San Francisco, CA. 2 Oct. 2000
Friedman, Morgan S. The Inflation Calculator. 19 Jan. 2000. 19 Oct. 2000.
“Industrialization of the North-East.” Microsoft Encarta Encyclopedia Deluxe 2000 CD-ROM. Microsoft Corporation. 1999.
“It’s Wise To Deindustrialise.” The Economist 26 Apr. 1997: Volume 343-Issue 8014, p78. Proquest. Gleeson Lib. University of San Francisco, CA. 7 Oct. 2000
“Middle-class Blues.” National Review 7 Nov. 1994: v46 n21 p14 (2)
Merriam-Webster Online. Merriam-Webster Inc. 10 Oct. 2000.
Philips, Michael M. “Income Gap Between Rich and Poor Grows Nationwide.” Wall Street Journal Dec. 1997. Proquest. Gleeson Lib. University of San Francisco, CA. 7 Oct. 2000
Rogers, Joel and Ruy Teixeira. America’s Forgotten Majority: Why the White Working Class Still Matters. New York: Basic Books, 2000.
Uchitelle, Louis. “Working Families Strain To Live Middle-Class Life.” New York Times 10 Sept. 2000.
United States. Bureau of the Census. 10 Oct. 2000.
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