Social Issues: INEQUALITY
IS AMERICA BECOMING MORE OF A CLASS SOCIETY?
New data show that, increasingly, workers at the bottom are staying there
Keith Mahone thought he was going places after he graduated from high school and landed a mail-room job at The Baltimore Sun in 1983. True, it only paid the minimum wage, but Mahone figured he could move up if he did well. He did move during the next six years--but only to purchasing, the stockroom, and other low-skill jobs that paid just marginally more. Fed up, the Baltimore native quit in 1989.
Mahone, now 36, has been hustling ever since to get ahead in today's high-skills economy. He enrolled in a yearlong training course to become a cable-TV technician. But when he finished, cable companies offered him the same $6-an-hour installer job that he could have had without it. After that, he grabbed any job he could, at a food distributor, an incense factory, a meat packer, and as a school custodian. All paid $4 to $6 an hour and ended when the employer closed or laid him off. "These low-wage jobs trap you and take away your hope," Mahone says angrily. "They have no opportunity to further yourself. I always thought mopping the floors was for lazy people, and I never in all my dreams thought I would be doing it. It's hell to fight your way out."
WIDER GAPS. As long as the country's Keith Mahones had the chance to work their way out of the bottom, Americans have tolerated wide gaps between rich and poor. After all, the U.S., unlike more rigid economies in Europe, has always been dynamic enough to provide steady upward mobility for workers.
Now, a spate of new research on U.S. income mobility suggests that America is shutting out more people like Mahone. A dozen or so academic studies have examined data that follow the same individuals for many years. This allows them to go beyond research showing rising income inequality to reveal a more unsettling trend: As the economy stratified in the 1980s, workers at the bottom became less likely to move up in their lifetimes. At the same time, upward mobility is increasing for some higher-end professionals and college-educated workers whose skills remain in high demand.
This splintering is something new in America, suggesting that our economy is becoming more rigid and class-bound. Unlike past decades, when opportunities for advancement existed at all levels, America today is cleaving into economic camps divided largely by education. Those born in families and neighborhoods that provide the money and motivation to help them complete college are more likely to get ahead. Those, like Mahone, who lack the access or the ability to achieve high skills are increasingly likely to sink, no matter how much they hustle.
"In the past, companies could hire unskilled people and train them into skilled jobs," says Henry B. Schacht, the former CEO of Cummins Engine Co. who now is chairman of AT&T's $20 billion equipment unit. "My predecessor at Cummins moved from the shop floor and ended up as president." But because Cummins, like many companies, has cut many first-line managerial jobs, "today those stairs don't exist."
The new studies raise troubling issues about the U.S. economy. Global competition, declining unions, and growing immigration have inflated to more than a quarter of the workforce the cadre of workers whose earnings fall below the $15,000-a-year poverty line. And that doesn't count many of the 5% to 10% of the population in the urban underclass who don't work at all. Meanwhile, technology is lifting the pay of many professionals. And the ranks of the wealthy have boomed as CEOs, entertainment stars, and others hit ever-larger jackpots in the winner-take-all pay system of some professions.
These trends strike at the core of America's self-image as a classless society. Of course, we never really lived up to that ideal. Women largely were excluded from the economic market for hundreds of years, and slavery and racism meant that blacks never even had a chance until the 1940s. Gaping rich-poor chasms also ignited periodic outbursts of something very much like class warfare, as in the bloody labor battles of the 1880s and 1930s.
But the U.S. mostly has served as the preeminent land of opportunity. Labor and socialist political parties like those of class-conscious Europe never flourished here. What matters in our political culture is not equality per se but an economy and society accessible to all. This bedrock belief is a key reason why the U.S. has been a beacon for Europeans and others fleeing stratified societies.
If the new studies are accurate, the U.S. is in danger of losing the openness that underlies its democratic identity. One of the most astounding conclusions of the research is that mobility for low-income Americans is no greater today than for poor Europeans. "You can't take solace anymore in the American dream of working hard and migrating up through society," warns William J. McDonough, president of the Federal Reserve Bank of New York. "That still exists in our society, but we're kidding ourselves if we don't realize that the degree of stickiness of people in lower earnings levels is a new problem."
An increasingly class-segregated economy could one day hurt America's stable, centrist society. Already, the concepts of civic society and collective responsibility are fraying, as frustrated taxpayers lash out at Washington as the emblem of economic decline. Issues of class and inequality are moving to the political forefront as the Presidential campaign gets under way. House Minority Leader Richard A. Gephardt (D-Mo.) is readying proposals such as a minimum wage hike and tax breaks for companies that protect workers from layoff. Clinton is pushing a package of "economic security" proposals, from health insurance to strengthened pension protections. And Republican candidate Patrick Buchanan's fiery appeal to anxious workers has pushed front-runner Bob Dole to attack low wages and high profits, too.
It's possible that the economic trends underlying these problems are on the wane. Some experts believe U.S. companies have launched a productivity revival that will lift incomes and living standards across the board. It's also true that the children of blue-collar families have flocked to community colleges seeking the education required for today's marketplace.
Still, these forces may not suffice to improve pay for the less skilled. True, college enrollment boomed in the 1980s. But the share of workers with degrees grew more slowly than in the baby-boom 1970s. The resulting skills scarcity increased demand for college grads while shutting out the less skilled. That scenario is likely to continue through the 1990s, since the baby-bust generation is too small to fill the skills gap. "I keep asking people to tell me a hopeful scenario about low-skilled workers in the 1990s, but I never hear a convincing one," says Syracuse University economist Timothy M. Smeeding, who has done some of the recent mobility studies.
Indeed, the new statistics are a powerful wake-up call. Prior inequality studies rely on Census Bureau surveys that take an annual snapshot of the economy to determine how much each worker earns. But the surveys don't follow the same individuals over time, so they can't show whether today's low earners were in the same boat last year.
The new studies trace long-run mobility using a University of Michigan survey that has followed a nationally representative sample of 5,000 families since 1967. Stephen J. Rose, now a Labor Dept. economist, started with men and women who were 22- to 48-years-old in 1970 and tracked their earnings every year of the decade. He did the same with adults in the same age group in 1980. Since many individuals' annual earnings fluctuate a lot, Rose computed each person's average earnings, adjusted for inflation, over all 10 years of each decade.
SPLINTERING. The results show that mobility has diverged sharply over the 1980s vs. the 1970s. Consider the results when measured by education levels. In the 1970s, the 10-year earnings of high school dropouts and graduates progressed at 45% and 42%, respectively. This was roughly the same as the 53% improvement in living standards that college grads saw, Rose found (charts, page 87). In the 1980s, however, less educated workers moved up much less than more educated ones. Dropouts' 10-year average crept along at only 14%, high school grads by 20%, while college grads continued to advance at a 55% pace.
Decreasing mobility out of the bottom is even clearer by wage levels. Using the same definitions he employed for education, Rose found that men in the bottom fifth of wage-earners began to fare badly even in the '70s, when their 10-year average pay lagged inflation by 11%. But they fell out of bed completely in the '80s, losing 34%, the Michigan data show. By contrast, men in the top fifth saw their 10-year pay soar by 56% in the '80s, nearly twice as fast as their 29% gain in the prior decade.
The upward movement of families has splintered, too. More working women since 1970 helped many families offset the slump in men's earnings. But because people tend to marry at their own earnings level, low-income families have gained less. More poor families also are headed by single parents. Throughout the 1970s, though, the average inflation-adjusted incomes of such families still advanced by 16%, Rose found. But the ride ended in the 1980s, and families in the bottom fifth moved down the economic ladder by 4%.
Meanwhile, the upper fifth scored 60%-plus gains over both decades. "When you use long-term averages to get rid of people who are only temporarily rich or poor, you can see that mobility has declined" at the bottom, says Peter T. Gottschalk, a Boston College economist who has studied mobility. Indeed, diverging mobility has shriveled the middle class--$15,000 to $50,000 a year in today's dollars--from 61% of families in 1969 to 50% in 1992, according to the Economic Policy Institute (EPI), a Washington think tank.
REVERSAL OF FORTUNE. The collapse of upward mobility at the bottom is so surprising because even the most skeptical experts believe that nearly everyone gained ground in prior decades. The annual wage figures from Census show that the incomes of families in the bottom fifth actually rose faster--2.95% a year--from 1947 to 1973 than those in the top fifth, whose incomes climbed by 2.48% a year. These numbers don't indicate how many families remained in one group or the other during this period. But even if a family had remained stuck at the very bottom for the entire 25 years, its inflation-adjusted living standard would have doubled. "No one would argue with the idea that mobility was higher in the '50s and '60s," says Christopher J. Frenze, a Republican-appointed economist at the Joint Economic Committee of Congress.
Even more astonishing, American mobility now looks worse than Europe's (chart). In 1993, Northwestern University economist Greg J. Duncan and seven European economists found that throughout the 1980s, only 17% of poor American families moved at least 20% above the poverty line within a year, vs. 25% to 44% of the European poor. Overall, more than 56% of the bottom-fifth American families remained there for at least five years, vs. 52% in Germany, according to Syracuse economist Douglas Holtz-Eakin. "Most economists simply can't believe that the U.S. has the same mobility as Germany," says Richard Burkhauser, a Syracuse economist who also has studied mobility with the Michigan data. "Everyone always thought that people don't move nearly as much there."
Nor do the 1990s seem to be turning out much differently. The Michigan data are available only through 1991. But individual workers' long-run progress is driven largely by the pay rates of the jobs they get. And these figures, available from Census through 1994, show the same inequality patterns of the '80s. For instance, hourly pay for men in the bottom fifth trailed inflation by more than 5% from 1989 to 1994, according to the EPI. Male dropouts' wages plunged by 11% over this period, while high school grads slipped nearly 4%. This is strong circumstantial evidence that anyone who hasn't returned to school or received substantial training likely hasn't seen much of a pay hike in this decade.
While higher-educated workers have fared worse compared with the 1980s, they're still outpacing bottom-end ones. Pay rates for men in the top fifth fell by only 1% from 1989 to 1994, the EPI found, and those for men with college degrees slumped by just 0.4%. Since the lower-skilled did even worse, the gap between the two groups has widened again. Technological advances eventually may boost wages for the college-educated. But numbers released in mid-February show that in 1994, the workforce as a whole got its lowest raise in 14 years. And given the continued decline of low-end pay rates, "there could actually be even less mobility for low-skilled workers in the 1990s than in the 1980s," says Smeeding.
UNINSURED. The treadmill to nowhere isn't news to Lawrence J. Schabow. The 53-year-old Chicago resident saw his pay jump from $4 an hour when he started in 1978 as a truck driver for Pony Express Courier Corp. to $10.50 in 1983. Then Borg-Warner Security Corp. bought the company and began cutting wages. Today, Schabow earns $9.50 an hour, including a premium for driving at night. That's 22% less, in real terms, than his 1983 pay. His wife, Edna, quit her clerical job in 1992 after a liver transplant. The family pays for its own dental and eye care after Pony ended its insurance programs. When the Schabows couldn't pay their debts, they declared bankruptcy in 1992. "I'm supporting us and our three kids and going under more and more every week," says Schabow.
Economic opportunity has been shrinking for long enough now that families trapped at the bottom are beginning to show the attributes of a permanent lower class. Look at emergency food aid, now a nationwide enterprise. Chicago's Second Harvest, the U.S.'s largest food-relief agency, provides donated food to 185 distributors around the country, which, in turn, supply 70,000 soup kitchens and food pantries. The kitchens serve 26 million people a year, about 10% of the population.
The need for food aid has risen as opportunities for bottom-end workers have declined. In Spokane, Wash., some 27% of soup kitchen users were employed in 1995, vs. 12% in 1987, according to the Spokane Food Bank, which supplies food for 33,000 households a month. Some recipients may not really need free food. But most kitchens demand pay stubs, welfare checks, and other documents. "It used to be that food service tided you over when you lost a job," says Second Harvest President Christine Vladimiroff. "But now it's chronic, because there are more working poor who can't pay the rent and still buy food."
That's the case with Karyn L. Ocheltree, a 33-year-old single mother of four who has used the Spokane Food Bank off and on for several years. In 1987, the high school graduate lost her $12,000-a-year position as an accounts-receivable clerk when the software company she worked for upgraded her job. She found similar work at another company for four years but was replaced by an $8,000-a-year trainee.
Ocheltree then enrolled full-time in a community college to study business administration, working part-time for the college and collecting food stamps and welfare to support her kids. She also took home groceries from the food bank about once a month. She landed a new job in the invoice department of a hardware distributor last July, after completing an associate's degree. But she still earns only $16,800 a year and sometimes taps the food bank. "My family eats $400 to $500 a month in food, and my rent is $550, so I wouldn't have enough left for electricity, water, and all the necessities if I had to buy all our food with my paycheck," says Ocheltree.
The U.S. has been a country of opportunity since its inception. During the 1787 drafting of the U.S. Constitution, Governor Morris of Pennsylvania argued that those whose livelihoods relied on an employer weren't independent enough to be free citizens and shouldn't vote. Thomas Jefferson later responded that Morris' point may have been valid for Europe's dirt-poor wage-earners. But Americans, he said, could always find another job or earn a decent living on the abundant farmland here.
The middle class that began to emerge in the early 1800s has provided the stable underpinnings to our democracy. But if America continues to stratify, "you'd expect our democratic identity to diminish," says political science Professor Carey McWilliams of Rutgers University. Some trapped on the bottom may explode with resentment. Others may succumb to apathy. Either way, all Americans will suffer.BY AARON BERNSTEIN IN NEW YORK, WITH BUREAU REPORTSReturn to top