The Recovery Squeezes the Middle Class

As the economy slowly makes its way back, the middle class is being left behind
Alex, Tom, and Carrie Ray: Eighteen-year-old Alex put off plans to enroll in a four-year college this fall. Instead, he'll attend a local community college for a year, saving $20,000. His father, Tom, an information-technology project manager who only recently regained wages his employer cut during the downturn, praised his son's decision as "very mature." Photograph by Andrew Spear for Bloomberg Businessweek

In an election that’s supposed to be all about reviving the economy and creating opportunities for the still-lagging middle class, the leading presidential candidates have been short on specifics. Barack Obama still points to the mess he inherited from his predecessor and speaks broadly about retraining and shoring up U.S. manufacturing. Mitt Romney offers a familiar Republican recipe of tax cuts for “job creators.” Missing from the conversation is a possibility neither side will address head on: What if the economy comes back but leaves millions of middle-class Americans behind?

Since the recession began, says Anne Dunbar, co-owner of a funeral home in a Dayton suburb, 15 to 20 families a year have asked that newspaper obituaries include a plea for contributions to help defray funeral expenses.
Photograph by Andrew Spear

Ninety-five percent of the net job losses during the recession were in middle-skill occupations such as office workers, bank tellers, and machine operators, according to research by economists Nir Jaimovich of Duke University and Henry Siu of the University of British Columbia. That’s what we all assume happens in recessions: The middle class is hit hardest, then eventually climbs back. Only, that comeback isn’t happening. Job growth since the end of the recession has been clustered in high-skill fields inaccessible to workers without advanced degrees or in low-paying industries, the economists found.

In March the U.S. had 2 million more managers and professionals working than five years earlier. Lower-paying service-sector jobs were up 1.5 million. It’s the middle-income jobs that have been slow to return. Over the same period, there were 3.2 million fewer Americans working in sales and office jobs and 1.2 million fewer employed in transportation and production—a broad category that includes factory and assembly-line workers, printers, welders, tailors, and poultry and meat plant workers. Another worrisome measurement: Median annual household income in March was $2,900 lower after inflation than at the start of the recovery in June 2009, according to Sentier Research, an economic consulting firm.

The Great Recession accelerated a decades-long shift in the economy away from the kind of moderate-skill jobs that have long supported a broad U.S. middle class. Less obvious in the past, this downward movement is now plainly visible in the lopsided recovery. The same middle-skill jobs were decimated in the recessions of 1990-91 and 2001. Both times, middle-class prospects continued to decline well into the recovery. Not since the 1981-82 recession have middle-income jobs snapped back quickly from the bottom of a downturn. In the last two recoveries moderate-skilled jobs never made it back to their pre-recession levels, say Jaimovich and Siu.

As the latest recession took hold and businesses laid off employees, corporations were forced to become more efficient—and had the technology to do it. Every worker’s least favorite phrase, “doing more with less,” became the mantra of the American workplace. Although the crisis has passed and revenues are picking up, says Erik Brynjolfsson, director of the MIT Center for Digital Business, employers aren’t about to go back to their larger, less-efficient workforces. Even with 5.2 million fewer Americans employed than in January 2008, the U.S. is turning out more goods and services than before the recession, one reason corporate profits have hit record levels. These results will create demand for even greater efficiency, putting more pressure on mid-skill jobs. “This is early days,” says Brynjolfsson. “We see the next 10 years as being more disruptive than the last 10.”

The country has weathered wrenching transformations before and come out the richer for it. In 1900, 41 percent of the U.S. workforce was employed on farms, a portion that plummeted to 16 percent by 1945 and fewer than 2 percent by 2000, as workers adapted to the industrial, and then post-industrial, age. It will take time, foresight, and no small measure of political will to once again transform the American workforce—a commitment far more ambitious than the proposals Obama and Romney have offered. “There’s no better time to be a talented entrepreneur,” Brynjolfsson says. “There’s no worse time to be a middle-class person without special skills.” The effort to narrow this gulf over the next generation is what the “economy election” is all about. The candidates who would lead the way have some catching up to do.


    The bottom line: Though corporate profits are on the rise, median annual household income in March was $2,900 lower than at the start of the recovery.

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