#13 A Portrait of America's New Working Poor (8.20.13)

PORTRAIT OF AMERICAN'S NEW WORKING POOR

The US Middle Class: then and now

By Allen Stansbury, Senior Associate, Center for Community Futures, Berkeley, CA

A portrait of today’s US working middle class is far different from the middle class of 30-40 years ago of the 1970’s and 80’s.  Back then the portrait of the middle class wage earner was mostly white men holding steady permanent, many with life-time jobs, most with access to affordable medical and health insurance, and often with a company paid pension plan. These wage and salary earners were blue collar and white shirt, factory and office workers.  

Women were a growing part of the workforce but not yet dominate. Women not in the workforce were stay-at-home moms enabling a solid social base.  Jobs for the youth were readily available, providing a source of income for those continuing to college.  Those who were educated were managers, technicians, and professionals usually on the ladder for promotion or at least steady salary increases or other job opportunities.  Most employment opportunities for a college graduate were supplied by a major manufacturing corporation, public institutions of government and education, or the financial sector as examples. While annual salary increases not always met inflation it was at least a living wage and living standards were quite affordable.   

One of the indicators on middle class prosperity during the 70’s and 80’s was the affordability of cars.   Most could afford to replace their cars with a new model on average of 5-6 years.  According to a recent edition of Bloomberg-Business Week News today there are “Roughly 100 million cars in the U.S. are between seven and 12 years old, the “sweet spot” for high-maintenance repairs,” according to Bloomberg analyst Kevin Tynan.

Captains of industry and corporate executives were an integral part of the community, providing leadership and sustainability. While there were economic ups and downs, they were not so volatile to be so catastrophic to destroy its social norms.  

Good middle-class job opportunities were growing for those without degrees.  For the most part, graduation with a high-school degree meant something then; a skilled labor force was in demand.   Many joined unions to insure protection of wages and benefits as well as to be able to share in the raising US economy.  US GNP experienced annual increases of 4-12% during the 80’s, today it’s a good year if GNP is 2%. 

Today, the middle class is quite different and is no longer thriving, living in a survival mode.  Looking at the 2010 Census data and the US Department of Labor, a family portrait of the American working poor[1] is very diverse and difficult to pin down.  Perhaps the working poor are married with the husband or wife working well below their education and skill level, some holding two jobs. They would be 20-44. However, those who are younger will more than twice as likely to be categorized as working poor. 

It could be a single head of household, most likely a woman, once married but now divorced with at least one child. Or, if married, the bread earner may not have gone on to college and perhaps a high school dropout. But, if they had some college but then they would be carrying a student debt load and by now may have defaulted on the loan. The single head of household could be white but more likely from a mixed or minority ethnic background. 

There are many graduates with families living with their parents, having lost their homes in the global recession of 2007-2009, despite the fact that there were many foreclosed or abandoned homes available for purchase from the banks.  Those heads of households simply lost their credit worthiness and thus their borrowing ability. 

For them, employment would be several part-time jobs or full time temporary employment or at a minimum reduced pay or hours. In other situations many are receiving unemployment checks and food stamps, older workers have sought early retirement. The worst case is that unemployment has completely run out. Had they been working, most likely they would have been in the service industry, or perhaps farming, construction, maintenance, or extraction (oil and mining) industry.

In 2009, 5.2 million families were living below the poverty level, despite having at least one member in the labor force for half the year or more. Married-couple families had a lower likelihood of living below the poverty level (10.3 percent in 2009) than did families maintained by women (25.1 percent) or by men (17.6 percent), a pattern that held regardless of which member of the married-couple family was in the labor force.

Among families with at least one member in the labor force for half the year, those with children had a greater likelihood of living below the poverty level than did those without children. The proportion of families with children aged 18 years and younger that lived in poverty was 12.0 percent, in contrast to 3.1 percent for families without children.

About 26.6 percent of families maintained by a woman with children under the age of 18 were in poverty. For families maintained by men with children, the proportion in poverty also was relatively high: 18.2 percent. Among married-couple families with children, the proportion classified as working poor was 7.0 percent in 2009.

Lost Wages and Salaries

Research by the Federal Reserve Bank of San Francisco shows how significant wage and salary losses occurred during the great recession.[2] The vast majority of job losses during the recession was in middle-income occupations, and largely replaced by low-wage jobs since 2010. For instance the SFFed research found that mid-wage occupations, paying between $13.83 and $21.13 per hour, made up about 60 percent of the job losses during the recession. But those mid-wage jobs have made up just 27 percent of the jobs gained during the recovery. By contrast, low-wage occupations paying less than $13.83 per hour have utterly dominated the recovery, with 58 percent of the job gains since 2010. (This data all comes from an August 2012 report from the National Employment Law Project.)

The SFFed study in Plumer’s article concluded: “[M]any middle-class workers have lost their jobs and, if they have been able to secure new employment at all, find themselves earning far lower wages post-recession,” the San Francisco Fed notes. ”[O]n average over the next 25 years, these workers will earn 11% less than similar workers who retained their jobs through the recession.”

In a speech titled “The Rise and Consequences of Inequality in the US” given in January 2012 by Alan Krueger, Obama’s Chairman of Economic Advisors clearly shows the decline of the middle class in America.  In the below chart 1 (Figure 6) published in his remarks shows that those Americans that approximated the income of the middle-class fell from 50.3% in 1970 to 42.2% in 2010.

 Or, to put it another way, while productivity has risen over this period, overall middle and lower income group income has declined when adjusted for inflation.  The BLS chart #2 below published February 11, 2011 clearly shows how from the 70’s when productivity and real hourly compensation were nearly equal and by the end of 2000 the ratio was nearly 2.5 to 1.

Banking Services for the Middle Class

There are a number of signs or indicators that are signifying the new working poor. Take for example having a bank account.  In September 2012, the FDIC released an extensive report on National Survey of Unbanked and Underbanked Households.  The study found that:

• 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to 8.2 percent of U.S. households or roughly 17 million adults are without a checking or savings account.
• Another 51 million adults have a bank account, but use pawnshops, payday lenders or rent-to-own services. This underbanked population has grown from 18.2 percent to 20.1 percent of households nationwide.
• One in four households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account.
• Minorities, the unemployed, young people and lower-income households are least likely to have accounts.

Over the years of experience agencies serving the poor have proven that without access to traditional banks, people are susceptible to abusive practices at non-bank institutions and are likely to remain trapped in a vicious cycle of financial strain.

There are several reasons for this. One is that banks have resorted to higher fees, reportedly to off-set the requirements of the Dodd-Frank act adopted by congress as the result of the banks part in causing the global recession.

Another reason is that as former middle class neighborhoods shift become poorer, banks are closing their branches making banking even less accessible. SNL Research published in April 2012 showed this decline nationwide. 

To view the full report along with supporting graphs and charts please go to the website of the Center for Community Futures.

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[1] The labor department has defined the “working poor” as persons who spent at least 27 weeks in the labor force (that is, working or looking for work) but whose incomes still fell below the official poverty level. Source: “A Profile of the Working Poor, 2009” US Department of Labor, Bureau of Labor Statistics, March 2011.

[2] “How the recession turned middle-class jobs into low-wage jobs” Washington Post, By Brad Plumer , February 28, 2013