PART 5: THE US LABOR MARKET AND LOSS
OF MIDDLE INCOME JOBS
How the US Economy Failed its
Middle Class
During
the years between 1980 and 2000 the American middle class slowly lost its
position in the world wide labor market. But, at that time this was reversible
if it were not for the debacles to come.
At
the end of the 20th Century came the dot.com bubble burst of
1999-2001, causing a further decline in middle class jobs and wages. The
decline was further accelerated during global recession of 2007-2009 and unabated. [1]
This huge loss of jobs, especially those providing a steady middle class income
has not recovered and today the US economy titters on the edge of another
recession. At minimum the US economy is
ongoing stagnation during its recovery period of 2010-2013.
However,
before the great recession much of the US economy and its labor force were
built upon an on false assumptions and deregulation of the financial community.
A good example are the many of the jobs in
the banking, real estate, home building, local governments and many retail industry
sectors depended upon the false assumptions such as “forever increasing housing
values” or “banks were just as safe” after the repeal of the act Banking Act of
1933 (Glass-Steagall) in 1999. This
repeal allows banks to invest into among other things derivatives. Relying on
such false assumptions allowed banks to lead to home owners and buyers at 110%
of appraised value, or loans to those without adequate income, or the banks selling
securities and derivatives based on false housing appraisals and dubious credit.
Good jobs in the financial, building and
retail sectors were forever loss once the decline began.
Local
governments all over the US depended upon increased property values and local
sales taxes to offset raising public service costs, and maintaining adequate
fire and police protection, much of it lost during the global recession. This has left many communities without
adequate resources to provide minimum services much less maintain their
infrastructure. Cities such as Stockton, CA and Detroit, MI are in bankruptcy
partly because of the loss of property values and sales tax revenues. Police and fire protection has declined
because of this financial morass.
The
burst of the housing bubble was a repeat of the savings and loan scandals of
the mid-80’s where the likes of junk bond kings Michael
Milken and inside
trader Ivan
Boesky[2] blatantly sold risky securities
as secure and promoted leverage buyouts. Simultaneously, thousands of real estate
ventures failed and caused the loss of countless jobs in both banking and in
the real estate industry ultimately costing US tax payers billions to offset
the losses incurred by corrupt S&L managers, think Charles
Keating of Lincoln S&L
of Irvine, CA.[3]
In
another instance, during the dot.com boom of the mid-late 90’s, hi-tech jobs were
created on the false assumption of large amounts of venture capital fueling
hugely speculative ventures in the dot.com era would create newer, faster
technology. This assumption was built upon the enormous achievements and
financial successes of software companies such as Microsoft’s Windows operating
system of the early 90’s, followed by the incredible success of Netscape.com
when it went public August 9, 1995, each being first to market and staking a
claim on the next best thing. As expected, new internet capabilities emerged
such as on-line shopping, advertising, hotel and airline bookings, stock trades
and banking, plus a myriad of other uses.
The
burst of the dot.com bubble set the stage for the next recession that was not
far behind. But, first there was the
burst of the housing bubble, described by economists as the collapse of the
“asset market.” causing the first wave of unemployment followed by the global
financial market collapse, both leading to the global recession of 2007-2009. The
combination of these three became the “perfect storm” for both the elimination
of middle income jobs and long term unemployment.[4]
Once
this happened the national debt exploded in order to: first bail out and
recapitalize the banking system, second bailout the automobile and other
industries, third enact an economic stimulus package, and fourth increase the
length of unemployment insurance payout periods and other benefits.
None
of this saved middle class jobs. For instance bankruptcy gave General Motors
and Chrysler a new opportunity to negate labor contracts and reorganized not by
closing more plants but by reducing salaries and benefits of its workers.
As
businesses and industries continue to build on false assumptions they began to
fail taking with them well paying middle class jobs. The decline continued to accelerate;
jobs for the middle class workforce went into further decline. Once the collapse began the U.S. middle
class lost its economic position and its social status.
The Disposable Worker[5]
Starting
with the dot.com bust at the end of the 20th century, and perhaps
earlier The U.S. economy and its labor market began to undergo deeply
structural changes. Corporations, large
and small began tightening up their employment practices, shedding permanent
positions, hiring temporary workers where possible, fearing the event of the
next recession or to compete globally where labor was cheaper elsewhere. Some of those temporary jobs were turned into
contract positions with employment time limits and agreed upon
deliverables. According to elance since the start of 2010 2
million freelance jobs have been added as of 2013. Some estimate that 1 in 3 are
freelance.
But,
with the event of the global recession of 2007-2009, organizations resorted to
part-time workers to fill their labor needs. More often than not these jobs
offer no health insurance, no retirement benefits, no sick days, no vacation,
no severance, and no access to unemployment insurance. Just like assembly plant “just-in-time parts
deliveries,” today’s employers have resorted to “just-in-time labor force” giving
them the capability of responding more quickly to market forces and eliminating
fixed costs. They started with
eliminating employment benefits moving to eliminating jobs. Of course, these have been good for corporate
profits…just look at the latest stock market gains reflecting the highest
profits margins ever.
As
of this writing, the summer of 2013, while employment in the US is on the
rebound, most of it is part-time, temporary work that for the most part is low
wages. The chart 4 below entitled
“America’s Part-Time Employment Problem” shows this growing trend during the
last 10 years.
While
it may be too early to tell, based on my own experience, a source of middle
income jobs may very well be freelance, the “hired gun.” This has become
especially for the more experienced professional. I myself evolved over the last 25 years from
a full time employee in public administration to providing consulting services
domestically and internationally in local government capacity building and policy
analysis. From the point of view of an
enterprise, the cost savings and flexibility of a non-salaried workforce often
make business sense. From the view point of the worker they suddenly become businesspeople
but have freedom to be pretty much their own boss.
To
get an idea of the wages these jobs make take a look at Chart 10 “Current
Hourly Wage Rates” below from Bloomberg Business Week based on data from the
Bureau of Labor Statistics.
Immigration Impact on the US
Middle Class
But
what of immigration, did it play a role in the loss of middle class jobs?
According to the Federal Reserve Bank of San
Francisco recent publication, the answer is decidedly no with slight impact for low and
minimum wage earners. Recent studies show
that the impact of immigrants undercutting “less-educated Americans in the
labor market are slight.” More significantly, they suggest that immigrants have
had, at most, a small negative impact on the wages of Americans who compete with them most
directly, those with a high school degree or less.[6]
There
are many points of view. Many American low-wage, unskilled workers believe that
low cost labor coming from Mexico and Latin America had a negative impact
taking away jobs. Consumers saw it as means to maintain cheap fruits and
vegetables, or inexpensive fast food restaurants. Employers saw migrant labor
as a means sustain a competitive environment in restaurants and hotels, or in
the building trades for housing, or a steady labor supply in landscaping, or
other unskilled or low-skill, low wage jobs in factories or assembly
plants.
Economic
and labor market research supports the above. It found that immigrants,
including the poor, uneducated ones coming from south of the border, have a big
positive impact on the economy over the long run, bolstering the profitability
of American firms, reducing the prices of some products and services by
providing employers with a new labor source and creating more opportunities for
investment and jobs. Giovanni Peri, an economist at the University of
California at Davis, estimated that the wave of immigrants that entered the United
States from 1990 to 2007 increased
national income per worker by about $5,400 a year on
average, in 2007 dollars. He also concluded that the wave had a small positive
impact on the average wage of American workers, by lifting the overall economy.[7]
While middle wage jobs in programming when up, high-wage,
medium-skilled jobs went by the wayside; “The only high-wage jobs, whether in
manufacturing or services, will be high-skilled ones, requiring more and better
education” wrote Thomas Friedman a recent NY
Times column.
Regardless,
the steady stream from the south and elsewhere has nearly stopped primarily due
to the poor state of the US economy. [8] Immigration from other
countries is nearly neutral partly due to the lack of progress the US has made
to retain those who graduated with advance technical degrees or developed
hi-tech skills here in the US.
To
understand the trends adversely impacting the middle class for the last 30
years please go to the website at the Center for Community Futures
and view the downloadable Pdf file that provides extensive details,
graphs and charts in the decline of middle income jobs in the US.
[1]
The dot.com bubble is documented in The World
Is Flat: A Brief History of the Twenty-first Century by Thomas L.
Friedman (4/5/05)
[2]See
also: Connie Bruck - The
Predators' Ball: the
inside story of Drexel Burnham and the rise of the junk bond raiders, New York: American Lawyer/Simon
and Schuster, 1988, Penguin
paperback (updated), 1989.
[3] For a complete understanding
of the S&L scandal see Inside Job:
The Looting of America's Savings and Loans [Paperback]
Stephen Pizzo (Author), Mary Fricker (Author), Paul Muolo (Author), Harpercollins (April 1991)
[4]
For a detailed account of the asset and financial market collapse see Harvard’s Carmen Reinhart and Kenneth Rogoff study “Aftermath of Financial Crises
[5] BloombergBusiness Week, The
Disposable Worker by Michelle Conlin, Moira Herbst, and Peter Coy,
1-7-2010
[7]
ibid
[8]
References to immigration are from the Pew
Hispanic Foundation
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