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America's Squeezed Middle Class

A recent New York Times article examines two explanations for the so-called middle-class squeeze: inequality and instability/volatility.

According to the story:

The first one is about inequality. The top 0.1 percent of earners -- that's one taxpayer out of every 1,000 -- now brings in 11 percent of the nation's total income, triple the share that they did just a generation ago. This has happened because the rich have grown ever richer, while the pay of rank-and-file workers hasn't risen much faster than inflation.

The second, related story is about instability. Layoffs seem to happen more frequently than they once did, and these job losses -- combined with the spread of bonus pay -- have caused workers' incomes to bounce around a lot more than in the past. So not only have middle-class families been getting meager raises, their finances have also become more volatile.

The story about inequality is indisputably true. But we're starting to learn that the second story, the one about instability, is more complicated. It may even end up being wrong.

At the end of the day, the article suggests, inequality is an established problem contributing to the squeeze:

Volatility may or may not have increased over the last generation, but it does not appear to have changed in a fundamental way.

Inequality is a whole different story. It has risen enormously and is not about to stop. ...

In an economy where volatility was the main problem, you might want to protect jobs by making it harder for companies to cut them. In an economy where inequality was the problem, you would want to protect people. You would help them pay for health insurance, retirement, their children's education and other basic needs when the market, left to its own devices, was not doing so.

And if your resources were limited, wouldn't you start with the problem you were sure that you had?

Not So Squeezed?

The Generation Risk Blog has commented on the middle-class squeeze, highlighting a David Brooks New York Times column that says the middle class isn't squeezed and summarizes a Third Way report:

Brooks' point is that Democrats are crazy if they think American voters will respond to a "populist" economic message in 2008. But what he barely hints at is that even this report, from a decidedly centrist group, describes breathtaking economic changes since 1979. At one point, the report's authors compare the "old rules" of the economy to the "new rules" Here's a sampling:

Old Rule: "Success required a high school diploma."
New Rule: "Success requires a college degree."

Old Rule: "Climbing the ladder meant rising up the ranks within a single company."
New Rule: "Climbing the ladder means chasing opportunities with multiple employers."

... To sum up: The American economy offers you a much higher standard of living than it did in 1979. But to fully enjoy the fruits of this success, you'll need to spend four more years in school, be savvy about switching jobs, carefully manage your stock portfolio, and tap into two incomes, with all of the child-care worries that entails.

Middle-Class Workers

The old vs. new rules are on target. Gone are the days when a middle-class kid from a blue-collar city could ditch high school for the local Chevy plant--and land on his feet. In the future, success may require professional degrees in addition to college degrees. And changing jobs--or careers--several times has been a boon for me and many of my friends and colleagues.

Such shifts, combined with the inequality mentioned in the Times story, are putting the squeeze on the middle class. I'm not sure what the solution is, but I do know we need a fix: America's successes have come about largely because our middle class is vast and robust. Squeezing it away is a bad idea, both socially and economically.

What do you think is squeezing the middle class?

-kc

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