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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.

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.

Do You Know What You're Worth?

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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