Wage Stagnation, Growing Insecurity, and the Future of the U.S. Working Class

by William K. Tabb
Monthly Review
June 2007

The most important promises used to justify capitalism are that your children will have a better life than you do, and in President Kennedy’s famous words, “a rising tide lifts all boats,” meaning everyone benefits from the accumulation of capital. These promises ring hollow in a period in which the relative position of the working people of the United States is declining and its ruling class is able to appropriate an increasing share of the national income. This pattern of accumulation and appropriation has become evident to many Americans and this awareness is beginning to affect political consciousness.

Today, people worry that their children will not enjoy the same standard of living that they have. They know that the benefits of growth are going overwhelmingly to the wealthy and not to working people. The statistics support such an understanding. For a quarter of a century, from 1980 to 2004, while U.S. gross domestic product per person rose by almost two-thirds, the wages of the average worker fell after adjusting for inflation. Over the three decades from 1972 to 2001, the wages and salaries of even those Americans at the 90th percentile (those doing better than 90 percent of their fellow citizens) experienced income gains of only 1 percent a year on average. Those at the 99.9th percentile saw their income rise by 181 percent over these years (to an income averaging almost $1.7 million). Those at the 99.99th percentile had income growth of 497 percent.1

From an economic standpoint what has happened is that the link between productivity and wages has been broken. No longer does economic growth mean increases in the real earnings for the working class as their productivity rises. This was evident through Clinton’s last term when between 1997 and 2001 the top 10 percent of U.S. earners received 49 percent of the growth in real wages and salaries; indeed, the top 1 percent got 24 percent of the total while the bottom half of workers received less than 13 percent. This trend is of longer duration. Based on a somewhat different calculation the share of income going to the top .1 percent quadrupled between 1970 and 1998 at the expense of working-class earners.

Inequality was growing in most of the rest of the world too; but the United States led among the richer nations; and unlike most others that offset market inequality though government intervention, the United States has not done so. For working people the issues are not simply the stagnation of real wages and growing inequality but the worsening insecurity that permeates many aspects of their lives as labor market conditions change and government abrogates more and more elements of the social contract.

Because globalization has been such a powerful force restructuring the international political economy there is a tendency to see economic developments as the result of this process rather than in terms of class. If we start with class and labor as the givens—rather than beginning with globalization trends—and then go on to the dispiriting impacts on people, the focus moves from deterministic structures to agency and the need for and potential of struggle. To understand the present, we need to look closely at how the factions of capital are advancing their selfish interests, at the expense of working people, by consciously manipulating the beliefs, fears, and idealism of citizens.

Despite globalization, manufacturing output is not declining in the United States. It has been expanding, growing faster than the rest of the economy in recent years. It is manufacturing employment that is shrinking.

It is at its lowest level in more than half a century. Between 2001 and the spring of 2006 worker hourly productivity rose by 24 percent so fewer workers are needed to produce more output. But output has not been rising as fast as in the past. This is not only because of greater global competition but also slower global growth in demand. If demand had increased at levels seen during the early post–Second World War era, millions of additional jobs would have been created in manufacturing for U.S. workers. Manufacturing jobs are especially important for those with the least education. Men with less than a high school education saw their wages fall in the 1980s in real terms by 20 percent. From 1979 to 1992 real yearly wages for male high school dropouts fell by over 23 percent while high school graduates with no additional education experienced a fall in real wages of 17 percent. There was a large expansion of temporary and part-time work.

The U.S. economy is always creating and destroying jobs. The question is how much trouble do the unemployed have in finding work? What kind of jobs are available? What do they pay? What is the work like? What are the benefit packages, if any? If they are laid off how much pain do workers endure when they are involuntarily separated from employment?

How long does the period last? What sort of job did they lose, did they get, and again at what pay and with what benefits? Every three months 7 percent of all jobs are destroyed and roughly the same number are created. In a typical year a quarter of all jobs disappear. The Bureau of Labor Statistics tells us that in 1983, men between the age of 45 and 54 held jobs on average for 12.8 years but by 2004 for only 9.7 years. Jobs are now less secure for white-collar workers as well as in blue-collar occupations.

The layoffs have been in big companies, which tend to pay better and to offer benefits. It is not of course that things were great in the 1980s. During that decade, 13 percent of Americans between 40 and 50 years of age spent at least one year living in poverty, but by the 1990s, 36 percent did. Mobility has also declined. Today, according to a Federal Reserve study, if your parents are rich the chance of your being rich is as high as the probability that if your parents are tall you will be tall. Social mobility is not as likely here as in Germany, for example.

The true cost of job loss must be measured not just in money as economists do in their limited calculations. For many people there is a spiral pattern in which layoffs lead to not only financial insecurity but to feelings of powerlessness and hopelessness, depression, sleepless nights, headaches, chronic stomach aches, and fatigue that cause lasting harm.

Even after getting work some people have trouble talking to the boss and dealing with job demands. The damage done by job loss, even the threat of job loss, along with the worries about how people will live after they are no longer able to work, or if they have a serious illness how they can pay for the doctor and a hospital stay, produce anxieties that permeate working-class existence. There is a rise in escapist pursuits as the economy produces greater uncertainty; the growth of gambling addiction is one example. By the start of the 2000s, Americans were spending more on gambling than on theme parks, video games, spectator sports, and movie tickets. The most desperate tend to risk the most. Data from the late 1990s shows households with incomes under $10,000 a year spend three times as much on lottery tickets as those with incomes of more than $50,000. There is, however, an important psychological disconnect between harsh economic realities, escapist avenues, and the ideological interpretation most working people adopt to preserve their sense of worth and well-being. Credit card debt ensnares a large part of the working class. In 2004, 1.6 million people filed for personal bankruptcy, twice the number of a decade earlier, and half of those filed after a major medical expenditure. Other prominent causes of debt were divorce and job loss.

On the whole, life grows ever more insecure for working people. Capital’s share of all corporate income is the highest and the compensation of employees is the lowest that they have been in twenty-five years. Moreover, capital income is more concentrated than it has ever been. As the profit share went up, the CEO’s share of both the total wage bill and of corporate profits dramatically increased. By the mid-1990s CEO pay was about 5 percent of corporate profits. In 2003 their share was 10 percent of all profits.2 The percentage available for labor’s share decreased.

In the 2006 holiday season the top Wall Street firms together paid out an estimated $36 to $44 billion to their employees. The bulk of it went to those masters of the universe who were restructuring employment prospects for U.S. workers and extorting concessions from workers to finance debt. Andrew Sum of Northeastern University’s Center for Market Labor Studies points out that from 2000 to 2006, all 93 million American workers—all production and nonsupervisory workers as defined by the government—had real earnings increases of less than half of the combined bonuses awarded by the top Wall Street firms for just one year.3

These are disturbing developments to many Americans, but have they shaken the powerful hold of individualism on people’s psyches?

Hundreds of national polls confirm that Americans express optimism regarding their own life chances and those of their children. They are reluctant to describe their own circumstances in negative terms even as they tell interviewers that “people like them” are doing poorly. While they say that education and hard work will help people get ahead they also report anxiety about outsourcing, plants closing, permanent jobs being replaced with part-time and contingent work, the lack of career opportunities, and fear that if they lose their job they will only be able to get one with lower pay and no benefits.4 Americans are frustrated that their incomes are not keeping up with the cost of living and that they are being squeezed. They are critical of corporate greed and dishonesty. They want the government to call these corporations, especially pharmaceutical and oil companies, to account. They are worried that things will not get better. But they are not, in great numbers, hostile to the system. They express faith in the American Dream and continue to believe that individuals can overcome obstacles. A majority envy the rich and famous.

Horatio Alger stories continue to resonate with Americans. Close to two-thirds of Americans in a 2002 Pew poll believe that success depends on forces within their own control—double the percent who respond this way in Italy or Germany and triple those who respond this way in Turkey or India. Another 2002 poll by the accounting firm of Ernst & Young, taken after the dot-com crash and the terrorist attacks the previous September, found that 81 percent thought they would be richer than their parents, while other surveys show a high proportion expecting to become millionaires. One poll taken in 2000 found that a quarter of teenagers in the United States believed they would be millionaires by the time they were forty.5 At the time the poll was taken there were 150,000 millionaires in the country. If the teenagers were right about their future, nine and a half million people would have to jump to this status. Those who think they will become rich because America is an opportunity society can be attracted to such politicians as George W. Bush and Ronald Reagan who feed their dreams while robbing their pockets.

Such individualist optimists typically do not believe in helping those who do not help themselves. A very large part of the working class is alienated from poverty programs which are seen as taking their tax money and giving it to those who lack ambition and a willingness to work hard. One of the lasting legacies of 1960s liberalism is the division the liberal view makes between the poor and everyone else. The unspoken assumption underlying the liberal approach is that everyone else is doing just fine. The poor are viewed as a separate group excluded from the benefits of a system that is working for everyone else. This was not a true picture in the 1960s. It is certainly not the case today. The poor are numerous and in need of help, but it is the class nature of society that produces and replenishes the reserve army, that forces some to work full time year round and still be poor, while it excludes others from even this prospect. This makes all workers insecure about the future and fearful of losing what they have.

The great gap is between the top 1 percent or the top .1 percent and the rest of the country. The myth of the United States as a middle-class nation with endless prospects for upward mobility is increasingly contradicted by the evidence. Those at the top are a ruling elite and are concentrating more income and wealth into their own hands. Edward Wolff has documented that the top 10 percent of wealth holders own 85 percent of the value of taxable stocks and mutual funds, the top 1 percent own about half. Thomas Piketty and Emmanuel Saez have demonstrated that the share of pretax income going to the top 1 percent of Americans doubled between 1980 and 2004. (The last time the top 1 percent had such a large share of the total was in 1937.) What about after-tax income?

In a May 2006 statement advocating the continuation of his huge tax cut going overwhelmingly to the wealthiest Americans, President Bush asserted that the failure to extend the tax cut would be “disastrous” for “all working Americans.” As experts from mainstream think tanks, the Brookings Institution, the Urban Institute, and the Center on Budget and Policy Priorities said in response: “The president’s claim is implausible in light of the distribution of the reconciliation bill’s benefits. Some 68 percent of all American households will receive no tax cut at all from the legislation….” They noted that an even larger fallacy was the assumption that the tax cut should be seen as a costless gift from a beneficent government since the tax cut was being paid for with borrowed money. It turns out that 99 percent of Americans are net losers under this tax cut—for every dollar they received they also got a bill of $3.74 in the form of a larger national debt for which they will be paying interest.

Robert McIntyre of the Citizens for Tax Justice calculates however, that the wealthiest 1 percent, who in 2006 had family incomes of over a million and a quarter dollars, received an average tax break of $84,482 per family member, which exceeded their additional tax burden by over $30,000 for each of the four members of the average wealthy family. Income tax cuts to the bottom 40 percent of the income distribution do nothing because the families who in 2006 had incomes below $36,000 typically paid no income taxes. They were, however, affected by the service cuts which the money could have gone to pay for and they will be impacted by the cost of borrowing the money which went mostly to the rich and, it should not be forgotten, to pay for the war in Iraq and the other increases in defense spending.

What by convention the establishment calls “defense” spending is rather the expenses of empire, war, and preparation for and the actuality of killing. It is one of the costs citizens pay for American imperialism. In 2001, Bush said the war in Iraq would cost $50 billion (and fired his senior economic adviser Larry Lindsay in part for daring to say the cost might go as high as $200 billion). The administration assured the public the war would be over quickly. Bush lied about much as it turned out. In 2006, Joseph E. Stiglitz and Linda Bilmes put the war’s price tag at two trillion dollars, and even conservative estimates are in the trillion and more range. Increasingly there are estimates of what the American people could have gotten instead for the money—in health care, education, and infrastructure—to make their current lives and future prospects far better than they are.

Imperialism is the other side of an economy that is not producing adequate civilian jobs that would allow the sort of solid working-class existence to which unionized workers in a previous era could aspire. But even with poor prospects most young people are not interested in the volunteer army. One of the reasons the war costs so much, aside from the corrupt extractions of Halliburton and the other contractors with friends in high places, is getting young people to sign on to possibly die in an unpopular war. Recruitment costs are currently over a billion dollars as enlistees, who can now be up to forty years of age and in the second lowest category of intelligence (the one just above imbecility), are paid signing bonuses of up to $40,000. Such a volunteer army is not volunteer. It is a poverty draft. For the most part it is only young people who cannot afford college and face poor job prospects who can be lured to join.

The liberal establishment is worried that the more sophisticated classbased voting rooted in economic awareness they see growing in Latin America after three decades of a disastrous neoliberalism may be heading north. Robert Rubin, Clinton’s first secretary of the treasury and his successor Larry Summers have spearheaded the Hamilton Project at the Brookings Institution focusing on what they see as the paradox of wage stagnation in a period of robust growth in the productivity of the U.S. workforce. They are worried that growing inequality and wage stagnation will lead to radicalization. The idea is to come up with a program to preempt discussion of more radical proposals and the self-organization of grassroots movements in opposition to business as usual. Modest improvements through spending on education, training, and infrastructure will not be enough to address rising income and wealth inequalities and the deteriorating status of American workers. Nevertheless, establishment liberals hope that frustrations can be cooled by these means.

Republicans place their hopes in the strong hold ideologies of individualism have on Americans, including working-class and low-income voters. Three-quarters of poor Republicans, who as a group make up some 10 percent of the electorate (a Pew study tells us) believe that people can make it on their own through hard work and good character. Exit polls after the 2004 election show that the higher the family income the more likely people were to vote for Bush. Households with incomes below $50,000 generally voted for Kerry, but this was not the case for whites in the $30–50,000 category, which was once dependably Democrat. It is true that many in this group were open to the cultural conservativism the Republicans showcased, but more importantly these are people hurt by economic changes. They turned against the government and the Democrats back in the Carter years. Rather than offering meaningful resources to help such people, Kerry made balancing the budget the heart of his economic program.

The penchant for people to see the basic unfairness of the capitalist system and at the same time accept it and to believe that they can do well against the odds is a difficult reality for Marxists and other advocates for radical change. Critics of capitalism are not at all alone in their belief that those who control the major parties are in thrall to the economic elites. But the left has a serious problem to unravel. Why does the working class refuse to take on its historical obligations and instead seek individualistic or escapist alternatives? While the progressive segments of the middle class and some working-class militants are willing to struggle for meaningful change, most working people are not. In large numbers they embrace the wedge issues that reactionary forces use to win support for candidates who will pursue policies objectively against their interests. How can this be?

It would be a mistake to see the salience of social and cultural issues as distinct from economics. Traditional values, as they are called, are less appealing to the better off and better educated who are more likely to live in nuclear families, less likely to be divorced (and more likely to remarry if they are), less likely to have kids out of wedlock, and whose own children are more likely to go to college and become successful. Lowerincome people are more likely to live in a harsher world of social and personal insecurity, with greater prevalence of single motherhood, more abortions, and too commonly verbal and physical violence. The psychology of many wanting to escape such a life is to embrace aspirational values and absolutist guidelines which come with being born again in hope of finding support and strength. The church offers a heart in a heartless world of economic dislocation and deprivation. Certain fundamentalist religions serve the dispossessed and working families who once would have earned a family wage and lived in stable communities with strong working-class cultures.

Those who point out smugly that red states have more divorce, crime, poverty, single parents, and so on need to ask why this is so. Can it be the case that economically more secure people—like those who live in a high-income state such as Massachusetts, where community life is stronger for the most part and where there are fewer transients and murders per capita—accept gay marriage more easily because their family life is not so threatened? How important is lack of security and fear of further social breakdown to a propensity to be moved by hot button cultural issues? Once fundamentalist religious views were concentrated in poor, rural, isolated agricultural regions dependent on the capricious and often harsh nature of storms, draught, pests, and other uncontrollable disasters. With the dramatic drop in factory employment and the decline of unions the same sort of insecurity is widespread in areas where once there were communities of better paid workers and more stable families. Facing relative deprivations or simply living surrounded by social breakdown and disturbing signs of a disordered culture, a personal savior and acceptance of an inerrant authority of Biblical literalism can have greater appeal.

For many it is the ceaseless realities of a life of pain that leads to aspirational adoption of absolutist moral values and a rejection of the seemingly far-fetched promises of a solidarity based on class and citizen entitlement. It is easy for such people to demonize unions and a government, which are not helping them. Class is also an important entry point to examine the divisions within the Democratic Party, which has two major constituencies: better off, highly educated white liberals and the less well educated, heavily minority, group of low-income working people. The issues important to the first, the right to choose and the environment, may not be the most pressing to those for whom economic survival is uppermost. Moreover, the corporate funding the party depends on comes with the need to support free trade and neoliberalism.

All of this leads to the question: under what conditions does a broadbased progressive movement appear which can change the direction of the country? The Populist era, the New Deal, and the Great Society need to be understood in their material context to explain why they could do as much as they did. When Wall Street and the railroads abused the farmers and the early industrial workers, resistance built up and radical politics followed. In the thirties ordinary working people were in motion, unions were being organized, and the corruption of corporate leaders came to be widely known. The desire to punish “the malefactors of great wealth” and to prevent another depression led factions of the ruling class to support reforms and regulation to save capitalism from itself and perforce to help ordinary Americans. A hegemonic liberal-labor bloc moved the country to the left. In the 1960s, the modernization of American capitalism prompted change in the antiquated social relations of the Jim Crow South. The mechanization of agriculture ended the necessity for a huge workforce of blacks in agriculture. Air conditioning and air travel opened the South to the national economy. The changed material conditions stimulated activism in the form of the civil rights movement demanding inclusion on the basis of juridical equality for African Americans. Reluctantly, for this would require dismantling the alliance between Southern racist politicians and politics and Northern corporate interests and labor which constituted the New Deal coalition, first a cautious Kennedy and then a more assertive Johnson acted, pushed by powerful social movements, to keep the country united and to shore up the Democratic base in the North. Despite the activities of millions of activists, racism and regional conflict remain potent. The only successful Democratic candidates for the presidency since the early 1960s have been Southerners.

From Nixon’s “Southern Strategy” through the disenfranchisement of blacks (most importantly in Florida in 2000 and Ohio in 2004), the Republicans were able to impose an increasingly rightward turn in American politics. The whipping up of fear was the driver of reaction— fear of blacks, fear of communism, fear of terrorists. The large and most internationalized corporations, which had backed the Democrats from the New Deal through the Great Society, became transnational corporations.

As a result, their stance shifted regarding the functions of the state and U.S. labor. They now sought the freedom to disinvest at home and reinvest abroad, pressuring governments everywhere to accept neoliberal policies. This combination of the objective interests of big capital in the new stage of capitalist development and the use of racist appeals, national chauvinism, and religious fundamentalism brought us to where we have been until an overreaching by the Bush alliance provoked a progressive backlash.

Under Clinton, and in the economics advanced by Gore and Kerry, it is clear that the Democrats accepted and encouraged corporate globalization and lacked enthusiasm to defend working-class interests. In the post mortems after the 2004 election, Stan Greenberg, the Democratic Party pollster, crunched the numbers and declared that John Kerry had the White House within reach but his failure to shift from Iraq to economic issues led to his defeat. Interestingly, the white rural voters who were decisive to the Bush victory were open to an economic debate and held back. This group, a fifth of the electorate, was worried about health care, jobs, and retirement. They had been hit hard by economic dislocations.

“They were looking for an election about their lives—not national security—and they didn’t get that choice,” Greenberg reported. If they had gotten what they wanted Kerry would be president. There remains a basic disconnect between what Americans think is important and what politicians in thrall to the well-to-do are willing to consider.6 There is room to the left of politics as normal for such a discussion.


Notes
1. Ian Dew-Becker and Robert Gordon, “Where Did the Productivity Growth Go?” National Bureau of Economic Research, Working Paper 11842, December 2005.
2. Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America, 2006-2007 (Ithaca: Cornell University Press, 2007).
3. Andrew Sum, unpublished essay.
4. Robert McIntyre, “Transparent Dishonesty,” The American Prospect Online, August 30, 2006, http://www.prospect.org.
5. JA Interprise Poll, “American Dream 2000” (2001), http://www.ja.org.
6. Stan Greenberg, et al., The Economic Disconnect, Greenberg Quinlan Rosner Research, December 2006, http://www.epi.org.