The Middle Class Squeeze

The work I've been doing on the middle-class squeeze is for a hearing to be held by the Senate Health, Education, Labor and Pensions Committee on Thursday at 10. (Webcast)

Interestingly, most of the folks who are testifying are "real people" struggling with all the stuff I've been blogging about. I think it's great that in the midst of all this mishegoss on the debt ceiling, budget, deficits, stimulus, the committee is taking the time to look at the longer term challenges that middle class families have been struggling with well before the recession took hold.

There are so many dimensions to this squeeze. Take, for example, retirement security. The figure below highlights the complete reversal in pension coverage from defined benefit pensions (a fixed guarantee) to defined contribution plans (like a 401(k) plan), where your pension benefit varies with market returns. It's a classic risk shift, a change that shifts the risk of income adequacy in retirement from employers to workers and their families. The figure reveals a complete reversal in share of coverage between a guaranteed and variable pension benefits. And of course, many in the middle class don't have even variable benefit pension plans.

Here's what Sen. Tom Harkin said today in announcing this hearing:

...even people who have spent their whole lives playing by the rules are seeing the future they dreamed of slip out of reach. People's paychecks aren't rising, but the costs of essentials like gas, health care, and college education are soaring. With this squeeze on family finances, the hope of a middle class lifestyle with a house, a car, and a secure retirement is fading for far too many Americans...it's time to recognize that this is not the way things have to be. Our economic recovery as a nation depends on rebuilding the middle class, the backbone of America. It's time we showed the backbone to defend it.

This post originally appeared at Jared Bernstein's On The Economy blog.

 

 

 

Comments

[Izzy66]

01:52 PM on 06/27/2011

I'm afraid the fear of our legislators to go against their financiers will allow this deterioration to continue. This greed has effectively killed the American Consumer 'Golden Goose.' Without any thought to how we'll pay for goods without jobs, Global Corporations/Wall Street/Bankers et all still believe we will somehow be able to Consume. One day, when its too late, they'll realize their short term folly.

But until then, I'll theorize that the 'citizens united' Corporate rule will dominate the American Economy for just under a decade. Its end will be the rise of an American Spring, with our disenfranchised youth's anger taking them to the streets. As a rule, young men in particular aren't too nice when they're angry - things are going to have to get seriously in D.C.'s face before our government will ever do anything against corporate interests.

[Robert SF]

09:54 AM on 06/24/2011

It's hard to identify the precise moment the middle-class squeeze started, but it was more than 30 years ago. It wasn't just that the Republicans began their obsession with trickle-down economics and free-marketism, an obsession that has infected the Democrats too. It was also that the Democrats abandoned the working class and basically stopped advocating labor issues.

This abandonment largely took place as younger liberals started supporting a wide range of causes that the working class didn't care about or actively opposed. Sadly, the Archie Bunker type was fairly accurate, and causes like civil rights, women's rights, gay rights, animal rights, and environmentalism left such people cold. For their part, liberals were disgusted by working class bigotry.

Here you might say that we're talking about the middle class, not the working class, but when Democrats stopped supporting labor, the ability to move from working class to middle class became progressively harder. That stopped the growth of the middle class and began the squeeze.

[JY - NJ]

05:37 PM on 06/22/2011

The Middle Class Squeeze is due to the inordinate power of corporate executives to transfer the incomes of their employees to themselves through price increases, wage suppression, and risk transfer. Most workers do not have the depth of financial knowledge required to successfully manage retirement security over a 40 year period. 401(k) Plan is another deceptive mechanism of ‘The Great 30-year Theft of Middle Class Incomes”. I agree that “Our economic recovery as a nation depends on rebuilding the middle class, the backbone of America.” But we cannot maintain a middle-class if corporate executives continue to wield this enormous power. It's time Congress “showed the backbone”. It's time Congress stopped the theft of Middle Class incomes by corporate executives.

[OldTulsan]

09:46 PM on 06/22/2011

Satan will be ice-skating before Congress goes against their masters.

[spinotter11]

08:22 PM on 06/26/2011

As always, a pretty accurate assessment, I'm very sorry to say. And it's sad that during my lifetime I have gone from feeling that my government was pretty responsive to the needs of all Americans, to knowing that only those who bribe are given any attention whatsoever.