Will Middle Class America Ever See A Real Raise Again?

August 6, 2010— -- For Teresa Law, the struggles started long before the economic downturn. Her sense of despair predated the bursting of the housing bubble that nearly brought the economy to its knees in 2008.

"I hadn't seen a raise in 13 years," said Law, 49, a home care attendant in the rolling hills of south central Ohio. "There was nothing new in your budget except for bills. There were very few dinners out. Things that normal American families are shown on television were not done in my home for a very long time."

For millions of working Americans, the phenomenon economists call "median wage stagnation" has become a way of life. For decades, their annual incomes have remained virtually the same, leaving many just a paycheck or two from the street.

Experts attribute the causes to various factors: the decline of organized labor, the erosion of the minimum wage, the shift from a manufacturing-based to a service-based economy, and the transformation to a more globalized economy. But a common thread is the choking of America's besieged middle class.

"For the average worker in this country, there is a sense of despair, there is a sense of hopelessness and growing anger because they're now seeing that corporate profits are hitting record levels again, corporations have extraordinary savings, and that CEO's always manage to pay themselves more," said Stephen Lerner, director of banking and financial reform for the 2.2-million-member Service Employees International Union. "And people are saying something's fundamentally broken here."

A government report today shows the economy lost 131,000 jobs in July, worse than the 87,000 job loss economists expected. The nation's unemployment rate remained unchanged from June's 9.5%, but the jobs data means 7.5 million jobs have been lost since the beginning of the recession.

For working people, wages remain stagnant. In fact, median weekly wages, when adjusted for inflation, fell slightly for both high school and college graduates from 2000 to 2009, according to a recent analysis by the Economic Policy Institute, a Washington think tank.

For high school graduates, median inflation-adjusted wages were $626 per week in 2009, compared with $629 in 2000, according to the EPI analysis. That comes to $32,552 in 2009, down from $32,708 in 2000.

For college graduates, weekly wages were $1,025 in 2009, compared with $1,030 in 2000, according to the study. Over the course of a year, that's $53,300 in 2009, down from $53,560 in 2000.

The long period of wage stagnation predated the recession.

"Between 2002 and December of 2007, the country was in a period of economic expansion and for most of that time, from 2003 through 2007, wages fell," the EPI study said. "Wages had improved in the early part of the decade on the momentum of the rapid wage growth of the 1990s, but that progress was halted by the spike in unemployment during the 2001 recession, and never reestablished itself."

With growing economic uncertainty and soaring unemployment, the future seems bleak for many Americans.

Middle Class Income Remains Stagnant

"Think of the American economy as a large apartment block," Harvard economist Larry Katz told the Financial Times in a recent story highlighting wage stagnation. "A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most."

A recent study by the global management consulting firm Hay Group found that planned salary increases for 2011 are at 3 percent for clerical, supervisory, middle management and executive positions. The 3 percent increase is below the 4.5 percent to 5 percent increases common during the beginning of the decade, and the steady 4 percent from 2005 to 2008.

"The past three years have seen the lowest base salary increases that most employees have ever experienced," the study said.

Lerner said increased productivity and declining wages have conspired to slowly strangle America's middle class. In addition, fewer than a tenth of American private sector workers now belong to a union.

"What we see with workers increasingly is people are working two, three, and literally four jobs just to try to make ends meet," he said. "The foreclosure rate is out of control and now we find the people who are losing their homes are not people trapped in sub-prime loans, they are people who had regular mortgages. People are not able to pay for college. What is critical here is that the way people have made ends meet is by going deeper and deeper into debt."

For Law, who cares for elderly and disabled people, the 13 years she spent without a pay raise defined her family's life. She made about $12,000 a year. An SEIU member for last three years, she recently saw her first pay increase in a long time – a 3 percent hike. Her husband, Ricky, a former supervisor at a foundry, earned about $20,000 until a disability prevented him from working eight years ago.

"You finagle your grocery bill," Law said. "You rob Peter to pay Paul. There are many times I have a grocery list and I'm thinking the electric bill went up $25. So you kind of skim on the grocery list and find things that are cheaper. You repeat meals quite often in order to take that $25 and put it on the electric."

Middle Class Struggles While Upper Class Grows

Many of her neighbors found themselves in similar straits, Law said.

"In my community you started seeing extended families come back together, with grandparents living in the home again with the kids and grandkids, taking care of the grandchildren," she said. "Had it not been for my mother, my children wouldn't have received a very good Christmas for several years. There wouldn't have been an Easter basket sitting in the kitchen."

Law, whose two grown sons are unemployed, said she expects younger generations to be worse off.

"Working people have been left without a voice," she said.