The Shrinking Middle Class: How We Can Fix It

My Comments: My last two posts were Part I and Part II of a three part analysis of a problem facing America today. I described it as an economic cancer that while not yet fatal, has the potential to turn us into just another Middle East type country, run by an elite few with the rest of us fighting each other for whatever is left on the floor to scavenge.

That’s not the future I want for my children and grandchildren and suspect it’s not what you want for yours. We are going to differ on how to get there, but make no mistake, unless we can come to terms with what’s been happening, we are doomed to fail.

And I don’t mean reinventing the past. America and the world it inhabits is a very different place than what it was 75 years ago. Saying we’re going to bring coal back to prominence is not a solution. Using a medieval technology such as a border wall is not going to solve 21st century problems.

Here in Part III of this series is a serious start in the right direction. Enjoy…

by the Fortune Staff \ December 26, 2018.

Part III – Most Americans consider themselves part of the “middle class,” but no one can agree on what term that means. The problem? If sizing up the middle class is difficult enough, it’s even harder to say that circumstances within this group have changed. But they certainly have. As you’ll discover in this Fortune special report, life has gotten more difficult for the millions of people within the middle class. We dispatched more than 50 people to discover why the American dream has been fading for far too many.

In this section, we ask some of the sharpest minds for their ideas on how to fix it. What we learned: Chasing the American dream was once exhilarating; now it’s exhausting.

Raise Wages (Or Should We?)

If the big problem with low-wage jobs is that they don’t pay enough to live on, the answer seems obvious: Mandate wage raises. Many local governments such as Chicago and Oakland and Seattle have done just that—in Amazon’s hometown, the minimum wage will rise to $15 by 2021, well above the federal minimum wage of $7.25 an hour. Some corporations, grappling with a shortage of employees, are following suit: In October, Amazon said it would raise its minimum hourly wage to $15 nationwide. At Walmart, it’s $11, the result of three hikes since 2015 for its 1.3 million U.S. workers. Target has pledged to lift starting wages to $15 by 2020.

But is it helping workers? The answer is … complicated. A number of new studies, released last fall, show a decidedly mixed picture. In California, a team from UCLA studied the restaurant industry and found that when the minimum wage was gradually bumped up to $8 in 2008, earnings rose more than 10% at fast-food chains, but employment fell by about 12%. Another move, this time up to $10.50 in 2017, lifted earnings 20%, but employment fell another 10%. And a group of University of Washington researchers found earlier this year that the net effect of a two-part minimum-wage increase in Seattle was fewer hours, effectively meaning that low-wage workers brought home $125 less per month, with the hit to their pocketbook much more pronounced on the second increase. By contrast, a UC–Berkeley study looking at seven U.S. cities that had implemented higher minimum wages found a benefit to wages, with little effect on employment levels.

There’s little question that as wages rise, companies are redoubling efforts to automate. Target, CVS, and Kohl’s are deploying more self-checkout machines, while Walmart is reportedly testing floor-cleaning robots. This holiday season, Walmart is also bucking convention by not hiring more seasonal workers. Further analysis is required, but for workers, higher wages may be a double-edged sword. —By Phil Wahba

Tie Politician Pay to Voter Income

Bill De Blasio, the mayor of New York City, campaigned as a fighter against income inequality back in 2013. But once in office, he gave himself a 15% raise, to $258,750. The ostensibly liberal City Council followed suit with their own 32% raise, to $148,500. The council’s $36,000 raise alone is more than the average individual income citywide. Fast-forward to last year, when the enriched mayor and council courted Amazon (owned by Jeff Bezos, the richest man in the world) with $3 billion in subsidies.

On the flip side are lowly state ­legislators. In 44 states, they are paid far less than the median household income for their state. (In New Hampshire, they’re paid just $100 a year.) It means only the wealthy can afford such posts. Then they trickle up into higher office. A 2014 analysis by Peverill Squire, a political science professor at the University of Missouri who has studied American legislator pay back to 1619, determined that the best way to align elected officials’ interests with the public’s is to tie state legislators’ salaries to the state’s median household income. In 2018, he found median nationwide income for state legislators was $32,611, despite a national median household income of $59,039.

“Voters think they save money by keeping salaries low. But it actually guarantees they’ll be ruled by the rich, who tend to legislate by lining their own pockets and ignoring or even hurting those who have less,” says Squire. If pay were changed, he argues, it would make state and citywide legislative roles more viable for average citizens, who would be more empathetic to people like themselves.

In Congress, 40% of which is populated by millionaires, incoming Rep. Alexandria Ocasio-Cortez has vowed to “walk the walk” by becoming one of four congressional liberals to pay interns $15 an hour. She’s taking the lead from Republicans; a 2017 study by Pay Our Interns found 51% of Senate Republicans paid interns vs. 31% of Senate Democrats. Another fair-pay bastion? Alabama. In 2015, it became the first (and only) state to tie state legislators’ salaries to median household income. —By Richard Morgan

Find Out Whether Universal Income Works

Ameya Pawar, a puckish 38-year-old second-term Democratic city councilman in Chicago, has a master’s degree in threat and response management and is channeling that expertise unusually: He’s running for city treasurer in hopes of mending the poverty crisis the old-fashioned way—with wads of no-strings-attached cash. He aims to pilot a universal basic income program by giving 1,000 needy families $500 a month.

Pawar, who says he spends 80% of his $108,000 salary on a combination of childcare and paying off his more than $200,000 of student debt, is following in decades-old Republican footsteps.

“Thanks to Republicans’ Alaska Permanent Fund, we already have universal basic income in this country and have had it since 1977,” he says. The fund, which is now around $65 billion, pays annual oil revenue dividends (typically around $1,000) to every Alaska resident as an incentive to live there. Pawar wants to set up something similar with Chicago’s freshwater supply from Lake Michigan, which the city currently sells to suburbs. “The moral sickness in American politics is the idea that some people are more deserving of help than others. I want to break the narrative of deserving and undeserving. We all deserve to share America’s promise.”

Y Combinator, which funds startups, has its own universal basic income experiment, which it plans to launch this summer with the University of Michigan after several delays. Critics argue a well-worn refrain that more research is needed. Pawar agrees—with a catch. “The research can’t ask, ‘Will people cheat?’ or ‘Will people lie?’ ” he says. Instead, he asks, “ ‘Can we strengthen familial networks? Can we build more social flexibility? Does money help?’ We haven’t done anything big since the Great Society in the ’60s. We’re stuck worrying about cures or preventions.”

If elected treasurer, Pawar plans to work with the likes of incoming Rep. Alexandria Ocasio-Cortez for guidance on investment (and divestment). He also wants to persuade treasury counterparts in Cleveland, Detroit, and Milwaukee to join his UBI experiment and serve as a national model. Surprisingly, he says, some of his biggest supporters are the wealthy and privileged. “They know their wealth is based on the system working,” he says. “For too many of us, it’s not.” —By Richard Morgan

Address This Gulf Before It Keeps Growing

She wrote the book on working poverty­—literally. Barbara Ehrenreich’s Nickel and Dimed: On (Not) Getting By in America gave many middle- and upper-middle-class Americans their first raw glimpse of what it’s like to survive on the wages of a waitress, sales clerk, maid, or other low-paying job in various states.

Since the book’s publication in 2001, a lot has changed, including how Ehrenreich tells the stories of those in poverty. As a journalist in the ’80s and ’90s, she felt like a respected part of the middle class, making a comfortable living to support her family. That’s changed. “At a certain point around 2009, I realized that I could keep doing this only because I had savings from the royalties of the book Nickel and Dimed, and I thought, ‘Okay, that’s wonderful. I can do this.’ Then I said, ‘Wait a minute: What am I saying? You have to be rich to write about poverty? That’s sick.’ ”

Indeed, in the past two decades, she’s seen the stress and uncertainty that dogged hourly workers 20 years ago spread. Things got worse, both for the so-called middle class but also for lots of other people working in lower-wage jobs, she says. “One of the strikingly bad developments is the rise of ‘just-in-time employment,’ where you just wait and get a call from your boss to come in. So you don’t know from one day to the next what you’re going to be earning.”

Though she cites some improvements here and there (more access to health care, movements to raise the minimum wage), she’s worried—both by street protests in countries like France and by the increase in anger toward immigrants all over. As she puts it, people don’t always act rationally when they “see their own life chances diminishing.”

More and more, she says, the economic choices of the few have left a huge swath of Americans living with a “tremendous amount of anxiety.” And it’s not just maids and hourly workers, she warns. It’s contract workers, shift workers, teachers, Uber drivers, small-business owners, the middle class. It might even be you. —By Lisa Marie Segarra

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