Honey, I Shrank Their Paychecks

The new Census data on poverty is out and it's filled with all the usual depressing facts. Fifteen percent of Americans live below the poverty line -- an official threshold which itself is laughably low and detached from reality. More accurate measurements have long found that a greater share of Americans are experiencing serious economic hardship than government statistics imply. 

But here's the fresh story in today's poverty numbers: Wages of full-time workers fell by 2.5 percent between 2010 and 2011. This happened during a period that was a technically an economic recovery -- a time when things were supposed to be getting at least somewhat better, not worse, for American workers. 

What's going on here? 

One answer is that good jobs are being replaced by bad jobs. The National Employment Law Project recently analyzed this disturbing trend in a new report by Annette Bernhardt: 

During the recession, employment losses occurred throughout the economy, but were concentrated in midwage occupations. By contrast, during the recovery, employment gains have been concentrated in lowerwage occupations, which grew 2.7 times as fast as mid-wage and higher-wage occupations. Specifically:
  • Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.
  • Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth.
  • Higher-wage occupations were 19 percent of recession job losses, and 20 percent of recovery growth.
The unbalanced recession and recovery have meant that the long-term rise in inequality in the U.S. continues. The good jobs deficit is now deeper than it was at the start of the 21st century.
What all this means is that America's frightfully high poverty rate is only a small part of a much larger problem. A great many of those people who aren't officially poor and who do work full-time are finding themselves on a downward economic trajectory. The recession has accelerated this trend, but it's actually been going on for decades -- with earnings for less educated workers falling in real terms since the 1970s.
 
Even when unemployment was very low a few years ago, falling to under 5 percent, millions of jobs barely paid enough to live on. Why are employers paying chump change even when times are good? Because they can. Without labor unions to bargain for better wages or regular increases in the minimum wage, and with it easy than ever to outsource jobs or replace them with technology, business holds all the cards -- and is reaping record profits. As the New York Times reported last year:
The new figures indicate that corporate profits accounted for 14 percent of the total national income in 2010, the highest proportion ever recorded. . . . 
 
Employees have always received more than half the total national income, until now. In 2010, the percentage of national income devoted to wages and salaries fell to 49.9 percent, and it slipped a little more to 49.6 percent in the first quarter of this year.

Paychecks of American workers aren't just shrinking in some organic, unavoidable way. They are being shrunk by businesses seeking to bolster their bottom line.

All of this means that it's naive to imagine that America can fix its economic problems by firing up the economy and again pushing down unemployment. Clearly, our problems go much deeper. We need growth, yes, but we also need to figure out how to share prosperity more widely and create more good jobs. Too often, the political class simply focuses on growth. 

There's no easy fix here. In our new report, Millions to the Middle, Demos proposes 14 different ideas to lift more people into the middle class. 

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