Commonwealth Journal

January 11, 2012

How do you restore earning power of the middle class?

Commonwealth Journal

Somerset — I don't think a story in this yet young new year has chilled me quite so much as the January 2, 2012 story in the Lexington Herald-Leader about General Electric in Louisville planning to hire new workers. With wages dropping domestically, General Electric is proposing to increase manufacturing of appliances. What this shows is the dramatic decrease in the earning potential of the American middle class. This middle class drove the economic engine of the United States for fifty years but when manufacturing jobs shifted overseas it left a gaping hole in the structure of our society. Here is a quote from the Herald-Leader article.

Wages for the new hires, however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff — with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts also are showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment, according to Gordon Pavy, president of the Labor and Employment Relations Association and, until recently, the AFL-CIO’s director of collective bargaining.

Even when the new hires reach their maximum earning potential they will not be making as much as the workers who have been with General Electric for the long term are now. Truth be told, the benefits won't be as good either. A 62 year old worker is making $31.78 per hour. Let's break it down. For that long term worker that represents a gross pay of $66,000 per year. Enough to raise a family on a single income, buy a house and maybe even afford to send the kids to college. However at $15 per hour that yearly wage comes to $31,000 per year. For a family of four it will be extremely difficult to exist on one paycheck alone, let alone buy a house or send the kids to college. In this scenario it will be hard for this family to break out of the working poor and into the affluent middle class. Children will suffer because of the lack of a stay-at-home family member and child care costs will rise along with other documented societal problems.

This is what is so chilling about this. It is tacit recognition of a new normal. With unemployment now dropping to 8.5% there are still millions of American workers out of work. More disturbing is that when they go back to work it will be for a fraction of what they were making previously. The reason for this is that the American worker is now being subjected to competition for wages on a global scale. The American worker is now being forced to compete against workers who are not provided any kind of health care, retirement benefits or safety regulations. What s only softly spoken of is that globally during the past ten years an additional two billion (with a B) workers have entered the workforce. Some not by coming of age but by the jobs just being made available to them. This has had a tremendous downward pressure on wages.

How does this affect the American worker? Well, these giant corporations sell stuff globally. For people to buy their stuff globally then the manufacturing costs have to be low enough to fit that global worker's budget. In an earlier time those markets were domestic. Goods were consumed chiefly by the American consumer and only had to fit his budget. But corporate demand for ever appreciating stock prices dictated that markets had to increase beyond the natural birth rate of our country and the rest followed just as certainly as the sun comes up tomorrow.

What this means is this. Speaking generally, if you have only a high school education you are going to be competing with the international worker for a low wage. You and your family will have little hope of accessing higher education, health care or home ownership. The only rung on the ladder lower than you will be those who dropped out or fell victim to any of the disasters that can occur to someone.

If you have a college education you have a better chance depending on your field of study. Engineers and mathematicians will be in demand as will a small cadre of financial workers but that is going global also. We will require more teachers but budget constraints will likely limit an attractive wage for that endeavor. Social workers and medical technicians will be in demand to service the increasing numbers of aged and infirm but they will be subject to budget constraints also. When you graduate you will likely assume a debt of $40,000 to $60,000 on which payments will be due on immediately. You will spend years paying off that debt before you actually become a revenue generator for our country and your family.

If you attend graduate school your chances will improve dramatically but so will your debt.

So, all of the yelping about job creation is just about prolonging the decline in the earning potential of the middle class. What is needed is a national plan to not only create high paying jobs but to ensure that our country retains the ability to be a leader in developing technologies. We can't do that while cutting federal funding for research and development. The free marketers and libertarians say that government has no place in the markets but it is as plain as the nose on your face that this argument is short-sighted and deadly. If we leave these things for markets to generate then chances are they will generate elsewhere where costs are cheaper. There are other countries that have a plan and whose populations are being educated to meet their goals. We will not remain the leading innovators in the world just by relying on chance.

There is a lot to be said about this. This affects you here in Pulaski County as well as those in Cleveland, Ohio. Ask yourself, “how do we restore the earning potential of the middle class?”

More later, stay tuned.

My take on the present and future of jobs. Get serious.