MASSACHUSETTS GOVERNOR WILLIAM Weld is puzzled. State unemployment is falling, and incomes are rising. Yet in the State of the State message he delivered two weeks ago, the Republican Governor dwelt on the “insecurity people feel in their work lives and about their futures.” Said Weld: “Many of you have wondered, ‘When are things going to get better for me and my family?'”
Bill Clinton is puzzled. He would love to open his re-election campaign by bragging about low inflation, low interest rates and 7.8 million new jobs since he took office. But his advisers warn that in all 50 states many voters feel that prosperity is only for the rich and would resent any excessive White House happy talk. The aides’ advice as Clinton prepared his State of the Union speech: Claim only a promising start on righting the economy. Stress that much remains to be done.
Professional economists are puzzled: more and more their numbers don’t seem to add up. Wages for the typical worker have fallen behind price increases ever since the early 1970s, and the trend has continued during the Clinton years. Yet in every way that can be measured, from ownership of color-TV sets to the numbers of people vacationing in Europe, Americans are living much better than two decades ago. True, the prosperity is far from equally shared. But that raises another question: What kind of economy is it in which the numbers of both the highest-earning and lowest-earning people are expanding while the middle class is shrinking?
Ordinary citizens are perhaps most puzzled of all. Rising standards of living, to many, mean largely an increase in the number of things they “must” buy. This is not just crass materialism; many of the new musts are not goods but services–medical insurance, day care for young children, college tuition for teenagers–that have rocketed in price. Small wonder that so many people feel they are working harder and harder just to keep up.
“I’m just surviving, I’m not succeeding,” says Aurelio (“Lio”) Maldonado, a Chicago bill collector. He, his wife Rita, a legal secretary, son Adrian, 6, and daughter Clarissa, 5 months, make up the classic family of four, and their income of $44,000–a bit more than half earned by Rita–is smack in the middle nationally. Their three-bedroom home in the Westlawn neighborhood is comfortable, but the $860 monthly mortgage payments and $300 a month owed on the family’s 1992 Firebird eat up about a third of their earnings. The couple would like to keep Adrian in the Roman Catholic school system but cannot because first-grade tuition would be $2,500 a year. After attending a Catholic kindergarten, Adrian is a first-grader in a public school that his father says is “not the kind of environment anyone would want for their kids.” Rita’s parents now baby-sit for Clarissa while her mother works, but the grandparents plan to move to Texas in a year or two, and the Maldonados will somehow have to scrape up the money for day care. Says Lio: “Rita would love to stay home with our daughter, but we have to combine both salaries to make ends meet.”
What especially frightens many people is that so many of the old workplace rules no longer apply. Painfully acquired job skills and long years of seniority at a profitable company are no longer a guarantee against layoff. When companies downsize, “performance isn’t an issue,” says Ray Magnani, 47. “It’s being in the wrong place, something totally out of your control.” Magnani was a vice president in institutional marketing at Merrill Lynch in New York City, making $100,000 a year plus bonuses in 1994, when a supervisor abruptly told him he was out. “I thought, ‘Nine months and I’ll be able to get a job,'” he says. “But it’s double that, and I have nothing. The skill set you’ve developed works great for one company, but it doesn’t translate well for other companies”–a problem that federal officials say is also true for people laid off from manufacturing jobs.
THE NUMBER OF NEW JOBS CREATED RECENTLY far exceeds those wiped out by downsizing. But the quality of those jobs leaves much to be desired. One federal study found that only 31.4% of those laid off between 1991 and ’93 found jobs equal in pay and benefits to those they lost. In any case, the psychological effect of downsizing in shattering confidence far exceeds its economic impact.
A college degree is both more and less than it used to be. The premium on degrees–as much as $1 million in prospective lifetime earnings–is higher than ever. But so many more youths are earning them that a degree is becoming a mere ticket to enter the rat race rather than a head start toward winning. Patrick Scheetz, head of the Collegiate Employment Research Institute at the University of Michigan, warns that “job hunting for this year’s graduates is expected to remain unfriendly, competitive and maybe even a fraction hostile.”
For all that, a TIME/CNN poll last week shows Americans’ economic satisfaction is still high, though declining. An impressive 76% thought their family finances were doing very well or fairly well, vs. 22% who said poorly or very poorly. A year earlier, however, the split was 87% to 12%. A plurality of 46% thought their overall standard of living had improved during the three years since Clinton’s Inauguration, vs. 20% who felt worse off and 33% noticing little change. In general, people have mixed emotions about the economy: they think conditions are harsher, but they cling to hope for the future. In the poll, 63% agreed with the statement that “the American Dream has become impossible for most people to achieve,” yet an equal number thought their children would have a higher standard of living than they do.
Right or wrong, such opinions are especially important now. January is a stock-taking time, when everyone from presidential advisers to families gathered around the kitchen table assesses how things have been going. In presidential election years the question “Are you better off than you were four years ago?” echoes in one form or another from New Year’s Day to Election Day.
Well, whatever they tell pollsters, are Americans better off? And has any appreciable difference been made by a President whose 1992 campaign aides told anyone who would listen that the issue of issues was “the economy, stupid!”? In an economy as enormous and complex as that of the U.S., there can rarely be any all-embracing answer, but the data and the stories of individual people show an extraordinary mix of achievement and stress.
Considering only one set of figures, the answer would be a resounding no. In 1973 the great postwar boom peaked, and the U.S. economy entered a period of slow growth. From the end of the Civil War through 1973 total national output had grown an average of 3.5% a year, and output per worker rose about 2% annually. Ever since, output growth has averaged 2% a year and productivity increases only 1%. By no coincidence, real (that is, inflation-adjusted) income for the median worker, which had doubled in the early postwar years, has been declining persistently since 1973.
There have been some countertrends. Women’s real incomes have held up better than men’s. They now average 70% of male earnings, vs. 60% in 1970. The poverty rate finally went down by half a percentage point in 1994, to 14.5% of the population, the first decline since before the 1990-91 recession. But real wages of the median worker have fallen 4.6% since 1979–and more than half that drop, or 2.5%, has come after Clinton’s Inauguration.
Shift the focus from incomes to consumption, though–pick just about any measure of the good life–and the picture changes beyond recognition. Housing? Between 1970 and 1994 the average new home grew by the equivalent of two 15-ft. by 20-ft. rooms, and 79% of new houses in 1994 were built with central air conditioning, vs. 34% in 1970. Appliances? Color-TV sets were blinking in more than 96% of all households in 1990, vs. less than 34% two decades earlier. More refined aesthetic pleasures? Almost 44 million people attended symphonic and other orchestral concerts in 1990, against 13 million in 1970. Uncountable extra years of health and activity are being enjoyed by people who would be dead or dragging out their last years in pain and immobility if they were treated with the medical technology of the early 1970s.
How did Americans manage to buy all this stuff during a quarter-century of declining purchasing power? And why are so many nonetheless feeling harried and insecure? “People bitch to their maximum ability,” answers Stanley Lebergott, professor of economics at Wesleyan University. Many people too have forgotten how meanly, by today’s standards, they or their parents once lived: no cable TV, no cellular phones, no microwave ovens, sometimes not even indoor parking. Only 58% of newly built houses had garages in 1970; 86% did in 1994.
But discontent and insecurity have causes beyond spoiled-brattism. Many people seem to have a dim but accurate sense that some of the trends that enabled them to pursue the good life despite declining real wages are stagnating or even reversing.
Part of the increase in consumption has been fueled by a rise in fringe benefits, from 29.3% of total payroll in 1970 to 40.2% at last report in 1992. But since 1980 employers have been cutting back on some of the most important fringes. In that year 84% of the workers in big and medium-size companies were covered by pension plans to which they did not have to contribute; only 56% are now. A mere 37% of employees in 1993 were covered by health insurance wholly paid for by their bosses, vs. 72% in 1980.
Real family income has shown a tiny increase over the past 22 years, largely because so many women have joined their husbands in the work force. The size of families has gone down too; some people have chosen more goods and services over more children. Other strategies: save less (the savings rate has gone down from 8% in 1970 to 4% now) and borrow more. Consumers have racked up nearly $400 billion in credit-card debt.
These strategies cannot be continued indefinitely. Mothers of young children who have already gone back to work cannot usually take second jobs. Families that have limited themselves to one or two children cannot have still fewer. And some people have already borrowed as much as they can afford–or more. “Americans have exhausted the coping mechanisms that once kept them afloat,” says Labor Secretary Robert Reich. “There are few avenues left.”
ANDREW LACOLM, 48, A COMPUTER SOFTWARE specialist in Rochester, New Hampshire, and his wife Marilou, a music teacher, earn $80,000 a year, but find themselves plunging deeper into debt. Says Andrew: “When you add it up–the house and the car and what we’re going to have to borrow to help with college for the kids [a daughter, 13, and son, 11] and the summer vacation which we just paid of–the credit cards are killing us. Together we have a $10,000 credit-card debt.” Marilou asserts that they are still “better off than three years ago” but confesses, “I worry a lot about what’s going to happen.”
Another reason for discontent: nearly all the gains from economic growth lately have been going to the top 20% to 25% of the population. To economists, this increase in income inequality is an old story. So are the reasons for it: primarily the decline in manufacturing, which used to be the royal road to high earnings for people with only a high school education and no particular skills, and the rise of information technology, with its heavy premium on master’s degrees in computer sciences and the like. What is still often not appreciated, however, is that the middle class has actually been shrinking. In 1993, 25.2% of all families enjoyed incomes of $60,000 or more, up from 20.6% who earned that much (in 1993 dollars) in 1970. The proportion of families earning $20,000 or less increased almost exactly as much, from 20.3% to 24.5%. The broad middle dwindled from 59.1% of all families to 50.3%.
Of course, there is considerable movement of people from one class to another. More than in the past, though, the mobility seems to be downward as well as upward. Two examples:
“In 1970 I would never have dreamed I’d be making a six-figure income in 1996,” says Michael Rea, sales vice president of a commercial printer in Columbus, Ohio. In 1970 he was going to college on his wife’s meager earnings as a schoolteacher, renting a tiny apartment and driving a used Ford Pinto; his wife tooled around in a 14-year-old Chevy with no heater. Today the Reas live in a spacious house alongside a golf course and own a Buick Park Avenue and a new Cadillac Coupe DeVille. One of Rea’s secrets: from his first days of steady work he began putting money, initially only $25 a month, into stock and bond funds. He thus cashed in on a trend for the economy lately to reward capital more than labor.
“We’re not middle class anymore; we’re poor,” says Mikdalia Febus. She gave up her $9-an-hour job as a medical assistant in New Jersey four years ago and moved with her husband Jose, a factory worker, to Orlando, Florida, which ranks third among all cities in the U.S. in job creation. But what kinds of jobs? Jose, who earned $12 an hour in New Jersey, now makes only $8.50 in a mattress factory. Mikdalia had to quit a job as a maid at Disney World because of back pains and now earns nothing. The couple and daughter Taisha, 17, have moved from a four-bedroom house that they had rented for $665 a month to a two-bedroom apartment that is $165 a month cheaper. The savings might allow them to begin reducing a $15,000 credit-card debt. Maybe.
Politically, the anxieties may play out as a wash. Clinton has little to offer beyond a portable-pension scheme and increases in job training and educational spending that seem inadequate. The Republicans’ insistence on less generous social spending and on tax cuts leaves them open to charges of aggravating income inequality. Many experts doubt the Federal Government can do much in any case to reverse deep-seated economic trends. In the U.S. economy, stability is a dream, change and uncertainty the norm.
–Reported by Cathy Booth/Orlando, John F. Dickerson/Washington, James L. Graff/Chicago and Sylvester Monroe/Los Angeles
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