It’s hard to find someone among the working poor who doesn’t want to have at least a middle-class lifestyle. Even those who don’t necessarily yearn to be wealthy would prefer to make enough that they can live comfortably and support their families. Yet what is billed to the ticket to the middle-class life — building marketable skills through education — may not be what it’s cracked up to be. In this country, we’re moving to embrace an economic model that omits the middle class as part of the equation. Where does that leave all the people who want to have a decent life, but find out they’ve been misled about their eventual ability to do so?
Even the new chair of the Federal Reserve Board, Ben Bernanke, can tell you what’s happening: “rising inequality is a concern in the American economy.” (See Cox News article.) Rep. Barney Frank, in questioning Bernanke before Congress recently, noted that “The economy is doing very well. But average Americans correctly assert that they are getting little or any of the benefit.” Bernanke and Frank might agree about the problem, but what’s Bernanke’s solution? It’s more education: The way to fix the problem is not protectionism against global trading partners, but rather to “continue to strengthen job training and skills acquisition â€” lifelong learning.”
It’s an opt-repeated mantra, to be certain. Paul Krugman of the New York Times calls it the 80-20 fallacy. “It’s the notion that the winners in our increasingly unequal society are a fairly large group â€” that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don’t have these skills.” (See New York Times column (available only to Times Select subscribers)). You can probably suspect, since Krugman refers to it a fallacy, what he thinks about this idea:
The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains….So who are the winners from rising inequality? It’s not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that.
Krugman quotes statistics showing the wealth is not being concentrated in the 20 % at the top with the most education and the highest skills, but in a much more rarefied stratosphere (during the time period from 1972-2001): “Income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent.” (I wish he had used the statistics from 2001 to present: it’s a problem that’s only getting worse, as if the nearly three decade stretch analyzed wasn’t extreme enough.) At the same time, income at the 90th percentile level rose only 34 percent, or about 1 percent per year.
Why did Bernanke, obviously a very smart man about economic trends, get it wrong? Krugman says,
Because the fallacy he fell into tends to dominate polite discussion about income trends, not because it’s true, but because it’s comforting. The notion that it’s all about returns to education suggests that nobody is to blame for rising inequality, that it’s just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system â€” and better education is a value to which just about every politician in America pays at least lip service.
(See New York Times column (available only to Times Select subscribers)).
Even having the Federal Reserve Chairman misunderstand a key economic trend wouldn’t be so troubling if that fallacy wasn’t starting to play itself out in wage models that rely so heavily on this unattainable goal as the primary tool for achieving middle-class status. Take, for example, Caterpillar, the manufacturer who takes care of our big tractor and earth-moving equipment needs.
I’ve written about Caterpillar’s two-tiered wage model before (see blog entry of 1/24/06). It’s clear that the newest workers at Caterpillar’s plant are suffering and having difficulty making ends meet, no matter how “lucky” they may be to have a job at all. When a diabetic worker (Robert Johnson) can’t afford to eat in the company cafeteria, even though he needs to have regular meals, and can’t afford both the medication he needs to live and a weekly bus ride to visit his kids, it’s not what too many people would consider a decent job.
But Caterpillar workers are hearing from plant management that “The ones who are most aggressive, they go back to school and they can rise.” (See New York Times article.) They’re being told they must “work their way up toward middle-class jobs, “and “shed the ‘union mind-set’ of annual raises for doing the same minimally skilled task year after year.” But someone who’s done that begs to differ.
Shane Hillard in Peoria closed down his small landscaping business to take a job at Caterpillar, and by the end of last year, had moved up from welder to machinist â€” and to a wage of $18 an hour for one of the plant’s more skilled positions for those hired in the lower-wage tier. Caterpillar was forced to raise its wages beyond what was negotiated in the union contract for some of the more skilled positions in the plant in order to retain good employees, it acknowledges: good old supply and demand at work.
But even the $18 an hour is not enough, Hillard says, to support the four people in his household. He lives with his fiancĂ©e, who is going to college and not working, and two children â€” one each from their previous marriages. Hillard talks about his situation: “We don’t ever have any extra money to do things. I’d like to do normal things that I remember doing as a kid. The family going on vacation, that kind of thing.” You know, that middle-class life that many workers Hillard’s age had when they were growing up.
Caterpillar is being held out as a model of competitiveness: It reported revenue of $36.34 billion last year, up 20 percent from 2004. That was on top of a 33 percent increase in 2004 from 2003. Net income was up 40 percent last year, to $2.85 billion; it has nearly tripled since 2003. Unlike businesses in other sectors such as steel or the airline industry who slashed wages to survive, Caterpillar is thriving.
But according to Caterpillar, that doesn’t mean its success should be shared with its workers. “You could say that in good times you could afford a different kind of package and in bad times you couldn’t,” said Christopher E. Glynn, the director of corporate labor relations. “The real question is: What’s competitive? And our target is competitiveness.” Douglas R. Oberhelman, a group president, concludes, “There is a balance that must be struck between being competitive and being middle class.”
Perhaps Bernanke or any other smart economist can explain where the middle class is going to come from when everyone adopts a Caterpillar-like model. It’s not like the kids of any of Caterpillar’s lower tier of workers is going to have a college fund, so either they forego getting any of the skills that are supposedly their ticket upward (even though we know that may not be true) or they go heavily into debt to pay for their education (leaving nothing left to buy the consumer goods and housing that keep the economy sound.) We don’t even have to wait a generation: even those currently working for lower wages have no time or money left to pursue schooling when they’re working two or three jobs just to make enough to support their families.
Whether it’s futile or not to pursue more schooling or develop one’s skills in order to build a better life, we have to have a wage model that makes that possible. And if the rest of corporate America follows Caterpillar’s lead or listens to Bernanke, soon we won’t.