Who wins
as the economy booms?
Not the worker who faces
longer hours, new job requirements
and fewer benefits
Essay by Thomas Geoghegan
Photographs by Fred Zwicky
Because I'm single and a lawyer with a nice 401 (k), it's getting harder for me to know how the Other Half lives, really how the Other Four-Fifths, or even the Other Two-Thirds lives.
What is the standard of living for Americans who can claim to be neither impoverished nor well-off? What's the standard for those who have just enough disposable income to enjoy a night at a minor league baseball game? For those who earn more than the minimum necessary to meet the most basic of needs: food, modest shelter, the cheapest - and worst - child care?
How well off is this middle class? A class so vast it's hard to wrap your mind around it. A class with distinct castes: those who have some college education, the semi-skilled, the unskilled and those who lack skills with any true labor value?
These castes make this country look like the society of ancient India, but in the United States in the year 2000, it is only the Brahmin priests who get to conduct the debate and talk about their lifestyles, the rugs they get from Turkey, their startups on the Internet. But while we listen to the power brokers rave about the booming economy, most Americans have no cause for celebration.
Modest increases in wages have been diminished by the effects of longer work weeks, new job requirements and such costly benefit changes as a move to deductible-laden health maintenance organizations.
In my law practice, or the part that is labor law, every time I see a group of workers, it seems their wages are falling. Right now. In the boom.
Here are three examples from the last few days of 1999.
Case one: A big trucking company closed terminals all over the Midwest and started up again under a new name. The company with the new name signed a new contract with the union, then hired entirely different drivers. Entirely. In each terminal, all the old workers are gone. And the new ones have lower wages. Yet the powers-that-be are terrified that labor markets are too tight.
Case two: A nationwide warehouse stopped hiring its own drivers and started using labor brokers. The reason? The warehouse doesn't want to pay pensions. Still, young drivers line up to
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work with no benefits. Nothing. Who are these guys? They're white male drivers who have skills and big rigs. But labor markets are tight?
Case three: A chemical plant gave workers a small raise, then shoved those workers into an HMO that carried new costs. My clients tell me, "They promised if we did this, it would save money, but we're defrauded!"
What makes these cases unusual is only that there was a union in place to complain. Fortunately, or tragically, there are jobs: cashier, nurse's aide, people who deliver things. In this time of plenty, can we even say wages are going up? I know that while I sleep the staff of the Federal Reserve Bank are popping into bakeries and the like looking for any sign of wage inflation. If they can find a single pay raise ("Oh, here's a 3 percent"), it goes into a Beige Book, and then up to the Board of Governors. The next day the Nasdaq may go up or down. But does anyone really know how well workers are faring? I do trust one source, the Washington, D.C.-based Economic Policy Institute, a nonpartisan, nonprofit think tank that every two years publishes The State of Working America. The lead authors, Lawrence Mishel and Jared Bernstein, report that wages have gone up about 2.7 percent a year since 1996, a figure adjusted for "the cost of living."
Farm Construction Manufacturing Retail Finance, Insur. Real Estate Services Government *Source-Bureau of Labor Statistics |
1979 2.8% 4.4% 22.6% 15.7% 7.1% 20.7% 14.3% |
1996 1.4% 4.7% 14.3% 16.1% 8.8% 30.6% 12.5% |
Whose standard of living is going up when at this moment, real or adjusted wages and benefits are falling - even in this time of full employment?
But is there full employment? No one can measure it, I believe, in the way we did 30 years ago. Or in the way they still can in Europe or Japan. Consider: About 30 percent of American workers who work part time are transient workers or self-employed. According to the Economic Policy Institute, the vast majority of free-lancing workers - two of three women or three of four men - would like to find full-time work, or a real boss who pays Social Security or just a permanent port to pull into.
But what about the other 70 percent? According to the Wall Street Journal, by the age of 30 or so, a worker today has held 9.2 jobs. And what's in this young, often college-educated person's cash balance plan, or pension, or 401 (k)? Zero, most of the time. Nothing. Not a cent. Now imagine that the same
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person at age 30 has been married 9.2 times. Can we say that such a person has been married really even once?
"Job," or the notion of "job," is about as impermanent in this country as the elaborate mandalas Buddhist monks construct from grains of colored sand then sweep away upon completion.
In addition, there are millions of people who have simply dropped out of the labor market. Vanished. Not there. Not even in these ephemeral short-term jobs, with the half-lives of specks of carbon.
Now it seems to me, any tiny little wage bubbles get pricked every time people move. In any given year, a new job, a new HMO, a million tiny things that we can't pick up with our crude measures, wipe these bubbles out.
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If most Americans don't feel the bounty of the boom, is there a boom at all? And, if so, what fuels it?
The claim of mainline economists is that productivity is the reason for our longest boom. But, except for the computer industry, no specific industry can track right now any productivity gains - not even industries that use computers. Nothing. Yet even as I write this, there may be 20, maybe a 100, panels in which economists are making fortunes in speaking fees touting the productivity revolution. All they need to say is: "Greatest productivity increase since the Industrial Revolution." Or: "The Internet is like the transcontinental railroad."
The problem with this analysis is that we have had computers in place
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now since the early '80s, and only in the last two or three years has there been an increase in the industry's productivity - as we can measure it: output over hours worked. And to what level? Nothing that would have gotten notice in any year of the prosperous 1960s.
That's the sum so far of the Second Industrial Revolution. Three years that would have been routine in the 1960s.
So is this a structural change because we are going back at least to the 1960s? Or is the increase in the last few years a cyclical effect? (Productivity always spikes in the last years of a boom.)
But there's something even more embarrassing to people who want to wrap the American flag around this. It's a point economists track that never appears in the press: The productivity of Europe - stagnating, socialist Europe, the poor old Europe that has no Bill Gates, broken down, left behind Europe - has gone up twice as fast as ours throughout most of the '90s. So if America standing tall is having a Productivity Revolution, then Europe is having a Productivity Apocalypse. But no one mentions that
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because it's embarrassing. After all, what is productivity but a fraction, output over hours?
First, as America moves to a service economy, of bus boys and maids and, uh, lawyers, no one knows how to measure output. Beds made? Cars parked? Briefs filed? Second, it's become even harder to measure hours. If people move from job to job, what are their true working hours in a year? Doing what?
The one thing we do know about productivity is that the hours we work have ballooned. In Europe there's a work council with a stopwatch over every workplace. Here in America, we know that we work, at a minimum, even longer now than the Japanese.
As we might say after the World Trade Organization protests in Seattle, it should be reasonable to monitor labor standards with the size of our work force. The probable findings? More people work off the clock. We know this because, when they make a point of it, union officials from, say, the United Food and Commercial Workers, can go into places virtually at random and find huge wage and hour violations. Even the conservative Employment Policy Foundation estimates those violations could reach $19 billion.
Worse, people are being pulled out of hourly and into salaried jobs, and then there is no limit to their hours. Again, this is unlike Europe. In effect, people all across this country are working for free. Even a small undercount of hours not paid - off-the-clock hours, innocent or legal, even - could wipe out easily all of our productivity gains.
So does productivity explain the boom? Or is it just people working longer, for free? One big way for an economy to grow is just a little bit of free labor, at the margin. Why would this effect in productivity show up now? One reason may be that people and their employers round off work-day hours at 40. And, in the latter part of a boom, more people each year are shoved from 39 hours to 41 or 42 hours, but so long as they are nonunion, no one is counting.
This is quite unlike the America we had a few decades ago. With unions watching, every extra hour was paid at time-and-a-half. Now that extra hour,
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if anyone bothers to count it, is called a freebie.
But if this explains the boom, even in part, it means that for the people carrying the stones the standard of living is dropping. Not in absolute terms. No. Total income may be going up, but instead of getting more for that extra hour, the lost day of vacation, people now get less. It's paradoxical, but understandable, when the laws make it difficult, if not impossible, for workers to bargain.
And there is plenty of data to suggest this is happening. We do know that vacation time is dropping. A 1999 University of California, Irvine, study showed that union workers get an average of three weeks off, while the majority of workers get 1.8 weeks. And that paid time off is dropping, even though established executives are getting longer vacations. So, again, some of those who are doing the heavy lifting are nevertheless taking the biggest hits in this economic boom.
At any rate, a household's income could be going up, but the family standard of living could be going down. That's simple economics. Leisure is a "good." And a good thing. If a condition of pay is to give up more leisure time, this is what we call a cost. So in that light, let's look at the 2.7 percent raise "nationally."
Obviously, if people have to work for free, it's not a raise at all. What if, as a condition of receiving a pay raise, the work week is extended by an hour. Even if workers were paid for that extra hour, it would still be a cost if those people really wanted to work less at the same (higher) hourly raise approved by the federal government in 1970.
Everybody in the house works, which is a nightmare, isn't it? So how do we "dock" that cost from the little 2.7 percent?
And is it really an increase? Say, in 1970, a high school grad got that raise. Now, it's a college grad. But it's the same raise, for the same job, only it's going to a better-educated, higher-skilled worker. If that's so, is it really a raise at all? How do you subtract the cost of the college degree or the training the worker had to pay for just to get that raise?
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I suppose this is a roundabout way of arguing that people are still getting cheated. Not just simply working extra hours for free. I admit that it takes a lot of nerve to argue the standard of living is going down for the Bottom Four-Fifths, or Bottom Two-Thirds. Isn't this the era of good feelings? Aren't people feeling happy?
But it's like an Einstein thought experiment. The people in these lower quintiles have no fixed spot (stationary point from the "outside") to measure their own rise and fall relative to the other quintiles. A sharp break in the fall can feel like a rise. Yet at the same time, it can still be a fall.
Let's consider a few costs that we continue to understate.
Health care, for example, is the most basic measure of our standard of living. We're all dead in the long run, but how long can we run? And we know, as we approach full employment, that, mysteriously, people are losing their health insurance. Even the most privileged "independent contractors" who work for Bill Gates. They had to file suit to get health insurance from Microsoft. That's a real test of its monopoly power. As the Economic Policy Institute points out, the high-skill information workers, like these independent contractors, have done badly in terms of real wages in the 1990s.
Indeed, despite record employment, we have a record number of uninsured: about 800,000 people in the Chicago area alone. And those who were shoved into HMOs have diminished coverage. In short, when it comes to meeting our health care needs, we are actually experiencing a big fall in the standard of living.
In housing needs, too. The 2.7 percent wage increase assumes very little about the rise in the cost of housing. The government's cost of living adjustment is calculated on the "rental value'' of homes in, say, suburbia - only no one really rents. And the prices shoot up every year. And is that price increase carried over by the same percentage to the the cost of living adjustment? Not even remotely. The cost of living adjustment, the rate of poverty, none of our measures reflect this.
If they did, we'd see the standard of living dropping even now. And consider the costs of government itself. Federal taxes take about the same percentage of income as they have since the early 1980s. The same percentage, though taxpayers are getting less in terms of services. Witness the cutbacks in the U.S. Department of Labor's staff assigned to enforce laws on hours and wages and close sweatshops. Those services are designed to benefit
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people who have jobs. But now, more of our federal taxes are turning into income transfers for the elderly. Much less goes into programs that regulate on-the-job conditions for working people.
The situation is worse at the state and local levels. Illinoisans now pay for more than 6,000 tiny village, township and suburban governments, which can do far, far less for them than City Hall could a generation ago when the political machines were at their zenith. So the precinct captains are no longer out there finding jobs for their constituencies.
Does this really affect the standard of living? Well, it sure did for our parents. Thirty years ago, or so, there were three institutions that looked out for people: the local political machine, the church and organized labor. In a city like Chicago, all three worked together. Looked after people. Got them into jobs. Now? There is little labor organization. The church, alas, tends more to the rich. And the political machine? It's been largely replaced by the village manager.
In other words, people pay more in taxes, but if they want help finding a job or getting the garbage picked up, for the most part they're on their own.
How about education, traditionally the way to get a leg up the ladder? The ladder is getting taller. Cops and claims adjusters now have to go to college to land jobs that once required only a high school degree. Though a cop is still a cop. And a claims adjuster is still an adjuster. The jobs, in real terms, may even pay less. But to get them, people need a bachelor's degree, a credential for which they must pay thousands of dollars. In effect, these additional educational requirements constitute a kind of admission tax.
And what of the retirement benefits? Of all the declines in the standard of living, this is the most shocking. Yes, the stock market is going up. But not for the Bottom Two-Thirds. The average 401 (k) is worth about $27,000, and many workers get far less. And few of the Bottom Two-Thirds of workers even have that. Every day, more workers are pushed out of defined benefit plans. Social Security is now the only safety net for most working Americans.
But the old lucrative "defined benefit" is not counted as "wealth" in most studies, while the chump change in a 401 (k) is. Meanwhile, overall, going to work is getting more expensive. Child care and transportation (especially child care) costs have soared. And working people carry far more debt, at far higher interest rates, than even a decade ago. And this may be the source of the biggest drop in the standard of living. Half a trillion dollars on credit cards with an average carry-over balance of $1,600, and this is all at rates that 30 years ago only the Mafia could get.
So, again, is it accurate to calculate a 2.7 percent rise in wages, if people have to pay for it with extra upfront costs and bigger VISA bills?
Certainly, that keeps the economy rolling. And of course, it's also true the "standard of living" is going up overall. TVs are bigger and cheaper. And more and more people are getting computers. And zoning out in front of the TV or the computer is about all weary workers have the energy to do after they get off the job.
This is our so called "Standard of Living." For most people out there, it's less and less a Life.
Labor attorney Thomas Geoghegan is the author of two books. The most recent, Secret Lives of Citizens, is due out in paperback this month.
Mike Hudson
Memorial Economics Essay
Michael H. Hudson was vice president of public affairs at Illinois Tool Works Inc. and chairman of the Illinois Issues board at the time of his death in 1992. In his memory, fellow board members established an annual essay to examine significant economic trends in Illinois that have been affected by public policy or the lack of public policy. These essays are funded by a donor who has asked to remain anonymous.
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