When Sean Crawford and three co-workers hit the road for their daily carpool to a General Motors Co. factory, they talk about drama at work, home renovations and cars. But they seldom talk about money.
That’s because inside the car rolling along I-75 out of Flint, Mich., there’s a two-track version of America’s future: one with a secure, traditional path to middle-class comfort and the other to a less-prosperous existence with lower pay, no pension and meagre benefits.
Mr. Crawford and his colleague Dave Duehring are so-called tier-two workers, employees hired in recent years at lower wages as part of the Detroit Three’s bid to ratchet down costs and become globally competitive. For them, the classic middle-class life of a house in the suburbs, a new car every five years or so and maybe a cottage or regular travel isn’t possible on pay of $18 (U.S.) an hour.
By contrast, the other men who share the ride and work on the same assembly line get paid a lot more – $28 an hour, and they enjoy better benefits and can look forward to a healthy pension. The higher wage equals about $20,000 more a year.
There’s the odd jab at each other about their economic circumstances as they make the 45-minute drive through the lake-sprinkled country between Flint and GM’s Orion assembly plant in the leafy northern suburbs of Detroit, Mr. Crawford says. But “a tier two will pretty much never ever want to hear a tier one complain about their money problems,” he says. “Ever.”
Mr. Crawford and his tier-two co-worker are on the leading edge of a transformation of the auto industry that is contributing to a profound shift in American society – the deterioration of the once-mighty middle class.
It’s a pivotal issue in the U.S. election and the central challenge facing the next president. A frustrated electorate is looking for a real plan to boost the ailing economy and restore middle class prosperity.
President Barack Obama is promising middle-class Americans that he will extend tax cuts given to them by George W. Bush. Republican challenger Mitt Romney bemoans how the middle class got crushed during the past four years and promises to extend the Bush tax cuts and reduce taxes by another 20 per cent.
Experts are skeptical, however, that easing the tax burden or other promises made from political podiums will reverse the decline.
“Neither one of these guys is going to deliver a hell of a lot,” says Tim Smeeding, a professor at the University of Wisconsin and director of the school’s Institute for Research on Poverty.
The 2000s were a cruel decade for middle-class America. Incomes dropped, net worth fell and jobs that once promised a middle-class lifestyle were vaporized amid globalization and the restructuring of entire industries such as airlines, steel and pharmaceuticals. As if that wasn’t enough, the decade ended with the real estate crash and the Great Recession.
The growth in income inequality and the crisis facing the middle class have spawned fears that the long era of economic growth that turned the United States into the wealthiest nation on earth has ground to a halt. The risk is that the country is entering a period of economic stagnation, shattering the optimism that led generations of Americans to improve their lot in life.
THE EVAPORATION OF DREAMS
The recovery from the Great Recession is the first economic comeback that has skipped the middle class, Prof. Smeeding notes.
U.S. census data show the percentage of U.S. households with median incomes between $50,000 and $149,999 fell to 41 per cent last year from 44.5 per cent in 2000. Households earning less than $15,000, meanwhile, jumped to 13.5 per cent from 11.1 per cent in 2000.
The median U.S. household income itself tumbled to $50,054 last year from $54,932 in inflation-adjusted 2011 dollars.
“Without a middle class, this society is in big trouble, big trouble,” Prof. Smeeding says. “If they’re not spending money, that lowers the demand for all goods and services.”
In the days before globalization, when U.S. companies had little competition in their home market, middle-class demand for bigger houses and the furniture and appliances to fill them – plus the vehicles to stuff into two-car garages – fed a virtuous circle.
But when the middle class is squeezed as it has been for more than a decade, the overall economy takes a hit.
The squeeze has affected more than just factory workers. Tens of thousands of Americans in white-collar positions also lost their jobs in restructurings and the recession.