America’s two-tiered future: The deterioration of the once-mighty middle class

ORION TOWNSHIP, MICH. — The Globe and Mail

Elisa Gurule, 34, is not sure what future she has in the auto industry. Her current job, installing seat belts and windshields at a Chrysler assembly plant in Sterling Heights, Mich., pays $17.53 an hour. (Geoff Robins For The Globe and Mail)

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.

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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.

Bob Poropatich, who was laid off in June, 2008, from his $85,000-a-year job designing store displays for American Eagle Outfitters, can testify to how losing a good job forces cutbacks in personal spending.

“I haven’t been anywhere on vacation since ’08,” says the 60-year-old Pittsburgh resident, who now works 32 hours a week earning $11 an hour stocking shelves at grocery stores. “I haven’t done anything. Haven’t seen a movie. Haven’t bought gifts.”

He will have trouble getting to his part-time job if anything happens to his six-year-old Subaru Forester.

“I pray that if I take it in for an oil change they don’t find $2,000 of repairs on it,” he says.

The Detroit auto makers helped create middle-class America back in the day when they were called the Big Three and there were no Subarus on U.S. roads – or Hondas, Hyundais or Toyotas for that matter.

The $5-a-day wage that Henry Ford began paying his workers in 1914 was generous at the time and was aimed in part at giving them enough money to buy the Model Ts they were bolting together. By the middle of the 20th Century, workers at Chrysler Corp., Ford Motor Co. and General Motors Corp. earned higher wages and better benefits than any other factory workers.

The work was – and still is – exhausting and mind-numbing, but the money allowed workers to flock to suburbia, buy new cars, cottages and boats and pay university tuition for their children.

What was good for General Motors was good for the country, and people in the heart of the auto industry in Michigan were better off than much of the rest of the country.

But the upheaval in the sector has changed all that.

In 1979, when the first energy crisis began three decades of wrenching restructuring for Detroit that led to hundreds of thousands of job cuts, middle-class incomes in Michigan were 13 per cent higher than those of Americans as a whole, according to the Economic Policy Institute, a labour-financed think tank based in Washington.

By 2010 and the end of the crisis that sent GM and Chrysler LLC into Chapter 11 bankruptcy protection, middle-class incomes in the Great Lake State were 6 per cent below those in the rest of the country.

More than 75 per cent of workers in Michigan were covered by an employer-provided health care plan in 1979, compared with 70 per cent of all Americans. By 2010, employers provided such coverage for 54.8 per cent of Michigan workers, just slightly higher than the 54 per cent of all Americans who were covered.

Shifting health care costs represents another cut in disposable income for middle-class Americans.

For auto workers in the higher-tier wage group making $28 an hour, toiling in a car factory still finances a pretty good lifestyle, although annual wage increases have disappeared – replaced by the much more volatile profit sharing – and even tier-one workers now bear much more of the cost of their health care.

It’s worse for Mr. Crawford and thousands of others hired on since the Detroit Three started the two-tier wage system in 2007.

“The whole idea of the traditional going up north and having a cabin and having a boat and a couple of new cars every year or two and a nice house is not accessible,” he says over dinner at an Olive Garden restaurant, a 10-minute drive from the GM plant.

His job title is production support member, which means he needs to be able to do all the jobs in the trim department. He installs most of the interior components of a car and fills in for people making $28 an hour or his $18-an-hour colleagues.

The tier-one co-workers who share his car pool live in the suburbs of Flint. Mr. Crawford and Mr. Duehring live in a sketchier neighbourhood of that city, which gained fame as the setting for Roger and Me, filmmaker Michael Moore’s satire of GM, but is also where David Buick started the GM division that still bears his name.

Mr. Crawford would like to move. He put an offer in on a house in Waterford, Mich., about 30 minutes closer to work.

“It was on a quarter acre, fenced-in yard, single-car garage, three bedrooms, two full baths, partially finished basement. It was nice – a step up.” The $86,000 asking price, however, was higher than the $78,000 maximum he thought he could afford.

So for now, he’s still in the car pool.

When one of the tier-one employees takes the wheel, the four men pile into a newer-model Buick Lucerne or a GMC Acadia, more comfortable and modern rides than Mr. Crawford’s 13-year-old Buick Century or the 14-year-old Jeep of Mr. Duehring.

“I can definitely tell they’re better off,” he says. “The other tier-two guy and I, we’re both working on our tiny little houses hoping people don’t come in and scrap our copper pipes.”

When Mr. Crawford’s car breaks down, he fixes it himself. He has no vision care plan from GM, so when his glasses broke, he took them to a jeweller to have them soldered back together.

He often dreams of buying a new car, but can’t afford the monthly payments or higher insurance, so the Buick Veranos and Chevrolet Sonics he helps build are out of reach.

So the 30-year-old spends $100 to buy a new steering wheel cover, or speakers or new floor mats. “It feels new for a second, you know?”

Newer vehicles are not the only luxury that is out of reach for an increasing number of U.S. families. Boats were once a popular discretionary purchase for many middle-class people; the National Marine Manufacturers Association explicitly touts the connection, declaring on its website: “Boaters are middle-class Americans who own boats made by middle-class Americans.”

But like the auto sector, the industry has been caught in a cycle of declining sales and falling employment. Sales of new power boats, which reached a high of 311,700 in 2001, have fallen by more than half, NMMA numbers show. In 2011, Americans put just 142,830 new power boats in the water. Some 135,000 jobs at boat manufacturers and dealers and marinas were lost during the recession.

RE-ENERGIZING THE MIDDLE CLASS

There is no boat in Elisa Gurule’s future.

Ms. Gurule, 34, is not sure what future she has in the auto industry. Her current job, installing seat belts and windshields at a Chrysler assembly plant in Sterling Heights, Mich., pays $17.53 an hour.

That’s better money than she made when she was waiting on tables before joining Chrysler as a tier-two employee in 2011 – enough to buy one of the Chrysler 200 cars she helps put together. But at that wage, she still has to make tough choices about what to give up.

She and two sisters are trying to scrape together some extra cash to help a fourth sister buy a car so that she can travel to her new job at another Chrysler plant near downtown Detroit.

The Romney campaign’s criticisms of the auto bailout carry no weight with Ms. Gurule, because, as she notes, without Mr. Obama, she would not have a job.

But while there is a consensus that Mr. Obama is far more sensitive to concerns about inequality than Mr. Romney is, neither man has presented a compelling vision in this campaign on how to reverse the middle-class decline.

Tax policies are critical, and if done right, tax cuts may be a useful tool. But other changes to macroeconomic and fiscal policies are needed to get the middle class thriving again, Prof. Smeeding and other experts argue.

They point out that boosting economic growth will help. There is also the not-so-small matter of the millions of Americans who still owe more on their mortgages than their homes are worth.

A rebound in the housing market will alleviate some of the post-crash hangover. But a more concerted effort by policy makers to help out families who are stuck in homes they can’t afford to sell might help – for example, by freeing people to move to regions where their job prospects are better.

Making university education more affordable would also likely provide a long-term boost to the fortunes of the middle class, some economists say.

Top wage earners – and not just the 1 per cent vilified in the Occupy Movement, but the top 10 to 15 per cent – need to pay higher taxes, argues Frank Levy, an MIT professor who studies living standards and the economics of education.

That would help make university education more accessible by boosting revenues for cash-strapped state governments that cut funding to universities during the recession. “Denying people access to education – pricing it out of people’s reach – is exactly the wrong thing you want to do,” he noted.

Ms. Gurule was able to obtain an English degree at Wayne State University in Detroit, but four years of study left her with student loans of $38,000 that she will have trouble paying back because of the monthly payments on her new car.

She has a quick answer when asked if she’s leading a middle-class lifestyle.

“Hell no. I hope I’m working class.”

With a report from New York bureau chief Joanna Slater