The American dream has given way to a rude awakening.
The financial crisis and recession have eroded the wealth and hopes of the U.S. middle class and swelled the ranks of the impoverished, leaving a legacy of declining income and high unemployment.
Data released Tuesday by the U.S. Census Bureau, the first to capture the post-recession year of 2010, show a middle class laid low by the slump. Median income, adjusted for inflation, fell last year to $49,445 (U.S.). That marks a drop of 2.3 per cent from 2009 and more than 7 per cent from the 1999 peak of $53,252.
The report also showed one in six Americans living below the poverty line, or a record 46.2 million people, and a growing number of “doubled up” households, where those with the bleakest of outlooks have to band together to make ends meet.
The statistics paint a picture of post-recession United States facing a deep climb back from the persistently high unemployment and underemployment that have been hallmarks of the slow and halting recovery. With projections for economic growth slowing, companies are sitting on cash instead of hiring, and the unemployment rate remains at more than 9 per cent. That means many Americans will struggle to regain the ground they’ve lost, and without wage growth, they will have less to spend at a time when spending would provide a badly-needed boost to the economy.
“It has been hard,” said Carmen Rodriguez, who shares her home in Grand Rapids, Mich., with eight people – her 26-year-old son and 28-year-old daughter, who both lost their jobs, and six grandchildren.
Ms. Rodriguez, who can’t work because of a disability, nearly lost the home to foreclosure and gets by on social security and an insurance payment. “I have just enough to pay my bills,” she said. “What else can I ask for?”
In hard-hit states like Arizona, where the poverty rate is 21 per cent, demand for some welfare programs has tripled in the last year. Half of the homes are worth less than their mortgages and about 1.1 million people rely on food stamps. Despite the growing need, state officials have had to cut many welfare programs to cope with budget pressures.
“The situation is not getting any better which is truly disturbing,” said Cynthia Zwick, executive director of the Arizona Community Action Association, a Phoenix-based charity. Ms. Zwick said the collapse of the construction industry and a slowdown in mining and tourism have battered the state’s economy. “It’s just kind of a tsunami of issues and people are just not able to maintain the lifestyle that they had at one time.”
For people like Stephanie Washington, who lives in Phoenix, poverty has become a way of life. She tries to get by on $600 a month, but things got so tight recently her electricity was cut off because she couldn’t pay the bill. Her total annual income is around $13,000 and she’s trying to find a job at a fast food restaurant to earn a bit more. “It is bad. They need a light shined on things here,” said Ms. Washington, 47, who moved to Phoenix a year ago from Erie, Pa., to help a son, daughter and granddaughter who ran into financial trouble. “I’m a praying woman and I pray, I do. I pray for the State of Arizona, I truly do because they need some serious help.”
A still-bleak labour market lies at the root of the worsening poverty rate, said Timothy Smeeding, economist and director of the Institute for Research on Poverty at the University of Wisconsin-Madison.
“We’re in the midst of a very discouraging jobs recession. Supposedly the economic recession ended over a year ago, but we’re still losing jobs like crazy,” he said. “It’s all very, very discouraging – they are never going to hit that American Dream. We need jobs really, really badly.”
Two thirds of last year’s increase in overall poverty came from people who were out of work for at least a week – led by minorities, people in the South and men, he added. The stats haven’t likely improved this year and may well have worsened, he said.
“The answer to poverty is not income support programs … it’s a good job and becoming self-sufficient and being able to support a family. I’m afraid we will lose a whole generation of young people – particularly minorities – whose income and living standards will be scarred permanently for the future.”
Some question the Census Bureau’s figures, arguing the figures paint an overly negative view of poverty. Although the recession has increased the number of poor, “high levels of poverty predate the recession,” said a report by the Heritage Foundation, a Washington-based conservative think tank. “In most years for the past two decades, the Census Bureau has declared that at least 35 million Americans lived in poverty.”
The census data landed on the same day a Conference Board of Canada study showed income inequality has been rising more rapidly in Canada than in the U.S. since the mid-1990s.
Its global analysis found that Canada has had the fourth-largest increase in income inequality among its peers. Between the mid-nineties and late 2000s, income inequality rose in 10 of 17 peer countries – including Canada. It remained unchanged in Japan and Norway, and declined in five countries.
“Even though the U.S. currently has the largest rich-poor income gap among these countries, the gap in Canada has been rising at a faster rate,” said Anne Golden, president and chief executive, adding that high inequality raises both “a moral question about fairness and can contribute to social tensions.”
Of total world income, 42 per cent goes to those who make up the richest 10 per cent of the world’s population, while 1 per cent goes to those who comprise the poorest 10 per cent, it says.
Countries with very high inequality are clustered in South America and southern Africa. Countries with low inequality are mostly in Europe. Canada and the U.S. have medium income inequality, the report says.
It says market forces and globalization are increasing disparity, along with institutional shifts such as dwindling unionization rates and stagnating minimum wages.
More Canadians are also entering low-income status. Almost 3.2 million Canadians, or 9.6 per cent of the population, lived in low income, with the proportion increasing in both 2008 and 2009, according to Statistics Canada data released in June.
Income and wealth distribution have a direct bearing on Canadians’ health, according to a paper released last year by York University health researchers, who found higher incidences of heart disease, Type 2 diabetes, high blood pressure, and respiratory disease in low-income households.
A separate Conference Board report published in July showed the richest segment of Canadians increased their share of total national income while poor and middle-income individuals have lost ground since 1993.