The “Recovery” is Making Americans Poorer

How Recession Is Hastening the Wal-Martization of America

A new report finds that the vast majority of the jobs created in the so-called recovery have been low-wage jobs. That’s a recipe for continued economic pain.
By Sarah Jaffe
Alternet, August 2, 2011

With all the focus on the drama surrounding the debt ceiling, and the much-too-late focus on the economic pain the final deal’s austerity agenda will inflict, items that really matter—jobs, jobs, and jobs–have been all but ignored.

But a new report by the National Employment Law Project looking at the jobs created since the recession officially ended brings the focus sharply back to jobs, and its findings are frightening: 73 percent of the jobs created since the supposed economic recovery began have been in low-wage fields, where workers make between $7.51 (the national minimum wage) and $13.52 an hour ($15,621 to $28,122 a year for full-time).

In contrast, 60 percent of the layoffs from the Great Recession were in what the report calls midwage occupations, those that make between $28,142 and $42,973 per year.

“But in the weak recovery to date, employment growth has been concentrated in lower-wage occupations, with minimal growth in midwage occupations and net losses in higher-wage occupations,” the report notes.

This report further cements the argument that progressives have been making for a while: that corporations and the wealthy have bounced back in large part on the backs of the working people of the U.S., squeezing more work for less money out of American workers while returning to record profits, salaries and bonuses.

An economy built on low-wage jobs is inherently unstable and bad for everyone, not just the people struggling to feed themselves and their families on $7.51 an hour.

Continuing the Recession

Replacing living-wage jobs with low-wage jobs is an excellent way to continue sluggish economic growth. It’s not rocket science: people who make less money have less money to spend, and less spending means less incentive to hire. It’s the vicious cycle of recession, and the reason why government spending has been necessary in the past to put people back to work.

And those effects are already visible—consumer spending was down in June and barely grew at all, only 0.1 percent, in the second quarter.

But misguided Washington obsession with deficits is going to lead to cuts that will directly hurt the most vulnerable—and that includes the working poor as well as the unemployed. As Joshua Holland wrote:

“Last year, with the private sector economy continuing to slump, an analysis by Moody’s Analytics found that almost one in five dollars in American consumers’ wallets came from one government program or another. The public sector has already seen deep cuts, and that trend will only worsen with Washington’s relentless focus on deficit reduction.”

As the government shrinks its spending, it’s worth noting that workers in low-wage jobs are often dependent on government programs even while they work. Wal-Mart, for instance, has long been criticized for relying on the government to make up the slack between its rock-bottom wages and what it actually takes for a person to survive. In 2004, a study in California found that Wal-Mart employees relied on food stamps, Medi-Cal (the state version of Medicaid) and subsidized housing to the tune of $86 million annually. With an economy made up of low-wage workers and unspecified cuts still to come, those workers will have to cut back on their already bare-bones spending just to continue to survive.

Real economic recovery will require not just job creation, but living-wage jobs that allow working people to spend and stimulate growth. A crisis of demand won’t be solved by keeping people poor.

Deficits

The argument that we must reduce deficits has been given a ludicrous amount of coverage and credence among the governing class, punditry, and even the public since the beginning of the Great Recession. Yet it is worth pointing out, if only for a second, that when progressives argued for a debt ceiling deal that would increase “revenues,” that doesn’t only mean raising taxes. It also means putting people back to work and raising their real incomes, which in turn raises the amount of taxes they are paying. A person who was making $50,000 a year, was unemployed for two years, and finally takes a job making $30,000 a year is not paying into the system nearly as much as a steadily employed person at $50,000 a year. Multiply that by millions of desperate job-seekers, and, well, the point is obvious.

In other words, as the NELP report’s title suggests, what we really have is a “Good Jobs Deficit.”

Inequality

The rise in low-wage jobs is pushing down all wages. Workers desperate for employment are taking jobs for which they’re overqualified, or moving into part-time work. Employers are less likely to offer raises and can get away with lower starting salaries because the huge pool of applicants for any job opening makes it easier to find employees who will work for less.

Mark Price, a labor economist with the Keystone Research Center, told me, “The job market right now is a very cruel game of musical chairs where often it’s the youngest and least experienced workers that are left without a job when the music stops.”

The desperation that drives workers into low-wage work can be seen clearly in one item from the Harper’s Index: “Percentage of applicants accepted for employment on McDonald’s National Hiring Day in April: 6.2.”

The fast food giant had announced it was hiring 50,000 workers in one day, for jobs that averaged $8.30 an hour across the country—and saw so many applicants that it only hired 6.2 percent of them.

Price noted, “Increased competition for jobs has clearly dampened wage growth for workers with a job and is most likely also translating into deteriorating working conditions. Employers who can count on long lines of job applicants for even the lowest wage opening are in a strong position to sweat workers, driving up productivity and pocketing that growth as profit rather than having to split some of that growth with workers as higher wages. Even unionized workers are under tremendous pressure in this environment to work longer hours for less pay for employers that are often pocketing record profits.”

And even the low-wage jobs are seeing salaries fall. Stephen Greenhouse, the New York Times‘ labor reporter, wrote of the NELP report:

The report found that real wages had shown “a mild decline” since the recession began, of 0.6 percent. For workers in lower-wage occupations, median wages fell 2.3 percent after inflation — partly because many of the newer workers hired had lower wages than others in that group. For workers in midwage occupations, wages slipped by 0.9 percent, while there was some good news for workers in higher-wage occupations — their wages rose by 0.9 percent.

But wages can’t get any lower than minimum, right? Not so fast. Michele Bachmann, presidential candidate and Republican congresswoman from Minnesota, said that Congress should consider eliminating the minimum wage to “stimulate the economy.”

And as working people’s wages keep falling, the rich are doing just fine. According to filmmaker Michael Moore’s calculations, the 400 richest people in America (the Forbes 400) had greater net worth in 2009 than the bottom 50 percent of the country. That’s right, 400 people have more money than half the nation.

Greenhouse noted, “The report gives additional ammunition to those who argue, like David Autor, an economics professor at M.I.T., that there is a distinct hollowing out of the middle.”

The middle class is being relentlessly pushed downward and neither political party seems to have a solution that will actually result in more and better jobs for all.

Why Are Wages So Low?

It’s not news that the U.S. has shifted from a manufacturing-based economy to a service-based economy, or that those service jobs tend to not pay as well as manufacturing jobs. The question that’s rarely asked is why they pay so badly in the first place.

The case of Wal-Mart is once again helpful. Wal-Mart’s low prices demand low wages, not just from its retail employees, but from the workers around the world who manufacture and transport the goods it sells. Because Wal-Mart is the U.S.’s largest retailer, it can demand and expect to receive constant cost reductions from its suppliers–which are often taken out of workers’ pay. Meanwhile, because it is also a huge employer, it drives down wages not only because its low pay sets an industry standard, but because it tends to put local businesses out of business.

Heather Boushey, at the time an economist with the Center for Economic and Policy Research, said in 2005:

“In the mid‐twentieth century, the Fordist business model prevailed, which was based on a social contract between workers and employers and an understanding that it is the workers who are, in the end, the customers. Wal‐Mart does not recognize that customers are workers and that a business model based on squeezing wages limits demand for the very products that these workers produce. …Without enforcement of current laws and regulation to ensure a decent standard of living for workers here and abroad, our entire economy will someday look like Wal‐Mart. ”

Six years later, Boushey’s prediction is coming true. Wal-Mart’s model of paying its workers less than enough to shop at Wal-Mart has spread throughout our economy.

As Boushey noted, Henry Ford’s business model depended upon a middle class, and though he had no less a desire for profits than the Walton family, he accepted that he had to pay middle-class wages. He also was under regular pressure from a thriving labor movement, which kept the pressure on Ford to raise wages to avoid unionization at his factories (he failed). This model can be seen today in stores like Starbucks and Whole Foods, which tout their high wages and good benefits and use them as a lever against union organizing.

The decline of unions is a major factor in the decline of wages. Another new study analyzed the 40 percent growth in wage inequality between 1973 and 2007—which happened to be the same period during which union membership for private sector workers fell from 34 percent to 8 percent.

Josh Harkinson at Mother Jones summarizes their findings:

1) The threat of unionization caused non-unionized employers to raise wages; that threat disappeared along with unions.
2) Unions occupied a bully pulpit; knocking them off left the moral case for equality vulnerable to attack. (What do you mean Viacom’s CEO isn’t worth $85 million?)
3) Workers lost their Washington lobbyists, and with them, any hope of winning political battles for better wages and benefits.

Unions aren’t only for manufacturing jobs, as the recent organizing campaigns at low-price clothing retailer H&M and at Starbucksshow. Just because our economy is shifting to a service industry is not on its own a reason for wages to drop.

2009 study by the UK-based New Economics Foundation found that many low-wage occupations actually added far more value to the economy than many of the top-paid jobs. Calculating what they called the “Social Return on Investment,” the foundation found that for every dollar paid to a hospital cleaner, you generate about $6 or $7 in social and environmental returns. Bankers, on the other hand, destroy $4 for every dollar they get.

In other words, there’s nothing wrong with the low-wage jobs themselves—they’re not inherently worse than the factory work that sustained the U.S. for decades, and many of them provide much more value to society than jobs that pay much more.

Increasing the wages of the workers who have taken these low-wage jobs should be a start. But that will require government action, since Wal-Mart and the like are unlikely to suddenly change their business model. An actual living-wage law rather than a bare-bones minimum wage, coupled with serious pressure for the Employee Free Choice Act to ease the formation of unions, could do much to lift all boats, in a way that the “recovery” from the financial crisis never did.

Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @seasonothebitch.
Source: Alternet
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