Economic Recovery Hasn’t Helped the Average Worker

The Reagan Administration boasts that the U.S. economy is in the fourth year of the strongest recovery from a recession in postwar history, but the boast is an empty one for the average American worker.

The Administration can justify claims that there has been a steady increase in the number of job openings, but the jobless rate is still hovering around an unacceptable recession-level 7%. Inflation is low, there have been significant increases in real income for the relatively well-paid among us, and the stock market, despite the latest downturn, still looks healthy: up more than 700 points in the past two years.

Superficially, none of these indicators of a thriving economy sound like a combination that could wreck the expectations that most workers have of a steadily rising standard of living. But the average worker knows that it can take the wages of two members of a family to buy the goods and services that the earnings of just one could buy a few years ago. Where the added family income isn’t available, their living standard has dropped sharply.

The sad fact is that the real average weekly wage of workers plummeted a startling 10% between May, 1978, and May, 1986, the most recent month for which figures are available. That means that poor and middle-income Americans are distressingly poorer now than in 1978.

In sharp, highly visible contrast, upper-middle-income and high-income Americans are richer this year than they were in 1978. Incomes of the relatively few professionals, executives and other well-paid citizens are well ahead of the inflation rate.

By looking at those of us who are doing well these days, President Reagan paints a joyous but distorted picture of a prosperous America because most of us are not on his canvas.

Like the poor, the rich, too, always seem to be with us. But until a few years ago, economic differences rarely caused political unrest because the vast number of reasonably comfortable, middle-income Americans had a slow but usually steady rise in their own standard of living. It’s hard to get angry about one’s own relative good fortune.

Most of us were, and many still are, able to watch such shows as “Lifestyles of the Rich and Famous” or read about the tragedy of poverty without too much distress due to envy of the wealthy or shame for our neglect of the poor.

But if the economic gap between the prosperous and middle America continues to widen, that could change and bring a danger of social and political unrest that has not been seen in this country since the Depression years of the 1930s. Young workers on average cannot expect to earn as much as their parents, and the proposed changes in the tax structure will do little to improve the prospects of the young or the standard of living of the average older workers unless recent trends are reversed.

New York-based economist A. Gary Shilling fears that the growing gap between middle America and the more prosperous among us can cause serious social disruptions: “It is one thing to see your own real wages drop. But to see others make significant gains while you are losing is really terrible.”

The decline in the real wages of the average worker started in the early 1970s but began to take a dangerous slide in 1978 because of a host of factors:

- There has been a well-known decline in employment in “smokestack” industries, where unionized workers are fairly well paid. Many of those workers are now moving into the expanding service sector, where wages are far lower. McDonald’s doesn’t pay auto or steel industry wages.

- Wages and fringe benefits for millions of workers have been slashed because of increased competition from abroad and, for unionized companies, from non-union firms. Employers determined to increase profits or cut losses often first try to save corporate money by cutting wages, fringe benefits and jobs.

- Productivity is still rising but at a much slower rate than in recent decades, partly, at least, because companies are buying other companies instead of investing money in new enterprises and improved equipment.

- More and more workers are being employed part time. In 1979, there were 3.3 million part-timers, compared to 5.6 million now. And if they work just one hour a week, the Bureau of Labor Statistics does not count them as unemployed.

These 5.6 million workers are “economic part-timers,” those looking for full-time jobs but who cannot find them. When all part-timers are added together--the voluntary and involuntary--they total nearly 20% of the work force. And women make up an estimated 57% of that number.

The BLS includes in the category of non-economic part-timers both those who voluntarily accept such jobs and those who do not want to leave well-paying current jobs even though their working hours have been sharply reduced.

Part-time work may be good for cost-cutting employers, but it means poverty-level incomes for millions of Americans.

- There has been an increase in two-tier pay scales that provide newly hired workers less income than those already employed. This means that children who follow in their parents’ footsteps in the job market are not going to earn as much as their parents unless employers relent and present patterns are reversed.

The size of the still-growing gap between prosperous Americans and those in the middle- and lower-income brackets is easily seen:

Starting at the top, the latest annual Business Week survey showed that the highest-paid executives increased their salaries and bonuses last year by an average of 9% to $679,000, nearly 4 percentage points above the inflation rate in that one year alone.

In 1984, the top 259 companies rewarded their top managers by jumping their salaries and bonuses an average of 12.7%. The average chief executive’s total compensation jumped 22%. Those figures represent only income from their companies and do not include profits from outside stock investments or other sources.

And look at just one group of young, upwardly mobile men and women: In just the past few weeks, wealthy New York law firms began offering students fresh out of law school top starting annual salaries of $65,000 to $70,000, with a $7,000 bonus just for joining the firm. These new salaries are about 20% higher than were offered last year.

In Los Angeles, top salaries of brand-new lawyers in major firms are now being raised to about $55,000 to $60,000. This kicks up the salaries of the more experienced members in the prosperous firms. Lawyers employed for five or six years will be earning about $125,000 or more in New York and about $115,000 here. Some firms are paying their senior partners $400,000 and up--sometimes up substantially.

Salaries of physicians are also rising, as are those of company supervisors, Wall Street investment bankers, many executives below those at the very top and a number of others.

But getting back to the world in which most Americans live:

BLS figures show that the average worker earned a weekly wage of $202 in 1978 and by May, 1986, had received wage increases of 50.1%, boosting their average to $303. But prices increased 66.1% in that period. Their badly eroded purchasing power now buys 10% less than they could buy in 1978, according to Faith Heinemann of the Los Angeles BLS office.

Workers in some job categories are worse off than others. Miners--those who still have jobs--now earn an average of $512 a week, well above the wage of the average worker. But for miners this means a 7% drop in their real wages since 1978. Construction workers now average $468, a 8.5% cut in their real wages. Dozens of other job categories show similar or greater declines.

Hurt most are workers in retail trades because of such factors as the increase in part-time employment and non-union competition. Their real income dropped an astonishing 19%. Sadly, this is one of the economic sectors creating most of those new jobs that Reagan boasts about so cheerfully.

Those of us who see little logic to supply-side economics favor the opposite approach: using the “trickle-up” instead of the supply-siders’ “trickle-down” theory. Workers should be paid decent wages--which would increase demand. Also, companies should invest in new products and modern equipment instead of buying each other and also improve their managerial skills.

Productivity might well rise then, and the majority of us could again afford to buy more of the goods and services that we produce. This could help paint an honestly happier picture of the entire economy and give the average worker the rising standard of living that all Americans should be able to expect.