Decline Found in Buying Power of Middle Class

By ROBERT A. ROSENBLATT

Sept. 13, 1996 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

Millions of middle-aged couples, their wages eroding, find themselves in a weaker economic position than their counterparts in 1979, according to a bipartisan study issued Thursday.

Second salaries, with more wives working more hours than ever before, have merely kept family buying power from falling even more sharply, the study said.

“It is as if workers are running in place,” said C. Fred Bergsten, chairman of the Competitiveness Policy Council, a federal advisory commission whose members come from Congress, the business community and labor unions. “The fact that American families are working more, for less pay, helps explain why they remain anxious about their future.”

As it happens, recent public opinion polls show that Americans are suddenly becoming less anxious about their financial future, the result of the lowest unemployment rate in seven years and a reduction in reports of huge corporate layoffs--if not a decline in the layoffs themselves.

That is good news for President Clinton, who takes credit for today’s 5.1% jobless rate and the creation of more than 10 million jobs during his presidency. Bob Dole, his Republican challenger, responds that those accomplishments mean nothing when the buying power of the average worker is falling--an accusation supported by the new study for the Competitiveness Policy Council.

The study, prepared by MIT economist Frank Levy, a longtime student of income levels, found that most families are working at close to “economic capacity.”

In 1979, Levy reported, a typical 40-year-old male high school graduate who worked full time earned $37,442 (as measured in 1994 dollars). His wife worked 16 hours a week and earned $8,585, for a family total of 46,027.

In 1994, by contrast, a typical 40-year-old male high school graduate with a full-time job earned just $29,263. His wife’s income was $12,930, but she was working 1,680 hours a year, twice as much as a typical working wife in 1979.

Families of college graduates, about a quarter of the population, fared somewhat better. Although earnings for men slumped, total family income rose modestly thanks to the growing contribution of working wives.

Another comparison made by Levy shows the change over time for household earnings. For high school graduates, the husband’s real income rises from 1979 to 1980, but falls sharply by 1994. The wife’s earnings make up the gap. A similar pattern exists with college students.

Levy used census data to study what he called “typical families”--those whose incomes were within 20% of the median figure, the midpoint where half of all families make more and half earn less. “Today’s families enter middle age in a weaker income position than their 1979 counterparts,” Levy said in his paper.

The culprit behind weakening wages is a pattern of slow economic growth since the sudden spike in foreign oil prices in 1973.

The economy has grown by an average of 2% a year in the 23 years since then, compared with about 3.4% a year from the Civil War until 1973. Accompanying the economic deceleration has been a shift from relatively high-paid manufacturing jobs to lower-paid jobs in the service sector, a decline in unionization and the growth of international economic competition.

The income picture is muddier when analysts measure not only wages but also benefits such as health insurance and pensions. Benefit levels have risen during the period when Levy’s report showed wages declining.

But according to a second report for the Economic Competitiveness Council, benefits have risen by less than wages have fallen. Total compensation on an hourly basis has declined since 1977, according to the report by Larry Mishel and Jared Bernstein of the Economic Policy Institute.

Clinton’s proposal to alleviate job insecurity and falling real wages is to raise educational levels. He has called for a $1,500 annual tax credit for two years of community college tuition and a $10,000 deduction for tuition at four-year schools. Dole says the answer lies in a 15% reduction in federal income tax rates, a 50% reduction in the capital gains tax and a tax credit for families with children.

The Competitiveness Council favors a diverse menu of programs to boost growth: “Investment in new technologies, modern factories and the most up-to-date equipment, as well as in education and training,” Bergsten said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Running in Place

A comparison of changes in family income over the past 15 years for married couples in which the husband was between the ages of 25 and 34 in 1979. Median income figures, adjusted for inflation, are stated in 1994 dollars.

High School Graduates

Annual income: Husband

1979: $31,277

1989: $35,106

1994: $30,861

Annual income: Wife

1979: 7,612

1989: 13,094

1994: 14,001

Annual work hours: Husband

1979: 2,080

1989: 2,080