'New Economy' Deepens the Wealth Divide


A quarter of a century ago, Ron Fauquher was a central-casting cog of the "old economy," cranking out headlights at a General Motors plant in the eastern Indiana Rust Belt. It was an industry headed for hard times.

Then Fauquher and a GM buddy started a software business and hit pay dirt. A bigger company bought them out, installing Fauquher in the executive suite, and now he and his wife eat out five times a week.

But Fauquher's world spans both the good and the bad of the transition from the old economy to the new.

Fauquher sees his adult daughter, a single mother, struggling financially; he sees his younger employees, living better than they should be, surviving paycheck to paycheck; and, particularly, he sees the demands for help from a local domestic-violence shelter and crisis hotline he chairs.

"Demand for those services is as high as it's ever been," he says of the shelter. "One of the leading causes is fights over money. There are higher expectations today, so there's an incredible level of frustration. I think we may be creating a generation that just lives at the edge of their debt capacity."

Fauquher is in step with national attitudes. A recent Harris Poll found that four in five Americans think the new economy has improved their lives only a little or not at all.

It isn't that Americans fear a crash--consumer confidence is soaring--or that they hate their jobs, for a remarkable 91% expressed job satisfaction in the poll. But three out of four responded that the fruits of the current boom were unequally distributed.

A recent report by the Federal Reserve suggests what may be bothering them: The new economy is affecting different groups in wildly different ways.

While the wealthiest Americans--those who are riding the stock market to ever greater heights--enjoyed huge run-ups in their net worth between 1995 and 1998, the young and the poorly educated were going the other way. In particular, the median net worth of Latino families sagged by 24% over those years.

Muncie is a natural place to watch these forces at work. More than 75 years ago--during another economic boom--a husband-and-wife research team picked Muncie as the quintessential American town for their study of go-go growth's impact on middle America. Robert and Helen Lynd produced an exhaustive account, called "Middletown," of how the Roaring '20s had enriched the few at the expense of the many.

Today Muncie's unemployment rate is 2.9%, even less than the national rate of 4.1%. And economic inequality seems to be growing.

"In aggregate, we're much more affluent," says Patrick Barkey, an economist at Muncie's Ball State University. "But clearly, we're not all moving up at the same rate. Some of us aren't moving up at all."

When the Lynds began their research in the 1920s, they described a town split in two by the White River, with the well-heeled managerial class on the north side and the factory hands in a south-side slum called "Shed Town."

Today, no one would dream of uttering "Shed Town" in polite conversation, but the north-south class boundary remains intact.

"It's very subtle," says Bruce Geelhoed, head of Ball State's Center for Middletown Studies, which houses the Lynds' work. "People on the south side will send their children to Ball State University"--on the north--"and they'll come across the river to watch the basketball games. But they won't come to the symphony."

On the north side, says Jay Allardt, a Muncie real estate appraiser, "you're seeing circle-top windows, built-in TVs, sound piped throughout the house. In the last few years, I've seen people put in swimming pools or entertainment systems that cost $50,000."

Retail Stores Follow the Money

On the south side, Allardt's records show, entire houses can still be had for $20,000.

Muncie's entire shopping district has fled the south side, chasing the new money north. Retailing today takes place on what used to be farmland on the north side, where you can order tumbled-marble flooring at a home-improvement warehouse, check out computer prices and pick up carry-out sushi on your way home.

And the south side? The most notable additions there in the last few years were a subsidized baseball field and some sub-prime lending joints.

"I think this economy is great for people who are doing well," says Mellisa Leaming, an instructor for Muncie's federally funded training program for dislocated workers, "because you can move up when [employers] are looking for people." But if you have any of the traditional job-market handicaps--a substance-abuse problem, no high school diploma, a hostile attitude toward authority--"you just get beaten down," she says.

Gary Demaree fits nicely into the first category. A bank trust officer and vice president, he was laid off in March when his bank was acquired by a larger one from out of town.

Not one to worry, he promptly bought a fishing boat. He figures someone with his skills will land on his feet soon enough, probably at about the same pay; chances are, he'll even be able to telecommute in his new job and set his own hours. There might even be some time left over for bass-fishing tournaments.

"Of course, not everybody's going to have the same entrepreneurial feeling that I have," says Demaree, whose career record also includes building his own profitable public relations firm and doing a stint as a radio personality. "But what would have been a devastating experience 20 years ago, I'll be able to live through now in a different way. I feel it's the new economy and technology that allow me to do that."

Contrast Demaree's outlook with that of Alan Miller, a 53-year-old former laborer in a General Motors battery factory that closed a couple of years ago. Miller was earning $21 an hour when his job disappeared.

"I thought if I could get something for $10 an hour, that would be great," Miller says. "But I started looking around and there weren't that many jobs in Muncie that pay $10 an hour. Most start at $5.50, $6.50."

Miller ended up driving a forklift for $7.50 an hour at a small roofing firm. While he likes his new workplace, he blames the new economy for the dislocation he had to suffer before finding it. He says GM's management told him, "It's a new world, and the way we do business now doesn't have anything to do with what you learned in school."

Eight decades ago, before most blue-collar workers had joined unions, the Lynds found that the arrival of large-scale manufacturing had promoted inequality in Muncie by bringing poor workers to town. Today, ironically, the decline of manufacturing seems to have had the same effect.

Nationwide, about 644,000 factory jobs disappeared during the booming 1990s, as other economic sectors took off. Only in the last six months or so has the bleeding in the U.S. manufacturing sector stopped.

Muncie mirrors the trend: Services overtook factories here as a source of employment in the late 1980s, and since the 1998 departure to Mexico of a big automotive gearshift plant, the town's two biggest employers have been the local hospital and the university, Ball State.

"And guess what?" says economist Barkey. "Those jobs pay pretty well. They've created a lot of new wealth here."

But only for those who can get the right jobs. Many of Muncie's displaced workers say they cannot.

"Some of them are 50 years old, and some of them don't have a high school diploma," says Leaming, the dislocated-worker specialist. "Their only experience with job hunting is coming out of the service and going into a factory where they've got a buddy and shaking hands with the line boss. They don't know anything about interviewing."

Those who do get new jobs take pay cuts of 50% or more, Barkey says.

Take Phil Gregg, a barrel-chested machinist who was doing fine as recently as 1997. He and his wife, both working at the gearshift plant, took home $117,000 between them that year, thanks to a base wage of $18.75 an hour and plenty of overtime.

Both lost their jobs when the plant closed in 1998. Phil found work at a metal shop that paid $8 an hour; his wife became a hospital delivery clerk for $7.25 an hour plus family health benefits.

"We didn't figure we'd be back at $18-an-hour jobs, but we weren't expecting $7.25," Phil Gregg says.

It got worse. During an angiogram, Gregg suffered a rare, near-fatal reaction. When he emerged from the hospital, his job was gone--just as his daughter needed $25,000 for college tuition. Gregg drained the savings from the gearshift plant's 401(k) plan and negotiated a postponement of his income taxes.

"I interview all the time," he says, holding out a sheaf of help-wanted printouts from the Internet. "But all the places on here are nonunion and low-paying. Probably I'll be going to work for $8 or $10 an hour, driving a truck or something. I'm 49. I'm going to work till I die. I've lost whatever chance I had to retire."

Brent Bill, pastor of a Friends meetinghouse in downtown Muncie, says people such as Gregg are stripping the food pantry his congregation runs.

"It's usually lost jobs," Bill says. "People are holding body and soul together [working] at McDonald's, then they hurt their back and what can they do? For them, prosperity is a myth."

Some Overcome the Equality Gap

There are those in Muncie who are bridging the new economy's equality gap. Mike Parkinson started out as a meat cutter in 1970, then moved up to railway signalman in 1976 but was laid off in 1987.

"So I went back to cutting meat," he says. "It was definitely an adjustment. I was making half of what I made on the railroad, and by that time I had three daughters."

Parkinson turned to an old high school buddy--Ron Fauquher, the headlight maker turned software executive. How could a meat cutter make good? Fauquher, who had earned a college degree before starting off in the headlight factory, told Parkinson he needed to go back to school.

The fortysomething Parkinson took the advice, scaling back his work hours so that he qualified for financial aid at Ball State. He took classes with two of his daughters.

Today, Parkinson has his student loans to pay off--but he also has the salary to do it, as well as a warm, sunny office far from the grimy switchyards and the chill of the meat locker. As a systems analyst, he now enjoys profit-sharing and a 401(k) program. He and his wife are looking for a newer house.

"I've been able to move a step higher than just a blue-collar worker," he says with pride.

But doing so at midlife gave Parkinson a firsthand understanding of the obstacles to social mobility in the new economy.

"If you're upper-middle class, you have more access to education," he says. "That brings opportunities. But if you're on the bottom, you're spending all your time just trying to keep on an even keel. I think the income gap is getting bigger."

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