Death of the middle class

In a surprise move, the Michigan Legislature last week passed a “right-to-work” law that could end unions as a significant presence in the state.

It was bad news for Alabama, which — especially in the automotive sector — has enjoyed the comparative advantage of being one of a handful of states that prevented unions or employers from requiring non-union members to pay dues. Michigan is the 24th state to pass a right-to-work law, so Alabama’s advantage is fading.

Labor unions have brought on many of their own difficulties. While they spurred major advances that benefit all workers, they also have engaged in thuggish behavior. Boring negotiations do not make the news, but violent strikes do. They often have been guilty of overreach, bankrupting their golden-goose employer while grasping for the extra egg.

The gradual disappearance of unions, though, is not something the middle class should celebrate. They were one of the few tools available to solve one of the nation’s greatest threats: The death of the middle class.

Wages for Americans in most income brackets have been falling for the past three decades, and there is no mystery where that income is going. Since 1979, the income of the top 1 percent has almost tripled. Income of the top 0.01 percent increased more than 600 percent in the same time period.

Capital income — gains on investment — have more than tripled for the top 1 percent during three decades, while shrinking dramatically for most Americans. Through 1979, increases in productivity provided roughly equal benefits to workers and owners. Since then, essentially all the revenue from increased productivity has gone to the pockets of the corporate owner.

Labor-replacing technology and globalization are among the developments that — by reducing their bargaining position — have undermined the ability of middle-class workers to maintain a livable wage. There are of course many generous employers, but the trend is unmistakable.

A steady erosion

Labor has lost its ability to secure a share of the profits. There are still employers that pay employees based on their value to the corporation, but most pay as little as possible to keep them.

That does not mean the employers are bad people; it means they are good businessmen. The purpose of business is to generate profit for the owner. The goal of an efficient capitalist is to pay as little as possible for labor and other production costs.

The social cost of the resulting erosion of the middle class is high. Among the developed nations, the United States has the greatest level of income and wealth inequality. It also has one of the lowest levels of income mobility. The poor and middle class are getting poorer while the rich get richer.

Snapshot inequality is not disturbing. Inequality is critical to a functioning capitalist system. The U.S. trend of increasing generational inequality, however, is frightening. Social upheaval is inevitable when a huge swath of the population is struggling to survive, has no ability to increase its income and shares space with a tiny percentage whose inherited wealth begets more wealth.

The weakening of unions is one factor in the steady erosion of the middle class. The question becomes whether the nation has other tools to increase economic mobility and decrease entrenched inequality.

The obvious answer in a democracy is government. Some capitalists recognize the threat government poses to cheap labor and growing profits, and they have gone to great lengths to control it. Through taxation, government can force the wealthy to pay the cost of providing opportunity — in the form of health care, education and transportation — to the poor. The attack on unions has been critical to the goal of capitalist-friendly governance, because unions represented the most organized resistance.

Unions pushed for legislation and elected officials who were friendly to labor. The destruction of unions has been a primary goal of some politically active capitalists. Their success has changed the political landscape, as unions are an increasingly anemic political force.

Politically powerful alliances along racial lines also were a threat. Wealthy politicos have invested heavily in state-elected officials willing to change voting rules in ways designed to reduce the black and Hispanic vote.

Recognizing common interest

Two solutions seem possible. One is that American voters recognize the commonality created by their falling incomes. It’s never happened before, but America is more unequal than it has ever been.

The other possibility is that capitalists themselves recognize the existential threat created by growing inequality. Aside from the possibility of social upheaval, there is the business problem of a major segment of the population having too little income to drive the economy. The recession resulted from a steep drop in consumer demand, coupled with a loss of the meager assets — in homes and stock — compiled by the middle class.

America’s inability to shake the effects of the recession has much to do with a population pummeled by decades of dropping wages. Once the bulwark of the economy, the middle class has become its weakest link. The primary victims are the poor and middle class, but it’s a condition that also harms the capitalist.


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Filed under Capitalism, Income inequality, Poverty, wages

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