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Are We In the Process of Creating a New and Enduring American Underclass?

Will this bleak economy become “the new normal,” consigning millions to an emerging American underclass?

Corporate America appears to be prospering with far fewer workers than it employed before the crash. Wages are down, the stock market is up and firms are expanding their operations overseas. Meanwhile, Congress is suffering from the delusion that our greatest problem is the deficit, rather than the extreme economic insecurity so many Americans are suffering from today. And that focus will only exacerbate the crisis on “Main Street.”

The question is whether these trends will become “the new normal,” consigning millions to an emerging American underclass. Is our notably cruel brand of capitalism ultimately leading to something that looks more like feudalism – with low-paid serfs feeling fortunate just to have an opportunity to toil for their lords' enrichment?

Consider a bleak snapshot of our ailing economy: Real corporate profits are now near an all-time high, yet one out of six working people are either out of a job or have no choice but to work part-time.

We just saw a huge two-year gain in productivity – the amount of goods and services produced per worker. In 2009, it rose by 3.5 percent, and last year we saw a 3.6 percent increase, the largest in eight years.

At the same time, labor costs – the value of wages and benefits – have seen their steepest decline since 1962-'63.

This is the result of companies putting the big squeeze on their workers – threatening to cast them into a sea of unemployed Americans if they don't produce more for the same wages. These numbers tell us that an economy that  now employs seven million fewer workers than it did in 2008 can produce the same amount of stuff, albeit at a great social cost.

Lower Wages, Fewer Jobs

According to an analysis of Census data by USA Today , just 45 percent of the population now holds a job, the lowest share since 1983. Over the past decade, the number of non-working adults in the U.S. has increased by 27 million.

Those who have been laid off and were then lucky enough to get rehired aren't faring well. In an employers' market, over half of all full-time workers laid off after at least three years at the same job return to the workforce with lower wages. According to the Wall Street Journal , more than a third of them lose 20 percent or more of their previous income.

The average length of joblessness among the unemployed is now 39 weeks, shattering the record set during the 1981-'81 recession by around 17 weeks. The long-term unemployed face unique barriers to reentering the labor force – many have bad credit and anecdotal evidence suggests that employers tend to discriminate against them for the crime of being unemployed for an extended period. There are about five jobless workers for every full-time opening, but when you include involuntary part-timers, that ratio rises to 8:1.

The impact of that kind of extended unemployment can reverberate for decades, long after the economy has recovered. Columbia University labor economist Till von Wachter studied the fortunes of workers who faced sudden lay-offs during the 1981-1982 recession in the period since that time. He found that even after 20 years, those workers' wages were still 20 percent lower than comparable workers who had held onto their jobs in the early 1980s downturn.

According to the Wall Street Journal , the impact of this kind of joblessness can span generations: 

Research shows that children of workers who lose jobs and go back to work at lower wages appear to suffer from lower wages, too. In a 2008 study, a group of economists tracked the wages of 60,000 father-child pairs from 1978 to 1999. Children whose fathers went through mass layoffs in the 1982 recession ended up with 9% lower earnings than similar children whose fathers didn't experience the job cuts.

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