Can the Middle Class Be Saved?

The Great Recession has accelerated the hollowing-out of the American middle class. And it has illuminated the widening divide between most of America and the super-rich. Both developments herald grave consequences. Here is how we can bridge the gap between us.
Filling the Hole in the Middle Class

In The Race Between Education and Technology, the economists Claudia Goldin and Lawrence Katz write that throughout roughly the first three-quarters of the 20th century, most Americans prospered and inequality fell because, although technological advance was rapid—and mostly biased toward people with relatively high skills—educational advance was faster still; the pool of people who could take advantage of new technologies kept growing larger, while the pool of those who could not stayed relatively small.

There would be no better tonic for the country’s recent ills than a resumption of the rapid advance of skills and abilities throughout the population. Clearly there is room for improvement. About 30 percent of young adults finish college today, yet that figure is 50 percent among those with affluent parents. It follows that with improvements in the K–12 school system, more-stable home environments, and widespread financial access to college, we eventually could move to a 50 percent college graduation rate overall. And because IQ worldwide has been slowly increasing from generation to generation—a somewhat mysterious development known as the “Flynn effect”—higher rates still may eventually come within reach.

Yet the past three decades of experience suggest that this upward migration, even to, say, 40 percent, will be slow and difficult. (From 1979 to 2009, the percentage of people ages 25 to 29 with a four-year college degree rose from 23.1 percent to 30.6 percent—or roughly 1 percentage point every four years.) And ultimately, of course, the college graduation rate is likely to hit a substantially lower ceiling than that for high school or elementary school. For a time, elementary school was the answer to the question of how to build a broad middle class in America. And for a time after that, the answer was high school. College may never provide as comprehensive an answer. At the very least, over the next decade or two, college education simply cannot be the whole answer to the woes of the middle class, since even under the rosiest of assumptions, most of the middle of society will not have a four-year college degree.

Among the more pernicious aspects of the meritocracy as we now understand it in the United States is the equation of merit with test-taking success, and the corresponding belief that those who struggle in the classroom should expect to achieve little outside it. Progress along the meritocratic path has become measurable from a very early age. This is a narrow way of looking at human potential, and it badly underserves a large portion of the population. We have beaten the drum so loudly and for so long about the centrality of a college education that we should not be surprised when people who don’t attend college—or those who start but do not finish—go adrift at age 18 or 20. Grants, loans, and tax credits to undergraduate and graduate students total roughly $160 billion each year; by contrast, in 2004, federal, state, and local spending on employment and training programs (which commonly assist people without a college education) totaled $7 billion—an inflation-adjusted decline of about 75 percent since 1978.

As we continue to push for better K–12 schooling and wider college access, we also need to build more paths into the middle class that do not depend on a four-year college degree. One promising approach, as noted by Haskins and Sawhill, is the development of “career academies”—schools of 100 to 150 students, within larger high schools, offering a curriculum that mixes academic coursework with hands-on technical courses designed to build work skills. Some 2,500 career academies are already in operation nationwide. Students attend classes together and have the same guidance counselors; local employers partner with the academies and provide work experience while the students are still in school.

“Vocational training” programs have a bad name in the United States, in part because many people assume they close off the possibility of higher education. But in fact, career-academy students go on to earn a postsecondary credential at the same rate as other high-school students. What’s more, they develop firmer roots in the job market, whether or not they go on to college or community college. One recent major study showed that on average, men who attended career academies were earning significantly more than those who attended regular high schools, both four and eight years after graduation. They were also 33 percent more likely to be married and 36 percent less likely to be absentee fathers.

Career-academy programs should be expanded, as should apprenticeship programs (often affiliated with community colleges) and other, similar programs that are designed to build an ethic of hard work; to allow young people to develop skills and achieve goals outside the traditional classroom as well as inside it; and ultimately to provide more, clearer pathways into real careers. By giving young people more information about career possibilities and a tangible sense of where they can go in life and what it takes to get there, these types of programs are likely to lead to more-motivated learning, better career starts, and a more highly skilled workforce. Their effect on boys in particular is highly encouraging. And to the extent that they can expose boys to opportunities within growing fields like health care (and also expose them to male role models within those fields), these programs might even help weaken the grip of the various stereotypes that seem to be keeping some boys locked into declining parts of the economy.

Even in the worst of scenarios, “middle skill” jobs are not about to vanish altogether. Many construction jobs and some manufacturing jobs will return. And there are many, many middle-income occupations—from EMTs, lower-level nurses, and X-ray technicians, to plumbers and home remodelers—that trade and technology cannot readily replace, and these fields are likely to grow. A more highly skilled workforce will allow faster, more efficient growth; produce better-quality goods and services; and earn higher pay.

All of that said, the overall pattern of change in the U.S. labor market suggests that in the next decade or more, a larger proportion of Americans may need to take work in occupations that have historically required little skill and paid low wages. Analysis by David Autor indicates that from 1999 to 2007, low-skill jobs grew substantially as a share of all jobs in the United States. And while the lion’s share of jobs lost during the recession were middle-skill jobs, job growth since then has been tilted steeply toward the bottom of the economy; according to a survey by the National Employment Law Project, three-quarters of American job growth in 2010 came within industries paying, on average, less than $15 an hour. One of the largest challenges that Americans will face in the coming years will be doing what we can to make the jobs that have traditionally been near the bottom of the economy better, more secure, and more fulfilling—in other words, more like middle-class jobs.

As the urban theorist Richard Florida writes in The Great Reset, part of that process may be under way already. A growing number of companies have been rethinking retail-workforce development, to improve productivity and enhance the customer experience, leading to more-enjoyable jobs and, in some cases, higher pay. Whole Foods Markets, for instance, one of Fortune magazine’s “Best Companies to Work For,” organizes its workers into teams and gives them substantial freedom as to how they go about their work; after a new worker has been on the job for 30 days, the team members vote on whether the new employee has embraced the job and the culture, and hence whether he or she should be kept on. Best Buy actively encourages all its employees to suggest improvements to the company’s work processes, much as Toyota does, and favors promotion from within. Trader Joe’s sets wages so that full-time employees earn at least a median income within their community; store captains, most of them promoted from within, can earn six figures.

The natural evolution of the economy will surely make some service jobs more productive, independent, and enjoyable over time. Yet productivity improvements at the bottom of the economy seem unlikely to be a sufficient answer to the problems of the lower and middle classes, at least for the foreseeable future. Indeed, the relative decline of middle-skill jobs, combined with slow increases in college completion, suggests a larger pool of workers chasing jobs in retail, food preparation, personal care, and the like—and hence downward pressure on wages.

Whatever the unemployment rate over the next several years, the long-term problem facing American society is not that employers will literally run out of work for people to do—it’s that the market value of much low-skill and some middle-skill work, and hence the wages employers can offer, may be so low that few American workers will strongly commit to that work. Bad jobs at rock-bottom wages are a primary reason why so many people at the lower end of the economy drift in and out of work, and this job instability in turn creates highly toxic social and family problems.

American economists on both the right and the left have long advocated subsidizing low-wage work as a means of social inclusion—offering an economic compact with everyone who embraces work, no matter their level of skill. The Earned Income Tax Credit, begun in 1975 and expanded several times since then, does just that, and has been the country’s best anti-poverty program. Yet by and large, the EITC helps only families with children. In 2008, it provided a maximum credit of nearly $5,000 to families with two children, with the credit slowly phasing out for incomes above $15,740 and disappearing altogether at $38,646. The maximum credit for workers without children (or without custody of children) was only $438. We should at least moderately increase both the level of support offered to families by the EITC and the maximum income to which it applies. Perhaps more important, we should offer much fuller support for workers without custody of children. That’s a matter of basic fairness. But it’s also a measure that would directly target some of the biggest budding social problems in the United States today. A stronger reward for work would encourage young, less-skilled workers—men in particular—to develop solid, early connections to the workforce, improving their prospects. And better financial footing for young, less-skilled workers would increase their marriageability.

A continued push for better schooling, the creation of clearer paths into careers for people who don’t immediately go to college, and stronger support for low-wage workers—together, these measures can help mitigate the economic cleavage of U.S. society, strengthening the middle. They would hardly solve all of society’s problems, but they would create the conditions for more-predictable and more-comfortable lives—all harnessed to continuing rewards for work and education. These, ultimately, are the most-critical preconditions for middle-class life and a healthy society.

The Limits of Meritocracy

As a society, we should be far more concerned about whether most Americans are getting ahead than about the size of the gains at the top. Yet extreme income inequality causes a cultural separation that is unhealthy on its face and corrosive over time. And the most-powerful economic forces of our times will likely continue to concentrate wealth at the top of society and to put more pressure on the middle. It is hard to imagine an adequate answer to the problems we face that doesn’t involve greater redistribution of wealth.

Soaking the rich would hardly solve all of America’s problems. Holding all else equal, we would need to raise the top two tax rates to roughly 90 percent, then unrealistically assume no change in the work habits of the people in those brackets, merely to bring the deficit in a typical year down to 2 percent of GDP. But even with strong budget discipline and a reduction in the growth of Medicare costs, somewhat higher taxes for most Americans—in one form or another—seem inevitable. If we aim to increase our national investment in innovation, and to provide more assistance to people who are falling out of the middle class (or who can’t step up into it), that’s even more true. The professional middle class in particular should not expect exemption from tax increases.

Over time, the United States has expected less and less of its elite, even as society has oriented itself in a way that is most likely to maximize their income. The top income-tax rate was 91 percent in 1960, 70 percent in 1980, 50 percent in 1986, and 39.6 percent in 2000, and is now 35 percent. Income from investments is taxed at a rate of 15 percent. The estate tax has been gutted.

High earners should pay considerably more in taxes than they do now. Top tax rates of even 50 percent for incomes in the seven-figure range would still be considerably lower than their level throughout the boom years of the post-war era, and should not be out of the question—nor should an estate-tax rate of similar size, for large estates.

The rich have not become that way while living in a vacuum. Technological advance, freer trade, and wider markets—along with the policies that promote them—always benefit some people and harm others. Economic theory is quite clear that the winners gain more than the losers lose, and therefore the people who suffer as a result of these forces can be fully compensated for their losses—society as a whole still gains. This precept has guided U.S. government policy for 30 years. Yet in practice, the losers are seldom compensated, not fully and not for long. And while many of the gains from trade and technological progress are widely spread among consumers, the pressures on wages that result from these same forces have been felt very differently by different classes of Americans.

What’s more, some of the policies that have most benefited the rich have little to do with greater competition or economic efficiency. Fortunes on Wall Street have grown so large in part because of implicit government protection against catastrophic losses, combined with the steady elimination of government measures to limit excessive risk-taking, from the 1980s right on through the crash of 2008.

As America’s winners have been separated more starkly from its losers, the idea of compensating the latter out of the pockets of the former has met stiff resistance: that would run afoul of another economic theory, dulling the winners’ incentives and squashing their entrepreneurial spirit; some, we are reminded, might even leave the country. And so, in a neat and perhaps unconscious two-step, many elites have pushed policies that benefit them, by touting theoretical gains to society—then ruled out measures that would distribute those gains widely.

Even as we continue to strive to perfect the meritocracy, signs that things may be moving in the other direction are proliferating. The increasing segregation of Americans by education and income, and the widening cultural divide between families with college-educated parents and those without them, suggests that built-in advantages and disadvantages may be growing. And the concentration of wealth in relatively few hands opens the possibility that much of the next generation’s elite might achieve their status through inheritance, not hard or innovative work.

America remains a magnet for talent, for reasons that go beyond the tax code; and by international standards, none of the tax changes recommended here would create an excessive tax burden on high earners. If a few financiers choose to decamp for some small island-state in search of the smallest possible tax bill, we should wish them good luck.

In political speeches and in the media, the future of the middle class is often used as a stand-in for the future of America. Yet of course the two are not identical. The size of the middle class has waxed and waned throughout U.S. history, as has income inequality. The post-war decades of the 20th century were unusually hospitable to the American middle class—the result of strong growth, rapid gains in education, progressive tax policy, limited free agency at work, a limited pool of competing workers overseas, and other supportive factors. Such serendipity is anomalous in American history, and unlikely to be repeated.

Yet if that period was unusually kind to the middle class, the one we are now in the midst of appears unusually cruel. The strongest forces of our time are naturally divisive; absent a wide-ranging effort to constrain them, economic and cultural polarization will almost surely continue. Perhaps the nonprofessional middle class is rich enough today to absorb its blows with equanimity. Perhaps plutonomy, in the 21st century, will prove stable over the long run.

But few Americans, no matter their class, will be eager for that outcome.

Don Peck is a features editor at The Atlantic. This essay is adapted from his new book, Pinched: How the Great Recession Has Narrowed Our Futures & What We Can Do About It.
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