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| ISBN-13: | 9780520958456 |
|---|---|
| Publisher: | University of California Press |
| Publication date: | 07/31/2014 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 313 |
| File size: | 1 MB |
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Cut Adrift
Families in Insecure Times
By Marianne Cooper
UNIVERSITY OF CALIFORNIA PRESS
Copyright © 2014 The Regents of the University of CaliforniaAll rights reserved.
ISBN: 978-0-520-95845-6
CHAPTER 1
From Shared Prosperity to the Age of Insecurity
HOW WE GOT HERE
I have pointed out to the Congress that we are seeking to find the way once more to well-known, long-established, but to some degree forgotten ideals and values. We seek the security of the men, women, and children of the nation. That security involves ... [using] the agencies of government to assist in the establishment of means to provide sound and adequate protection against the vicissitudes of modern life—in other words, social insurance.
Franklin Delano Roosevelt fireside chat, June 28, 1934
Many of our most fundamental systems—the tax code, health coverage, pension plans, worker training—were created for the world of yesterday, not tomorrow. We will transform these systems so that all citizens are equipped, prepared, and thus truly free to make your own choices and pursue your own dream. Another priority for a new term is to build an ownership society, because ownership brings security and dignity and independence. In all these proposals, we seek to provide not just a government program but a path, a path to greater opportunity, more freedom, and more control over your own life.
George W. Bush, acceptance speech at the Republican National Convention, September 2, 2004
Tales of families, particularly middle-class and working-class families, experiencing upheavals and setbacks because of job losses, health-care emergencies, and stagnating wages have become increasingly common. Economic uncertainty has always existed, of course, but the breadth and depth of the problem in twenty-first-century America is alarming. In fact, until relatively recently many people assumed that secure jobs, rising incomes, and upward mobility were an inherent part of American society. Times have changed.
AGE OF SECURITY: THE NEW DEAL ERA
In the broadest historical perspective, today's widespread sense of economic uncertainty is not so much a new phenomenon as a regression to an older state many Americans believed had been safely left behind. Before the Great Depression most jobs in America were precarious: wages were unstable, pensions and health insurance were unheard-of, and labor laws were almost nonexistent. However, in the wake of that economic calamity, a new social ethic emerged that sought to provide Americans with greater security in both good times and bad.
Beginning in the 1930s, the federal government took a more active and formal role in protecting Americans from the "hazards and vicissitudes of life" in modern capitalism. Throughout that decade laws were enacted to govern working hours and establish minimum wage levels. And with the passage of the Social Security Act and the Wagner Act in 1935, Americans gained access to old-age and unemployment insurance and the right to counteract the power of employers through collective bargaining. These kinds of laws dramatically expanded the number of workers with secure jobs, living wages, and robust benefits.
Through large-scale social insurance programs like those grouped under the rubrics of the New Deal (in the 1930s) and the Great Society (in the 1960s), presidents from Franklin D. Roosevelt through Gerald Ford sought to shelter Americans from economic ups and downs by expanding programs like unemployment insurance and disability benefits and by providing health insurance through Medicare and Medicaid to the elderly and the poor. Many private employers, spurred on by a powerful labor movement, also came to embrace the collectivist approach put in motion by the New Deal; they offered workers good wages and health, disability, and pension benefits as a way of rewarding them for their hard work (and as a way of fending off more intrusive government intervention in the private labor market).
Over time, an unspoken agreement was struck among government, labor, and big business that shaped a hybrid public/private system for providing security and prosperity to tens of millions of Americans. From the 1930s through the 1970s, the government took responsibility for tempering the effects of the business cycle through economic policies based on the theories of the twentieth-century British economist John Maynard Keynes, coordinating national monetary policy and fiscal policies to minimize the depth and duration of recessions. It also helped train young people for jobs (through public support for colleges and universities, subsidized student loans, and scholarship programs) and helped stimulate mass consumption by supplying subsidies for housing and funds to develop a national highway system. Yet the government was careful not to go too far, abstaining from centralized planning or meddling in corporate decision making. For their part, workers tacitly agreed to minimize labor unrest in return for promises by companies to provide stable employment, good benefits, and wage increases that reflected workers' fair share of the profits gained through rising productivity.
Although this three-way social contract among government, employers, and workers varied in its effectiveness and excluded many women and minorities, it nevertheless enabled several generations of Americans to prosper. Countless statistics tell the story. Here are just a few: From 1950 to 1970, the yearly income of the median worker more than doubled, and those at the bottom of the earnings distribution saw their earnings increase even more. Family income increased by 56 percent between World War II and the mid-1960s. There was an upgrading of the entire employment structure in the 1960s, with strong employment growth in middle- and high-wage jobs and only modest expansion in low-wage jobs. From the mid-1940s to the late 1960s, America became a more equal society as family income inequality decreased by 7.5 percent. Pension and health-care coverage were on the rise. At the peak of this system, in the late 1970s, private pensions covered 40 million people—49 percent of private wage and salary workers—while private health-care coverage reached more than 80 percent of Americans. Affordable housing became more available and home ownership almost doubled, growing from 17 to 33 million. Thanks to government initiatives like the G.I. Bill (1944) and the Higher Education Act (1965), 2.3 million veterans went to college and the number of low-income students attending universities nearly doubled between 1965 and 1971.
Collectively, these forces helped to create a large and thriving middle class whose growing wealth stimulated decades of unprecedented economic expansion. President John F. Kennedy's words "a rising tide lifts all the boats" summarized the experience of hundreds of millions of Americans, whose gains during the New Deal and after World War II made economic optimism seem inevitable and permanent.
FROM THE 1970S TO TODAY: STAGNATION, INEQUALITY, INSECURITY
At first almost imperceptibly, then with growing force, the economic tides began to shift away from growth, security, and shared prosperity for Americans in the 1970s. Lurking behind the bad news were potent transformations that would gradually alter the dream of universal progress that Americans had come to consider their birthright.
Once again, the numbers map the trends. In the early 1970s, median earnings began to stall; by the 1990s, a considerable number of workers were earning less than their counterparts had decades earlier. By 1996, real wages for the workers at the bottom had fallen about 13 percent, and real wages for workers in the middle had fallen by close to 10 percent.
Men, especially those with less education, have been particularly affected. Between 1969 and 2009, men's median annual earnings decreased by 14 percent. Among men with only a high school diploma, median annual earnings declined even more, falling by 47 percent over the same period. Other troubling developments have been the decline in the number of men working full-time and a rise in the number of men with no formal labor-market earnings at all. Between 1960 and 2009 the share of men working full-time decreased from 83 percent to 66 percent and the share of men with no formal labor-market earnings increased from 6 percent to 18 percent.
Women have fared better. Spurred on by the women's movement, a desire to work, and the financial needs of their families, women have poured into the labor force over the last fifty years. Given how low women's wages were several decades ago and how many women are now working, women's earnings have dramatically increased, rising 56 percent (for the median full-time female worker) since the early 1960s. However, women's wages, too, have recently plateaued. Since 2001, median earnings for women have mostly stagnated.
When we look at individual male and female workers over time, the numbers are somewhat bleak. From a household perspective, however, economic well-being looks a bit better. Between 1975 and 2009, the median wages for two-parent families increased by 23 percent. However, this increase has been fueled by parents, mostly mothers, working more hours, not by rising wages. On average the typical two-parent family now works 26 percent longer or seven hundred more hours per year than the typical two-parent family did in 1975. If women had stayed home, middle-class incomes would have grown by only about a quarter as much as they did between 1979 and 2000, while low-income families would have seen a significant decrease in real income. The consecutive recessions of 2001 and late 2007/2008 have put downward pressure on family household incomes. Since 2007, median family household income has declined by 8.4 percent. In real terms, median family household income has returned to 1996 levels.
Another troubling sign that began to emerge in the 1970s is the failure of most families to realize economic gains from rising productivity. Although median family income and productivity grew in tandem at 2 to 3 percent a year in the immediate post–World War II years, from 1973 to 2005 median family income grew at less than one-third the rate of increases in productivity. Thus, even though American workers are producing more goods and services per hour, they have not been rewarded for it. Instead, most of the gains from increased productivity have gone to executive compensation and corporate profits.
With the top receiving most of the gains in both income and wealth, economic inequality has risen drastically. During the 1980s—the worst decade by this measure—workers earning the least saw their wages decline by 14 percent, workers earning the most saw their wages increase by 8 percent, and the wages of workers in the middle remained flat, reflecting a widening income gap from the top to the bottom of the scale.
Since the 1990s, a different pattern has emerged, with inequality growing between the highest earners and those in the middle while it decreases between earners in the middle and those at the bottom. Inequality has thus increased because the incomes of the highest-earning Americans have outstripped those of both the middle class and the poor.
Overall, from 1976 to 2005, the growth of post-tax income among the poorest households was just 6 percent, while among middle-income households it was 21 percent (less than 1 percent a year). In comparison, the post-tax income among the top fifth of households grew by 80 percent.
Furthermore, recent evidence finds that the increase in wage inequality is becoming more concentrated at the top. The wage gap between those with graduate degrees and those with only college degrees has grown more than the gap between those with college degrees and those with only high school diplomas.
Wealth inequality has grown even faster than income inequality. In the beginning of the 1960s, the wealthiest fifth of all U.S. households held 125 times more wealth than the median wealth holder. By 2004, the ratio had increased to 190 to 1. From 1984 to 2004, the top 20 percent of households received 89 percent of the total growth in wealth, while the bottom 80 percent received just 11 percent. By 2010, median wealth in the United States reached its lowest point since 1969. In that year (2010), the top fifth of households held 88.9 percent of all wealth, households in the middle held 12 percent, and households at the bottom had a negative net worth—they owed 0.9 percent of all wealth.
Taken together, the rise in both income inequality and wealth inequality since the postwar years has led some to conclude that the United States has not seen such high levels of inequality since just before the Great Depression. Among all the industrialized countries in the world, the United States is now one of the most unequal.
Other developments loom darkly over the economic status of American families, starting with work insecurity. Studies have found a decrease in employment stability, especially for men. For example, the average job tenure for men working in the private sector at age fifty has declined from 13.5 years in the 1973–83 period to 11.3 years in the 1996–2008 period. Job losses often result in long-lasting economic setbacks. Research shows that today's displaced workers can suffer from prolonged periods of unemployment and that once they find new jobs, their earnings are often substantially lower than their previous earnings. A 2013 survey of more than a thousand American workers found that among those who had gotten a job after being laid off during the recession, 54 percent earned less in their new jobs.
Other research has found that economic volatility has risen even faster than inequality. By 2003, the rate of income instability (as measured by drops in income) was three times greater than in the early 1970s. To be sure, the number of Americans experiencing economic difficulties without having sufficient financial resources to weather the storm has steadily increased, from 14.3 percent in 1986, to 18.8 percent in the early 2000s, to 20.5 percent during the Great Recession. Furthermore, when family income drops, it now drops much further than it did in the past. In the early 1970s, the usual loss was around 25 percent of a family's previous income; by the late 1990s the loss had grown to 40 percent. A report released by the Rockefeller Foundation estimated that in 2009 the level of economic insecurity was greater than at any other time in the last twenty-five years, with about one in five Americans experiencing a decrease in household income of 25 percent or more. With only about half of Americans equipped with savings to cover living expenses for three months, the increase in economic volatility puts many families on the edge of insolvency.
Other signs of economic insecurity have risen as well. The number of filings for personal bankruptcy grew from around 300,000 in 1981 to about 1.5 million in 2004 and 2 million in 2005. The latter figure reflected a rush of people filing before a new bankruptcy law went into effect that made filing for chapter 7 bankruptcies harder and more expensive. Because of the tougher bankruptcy legislation, the number of people filing fell drastically. Despite these more restrictive rules, the subsequent economic downturn nonetheless led to another uptick in filings. After dipping to 775,000 in 2007, there were more than 1.5 million personal bankruptcy filings in 2010 and about 1.2 million in 2012. And experts believe that even these numbers are artificially low, since many who would like to file cannot afford the legal costs involved.
The housing market reflects similar trends. Foreclosure rates tripled from the early 1970s to the early 2000s and have skyrocketed in recent years because of the subprime mortgage crisis. From 2007 to 2011 there were more than 4 million foreclosures nationwide. A 2012 report from the Center for Responsible Lending noted that an average of five hundred families in California have lost their homes every day since the beginning of the Great Recession.
Finally, levels of indebtedness have reached record highs in the United States. In 2004, debt held by households was equal to 80 percent of GDP, up from 50 percent in 1980. For almost every group of households in the United States, the ratio of mortgage debt to income has doubled since 1989, and for many the ratio of total debt to income has also more than doubled. The median value of debt held by American families increased sharply between 1989 and 2007, rising from $24,000 to $67,300. The percentage of American households reporting debt payments that exceed 40 percent of their income grew from 10 percent in 1989 to about 14 percent in 2010. In 2007, 46 percent of American families carried a balance on their credit card, with the average balance having increased by 30 percent from 2004 to $7,300. By 2010, as access to credit tightened, fewer families carried credit card debt (39 percent), and the average balance had fallen a bit to $7,100.
(Continues...)
Excerpted from Cut Adrift by Marianne Cooper. Copyright © 2014 The Regents of the University of California. Excerpted by permission of UNIVERSITY OF CALIFORNIA PRESS.
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Table of Contents
PrefaceAcknowledgments
Introduction: One Nation Under Worry
1. From Shared Prosperity to the Age of Insecurity: How We Got Here
2. Forging Security in an Insecure Age: The Study
3. Downscaling for Survival: Laura Delgado
4. The Upscaling of Security at the Top: Brooke and Paul Mah
5. Holding On at the Middle: Gina and Sam Calafato
6. When Religion Fills the Gap: Laeta and Kapo Faleau
7. Debt and Hope: Eddie and Chelsea Jenner
Conclusion: The Social Cost
Epilogue: The Families Today
Notes
Index
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