Posts tagged ‘Middle class’

July 5, 2013

The struggling middle class – working hard or hardly working?

by Grace

It may seem simplistic, but perhaps an attitude adjustment would improve the outlook for our uncertain economic future.

Charles Blow wrote about the The Morose Middle Classciting several polls showing Americans are worried about a shrinking middle class.

According to the poll, Americans see a middle class with less opportunity to get ahead, less job security and less disposable income than the middle class of previous generations.

I have some recent posts on this theme of a hollowed out middle class, with Megan McArdle citing technology and trade as main culprits.  And although “education is not a solution by itself”, most of us still believe in its value for at least keeping us out of poverty.

Most of those polled believe that higher education is the key to staying in the middle class, but many worry about its prohibitive cost and inaccessibility.

What about a willingness to work hard?

There is no denying that soaring costs have created a formidable barrier to higher education.  But beyond soaring college costs, technology, and trade, it might be argued that weakened stamina for hard work is even more to blame for our economic woes.

The Atlantic gives us a story about John, a young man who feels like he’s “working really hard, but he’s not getting ahead”.

20130702.COCWorkingHard1

Is he working really hard?  The details of John’s story failed to convince me.

  • He was an unmotivated high school student, graduating with a C-average.
  • His parents encouraged him to attend college, and paid for it.
  • But he dropped out after two years, struggling with math and science.
  • He is now 29 years old, working as a preschool teacher making $11 an hour — about $23,000 a year.
  • He lives in a “cluttered” house, owned by his parents and rented to him at a discount.
  • He “wants’ to go back to school and “thinks” about getting a second job.
  • He sometimes gets angry, but also admits he “kind of” blames himself.

Various factors influence economic success.

“Economic mobility is not predetermined,” says Erin Currier, project manager of Pew’s Economic Mobility Project, “but our research has shown that a host of drivers and factors can influence a person’s chances of moving up or falling down.” These determinants fall into three categories: social capital (who you know and where you live); financial capital (your savings and access to credit); and human capital (your education).

John’s parents have tried to help him with social capital (John rebuffed his dad’s offers to help him find a job at the railroad) and financial capital (the house with discounted rent, although no help with tuition). What he needs is more human capital. For that, his parents can’t help much, except to offer encouragement. “He’s smart enough to go to college,” Greg says. Beth adds: “We still want better for him, we really do. But we don’t know what to do.”

From a comment to this story:

… I’ve never met a kid in college who actually “worked hard” (shown up every day, did the work, went to office hours, etc.) and still failed. I’ve met dozens of kids who did none of those things, but then complained when they failed the tests.

It appears John lacks more than “human capital”.  What about persistence and a willingness to work hard?

This is what working hard looks like:
The other day I met a young man at a car rental place.  He was quite engaging, and chatted about his work life.  Washing cars and shuttling customers at the rental company is his second job.  His main job is driving a UPS truck for 42 hours a week.  In total, he works about 70-80 hours a week.  He said he hardly had time to see his girlfriend, but she understood.  He was making good money.  I didn’t learn if he was planning to attend college, and I cannot predict how this young man will fare in the increasingly competitive workforce of the future.  But I am convinced he really is “working hard”, and that his chances of future success are higher than those of John, the college dropout profiled in The Atlantic.

June 27, 2013

Lack of jobs may become a problem for the ‘majority of the population’

by Grace

On the topic of sluggish jobs growth, Megan McArdle says our stubborn unemployment problem is rooted in “technology and trade”.

… Global shipping and trade liberalization has made it more practical to manufacture in low wage countries.  Meanwhile, in high wage countries, technology is substituting for labor.  At its peak, General Motors employed 600,000 people to make slightly less than half the cars in the country.  Today it employs 77,000 to produce about 1/5th the cars on the US market.  Even if it regained the market share it has lost to imports, employment in the industry would be way down.

Remember this chart of the hollowed out middle class?

20130624.COCHollowMiddleClass2

But the lower class is also on shaky ground.
Highly skilled individuals who are motivated and persistent will always find ways to support themselves.  But there is a surplus of workers for middle class jobs McArdle describes as “seated, skilled, steady, decently paid”.  And while large numbers of low-skill jobs continue to be created, these “jobs are, on average, pretty unattractive ones”.  They are generally low statue, and sometimes miserable.  In some cases, our government safety net is a more attractive alternative to these low-end jobs.

The “majority of the population” may be in for a long struggle.

… we are not creating a lot of good new jobs–defined as jobs that are relatively secure, physically tolerable, and decently paid.  People with enough grit and imagination can invent themselves new jobs, but at no time in history has that described the majority of the population.  The alternatives for the rest aren’t very attractive.  And since modern-day America tries hard to keep people from becoming truly desperate, those jobs aren’t being created.

McArdle points out that part of the problem is cultural, with families and communities undergoing massive changes that break with traditional attitudes towards work.  And education is not a solution by itself.

… Until roughly the last five years, it was possible to believe that education would be the solution: send more kids to school, retrain people for new jobs.  But college graduates aren’t finding it so easy to obtain solid employment either.  It’s true that having a college diploma is still much better than not having a college diploma, but that doesn’t mean that by sending more kids to school, we’re actually making the workforce more productive, much less mitigating the problem of economic change; we may just be forcing people to jump over a higher bar to gain access to a shrinking number of jobs….

A stronger safety net does not seem like a good solution.

For starters, it is politically difficult to imagine a really large class of people who simply permanently live off the state.  The safety net is rooted in human instincts about reciprocal exchange.  … They will lose political support if you have one group of people paying taxes, and a different group of people who can expect to live their entire life on the dole.

Such an arrangement would also be socially toxic.  Being out of work is astonishingly bad for your state of mind, your social relations, and even basic skills like math and reading….

 Glenn Reynolds does not think it’s a temporary problem.

There’s a lot of flailing going on, and there has for years been insufficient concern about what all the folks on the left half of the bell curve are going to do with their lives — only now it’s looking like the left 2/3 or maybe 3/4. I’m not sure what to do either. … I do think there’s something structural going on, not just an economic cycle.

June 25, 2013

Technological advancements stunt job growth – ‘the great paradox of our era’

by Grace

In contrast to what has occurred during earlier episodes in history, today’s technological advancements are depressing economic growth, according to Erik Brynjolfsson and Andrew McAfee.

… ­Brynjolfsson, a professor at the MIT Sloan School of Management, and his collaborator and coauthor Andrew McAfee have been arguing for the last year and a half that impressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years. Even more ominous for workers, the MIT academics foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical, and retail work but in professions such as law, financial services, education, and medicine.

There is reason to believe today’s creative destruction differs from historical patterns.
We know that “since the Industrial Revolution began in the 1700s, improvements in technology have changed the nature of work and destroyed some types of jobs in the process”.  But this chart showing the “great decoupling” raises questions about the possibility of a new era with long-term periods of involuntary employment for many.

20130624.COCJobsProductivityDecoupling2

Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress. On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

Many white-collar jobs have been affected, as ‘“digital versions of human intelligence” are increasingly replacing even those jobs once thought to require people’.

We have seen a “hollowing out” of the middle class.

20130624.COCHollowMiddleClass2

To be sure, Autor says, computer technologies are changing the types of jobs available, and those changes “are not always for the good.” At least since the 1980s, he says, computers have increasingly taken over such tasks as bookkeeping, clerical work, and repetitive production jobs in manufacturing—all of which typically provided middle-class pay. At the same time, higher-paying jobs requiring creativity and problem-solving skills, often aided by computers, have proliferated. So have low-skill jobs: demand has increased for restaurant workers, janitors, home health aides, and others doing service work that is nearly impossible to automate. The result, says Autor, has been a “polarization” of the workforce and a “hollowing out” of the middle class—something that has been happening in numerous industrialized countries for the last several decades. But “that is very different from saying technology is affecting the total number of jobs,” he adds. “Jobs can change a lot without there being huge changes in employment rates.”…

New technologies are “encroaching into human skills in a way that is completely unprecedented,” McAfee says, and many middle-class jobs are right in the bull’s-eye; even relatively high-skill work in education, medicine, and law is affected. “The middle seems to be going away,” he adds. “The top and bottom are clearly getting farther apart.” While technology might be only one factor, says McAfee, it has been an “underappreciated” one, and it is likely to become increasingly significant.

But ‘no one really knows’.

While questions remain on this issue, no one knows for certain if historic patterns of job creation will be repeated.  Even Harvard economist Lawrence Katz, whose research has shown how technological advances have consistently led to job creation, tells us that ‘we never have run out of jobs, but it is “genuinely a question”’.  Others raise similar doubts.

… “No one really knows,” says Richard Freeman, a labor economist at Harvard University. That’s because it’s very difficult to “extricate” the effects of technology from other macroeconomic effects, he says. But he’s skeptical that technology would change a wide range of business sectors fast enough to explain recent job numbers.

MIT economist David Autor also says “no one knows the cause” for the employment slump.

… The sudden slowdown in job creation “is a big puzzle,” he says, “but there’s not a lot of evidence it’s linked to computers.”

Many of the reasons for sluggish job growth may be rooted in “global trade and the financial crises of the early and late 2000s”.  Government policies may play a role.  But it is possible that recent technological advances have changed the equation in an unprecedented and permanent manner.  Meanwhile, the middle class continues to suffer as politicians, economists, and employers grapple with ‘the great paradox of our era’.

Related:

January 27, 2012

Reynolds’ Law explains why we should not subsidize college for all

by Grace

“Subsidizing the markers of status doesn’t produce the character traits that result in that status; it undermines them.”


Glenn Reynolds explains why taxpayer-subsidized college education (and home ownership) for all is not a good use of our money.

The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.

Megan Mcardle expresses a similar sentiment.

 “it’s all too common for well-meaning middle class people to think that if the poor just had the same stuff we do, they wouldn’t be poor any more (where ‘stuff’ includes anything from a college education to a marriage license to a home). But this is not true. . . . If poor people did the stuff that middle class people do, it’s possible–maybe probable–that they wouldn’t be poor. But this is much harder than it sounds.”

In a previous post I noted that it is not the college degree in and of itself that causes college-educated women to marry at higher rates.

January 5, 2012

Definition of middle class is muddled

by Grace

Since I constantly hear about how the middle class is being shut out in its ability to afford college, I am intrigued by this discussion of what exactly constitutes ‘middle class’.

Despite the incessant political lip service paid to the middle class, there is no official American government definition of the group. The middle class has been intensively studied but no political consensus exists over how it was created or how to strengthen it

So of course the federal government decided to create a task force to study the middle class.

Within weeks of taking office, the Obama administration’s launched its own effort to help the group. Chaired by Vice President Joe Biden, the “Middle Class Task Force” was launched in January 2009 and includes the secretaries of labor, health and human services, education and commerce.

The government says middle class is about “aspirations”.

The closest the task force came to defining the middle class was a January 2010 report “Middle Class in America.” The study never gives an exact income level that is “middle class.” Instead, echoing academic studies on the subject, the document concludes that “middle class families are defined more by their aspirations than their income.”

Economists use actual income to define middle class.

In academia, various definitions of the middle class are used. Economists generally use income as the determinant. Using census data, they break the American middle class into quintiles — groups of twenty percent — and declare the middle sixty percent of Americans the middle class. As I said in an earlier column, this is the definition I use. Based on 2010 census data, the middle class would be the sixty percent of Americans with household incomes from $28,636 to $79,040 a year.

Sociologists look at how we self-identity.

Other researchers, such as sociologists, have tried to define Americans as middle class by how they self-identify. One of the odd – and I think positive – things about Americans is that they over-identify as middle class. The practice embodies an American ideal that the majority of society’s members, not the few, should benefit.

The rest of us mainly just use our feelings.

Americans themselves give varying definitions of the middle class. In a 2008 Pew survey, one-third of Americans who earned more than $150,000 a year — 11 percent of Americans overall — identified themselves as middle class. In the same survey, 40 percent of Americans who earned less than $20,000 — 25 percent — considered themselves middle class as well. The median family income in the United States was $49,445 in 2010, a lower number than many Americans think.

Why we want to be middle class

But whatever its exact size, the middle class is usually considered more deserving – and more threatened – than those at the extremes.

This helps explain why we label the offering of financial aid to families with incomes up to $200,000, a policy of some Ivy League schools and other elite colleges, as help for the “middle class”.  It feels good to do so, and since the definition is muddled, it’s hard to challenge it.

Here’s a handy calculator from the Wall Street Journal.  What Percent Are You?

December 16, 2011

Berkeley will offer financial aid to ‘middle-class’ families

by Grace

The University of California, Berkeley, announced Wednesday that it would offer far more financial aid to middle-class students starting next fall, with families earning up to $140,000 a year expected to contribute no more than 15 percent of their annual income, in what experts described as the most significant such move by a public institution.

While Berkeley has been enrolling low-income and wealthy students at increasing rates,  the relative number of middle-class students has declined.

Copying the Ivies

While several elite private universities — including the Ivy League triumvirate of Harvard, Princeton and Yale — offer similar programs for families with incomes up to $200,000, experts said that Berkeley was the first public university to do so. For the most part, public colleges have focused on merit scholarships to lure top students and aid for the poorest families to ensure access, but many now worry that approach has left out a wide group of families.

Details

Berkeley’s definition of middle-class in creating its new financial aid program is a family with income between $80,000 and $140,000 a year. On top of the parental contribution of 15 percent of income, students would also have to pay about $8,000 per year — generally a combination of loans, work-study and private scholarships. At the bottom end of the spectrum, that would make for a total payment of $20,000, a 37.5 percent discount off the $32,000 total of tuition, room and board for California residents. On the upper end, it would be about $29,000, or a 10 percent discount.

(Out-of-state students, who make up 30 percent of Berkeley’s freshman class this year, will get comparable discounts on the first $32,000 of tuition and fees, but still have to pay an additional $23,000.)

Berkeley’s admission rate is 22%, making it clear this financial aid will be limited to top students.

UPDATE:  A commenter on collegeconfidential pointed out that under this new program a family earning $120,000 would pay $26,000 a year for their child to attend Berkeley, a discount of about 19% from the $32,000 COA.  After looking carefully at these numbers, and taking into account that the median household income in California is about $59,000, I have changed my post title from “Berkeley will offer generous financial aid to middle class families” to “Berkeley will offer financial aid to ‘middle-class’ families“.

August 15, 2011

‘now cheap foreign genius is easily available’

by Grace

Thomas Friedman’s “theory of everything” explains the reasons for today’s global turmoil.

The merger of globalization and I.T. is driving huge productivity gains, especially in recessionary times, where employers are finding it easier, cheaper and more necessary than ever to replace labor with machines, computers, robots and talented foreign workers. It used to be that only cheap foreign manual labor was easily available; now cheap foreign genius is easily available. This explains why corporations are getting richer and middle-skilled workers poorer. Good jobs do exist, but they require more education or technical skills. Unemployment today still remains relatively low for people with college degrees. But to get one of those degrees and to leverage it for a good job requires everyone to raise their game. It’s hard….

Not only does it take more skill to get a good job, but for those who are unable to raise their games, governments no longer can afford generous welfare support or cheap credit to be used to buy a home for nothing down — which created a lot of manual labor in construction and retail. Alas, for the 50 years after World War II, to be a president, mayor, governor or university president meant, more often than not, giving things away to people. Today, it means taking things away from people.

So let’s review: We are increasingly taking easy credit, routine work and government jobs and entitlements away from the middle class — at a time when it takes more skill to get and hold a decent job, at a time when citizens have more access to media to organize, protest and challenge authority and at a time when this same merger of globalization and I.T. is creating huge wages for people with global skills (or for those who learn to game the system and get access to money, monopolies or government contracts by being close to those in power) — thus widening income gaps and fueling resentments even more.

Should we despair, or try to find a silver lining in the positive aspects of creative destruction?

On a related note, 48% Think Spending Cuts Could Trigger Violence.

July 7, 2011

Middle management jobs will decline further

by Grace

If you’re hoping your college degree will earn you a spot on the track to middle management, read what Harvard economist Larry Katz said.

“A lot of traditional middle-class, upper-middle-class jobs have been disappearing. If you look at general managers and middle-management jobs, those are ones that have been in decline and will decline further,” he said.

While the article suggests that these types of jobs do not require a college degree, a quick scan of job listings indicates otherwise.

Medical diagnostic work such as radiology is another job category that will experience decline in the U.S.

Also:  Disappearing Middle-Class Jobs

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