The rich are getting richer. The top 5 percent of earners in the U.S. accounted for nearly 40 percent of personal consumption expenditures in 2012, according to the Institute for New Economic Thinking. That is up from 28 percent in 1995.
Economist Steven Fazzari of Washington University in St. Louis said the top 5 percent in this country are consuming about as much as the bottom 80 percent. Fazzari proposed that with such a decisive gap, achieving the American Dream isn’t realistic anymore.
“The idea that if you work hard and play by the rules, you should have a decent, normal life and fairly secure economic life, and there’s a sense that a larger share of Americans are prevented from reaching that,” Fazzari said.
Statistically, the middle includes households that make between $35,000 and $70,000, Fazzari said. But that often doesn’t align with ideals for a comfortable life.
“Having a median income for a family of four might not do it for you anymore,” Fazzari said.
Fazzari says the ability to move up economically isn’t easy anymore with one of the key gateways, education, difficult to access when wages are low.
“If education is the ticket into the middle class, and you can’t afford it because your wages are low, family wages are low, then where does that mobility come from?” Fazzari asked.
Why Is The Middle Class Shrinking?
Bob Soutier, president of the Greater St. Louis Labor Council, said one of the main reasons the middle class is dwindling is because of the decline of labor unions. About one-third of workers used to belong to a union decades ago in the U.S., and membership now is down to 10 percent, according to Soutier.
“I think you can point to that as being a significant factor for the shrinking middle class. For years and years people joined unions and we protected workers’ pay and benefits. When there is less of us, the economy struggles because of it,” Soutier said.
Soutier said the decline in unions has to do partly with a political climate that bashes workers.
“People in positions of power that can make the decision for the workers of this world … (must) have the workers’ best interests at heart,” Soutier said.
Fazzari says the widening income gap is allowing the rich to have more and more influence on policies that hurt the middle class.
“There is a major concern about how rising income shares at the top are providing more and more resources for people at the top to pursue their political interests through campaign contributions,” Fazzari said.
Changing Work In The U.S.
Soutier suggested there is a decline in manufacturing jobs and increasing those will help stabilize the economy. While Fazzari agreed an increase in manufacturing jobs might help, he said raising wages for those working in the immense service industry is a better solution.
“We are going to have a larger share of people working in the service sector and they have to get those decent wages and benefits too,” Fazzari said.
Boston University professor Chris Muller, an expert in the field of corporate restaurant management, used the restaurant industry as an example.
“The restaurant business has grown from about 25 percent of the food dollar to just about 50 percent today,” Muller said. “People go out more, there’s almost six times more restaurants than there were in the post-World War II time.”
Muller said the work laborers do has changed over time, and the fact that wages haven’t changed with it is causing problems.
Although there is major growth in the restaurant industry, the types of restaurants succeeding reflect the struggles of the middle class in this country.
Muller said for decades, a mix of casual themed, relatively upscale places, like Red Lobster, Longhorn Steakhouse and Olive Garden, defined what it meant to go out to dinner. However, that trend has changed.
Red Lobster changed ownership groups on Monday. Muller said that because of the widening income gap, places like Red Lobster have to change their image in order to survive.
“The fast casual business, places like Chipotle, Panera, even Starbucks have sort of substituted and we’re down trading our consumption patterns and the casual businesses have suffered because of it,” Muller said.
Closing The Gap
Fazzari says one way to close the gap between the rich and poor is to raise the minimum wage.
“You might argue there aren’t that many workers at the minimum wage, but I think it does have an important impact on the bottom part of the income distribution,” Fazzari said. “People who are making a little bit above the minimum wage are likely to see their incomes go up.” A domino effect would lead to an increase in spending, the key to a thriving economy, Fazzari said.
Fazzari went one step further, saying the minimum wage today would be more than $20 per hour if it had kept pace with inflation and the rising productivity in this country.
“The economy as a whole is growing,” Fazzari said.”But the gains from that are being disproportionately allocated to the top of the distribution.”
Soutier said union membership promotes higher wages and benefits. He said in building Ballpark Village, workers made $30 to $40 per hour plus benefits. And it isn’t just the workers who benefit; the union workers are specially trained so the companies who hire them see more productivity, he said.
Muller agreed that raising wages was the solution, saying the basic principles of capitalism rely on an investment in labor in order to get proper return in capital.
“We have to be able to sell what we make, and in order to do that we have to have people make wages that can buy things,” said Muller.
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