Hard times tighten middle-class squeeze

After the Great Depression, the US made major policy changes to support average Americans. Is it time to launch such efforts again?

By MSNMoney partner Oct 19, 2012 9:31AM

By David Francis

The decline of the middle class has become a focal point of this year's presidential election. Each candidate claims his plan would end the middle-income slide that accelerated during the Great Recession and shows no signs of abating.

But lost in the rhetoric is the reality of the decline. Nearly everyone is aware that the middle class is struggling, but few people understand how the struggle plays out in everyday life.

According to experts, the decline is fundamentally reshaping the U.S. economy. The Great Recession has affected the way the middle class feels about higher education, government and the future. Even their health has suffered.

"Their economic future isn't very bright," says Timothy Smeeding, the director of the Institute for Research on Poverty at the University of Wisconsin Madison. "Wages and income are flat. Transportation, childcare costs and health care costs are going up, and . . . income isn't."

Smeeding calls the current state of the middle class "the squeeze." Even people with jobs are having to squeeze more and more out of their income, despite the fact that incomes aren't growing. "These people live on earnings. They're working on not great wages, and their jobs are threatened," he says. "They don't see any hope in the future of things getting better."

Hard numbers paint a stark picture of the middle-class decline. According to an August 2012 Pew Research Center report, only half of American households are middle-income, down from 61 percent in the 1970s. In addition, median middle-class income decreased by 5 percent in the past decade, while total wealth dropped by 28 percent. According to the Economic Policy Institute, households in the wealthiest 1 percent of the U.S. population now have 288 times the amount of wealth of the average middle-class American family.

The income decline has caused many people to accumulate high levels of debt. And as the cost of college increases, more people are saddled with tens of thousands of dollars in student loans after they graduate.

Only 23 percent of people are confident they have enough money to get them through retirement, according to the Pew report. It also found that fewer people believe hard work will get them ahead in life.

"You have far less disposable income and increasing levels of debt," says David Madland, the director of the American Worker Project at the Center for American Progress. "You have this fundamental squeeze on most members of the middle class. It's impacting their quality of life and their outlook for the future."

These are the kind of statistics used by politicians to sell policies, but they tell little about the realities behind the numbers or how the decline of the middle class plays out in people's everyday lives.

More and more middle-income families are turning to government programs such as food stamps, Medicaid and unemployment insurance. According to a recent Senate Budget Committee Report, "Among the major means tested welfare programs, since 2000 Medicaid has increased from 34 million people to 54 million in 2011 and the Supplemental Nutrition Assistance Program (food stamps) from 17 million to 45 million in 2011. Spending on food stamps alone is projected to reach $800 billion over the next decade."

People are also saving less. Wage increases have not kept up with increases in the cost of living, prompting people to dig deeper into their savings to make ends meet. Meanwhile, many middle-class workers who lost their jobs during the recession remain unemployed.

"The most pressing worry is the diminished economic security of middle-class families. The long-term unemployed have completely drained their savings," says Kristen Lewis, a co-director of Measure of America, a project of the Social Science Research Council that explores the distribution of opportunity and well-being in the United States. "Those who are working have jobs without health care or sick leave. They have no retirement savings plan. There's no end in sight to that."

Lewis adds that the economic state of the middle class takes its toll on their health. A series of recent reports found that life expectancy for whites without a high school diploma, once the backbone of the middle class, has dropped faster than for other groups. The reports link the decline in large part to the lack of access to health care.

Can the middle class come back? According to Lewis, current economic and political conditions won't provide the middle class with the same security it needed to rebound after World War II. "In the postwar period, there were a lot of programs put in place to help people," such as education and homeownership assistance, Lewis notes.

Madland says increasing the minimum wage and improving entitlement programs like Social Security are key to rebuilding the middle class. After the Great Depression, "we made major policy changes to ensure we have a strong middle class. We let too much of it wither on the vine," he says. "We need something approaching that kind of effort."

But for Wisconsin's Smeeding, one thing has to happen before such policy changes can occur. "We have to get the economy growing again."

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