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» Normxxx - The Vanishing Middle-Class Job

The Vanishing Middle-Class Job
As Income Gap Widens, Uncertainty Spreads
More U.S. Families Struggle to Stay on Track

By Griff Witte, Washington Post | Monday, September 20, 2004

<img src="http://media.washingtonpost.com/wp-srv/article/pieces/enlargePhotoIcon_91x14.gif" width="91" height="14" border="0" alt=""> <img SRC="http://media.washingtonpost.com/wp-dyn/images/I34490-2004Sep19" HEIGHT="149" ALT="" BORDER="0"> Chuck Moore plays with his son, Chase, 3, before bedtime. This past weekend, Moore accepted a job as a veterinary assistant for half what he had been making in his old job. (Jay Paul For The Washington Post)

This is the first in an occasional series about the changes roiling the middle of the American workforce -- the disappearance of many jobs that pay near the national average of $17 per hour, with benefits such as health care and pensions. Other stories in the series will address how companies are moving work to temporary employees and people in other countries, and will look at the prospects for new types of jobs to take the place of those lost.

Over the next several months, The Washington Post, in an occasional series of articles, will explore the vast changes facing middle-income workers and the consequences for businesses and society.

Scott Clark knows how to plate a circuit board for a submarine. He knows which chemicals, when mixed, will keep a cell phone ringing and which will explode. He knows how to make his little piece of a factory churn hour after hour, day after day.

But right now, as his van hurtles toward the misty silhouette of the Blue Ridge Mountains, the woods rising darkly on either side and Richmond receding behind him, all he needs to know is how to stay awake and avoid the deer.

So he guides his van along the center of the highway, one set of wheels in the right lane and the other in the left. "Gives me a chance if a deer runs in from either direction," he explains. "And at night, this is my road."

It's his road because, at 3:43 a.m. on a Wednesday, no one else wants it. Clark is nearly two hours into a workday that won't end for another 13, delivering interoffice mail around the state for four companies -- none of which offers him health care, vacation, a pension or even a promise that today's job will be there tomorrow. His meticulously laid plans to retire by his mid-fifties are dead. At 51, he's left with only a vague hope of getting off the road sometime in the next 20 years.

Until three years ago, Clark lived a fairly typical American life -- high school, marriage, house in the suburbs, three kids and steady work at the local circuit-board factory for a quarter-century. Then in 2001 the plant closed, taking his $17-an-hour job with it, and Clark found himself among a segment of workers who have learned the middle of the road is more dangerous than it used to be. If they want to keep their piece of the American dream, they're going to have to improvise.

Figuring out what the future holds for workers in his predicament -- and those who are about to be -- is key to understanding a historic shift in the U.S. workforce, a shift that has been changing the rules for a crucial part of the middle class.

This transformation is no longer just about factory workers, whose ranks have declined by 5 million in the past 25 years as manufacturing moved to countries with cheaper labor. All kinds of jobs that pay in the middle range -- Clark's $17 an hour, or about $35,000 a year, was smack in the center -- are vanishing, including computer-code crunchers, produce managers, call-center operators, travel agents and office clerks.

The jobs have had one thing in common: For people with a high school diploma and perhaps a bit of college, they can be a ticket to a modest home, health insurance, decent retirement and maybe some savings for the kids' tuition. Such jobs were a big reason America's middle class flourished in the second half of the 20th century.

Now what those jobs share is vulnerability. The people who fill them have become replaceable by machines, workers overseas or temporary employees at home who lack benefits. And when they are replaced, many don't know where to turn.

"We don't know what the next big thing will be. When the manufacturing jobs were going away, we could tell people to look for tech jobs. But now the tech jobs are moving away, too," said Lori G. Kletzer, an economics professor at the University of California at Santa Cruz. "What's the comparative advantage that America retains? We don't have the answer to that. It gives us a very insecure feeling."

The government doesn't specifically track how many jobs like Clark's have gone away. But other statistics more than hint at the scope of the change. For example, there are now about as many temporary, on-call or contract workers in the United States as there are members of labor unions. Another sign: Of the 2.7 million jobs lost during and after the recession in 2001, the vast majority have been restructured out of existence, according to a study by the Federal Reserve Bank of New York.

Each layoff or shutdown has its own immediate cause, but nearly all ultimately can be traced to two powerful forces that reinforce each other: global competition and rapid advances in technology.

Economists and politicians -- including the presidential candidates -- are locked in a vigorous debate about the job losses. Is this just another rocky stretch of the U.S. economy that, if left alone, will foster new industries generating millions of as-yet-unimagined jobs, as it has during other times of upheaval? Or is the workforce hollowing out permanently, with those in the middle forced to slide down to low-paying jobs without benefits if they can't get the education, credentials and experience to climb up to the high-paying professions?

Some of the consequences are already evident: The ranks of the uninsured, the bankrupt and the long-term unemployed have all crept up the income scale, proving those problems aren't limited to the poor. Meanwhile, income inequality has grown. In 2001, the top 20 percent of households for the first time raked in more than half of all income, while the share earned by those in the middle was the lowest in nearly 50 years.

Within the middle class, there has been a widening divide between those in its upper reaches whose jobs provide the trappings of the good life, and those in the lower rungs whose economic fortunes are less secure.

The growing income gap corresponds to a long-term restructuring of the workforce that has carved out jobs from the center. In 1969, two categories of jobs -- blue-collar and administrative support -- together accounted for 56 percent of U.S. workers, according to an analysis by economists Frank Levy of MIT and Richard J. Murnane of Harvard. Thirty years later the share was just 39 percent.

Jobs at the low and high ends have replaced those in the middle -- the ranks of janitors and fast-food workers have expanded, but so have those of lawyers and doctors. The problem is, jobs at the low end don't support a middle-class life. And many at the high end require special skills and advanced degrees. "However you define the middle class, it's a lot harder now for high school graduates to be in it," Levy said.

College graduates aren't immune, either. In places like Richmond, the overall health of the economy masks layoffs that have snared not only blue-collar workers like Clark, but also thousands of office workers at companies like credit card giant Capital One Financial Corp. and high-tech retailer Circuit City Stores Inc. Those cutbacks have educated even those with bachelor's degrees in the new ways of a volatile economy.

A University of California at Berkeley study last year found that as many as 14 million jobs are vulnerable to being sent overseas. Many economists, though, say offshoring is more opportunity than threat because it allows companies to make and sell goods for less, and offer even better jobs than those that are lost. "Offshoring can't explain job loss. It can only explain job switch," said David R. Henderson, a Hoover Institution economist.

Henderson says the middle class is thriving, and by many measures, he's right. As a group they're earning more money than they have before, and their ranks have swollen with members who can afford the DVDs, SUVs and MP3s now seen by many families as part of the essential backdrop to modern life. Whereas Census numbers show the median household earned $33,338 in 1967 when adjusted for inflation, that number was up by $10,000 in 2003.

But when compared with those at the top, the middle has lost much ground. And many in the middle have dropped well behind their peers.

The gaps are likely to widen, according to Robert H. Frank, a Cornell economist. He said that as more people worldwide become available to do routine work for less money and as computers take on increasingly complex functions, the demand for those Americans whose skills are easily duplicated could drop. "The new equilibrium," Frank said, "may be a little meaner and more unpleasant than it was before."

Believing in Ma Bell

In the Washington area, the federal government and its contractors have cushioned the impact of the change in the workforce. But you don't have to travel far for evidence of the shift: Just two hours south on I-95, to Richmond.

From a distance, like many parts of the United States, Richmond looks like a place where the middle class should thrive. As its economy evolved over the past century from agriculture to manufacturing to services and, finally, to technology, it hung on to some aspects of each phase. That diversity keeps the jobless rate below the national average. Paychecks for professionals are growing. Major corporations such as Philip Morris USA are adding staff. A biotech park has taken root in downtown. Two new malls recently opened in the suburbs.

And yet, for some who lack the right skills to match employers' demands, Richmond has less to offer than it used to.

"I think we're tending not to see any growth in the middle," said Michael Pratt, a Virginia Commonwealth University economics professor, "but I don't know anywhere in America where you are."

It wasn't always that way.

When Fred Agostino moved to suburban Richmond to head the Henrico County Economic Development Authority in the mid-1980s, employers wanted semi-skilled workers they could train for half a day and hire for life at a decent wage with benefits. Now companies looking to relocate to Richmond just want to know what percentage of the local population has a PhD. "They have to have educated, skilled, world-class people," Agostino said.

Meanwhile, the lifetime jobs were cut short.

The Viasystems Inc. circuit board factory was once known as "Richmond Works," and it provided good pay for people who didn't get past high school -- like Scott Clark. He was also among the 2,350 people who lost their jobs in 2001, when the plant shut for good.

Today Clark is a driver-for-hire, willing to work virtually any schedule, and drive any route for less than anyone else. His old factory job was outsourced to workers in China, Canada or Mexico. But now he benefits from outsourcing, doing work that once might have been someone else's full-time job with benefits. A former proud union man, he has become part of the steady exodus from the labor movement, which now represents just under 13 percent of the workforce. Instead, he's part of another nearly 13 percent of the workforce that has grown, not shrunk -- those who do jobs that are temporary, contract or on-call.

At least the work's not going anywhere. A real person in America, he reasons, has to drive American roads to get things from one place to another. There's security in that.

Clark used to feel the same security about work at the factory. When he started there in the mid-1970s, it was a new Western Electric plant, part of the Ma Bell family. When managers called him for an interview and he got the job, he could hardly believe it: "I said, 'It's funny you called me. My girlfriend's got college, and you ain't called her.' They said, 'What kind of college?' I said, 'She's taking biology and chemistry and all that stuff.' Before I got home, they called her and I had to turn around and bring her back up."

His girlfriend, Kathy, dropped out of school immediately. They started work the same day in 1976, making less than $10 an hour between them. Marriage followed.

Clark, a big, profane man, makes his way through Virginia yelling at other drivers, yelling at talk radio, and, occasionally, singing along to a sweet, sad bluegrass tune.

He doesn't have much patience for politicians. When Sen. John F. Kerry (Mass.), the Democratic presidential nominee, comes on the radio to talk about the economy, proclaiming, "I believe in building up our great middle class," Clark sneers, "Yeah, right." When President Bush's voice echoes through the cab a little later, Clark dubs him "a liar."

Clark has few nice things to say about corporations, either, but he concedes that the factory -- for most of his years there -- was run pretty well. He enjoyed the work, putting copper plating on circuit boards that would power phones, computers and even a few submarines for the Navy. Working in the chemical division was a dirty job. But because it was dirty, managers stayed away. Amidst the fumes, working long into the night on the second shift, the workers forged deep friendships. Clark and three buddies played the lottery religiously, with a vow that if one hit the jackpot, they would split the winnings and all retire on the spot.

"It was a real close-knit group of people," said Kathy Clark, who also worked the second shift for years. "We grew up there. We had our families there."

'You Could Work for Nothing'

But in 1996, the plant was sold by Lucent Technologies Inc., which had inherited it from AT&T Corp. Although the union made a bid, the victor was a start-up called Viasystems.

Many of the workers, Scott Clark included, had a feeling Viasystems was not invested in the plant for the long term. The reality was hard to ignore: By 2001, few companies still made circuit boards in the United States. They could earn a bigger profit producing them where business costs were lower, and where the workers would not demand overtime or sick leave. Scott Clark was not surprised on the day Viasystems announced the factory would shut down.

"They point-blank told us. . . . 'You could work for nothing and we would still close this plant,' " Kathy Clark said.

On the plant's final day, the workers were told to throw their ID passes and beepers into a box in the auditorium. Scott Clark wouldn't do it. Instead he broke into a meeting of managers, and placed his pass on the table. "When I walked into this plant, they handed me that pass," he told them. "They were proud to give it to me, and I was proud to take it." Now he was giving it back. He turned, and left the plant for the last time.

A handful of employees stayed behind to remove the machines so they could either be shipped overseas or sold for scrap. In the end, Richmond Works was just a shell. The building still sits vacant off the side of Interstate 64 just outside Richmond, a 700,000-square-foot tan tombstone in a weedy field.

Kathy Clark was unemployed for a year after the plant closed. Scott Clark lost time to training as he began his second career on the road. With their savings all but evaporated, the Clarks have spent the past two years starting over.

Working 15-hour days, Scott Clark has been pulling in good money. He won't say exactly how much for fear that competitors will undercut him, but in the Richmond area, he said, a courier can make $800 a week for doing routes less time-consuming than his. That's more than his base pay at the factory, though his new job lacks any benefits and he has to pay for the van and the gas. Kathy Clark, meanwhile, got a full-time job this summer after two years of temp work. But they still have a lot of ground to make up. Had the plant stayed open, they would have been ready for retirement in just a few more years. Now, "I feel like I'm 18 years old again," said Kathy Clark, as she sat in a rocking chair in her living room, strands of light gray overtaking the dark brown of her short hair.

The Clarks know they have it better than many of their friends from the plant. They have frequent, impromptu reunions at Wal-Mart, where the talk inevitably turns to who has found work and who hasn't.

Raffael Toskes Sr. has, but only for $11 an hour. He rides around each day in an armored car, a gun strapped to his side. "I consider myself a middle-class person," said Toskes, who made $17 an hour at the plant. "But right now, I'm probably a lower-middle-class person."

Lawrence Provo has given up on trying to find a job. He was out of work for nearly two years after the plant closed. "That was probably the worst time in the world to become unemployed. Everybody was downsizing. Everybody was laying off," he said.

Provo and his wife cut back on expenses and sold their car, furniture and jewelry. They even sold their home, and moved in with Provo's mother-in-law. But it was not enough. They had come to rely on his factory wage, and now their debts spiraled into the tens of thousands. They declared bankruptcy, joining a record 1.6 million who filed last year.

Provo finally got a job through a temp agency for $8.50 an hour, less than $18,000 a year and a little more than a third of his pay at Viasystems. He was just getting his life back together when, in November last year, his heart failed him. "My doctor told me, 'You've got a choice: You can work or you can live,' " he said.

Robert Boyer retrained in computers after the plant closed. But tech companies told him they wanted five years' experience, not a certificate from a six-month course. So he works for $11.50 an hour at Home Depot, using the wisdom of four decades as plant electrician to help customers pick light bulbs for their remodeled kitchens.

Boyer turns angry at any suggestion that the jobs picture is not that bad. "When these guys get on the boob tube and say there's jobs out there, you just gotta go out there and get them, it makes me want to go out there and grab them by the throat and say, 'Where? Where are the jobs at?' "

Slipping Away at Circuit City

Ask Richmond's leaders, and they'll say the jobs are in infotech, biotech, nanotech and other kinds of tech yet to be conceived. "People have the impression that Richmond is a good-old-boy town. And we do have some old money here. But that money is going to build the new economy," said Robert J. Stolle, executive director of the Greater Richmond Technology Council. "Tech is the backbone of the Richmond economy."

One home-grown company seems to capture in its name Richmond's most deeply held ambitions: Circuit City. Born in 1949 to sell television sets to the masses, its existence attests to the enduring strength of the middle class. And all those sales of computers and video games have created a lot of jobs. With a local staff of 3,072, the chain is one of the Richmond area's largest employers.

But the work has a tendency to disappear. In the eight years after he moved to Richmond to take an offer at Circuit City, Chuck Moore lost his job in that company three times, proving that a white collar and a college degree are no protection from the forces that have shifted the ground under blue-collar workers like Clark.

At 35, Moore spent the first nine months of 2004 desperate for a job as he watched his grip on the middle class slipping away. His story complicates the idea that to be comfortable in America today, all you need is a little more education.

Moore's roots are solidly blue-collar: His father worked as an electrician for the same company for 40 years. His stepfather drove a truck. His brother went to work at the Georgia Pacific plant. His mother still manages the local Shoney's. No one in his family had ever graduated from college.

For nine years after his high school graduation, he and his wife, Terry, worked full time to pay for Chuck to complete his degree at the Savannah College of Art and Design. With a knack for electronics and an artistic eye, he wanted to animate movies or video games. "I thought that walking out that door with that degree in my hand, I wouldn't have to look. I would have people coming to me," Moore said.

But while Moore was in school -- designing animation by day, manning a hotel desk by night -- the technology had continued to improve and so had employers' capacity to hire artists anywhere on earth. A bachelor's degree might have been enough before; now you needed a master's or even a doctorate.

Moore started looking for computer jobs instead. He and Terry both had luck at Circuit City.

Moore's first job disappeared when the company closed a tech support center and began moving its call center operations to India. His second job -- designing ads for the recruitment division -- evaporated when the tech bubble burst. His last job there ended in January when the database he built to manage marketing projects worked so well that the company no longer needed the help of a human.

Until this past weekend, his job search had gone like this: 320 résumés sent out, six calls back. Three interviews. No offers. At first, he had put his old salary on his résumé: $40,000. Later he switched to, "negotiable."

"I've already been willing to go down 10 [thousand dollars]. And if it goes much longer, I might have to go down 15. For a guy with a bachelor's degree to take $25,000, I might as well be working at McDonald's," Moore said in August. "There's something not right about that."

Yet on Saturday, when an animal hospital offered him work as a veterinary assistant -- for half what he had been making in his old job and no benefits -- he accepted immediately. He starts today, cleaning out kennels and, he hopes, learning how to use the X-ray machines or work in the lab so he can add to his repertoire of skills.

Moore has thought of going back for his master's degree. But that's hardly an option when he has a 3-year-old son, not to mention a mortgage and student loans.

Instead, to help make ends meet, he's been teaching computer basics at J. Sargeant Reynolds Community College, where his students can identify with their teacher's plight. One is a 20-year Army veteran who found that the best he could do without college was become a salesman at Lowe's, the home-improvement store. He was taking Moore's class so he could go to a four-year college in the fall.

"The job market for people like me is not that good," said the man, Albert DiCicco. "Maybe it is for people with bachelor's degrees."

Lately, DiCicco's predicament has been on the mind of Federal Reserve Chairman Alan Greenspan.

In June, Greenspan warned that a shortage of highly skilled workers and a surplus of those with fewer skills has meant wages for the lower half of the income scale have remained stagnant, while the top quarter of earners sprints away. Greenspan said the skills mismatch "can and must be addressed, because I think that it's creating an increasing concentration of incomes in this country and, for a democratic society, that is not a very desirable thing to allow to happen."

But it already has happened. The gap between the wages of a 30-year-old male high school graduate and a 30-year-old male college graduate was 17 percent as of 1979, according to analysis by Harvard's Murnane and MIT's Levy in their book, "The New Division of Labor." Now it tops 50 percent, with an even larger differential for women. Real wages for both high school graduates and high school dropouts have actually fallen since the 1970s. Meanwhile, wages for college graduates -- who make up only about a quarter of the adult population -- have soared upward.

The trend seems poised to continue. The list of the 30 jobs the Labor Department predicts will grow the most through 2012 includes high-paying positions such as postsecondary teachers, software engineers and management analysts. But nearly all require a college degree. There are also plenty of jobs that demand no college -- including retail sales and security guard -- but they pay a low wage.

And yet, as Moore's situation shows, a college diploma offers a porous shield when demand for a certain skill evaporates. College graduates have, in recent years, become an increasingly large percentage of the long-term unemployed. When they find new work, their salary cuts have been especially deep.

The optimists among economists -- and there are many -- point to trends that could help mitigate the pain of job losses and lead to future growth. One is the coming mass retirement of baby boomers, which could leave plenty of openings for those trying to break into the workforce. Economists tend to believe, too, that trade and technology will ultimately create new efficiencies that produce far more jobs than they destroy and leave everyone, on average, better off.

A Tough Climb

Scott Clark isn't sure if he will emerge better off. Spending day and night in the cab of a van was not exactly how he planned to live out his fifties and sixties, but he'll get by. He's even managed to save enough money to begin cutting his hours from 15 down to 11.

It's the end of the day now and as Clark battles the Richmond evening rush hour, his thoughts are turning to home. He's already fulfilled his part of the American dream, doing better than his parents did. "Everybody tells me I'm low class," Clark says, chuckling faintly. "But we're middle class. We're definitely middle class."

Yet his kids -- his son is 26 and his twin daughters are 21 -- still live at home because they can't afford places of their own. None of them went to college, although his daughters had 3.8 grade-point averages in high school and his son aced the SATs. They're saving to go back to school -- eventually. In the meantime, they work. His son lays carpet and his daughters stock shelves in a warehouse.

Will they be able to move up the economic ladder, just like he did? Clark ponders the question. After a long day, he is showing the strain, getting sleepy with his regular bedtime of 6:30 p.m. fast approaching.

"I really don't know. It's just too uncertain. It really is. There's nothing there," he says, turning completely serious for the first time all day. "There's nothing you can just count on. I wish there was."

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

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» Normxxx - "Who Will Buy The Cars?"

"Who Will Buy The Cars?"

The big news of the morning, the data point everyone had been on awaiting on tenterhooks, was the Nonfarm Payrolls Report. The market had been expecting net payroll additions of 145-158K, depending on your source. The reality was +96K, well below the expectations. Additionally net adds for August were revised down from 144K to 128K. The Unemployment Rate was constant at 5.4% despite the fact that we are seeing job growth that is consistently LESS THAN population growth. Employment-to-Population Ratios are doing no better than bouncing along the bottom.

On a more optimistic note, this morning General Electric (GE) met earnings expectations and guided to the upper half of the previously expected range for 4Q04.

Now, just these two pieces of data anecdotally point to an imbalance in the economy that points to a serious and growing inequality, and a subject that is now being more broadly broached in the media (e.g., by Steve Liesman, this morning in the Wall Street Journal, see below). Corporate profits as a percentage of GDP are running at or near all-time highs. Corporate tax payments as a percentage of GDP are running at or near all-time lows. And wages as a percentage of GDP are at their lowest levels since the mid 1960s. The point being that the lion's share of the benefits from all the monetary and fiscal stimuli now in the economy has accrued not to wage-earners but to corporate balance sheets. And, while PROFITS are a GOOD THING for the stock market, unless those profits trickle down and out to the consumer (worker) aggregate demand will continue to lag and the Output Gap will continue to grow, and in the long-run that will suffocate economic growth as deflationary forces will prevail.

We have a bottleneck now constraining the velocity of money in the economy. And unless that bottleneck is broken (i.e., unless we find a way to stimulate stagnant money out of corporate bank accounts and into investment in labor) the outlook for a sustainable economic growth path is not so bright.

My worry is that all the debt the government has incurred has led not to real economic stimulus but to a one-off transfer of wealth from the US Treasury to US corporations and the wealthy-- $10 million+. (And by the way, I sure hope that I'm wrong about this...but I suspect that I'm not.)

As Henry Ford is reputed to have said, "If our workers can't afford them, who will buy the cars?"

THE MACRO INVESTOR: Houston, we have a conundrum.

By STEVE LIESMAN, WSJ | 9 October 2004

Steve Liesman is the senior economics reporter for CNBC. Prior to working at CNBC he covered economics, monetary policy and accounting for The Wall Street Journal. He has also covered business and economics for the Journal in Russia. (He was the paper's Moscow bureau chief from 1996 to 1998.)

Growth Is There, So Why Isn't Bush Doing Better in the Polls?

The National Association for Business Economics tells us this week that growth this year should average a solid 4.3%. That's down from the 4.7% estimated in May, but it's still well above trend. Next year, these economists surveyed said growth should be a slower, but still healthy 3.7%.

Yet how is it possible that President Bush's ratings on the economy remain so low and even continue to fall? A Pew Research Center poll -- giving the president a seven-point lead -- showed that voters are skeptical about his handling of the economy. While the President beats Senator Kerry 48% to 41% overall, Mr. Kerry wins 46% to 40% on the question of who can best handle the economy.

Another poll by Rasmussen Reports showed voters rating the president's handling of the economy as good or excellent fell to 41% from 44% a week ago.

What does above-trend growth mean? If the gross domestic product calculation has any significance at all, above-trend growth should mean that substantially more than half the population is feeling pretty good about the economy.

You could posit some political reasoning for the dissonance between the economic numbers and the political polls. There are some Republicans who argue that the president and the campaign have done a poor job of promoting the strides the economy has made. I tend to agree, but the President only has himself to blame. Had he spent as much time promoting his economic record as he did lambasting Sen. Kerry, his economic rating might be better. Those are choices he has made, and he must live with the consequences.

Another political explanation is that voters' negative attitudes about the war in Iraq are spilling over into their survey responses about the economy. I've heard this a couple of times, but I can't understand why, then, that these attitudes don't spill over more completely into the overall rating of the candidate.

I think at its root the political question begs an economic answer. One way to get at this is to take apart that GDP number and see where the growth has gone. What you find is that much of the recent growth has been at the corporate level and hasn't yet trickled down to individual income or employee compensation.

Looking at government data during the Bush administration, my calculations show corporate profits have grown 50%, while employee compensation has grown just 10%. Put another way, of the total gains in national income since Bush took office, 31% has gone to corporations even though corporate profits represent just 11% of total national income. So corporate gains have been outsized.

Of course, this followed an historic crash in corporate profits of nearly 18% from the end of 1999 through the third quarter of 2001. So some bounce-back could have been expected. Also, the share of national income going to corporations or workers is never at the average.

Another way to look at this problem is which group -- workers or corporations -- has received the benefits of the productivity gains of the past several years. When the economy produces more with the same amount of input or cost, that puts money on the table. Typically, every dollar of added productivity splits 70% for workers and 30% for owners.

Real average hourly earnings have been down compared with a year ago for the past four months. Real weekly earnings have been down in four of the past five months.

A White House official, who asked not to be named, points out that the problem for them right now is one of phasing. Workers will get their share, he argues, but it just takes time. He points to another period, the mid-1990s, when productivity surged but inflation-adjusted wages lagged behind, only to accelerate in the latter half of the decade, giving workers their fair share and then some.

This makes some economic sense. Workers generally don't get their share until the labor markets allows them to demand it. And those conditions just don't exist.

How can that be with the unemployment rate at 5.4%, down from 6.3% in June 2003?

Tom Gallagher, head of policy research at ISI Group, points out that part of the decline in the unemployment rate has come from people dropping out of the work force. The so-called labor participation rate has fallen to 66% from a high of 67.3%, meaning a smaller share of the civilian, working-age population is looking for work. It's hovering near 15-year lows.

Mr. Gallagher offers that if the participation rate were at the older, higher level, then the unemployment rate would be around 7.2%. Even using a 10-year average participation rate yields a 6.4% unemployment rate.

So let's review the bidding. The economy is growing strongly, while President Bush's economic ratings have been weak and growing weaker. This could be because corporations are getting a larger-than-normal share of the new wealth created by the economy. The job market remains weak, making it difficult for workers to reap their share of the economy's productivity (new wealth) gains.

That leaves us with only one question: Is President Bush to blame for any, some or all of this?

I would offer that presidents generally get too much credit and blame for the economy. Productivity is one of the strongest forces moving the economy, and it's also one of the forces over which the president has the least control. They don't, as far as I know, determine the rate of growth of a computer's clock speed.

It's also not up to a president how those productivity gains are doled out. That, in general, is determined in the marketplace between workers and employers. I spoke earlier this week with Kerry campaign advisor Robert Reich and not even he blamed the Bush administration for the disparity in income distribution. (Mr. Reich says the president's failing is in not spending on higher education to educate workers and lessen the impact of technological change.)

Yet the president did propose a tax cut that lowered income taxes but rejected a tax cut that would have cut the payroll tax. That could have been more beneficial for job growth and helped workers reap more of the fruits of productivity gains.

What is far more important to consider is why companies, who have reaped all these profits, haven't spent more of them and hired more new workers? Is it concerns about the economic impact of the Iraq war and the growing costs of health care?

Answer for yourself who, if anyone, gets the blame for those problems.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Jas_Jain - Re: "Who Will Buy The Cars?"

In response to "Who Will Buy The Cars?" posted by Normxxx:

--

Good comments, and good posts, in general, XXX. Thanks.

Jas

-- posted by Jas_Jain

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» Normxxx - Re: Re: "Who Will Buy The Cars?"

In response to Re: "Who Will Buy The Cars?" posted by Jas_Jain:

You're welcome.

-- posted by Normxxx

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» Kirk - Re: "Who Will Buy The Cars?"

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In response to "Who Will Buy The Cars?" posted by Normxxx:

Corporate profits as a percentage of GDP are running at or near all-time highs. Corporate tax payments as a percentage of GDP are running at or near all-time lows. And wages as a percentage of GDP are at their lowest levels since the mid 1960s. …..

My worry is that all the debt the government has incurred has led not to real economic stimulus but to a one-off transfer of wealth from the US Treasury to US corporations and the wealthy-- $10 million+.

I think many of the companies I follow were severely hurt when they started to spend again during the dead cat bounce just before the 9/11 attack. Maybe it would not have been a dead cat bounce had there been no 9/11 shock, but I tend to think most bubbles deflate with a major bounce that fools many and 9/11 just made the pain worse.

All things being equal, that is if the economy just continues here at 3% to 4% growth, then we are nearly as under valued now as we were over valued in January 2000 by most any metric.

The cash in corporate coffers will eventually have to be put into circulation. MSFT will be paying a huge dividend in a matter of weeks that will be a fairly large fiscal stimulus. It could be the start just as MSFT lead the decline.

-- posted by Kirk

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» Normxxx - Re: Re: "Who Will Buy The Cars?"

In response to Re: "Who Will Buy The Cars?" posted by Kirk:

As you may recall, my long range macro-economic/socionomic nightmare is automation. Outsourcing is a red herring-- we are 'insourcing' several times as many jobs as outsourcing. But even China is losing several times as many jobs as it is gaining due to automation.

This is something I've lived with most of my life, as I was an instrument in the ill-conceived 'push' to automation in the '50s, and have worked on many automation projects of one sort or another since. The U.S. and the world were not ready for automation then, either sociologically or technologically, and the unions and the public (and outsized capital costs) managed to quash the nascent movement.

Today, my supermarket uses automated price scanners; many companies are using fully automated warehouses which, with RFID chips, will make the movement and storage of goods about as automated as an advanced oil refinery, which employs two people, in case one falls asleep or has a heart attack. (Both, however, are about to be replaced by remote sensors, with monitors in China.)

I think that once the transition has been made, the times will be as close to Utopia, compared with now, as now is, compared to the days of Charles Dickens. But, I really fear that transition-- done poorly, a lot of people will suffer needlessly. You can already see some of the early results from vast numbers of people who are willing to resist that change to the death. They cannot win; but they can make the transition terribly more painful and influence the sociological consequences for the worse.

Remember, Aldous Huxley's "Brave New World" was a sort of Utopia.

-- posted by Normxxx

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» Bill_Duffy - Where are the jobs?

I was talking to my daughter who graduated with a BS in Chemical Engineering from CU Boulder in 2002. She is the only one of her peers with a "real" job. She is working as a process engineer for a very large biotech firm.

However, her fellow engineering graduates haven't fared too well. Their jobs include waiting tables, working in a "Womens center" at a university, selling real estate, and my favorite, with a new MSME degree: driving the ice cream truck selling ice creams. The rest are in graduate school.

It's one thing to tolerate unemployment among the least educated, but when engineering graduates can't find jobs, Bush's panacea of "more education" won't solve the problem.

Comments?

-- posted by Bill_Duffy

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» Fred2000 - Re: Where are the jobs?

In response to Where are the jobs? posted by Bill_Duffy:

"It's one thing to tolerate unemployment among the least educated, but when engineering graduates can't find jobs, Bush's panacea of "more education" won't solve the problem."

Bill... It's always good to become educated and no one can argue against it but it does little good in the near term when not only recent graduates can't get a job but engineers with a lot of experience can't get permanent employment in their respective fields.

The digital logic of the computer chip and its melding with manufacturing equipment makes it possible to get work done much faster, with greater consistancy and with less educated and skilled workers. Once programmed, these machines can produce the most intricate work even in third world countries.

Just look at the progress in the communication industry. Years ago, an operator was required even when placing a call to your neighbor. Today, it's possible to call anywhewe in the world with direct dialing and with more phone features than ever before. Without such automation, the number of operators would number in the hundreds of millions. Those jobs are not coming back.

We are in a new paradigm. Just what needs to be done with a large population when automation is so powerful is not yet a subject tackled in any serious political discussions. We still have the 40 hour week and havent made any changes in that regard for years. Perhaps automation has finally brought us that greater leisure time we all want but we're just unaware of it.

If people working fewer hours is a reasonable alternative, I'm sure that it will lead to some people not wanting to work at all while others continue to work as much as possible. This could change the way we look at full employment where perhaps a larger unemployment number will be the norm.... ??? We definitely need some good thinking to delve into this question.

That's why we need good leaders in this country. Many of our best minds are unwilling to run for office since it's such a cesspool. We need more than soundbytes to solve our problems.

-- posted by Fred2000

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» Normxxx - Re: Re: Where are the jobs?

In response to Re: Where are the jobs? posted by Fred2000:

Many of our best minds are unwilling to run for office since it's such a cesspool. We need more than soundbytes to solve our problems.

Good thinkers will not be elected, unless they "can feel your pain."

-- posted by Normxxx

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» Normxxx - Hiring on the shelf

Hiring on shelf for now: survey

By Rob Kaiser | October 18, 2004

Hiring plans at small businesses have been scaled back, although small-business owners are still optimistic their firms will be able to grow soon, according to a semiannual American Express survey.

The most recent survey, conducted last month, found that 35 percent of small businesses plan to add employees in the next six months. That figure is down from 46 percent in April, although still above the 26 percent reading in 2002.

Seventy-four percent of business owners said they foresee growth opportunities for their firms in the next six months, which is similar to last year's figure and up from 64 percent in 2002, according to an American Express news release.

"Business owners are confident in their abilities to successfully grow their companies," Susan Sobbott, president of the American Express small-business group, said in the release. "With fewer facing cash flow issues, an increasing focus on investing in their companies and a broad willingness to take a financial risk to fuel expansion, business owners are well-positioned to grow."

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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