Sign in
Become a MarketWatch member today
Rex Nutting
April 8, 2011, 12:01 a.m. EDT
View all Rex Nutting "º
"¹ Previous Column
Rep. Paul Ryan's magic job creation
First Take "º
Disney bets on expansion "” and itself
By Rex Nutting , MarketWatch
WASHINGTON (MarketWatch) "” The financial squeeze on working families is intensifying, as prices march higher while paychecks grow only sluggishly. Even with increased hiring over the past year, it's getting harder to maintain a middle-class living standard.
The squeeze on working families isn't anything new, but many families had managed to maintain their lifestyle by working longer hours or by taking on more debt. But those stratagems have run their course. Most women who want to work are already working, so it's harder to increase our working hours.
More debt isn't the answer either. After years and years of borrowing more and more, most families are now, by necessity, reducing their debt load.
The ongoing rise in oil prices shows no sign of letting up. John Lekas, manager of the Leader Total Return fund, says he expects crude to approach the range of $200 a barrel this year, and he discusses the consequences for investors and the world economy. Interview by MarketWatch's Jonathan Burton.
When families gather around the kitchen table at the end of the month to balance the checkbook, the news isn't good. The debit side is rising faster than the credit side.
Energy prices have risen at nearly a 40% annual rate in the first two months of the year. Food prices are up at a 10% pace. Tuition is up 5%, and health care is up 3%. All told, consumer prices for the working class were rising at a 6.7% annual rate. See the BLS data on inflation.
Things don't look any better on the other side of the balance sheet. Take-home pay, on average, fell at a 1.8% rate in February after adjusting for higher prices.
Americans aren't just facing an inflation problem; they are facing an income problem as well. If paychecks were rising faster than prices, as they did for most of the past 20 years, you'd be hearing a lot less about inflation.
Real earnings for both men and women haven't grown at all in the past 10 years.
The fact is, people who earn a paycheck have been getting squeezed for decades, and it's getting worse.
Even though hourly productivity has doubled since 1970, the real median annual earnings of men who work full-time have stagnated. The typical man who worked full time earned $48,000 in 2009, the same as in 1970, after adjusting for inflation. (The median means that half of men earned more, and half earned less.)
That statistic sugarcoats the reality, because fewer men are working full time now. When you look at all men, real median annual earnings have plunged by 28% since 1970, according to an analysis by Michael Greenstone and Adam Looney of the Brookings Institution. Read their paper on "Have Earnings Actually Declined?"
Families have coped with falling earnings for men by putting the women folk to work. In 1970, 40% of women over 20 worked for pay. The percentage of women with jobs rose steadily in the 1970s and 1980s, reaching 48% in 1980 and 55% in 1990. But that great migration from housewife to working woman has stopped. After peaking near 59% in 2000, the percentage of women who worked was fairly steady at about 58% until the recession hit. Recession aside, it seems as if most women who want to work are working.
Women not only went to work, they went to school in huge numbers. Instead of being stuck in pink-collar jobs such as teaching or secretarial work, educated women are now found in large numbers in every profession, including law, medicine, and business management.
As the result of greater participation and higher education, the real median annual earnings for women rose by about 25% from 1970 to about $36,000 in 2000. But earnings have stagnated since 2000 for women as well as men. Read the study showing stagnation in women's earnings.
Sometimes, medians or averages can mask the truth. If your head's in the oven and your feet are in the icebox, you're comfortable, on average. We often use medians or averages because those statistics are updated more frequently than more granular data, but sometimes we want to know how the top 10% is faring, or how a person in the exact middle is doing.
If we look at that kind of data, which is available only through December, we can see clearly what everyone already knows: The rich are getting richer, and the poor are getting poorer. And even those in the middle are falling behind after taking inflation into account. Read the BLS data on weekly earnings.
Over the past five years, earnings excluding bonuses of full-time adult workers in the top 10% have risen at an annual rate of 3.4% to $1,877 a week, according to the Bureau of Labor Statistics. In 2010, their earnings rose 5.4%.
By contrast, earnings of full-time workers in the bottom 10% have risen at an annual rate of 2.2% over the past five years to $375. That's right; 9 million full-time, adult workers in America are making an average of just $375 a week. And that's down $1 from a year earlier.
Earnings of full-time workers in the exact middle have risen at a 2.3% annual rate over the past five years to $768 a week, barely keeping pace with the 2.1% annual rise in prices over that time. Their earnings rose 1% in 2010, but prices increased even more: 1.4%.
We know inflation has accelerated since December, while earnings have flattened out. For families in the 10th percentile, or the 50th percentile, or even the 75th percentage, maintaining that working-class living standard is getting harder every week.
We have an inflation problem, true. But our income problem is even worse.
Rex Nutting is a columnist and the international commentary editor for MarketWatch.
Walt Disney Co.'s Shanghai expansion is a bold investment, writes Jon Friedman.
1:03 p.m. Today1:03 p.m. April 8, 2011
"Government #shutdown looms at midnight http://bit.ly/e4NwDC" 12:33 p.m. EDT, April 8, 2011 from MarketWatch
"RT @MKTWPF: Masters 2011 pits #Tiger against the young guns http://on.mktw.net/g50vjW" 12:10 p.m. EDT, April 8, 2011 from MarketWatch
"Johnson & Johnson to pay $70 mln in fines after being charged with bribery by SEC http://on.mktw.net/eCKGa8" 10:58 a.m. EDT, April 8, 2011 from MarketWatch
"Fed nears a tipping point on rate policy: Fisher http://on.mktw.net/eorYTX" 9:18 a.m. EDT, April 8, 2011 from MarketWatch
"U.S. stock indexes open with moderate gains, while oil surpasses $111 a barrel http://on.mktw.net/gBRHOM" 8:46 a.m. EDT, April 8, 2011 from MarketWatch
Money and Power
Small paychecks hurting working class
Media Web
Is the Economist too smart for America?
Ethics Monitor
Use market to improve public services
On the Markets
Read Full Article »