Middle-Class Labor in US Feels The Squeeze as Wages Decline

In Decatur, Ill., locked-out factory workers square off with corporate managers in a battle over cost-cutting and new labor practices

A SUGARY smoke often flits down a gritty street of padlocked clothing stores and supermarkets to the outskirts of Decatur, Ill., before vanishing over the surrounding sea of corn. To many Decatur workers, the fading sweet scent is a bitter reminder of the secure middle-class jobs they have lost.

The smoke swirls from an A.E. Staley Manufacturing Co. mill that refines cornstarch into sweet syrup. Since Staley locked out 735 unionized employees in a contract dispute in 1993, the candy-store aroma is all the workers have known of the company's profits.

National labor leaders call Decatur the ''War Zone.'' In recent years some 3,900 unionized workers have fought what they call a struggle to defend the living standards of middle-class labor against three large corporations, including Staley, that are aggressively cutting costs.

To executives at Staley, a subsidiary of London-based Tate & Lyle PLC, the real war is against rival companies. Staley is engaged in a campaign to modernize and streamline production, and blunt a challenge from competing corn millers. The workers it locked out have opposed the campaign, according to Staley executives.

The plight of Staley labor is extreme. But it illustrates many of the forces that have dimmed economic prospects for millions of less-skilled industrial workers, who have long been the backbone of American labor.

In recent years, workers at Staley and elsewhere have watched the average real wage shrink nationwide even as some economic gauges signal prosperity.

Since 1975, the real hourly wage for the average American worker has fallen 11 percent, according to a report last month by the Competitiveness Policy Council, a bipartisan federal commission. Meanwhile, the proportion of households earning from $25,000 to $75,000 shrank from 52.7 percent to 47.1 percent.

The proportion of poorest households, those making below $25,000, rose during the same period from 39 percent to 40.3 percent, according to US Census Bureau statistics.

By some measures, the gulf between rich and poor is wider in the United States than in any other industrialized country. During the past two decades, for example, the richest 5 percent of households have seen their share of national income grow by about one-quarter.

The middle class, meanwhile, has stagnated, with after-tax income rising just 1 percent, according to the Center on Budget and Policy Priorities in Washington, D.C.

Numerous economists - from Wall Street to the Clinton Cabinet - warn that the stagnation of middle-class wages and the growing gap between rich and poor are among the most profound social problems facing the nation.

''If we don't do anything about these trends we are going to find ourselves in a highly polarized society,'' Labor Secretary Robert Reich told the Monitor. ''A democracy cannot long endure without a strong middle class,'' he said.

Leading corporate economic analysts have also sounded a warning. ''Unless corporate America begins to shift the burden of restructuring and competitive revival away from the worker, and employees start to get their fair share of the rising productivity and profitabilty dividend, there is a growing risk of growing social, political, and economic tension,'' says Stephen Roach, chief economist at Morgan Stanley & Co.

''Washington and the financial markets could well get blindsided if they don't heed the warning signs of a potential wave of worker backlash,'' he adds.

Indeed, Mr. Roach predicts the problem of wages is likely to be a ''defining issue'' of the 1996 presidential campaign. Already, the politics of class division underlies much of the skirmishing now occurring in Washington, from battles over budget-balancing to Democrats' calls to protect Medicare and Medicaid from GOP reductions.

Economists differ over why workers have not fully shared in the profits even as businesses flourish and whether wages will significantly recover soon. They note, however, that there is a historical pattern of hardship for workers in times when new technology, innovations in management, expanded trade, and other forces cause a restructuring of the economy. At such times, wage increases can often lag behind productivity gains.

Some economists believe that government and, to an extent, businesses themselves should help cushion workers against the disruptions caused by a changing economy. They support raising the minimum wage and expanding job retraining.

These economists note that federal statistics show productivity gaining 2 percent annually this decade, far outstripping wage growth. They criticize management for funneling profits toward shareholders and advanced technology rather than to workers.

Stagnant wages are ''part of a broader trend that labor's position is becoming weaker in the economy,'' says Robert Gordon, a professor of economics at Northwestern University in Evanston, Ill.

Some economists, however, argue that the minimum wage and public job retraining retard efficiency and growth. If market forces were to play themselves out, they say, wages would recover as workers encountered strong incentives to retrain and businesses had more capital to invest in new factories and create new jobs.

The same economists say declining wages have not diverged beyond their historical pattern in relation to productivity. They note that the Commerce Department plans to revise its productivity figures downward next month.

When it comes to wages and productivity, ''we are not outside the range of postwar experience,'' says Marvin Kosters, an economist at the American Enterprise Institute in Washington.

Moreover, he says, American businesses have invested heavily in technology in the past several years, building a potentially large source of pent-up, productivity-related wage gains for workers.

Indeed, there are suggestions workers might receive a windfall from productivity gains. While real wages have not returned to the levels of the late 1980s, they may be starting to push upward as a result of rising productivity, falling prices, and tighter labor markets.

According to a Business Week study, 70 percent of full-time workers are in fields that have seen real pay increases during the past year, as opposed to just 14 percent in 1994. Nonfarm productivity has risen 3.4 percent this year, oustripping by far the 1.9 percent gain of 1994. Unemployment stands at just 5.5 percent, far below the level where wages historically have started to pick up.

Despite hints of a rebound in wages, economists from across the political spectrum agree that blue-collar wages and jobs have taken a hard hit from the introduction of new technology and competition from low-cost foreign labor.

Throughout the United States, businesses simply need hourly factory workers much less than in prior decades. Middle-class Americans who hope to revive living standards must push for better high school and technical education and learn skills that meet the needs of business, economists say.

For now, workers must rely on themselves to upgrade their skills. Unions are comparatively weak and Clinton administration proposals to step up federal job training have stumbled in the budget-slashing Congress.

Decatur workers largely blame the erosion in living standards on global corporations like Tate & Lyle, rather than on larger economic forces. Although the hardship in Decatur is stark compared with other areas of the country, many US workers have suffered to a degree from the practices of increasingly competitive and mobile businesses. Tate & Lyle, the world's leading sweetener processor, is just one of many corporations capitalizing on the increasing ease of moving technology, money, information, and goods around the world to find low-cost production sites.

As the companies shake loose from national regulations and operate worldwide, their interests are less tied than before to the needs of particular factories and host communities. Many firms offer less compensation and job security than before, especially to lesser skilled factory workers, according to Reich and other political economists.

Since staging a hostile takeover of Staley in 1988, Tate & Lyle has slashed the payroll, held down wages, and invested more than $200 million in new technology at the Decatur plant. Productivity, profits, and dividends have climbed. After the company locked out unionized workers in Decatur in June 1993, output shot up to a record level with one-third fewer employees.

Tate & Lyle's dividends and pre-tax profits have jumped more than 140 percent each since 1988, securities analysts say. During the same period, however, inflation has eroded the wages of Decatur workers, according to figures in contracts disclosed by the United Paperworkers International Union. Before the lockout, the average annual wage for a full-time, unionized worker was about $29,000, the union says.

''It is a terrible injustice that the company is prosperous but is not sharing that prosperity with its workers,'' says Decatur City Councilman Michael Carrigan.

Prior to the lockout, workers rejected the proposed contract because it required 12-hour rotating shifts and what they said was a weakened in-house safety committee and grievance procedure. It also gave management the power to replace workers at will with nonunion contractors.

J. Patrick Mohan, a spokesman for Staley, says the wages and other contract terms rejected by the union are similar to those accepted by hourly workers at other Staley factories and rival corn millers.

More broadly, some economists note that corporations like Tate & Lyle are responsible not just to workers but to their shareholders and customers as well. Some say aggressive cost-cutting by many American firms in the past several years has pared bloated payrolls, promoted efficiency, and eased the burden of excessive wages required by some unions.

For Decatur workers, such assertions offer little consolation. Should they fail to find agreement with Staley management, the locked-out workers would have to enter a job market comparatively cool to traditional assembly-line laborers.

''The workers in Decatur used to live in a world where their type of labor was relatively scarce, but today the type of jobs they perform have largely vanished and they are still trying to demand the same wage premium,'' says Barry Bosworth, an economist at the Brookings Institution in Washington. ''It's sad,'' Mr. Bosworth says, ''but American society can't try to shut its eyes to these trends.''

r First of two parts. Next week: How middle-class families are faring in Joliet, Ill.

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