Salary squeeze threatens middle America

By some measures, fewer people are managing to stay in the middle class.

America's "jobless recovery" faded into history a year ago when the economy started to add jobs again after a brief recession. But the middle class is still feeling a squeeze - what Michael Alter calls the "pay less" economy.

He's president of SurePayroll Inc., a firm in Skokie, Ill., that services payrolls for some 13,000 small businesses across the country. His analysis of those payrolls shows businesses are hiring new people - but at lower pay.

"It's different from past recoveries. It's not normal," he says of this pattern of salary deflation.

His aren't the only numbers on worker salaries, and economists see some pickup in wages since May. But recent Census data confirm that the median household income - a level where half of US households earn more and half less - has fallen by $1,500 between 2000 and 2003.

Behind the salary slump that Alter sees is a broader challenge to America's middle class - the core of America's consumption-driven economy. As George W. Bush and John Kerry spar over who can best help ordinary Americans prosper, many workers are finding upward mobility harder to achieve.

Economists don't have a standard definition for the "middle class." But the percentage of households having a pretax income of between $25,000 and $75,000 - a group occupying roughly the middle half of Census income tables - has declined by 1.2 percentage points since President Bush took office, after adjusting for inflation.

In the same 2000-2003 period, those making less than $25,000 grew by 1.5 percentage points to 29 percent of households. Those making more than $75,000 declined by 0.4 percent to 26 percent of all households. These numbers were crunched by FactCheck.org, a project of the University of Pennsylvania's Annenberg Public Policy Center to examine campaign statements for accuracy.

The trends in wages are linked to the question of job creation. Even though the recovery may no longer be "jobless," economists say employers need to hire more vigorously - picking up the slack in a growing labor market - before workers will be able to command higher wages.

"These are not great times for the middle class," says Isaac Shapiro, an economist at the Center on Budget and Policy Priorities.

Many workers agree.

"My rent is up; gas prices are up," complains Miguel Aguilar, a banquet waiter at the Sheraton Universal in Los Angeles. His last wage increase was 45 cents an hour, smaller than in years past. The hotel now takes $40 a month from his paycheck for health insurance - and that could rise once ongoing labor contract negotiations are resolved.

Donald Wilson, a chef at the Century Plaza Hotel in Century City, Calif., charges that corporations are "squeezing the little guy and shrinking the middle class which can't live on these tiny salaries.... Jobs are disappearing while the CEOs are getting richer and richer."

Democratic candidate John Kerry is sounding a similar theme on the campaign trail. "Our great middle class is shrinking," he has said.

The group FactCheck.org says that charge is "looking a lot better" since the Census Bureau came out with its income figures last month.

Still, not everyone sees the economy struggling.

Martin Regalia, chief economist for the United States Chamber of Commerce, says it's not unusual for the median income to decline in a recession. And in 2003, the tiny drop in median income was statistically insignificant. Further, 2004 data is not yet available for household income.

The economy is "doing very, very well," he holds. And that should boost incomes.

"American workers are much better off now than they were a year ago," states Jerry Jasinowski, president of the National Association of Manufacturers.

New jobs are being created this year and that might be bolstering the middle class - even though the new job rate is at a slower pace than forecast.

Wages, at least, are now keeping pace with inflation. Since May, nominal wages have risen at an annualized rate of more than 3.5 percent, higher than the inflation rate, notes Heather Boushey, an economist at the Center for Economic and Policy Research, a Washington think tank.

Still, for the past 12 months, nominal hourly wages are up by 2.3 percent. And that's less than the 3 percent rate of inflation. So real wages are down in that period.

One problem is that the gains in overall national income lately have been going disproportionately onto corporate profit ledgers rather than into worker paychecks, finds economist Isaac Shapiro.

In the 2-1/2 years of the current recovery, wages and salaries have received just 15 percent of the overall increase in national income. That compares to an average of 49 percent in other recoveries since World War II. Meanwhile, corporate profits have received 47 percent of the income increase, compared with an average 21 percent in other recoveries.

John Sweeney, president of the AFL-CIO, says the middle class is being damaged by changes in overtime rules, increased numbers of workers not covered by health insurance, reduced benefits, and outsourcing of jobs overseas.

The future of the middle class hangs heavily on whether jobs being created today pay poorly or more handsomely. Job quality has become a hot issue in the presidential campaign.

In the large and economically diverse state of California, an "hourglass economy" is developing, with more growth in high-wage and low-wage jobs than in middle-income jobs, according to a recent study by the Berkeley Center for Labor Research and Education. People in the middle have kept up only by having two incomes per household.

Staff writer Daniel B. Wood contributed to this report.

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