Introduction
Because of low wages, the middle class in the United States has been shrinking since the late twentieth century and into the twenty-first century. As a consequence, society is split into two ruling classes: (the haves) and (the have nots).
Historical Trends Affecting Middle-Class Incomes
Historically, three trends have affected middle-class incomes: how productivity has risen, how wealth is spread, and how many workers are in the labor force (Furman, par 3). This paper reflects on the problems that middle-class employees encounter in all three fields.
Stagnation of Minimum Wage
As a result of the government policy to stagnate the minimum wage, many working people in the middle class face the problem of staying in the same salary class for long periods of time. Mishel (1) notes... by 2002 and 2003, real wages and compensation stagnated for most workers...( This policy has been in use for a long time, even in the hard financial times that followed the 2008 economic crisis in the world which highly affected the middle class. Consequentially, many people have not had an increase in the level of disposable income to enable them to cater for all their needs in these economic times when the cost of living has drastically gone up. Many middle-class families do not have enough money to cater for all their basic needs, such as food, decent housing, and shelter. In addition, they cannot afford to invest or accumulate savings to cater for their future needs. This has led the society to have a middle class whose future is threatened and uncertain.
Loss of Jobs by the Middle Class
In addition, policies in the US have led to the loss of jobs by the middle class. For instance, there are some corporate policies that were implemented after the 2008 financial crisis that are highly unfavorable for the middle working class. Jobs that were lost during this crisis were never recovered since corporate policies completely eliminated them to help companies cut operation costs. Even more, some companies moved from America to other countries that have favorable conditions to enable them to carry out production at cheaper costs. Furthermore, other organizations invested in the use of technology instead of manpower leading to massive job loss.
Financial Deregulation
Since the 1980s up to date, the government runs on a policy of financial deregulations. This has had a negative effect on the investment power of the middle class. Deregulation of the lending sector has led to cheating by lenders so as to gain high profits from unsuspecting middle-class customers. As a result of the stagnation of the minimum wage, families have turned to borrowing as a way of meeting their basic needs and paying for medical bills by using credit cards. Borrowing lowers the rate at which workers accumulate wealth and save some of their income for future use because the little income available is used to repay debts that have high interest rates. Some families have even filed for bankruptcy because of the heavy debt burden facing them.
Impact of Trade Agreements
The economic policymakers have been seeking solutions to the problems in the economy today through the signing of trade agreements with other countries to create free trading areas. However, this has posed a threat to the middle class since it has led to the loss of millions of jobs. After the creation of free trade areas, multinational companies come into the country seeking cheap labor from the middle class. They pay poor salaries to workers with long working hours, where the work is done under poor conditions. Unlike other countries like India, Japan, and China, the government has not yet put any measures in place to protect its citizens from such exploitation. On the same note, there has been a loss of jobs. The creation of free trade areas has led to an influx of cheap goods from countries like China that compete with the products of American companies, reducing their profitability. Henceforth, these countries lay off workers so as to be able to remain in business by reducing their operation costs (Traub & McGee, par 12-18).
Policies in the Labor Market
In the labor market, the government has brought policies that do not favor the growth of the middle class. First, the government has introduced budget cuts in recent years that have reduced the number of jobs available to the middle class. The public sector that used to offer millions of jobs to this class has been affected by the budget cuts. Further, tax policies in place favor the wealthy class at the expense of the middle class. In comparison with rich businessmen, workers with middle-income levels face higher cuts in the form of tax. Ehrig (99) states: "Two types of taxation, that have a regressive effect on the middle class, the income tax deduction for investment interest and the capital gains tax have disproportionately benefited the upper class." In the workplace, it is difficult for employees to join workers unions since employers threaten to close down if workers join unions and others are fired after showing open support for workers union. Given that the government is very slow in enforcing labor laws, employees violate employees of their rights. Subsequently, employees are unable to bargain for better wages and more benefits to help them improve their living standards. Consequently, a person remains in the middle class for a long time despite their hard work and efforts to get wealthy.
Educational Disinvestment
Policies in the country do not provide a platform for the middle class to improve on its productivity by investing in education. Notably, the government is slowly disinvesting from the education sector by providing limited funds to support college education. (Between the 1990 and 2009 years, real funding for per public Full-Time Equivalent (FTE) student dropped by 26.1 percent, falling from $8608-$6360) As such, many students were unable to fund their studies and dropped out of college. Currently, it is almost impossible to get a decent job in the US without a college degree. Therefore, the increasing cost of college education is affecting the current and future productivity of the middle class. As a result of all these unfavorable policies, the middle class has deteriorated into an extremely small percentage of the total population.
Recommendations
In order to reverse this negative trend that has led to the decline of the middle class, the government should invest in education to increase the capacity of human capital in the nation. It should provide adequate funds to enable students to complete their college studies comfortably. Secondly, the tax policies in the country should be revised so that they can be used to strengthen the middle class by providing some tax relief. Further, the government should create an environment that enables citizens to acquire and build assets for future security by formulating favorable investment policies. Finally, the government should come up with laws that protect the rights of workers to form unions. As such, the middle class will be empowered, which transforms into the growth of the economy.
References
Ehrig, Joshua, W., (2003). The Disappearance of the American Middle Class. Theses and Dissertations. Paper 793.
Furman, J., "What are the Key Factors Affecting US Middle-Class Incomes?" (2015). Council of Economics Advisers. World Economic Forum, 20 Feb 2015. Retrieved from http://www.weforum.org
Mishel, L., "Unions, Inequality, and Faltering Middle-Class Wages" (2012). Economic Policy Institute. Issue Brief 342, August 29, 2012.
Traub, A. & McGee, C.H., "State of the American Dream: Economic Policy and the future of the Middle Class". Demos. An Equal Say and an Equal Chance for All, 2013, June 6. Retrieved from http://www.demos.org.
