Middle-class prosperity lags amid a boom

It's boom time in the United States. "As good as it gets," some observers maintain.

But the American middle class is doing only so-so in its drive for greater prosperity.

That's what economists say as the economic expansion steams along in its ninth year. If it continues into next year, the expansion will become the longest upturn ever, beating the Vietnam War recovery.

"The average American's income continues to be allocated mostly to the necessities of life," says Lynn Franco, director of The Conference Board's Consumer Research Center in New York.

Those at the top of the income ladder are doing super well.

Ms. Franco finds that the 10 percent of all US households with annual earnings in excess of $100,000 enjoy more than 70 percent of the country's discretionary income - money not needed for food, clothing, housing, and taxes.

Pay of corporate chief executives has risen 481 percent in current dollars from 1990 to 1998. In the same years, worker pay rose only 28 percent, or 5 percent after inflation.

"A decade of executive excess," charges a study by two liberal institutions, the Institute for Policy Studies, Washington, and United for a Fair Economy, Boston.

The annual compensation of the CEOs at the 365 largest US corporations in 1998 was 419 times the pay of average factory workers. That's about $10.5 million on average compared with $25,000.

Financial pages of newspapers often report on young founders of Internet companies reaping fortunes when their firms make initial public offerings of stock.

At the bottom of the income scale, a strong demand for workers and the rise in the federal minimum wage have boosted pay nicely in recent times.

"The strong economy of the past few years has lifted the fortunes of most working families." says the Economic Policy Institute (EPI) in Washington in its annual Labor Day look at incomes.

"I wouldn't say the middle class is suffering," adds economist Jared Bernstein, one of four authors of the EPI study.

Most middle-class people own more material possessions than their parents did - bigger homes, air-conditioned cars, a few color TV sets, mobile phone, VCR, etc.

Partly this is due to advances in technology and productivity, partly it arises from the rise in the average age of Americans. People pile up more goods as they age.

Yet middle-class hourly wages, adjusted for inflation, have not caught up to 1989 levels.

Still, working families have added to their income mostly by working longer hours.

The median income for all American families - with as many families with lower incomes as those with higher incomes - declined from 1989 to 1994. Then it began to rise again, standing at $44,468 by 1997. That was $300 above its 1989 level in real terms.

This median was bolstered by extraordinary gains at the top and good gains at the bottom. In the middle, incomes were relatively stagnant.

Here are some EPI numbers:

*The inflation-adjusted hourly wages of middle-wage men were lower in 1999 than in 1989, before the last recession. These are people making $36,000 to $54,000 annually.

*Middle-wage women fared better, with their mid-1999 wages up 3.4 percent after inflation above the 1989 level.

*The 62 percent of the work force with just a high school degree or some college have benefited little from the much-discussed "new economy" and a 1989-98 rise in productivity of 12 percent. Wages of high-school-educated men were 2.7 percent lower after inflation in 1999 than in 1989. For men with some college, wages were 0.5 percent lower. The comparable figures for women were plus 3.9 percent and plus 2.2 percent in mid-1999.

*The typical middle-income family worked 256 hours more in 1997 than in 1989.

*For those working full time, year round, the share of all workers with health-insurance coverage provided by their employers fell from 68 percent in 1989 to 64.7 percent in 1997. The fall was a bit bigger for those with a high-school education.

One problem for noncollege-educated workers has been a drop in manufacturing jobs because of rapid gains in productivity and, more recently, the Asian financial crisis. Some 491,000 of these high-paying jobs have disappeared since March 1998.

What can be done about stagnant middle-class incomes?

The Federal Reserve, the EPI economists urge, should resist raising interest rates further so recent wage growth can continue.

Also, the Fed and the Treasury should work for a lower-valued dollar so American goods are more competitive on world markets and the trade deficit shrinks.

"We shouldn't get beat up in the world marketplace the way that we are," says Mr. Bernstein.

Since middle-class families typically pay only 5.4 percent of their incomes in federal taxes (plus more in Social Security), a tax cut won't help much, Bernstein reckons.

As for the drop in health-insurance coverage, the EPI economists see a publicly financed insurance system as the remedy.

(c) Copyright 1999. The Christian Science Publishing Society