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If America Is richer, why are people and their families feel less secure. For the last 25 years, government and business have forced workers to take on mounting risk that was previously on the broad shoulders of business and government to the backs of working families like his.
The "Old School Way of Thinking" is that you work hard and give it your all, and the job will be there for you. It's different today. Over the last three decades, working families have faced ever- changing — and, for the most part, increasingly more perilous — risk- reward bargains.
Starting in the late 1970s, the nation's leaders sought to break a corrosive cycle of rising inflation and stagnating output by remaking the U.S. economy in the image of its frontier predecessor — deregulating industries, shrinking social programs and promoting a free-market ideal in which everyone must forge his or her own path, free to rise or fall on merit or luck. On the whole, their effort to transform the economy has succeeded.
But the economy's makeover has come at a large and largely unnoticed price: a measurable increase in the risks that Americans must bear as they provide for their families, pay for their houses, save for their retirements and grab for the good life.
A broad array of protections that families once depended on to shield them from economic turmoil — stable jobs, widely available health coverage, guaranteed pensions, short unemployment spells, long-lasting unemployment benefits and well-funded job training programs — have been scaled back or have vanished altogether.
Working Americans are on a financial tightrope. Business and government used to see it as their duty to provide safety nets against the worst economic threats we face. But more and more, they're yanking them away."
Nowhere is the risk shift of the last quarter century more apparent than in the widening swings in working families' incomes.
Although average family income adjusted for inflation has risen in recent decades, the path that most households have followed has hardly been a steady line upward — the historical norm for most of the post-World War II era. Instead, a growing number of families have found themselves caught on a financial roller coaster ride, with their annual incomes taking increasingly wild leaps and plunges over time.
In the early 1970s, the inflation-adjusted incomes of most families in the middle of the economic spectrum bobbed up and down no more than about $6,500 a year, according to statistics generated by the Los Angeles Times in cooperation with researchers at several major universities. These days, those fluctuations have nearly doubled to as much as $13,500, the newspaper's analysis shows.
This growing volatility — and the rising risk it signals — has cut a wide swath. It has touched families from the working poor to those, like the Fredos, near the top of the earnings pyramid. The shifting of risk, in other words, is proving to be a democratic phenomenon."On the whole, we have moved toward a freer market, a more
competitive economy and a richer one," said University of Chicago economist and Nobel laureate Gary S. Becker. "There has been a shift toward people taking more risk on themselves … and the economy has gained for it."
But there is another, less sanguine way to view what has unfolded.
The more that a family's income fluctuates, the greater the chance it will be caught in a downdraft when a crisis — such as a layoff, divorce or illness — strikes. Then, it can be extremely tough to bounce back.
Over the last three decades, working families have faced ever- changing — and, for the most part, increasingly more perilous — risk- reward bargains.
During the 1970s, families in the economic middle
But the story during the 1980s and early 1990s was basically the reverse. The volatility of families' income nearly doubled to as much as 30% a year. But now, instead of growing amid all the ups and downs, average family income dropped at an annual rate of 0.3% in the 1980s and an even steeper 2.3% in the early '90s. The bottom line: more risk for less reward.
Although volatility remained high in the late 1990s, with typical annual swings of as much as 27%, incomes finally began to grow again, improving families' odds of being able to get ahead. But the good times didn't last. Since 2000, incomes have reversed course and fallen about 1% a year, according to recently released census figures. In other words, things are back to the unattractive equation of more risk for less reward.
A separate analysis by Hacker, the Yale political scientist, found even more dramatic changes in income swings. In a study published in May, Hacker and a colleague reported that income volatility among households in the University of Michigan database had more than doubled between 1973 and 1998. The pair concluded that at its peak in the mid-1990s, volatility was roughly five times greater than in the early 1970s.
"All other things equal," added Moffitt, who assisted The Times with its analysis, "rising income instability suggests that families from the working poor to those fairly far up the income distribution are bearing more economic risk."
Employers Break a Bond
For most of the post-World War II era, Washington had a partner in helping to shield working families from risk: corporate America.
Businesses considered themselves duty-bound to provide stable jobs and strong ties to employees, cushioning workers against the vicissitudes of the economy.
Employers must find ways "of protecting the individual against the more damaging effects of inevitable change," Standard Oil of New Jersey President Eugene Holman said in the late 1940s. "So far as the management of my own company is concerned," he added, "we have formed the habit of thinking in terms of … lifetime employment. That is our goal."
For decades, employers delivered on the promise of job security. "The workers of our parents' generation typically had one job, one skill, one career — often with one company," Bush said last month at the Republican National Convention.
Beyond that, businesses erected a bulwark against the risk of illness by raising the number of workers with employer-provided health insurance from 1.5 million before World War II to more than 150 million. They helped families deal with the economic costs of death by giving life insurance to 160 million of their employees, up from 9 million. And they offered seemingly ironclad protection against the insecurity of old age by boosting the number of workers with pensions from 4 million to 44 million.
But like the government's safety net, corporate America's began to fall apart in the late 1970s — shifting still more risk onto working families.
Twenty-five years ago, almost 40% of
the nation's private full-
• A similar shift is underway in health insurance. As recently as 1987, employers provided health coverage for 70% of the nation's working-age population, according to the Employee Benefit Research Institute in Washington. By last year, that had dropped to 63%. The change translates into nearly 18 million people who would have been covered under the old system scrambling to make their own arrangements. What's more, even when employers continue coverage, they increasingly push more of the costs onto employees. Since 2000 alone, employers have raised the premiums their workers must pay by an average of 50%, or about $1,000 a family, according to a recently released study by the Kaiser Family Foundation and the Health Research and Educational Trust.
• When it comes to job security, employers have largely broken the bond they had with workers. A late 1980s study by the Conference Board, a business research group, found that 56% of major corporations surveyed agreed that "employees who are loyal to the company and further its business goals deserve an assurance of continued employment." A decade later, that number dropped to just 6%.
• As a result, people are increasingly likely to be bounced from their jobs, with ever more severe financial consequences. In 1978, middle-aged men could expect to be with the same employer for 11 years, according to Bureau of Labor Statistics data. That's now down to about 7.5 years. Since the 1970s, the average length of an unemployment spell has risen by 50% to almost 20 weeks. The economic damage done when someone is laid off and his or her job is eliminated also has grown — even for those with college degrees. Princeton University economist Henry S. Farber recently found that college graduates laid off in the early 1980s suffered a 10% decline in income through a combination of forgone pay hikes from the old job and lower wages once back to work. In the last few years, laid- off college grads were taking a far bigger hit of 30%.
"For almost a century, business and government worked in tandem to expand the economic protections afforded working Americans through social insurance programs and career employment," said University of Pennsylvania economist Peter Cappelli. "In the last 25 years, we've stripped most of these away."
For a growing number of people, Cappelli said, the
Two Incomes, More Debt
Like Ron Burtless, millions of Americans have relied on two factors to help them handle the heightened risks of the last 25 years: the entry of women into the paid workforce and borrowing.
Today, more than 70% of mothers work outside the home, compared with less than 40% in the 1970s. Although women's arrival in the full- time workforce has been driven by forces as disparate as feminism and the triumph of brain jobs over brawn, their influx could hardly have come at a better time for millions of working families. It has provided households with the insurance of a second wage earner in case anything happens to the first.
Yet women's employment also has meant new costs — for day care, extra cars, more meals out. And most families have treated the additional income not as savings to be set aside in case of emergency but as a means of raising living standards.
An analysis of two decades of the government's Consumer Expenditure Survey, Washington's tally of what Americans buy, shows that the fraction of spending going toward big-ticket items such as houses, cars and schools has increased to more than 50% as the number of earners within families has grown.
The situation "puts families in a bind,"
said Raj Chetty, a UC
In other words, people have ended up leading lives that are both more prosperous and more precarious.
To help cope, many Americans have borrowed. Arguably, borrowing has become for this generation what unemployment compensation, the GI Bill and government-guaranteed mortgages were for a previous one — a way to tide over one's family during bad times and reach for a better life.
The traditional measure of household debt —
calculated as a
Economists and policymakers have generally applauded
the growth of borrowing as a boon to the economy and a blessing
for average Americans. They have portrayed the extension of credit
But even upbeat commentators such as Dean M. Maki,
a former Fed
The borrowing boom has already produced one disturbing
trend — a
allowed bankruptcy to become commonplace in America," said
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