September 13, 2013 in City

Trickle-up economics drowns middle class

By The Spokesman-Review
 

Shawn Vestal
(Full-size photo)

Ten years ago, Kaiser gave up on its Mead plant.

The plant had been idled in 2000, but in 2003, the company formally stopped holding out hope for a reopening. If the sun had been setting on Kaiser, that was the year it dipped below the horizon.

Was that also a sunset for Spokane’s middle class? The decline of Kaiser marked a waning of solid, middle-class, family-wage jobs in the county. If it’s not sunset, it’s looking dusky out there for the middle class – both nationally and here – and the trends are woeful. Most incomes are flat or declining, and that holds true both before and after the recession.

“If you adjust for inflation, the average household in Spokane has roughly the same purchasing power they had in 1998 or 1999,” said Grant Forsyth, chief economist for Avista.

The growing gulf in incomes has been well documented nationally. Forsyth, a former economics professor at Eastern Washington University, has gathered data about the “hollowing out of the middle” in Spokane.

Forsyth divided the Spokane economy into fifths based on levels of “occupational pay” and looked at the data from 2000 to 2011.

Where did employment grow? At the bottom. The lowest-paying jobs – those paying $19,000 to $36,000 a year – showed the most growth, rising from 53 percent to 57 percent of all jobs. The top quintile – jobs paying more than $62,000 – grew slightly from 13 percent to 14 percent of the economy.

And the middle shrank. Jobs paying between $36,000 and $62,000 dropped from 34 percent of the economy to 29 percent.

Forsyth also documented the way the income pie is divided. The top 20 percent of households (earning more than $89,000 a year) brought in 46 percent of all Spokane’s income. The proportions get larger the higher you go. The top 5 percent of earners bring home almost 20 percent of all income in Spokane.

This is typical nationwide. A disparity in incomes, in and of itself, isn’t a bad thing, necessarily. But when it becomes extreme, or when economic gains or pains are concentrated and not shared, it can create a lot of social instability and political conflict, Forsyth said.

“You want people to feel like they have a stake in the system, and part of that is, do they see their incomes rising over time,” he said. “People’s willingness to go along with any economic or political system depends on the stake they’ve got in it.”

The disparity in income growth has expanded even further during the so-called recovery, according to research published last week by Emmanuel Saez of the University of California at Berkeley.

“From 2009 to 2012, average real income per family grew modestly by 6.0%,” according to Saez’s paper, titled “Striking it Richer: The Evolution of Top Incomes in the United States.”

“However, the gains were very uneven. Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. … In sum, top 1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover.”

These statistics reflect much of the experience that working people have seen in the past few decades. Administrative bonuses have gone hand-in-hand with layoffs and pay cuts. Executive salaries soar, and the self-rewarding cycle for the administrative class – executives collaborating on a system that pushes executive salaries ever higher – plows forward in any and all circumstances.

Saez’s paper makes this point explicitly: The long-term rise in income inequality derives, in large part, from a pattern of trickle-up economics.

“A significant fraction of the surge in top incomes since 1970 is due to an explosion of top wages and salaries,” he asserts.

Forsyth said the “bifurcation” in incomes has a lot to do with the intensity of our politics lately – deeply differing views of the relationship between the market and the government.

“We’re really in this place in America right now where we’re trying to grope toward a new consensus about what the role of government is,” Forsyth said.

Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com. Follow him on Twitter at @vestal13.

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