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The Mystery Of America’s “Schrodinger” Middle Class, Which Is Either Thriving Or About To Go Extinct

11/25/2014no responses

On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT’s report: “Falling Wages at Factories Squeeze the Middle Class.” Some excerpts:


For nearly 20 years, Darrell Eberhardt worked in an Ohio factory putting together wheelchairs, earning $18.50 an hour, enough to gain a toehold in the middle class and feel respected at work. He is still working with his hands, assembling seats for Chevrolet Cruze cars at the Camaco auto parts factory in Lorain, Ohio, but now he makes $10.50 an hour and is barely hanging on. “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.”


Even as the White House and leaders on Capitol Hill and in Fortune 500 boardrooms all agree that expanding the country’s manufacturing base is a key to prosperity, evidence is growing that the pay of many blue-collar jobs is shrinking to the point where they can no longer support a middle-class life.

In short: America’s manufacturing sector is being obliterated: “A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past.


Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions.


Pressured by temporary hiring practices and a sharp decrease in salaries in the auto parts sector, real wages for manufacturing workers fell by 4.4 percent from 2003 to 2013, NELP researchers found, nearly three times the decline for workers as a whole.

How is this possible: aren’t post-bankruptcy GM, and Ford, now widely touted as a symbol of the New Normal American manufacturing renaissance? Well yes. But there is a problem: recall what we wrote in December 2010: ‘Charting America’s Transformation To A Part-Time Worker Society:”


one of the most important reasons for lower pay is the increased use of temporary workers. Some manufacturers have turned to staffing agencies for hiring rather than employing workers directly on their own payroll. For the first half of 2014, these agencies supplied one out of seven workers employed by auto parts manufacturers.


The increased use of these lower-paid workers, particularly on the assembly line, not only eats into the number of industry jobs available, but also has a ripple effect on full-time, regular workers. Even veteran full-time auto parts workers who have managed to work their way up the assembly-line chain of command have eked out only modest gains.

All of this should come as no surprise: we have covered the gutting of America’s middle-class, and certainly the manufacturing sector, in the past.

What is however, quite amusing, if not shocking, is that just as the NYT was confirming what we have said for four years, Bloomberg came out with a piece extolling the renaissance that America’s 99%-ers are supposedly enjoying. To wit:


Lower-wage workers saw bigger pay gains over the past year than the highest earners, reversing the trend from earlier stages of the recovery. While the improvement is nascent and minimal, the plunge in fuel prices is magnifying the effects.


Fatter paychecks bode well for economic growth as families at the lower end of the wage scale are more likely to spend extra cash than their wealthier counterparts, who tend to squirrel some of it away. That means the luxury categories such as private jets that dominated sales last year are giving way to the more mundane, including televisions and restaurant meals.

Really? America’s middle class is earning more? Well, yes…. based on research by RBS and Goldman:


“For the first time, real paychecks of households in the middle class are not getting smaller anymore — they’re getting incrementally bigger,” said Guy Berger, a U.S. economist at RBS Securities in Stamford, Connecticut. “This puts a little more strength behind consumer spending because you’re not very dependent on a small core of very wealthy households to power the recovery.”


Total income for those making less than $12.50 an hour climbed 3.8 percent in the year through October based on a three-month average adjusted for inflation, according to a Nov. 13 report by Goldman Sachs economists. The gain, which takes into account hourly wages, the length of the workweek and employment, exceeded that by any other group and compared with a 2.5 percent increase for those making $45 an hour or more.

Their bottom line: “The advance among the lowest earners was paced mainly by a pickup in hourly wages, while those at the upper end benefited more from a longer workweek, the report showed.” See, on paper everyone is benefiting, just ignore the reality, which is this:


And then there is of course this:

What else does Bloomberg use to say the pain for the middle class if over:


Sentiment surveys are reflecting the improvement. Americans making from $15,000 to $25,000 a year have experienced the biggest jump in confidence in 2014 so far, according to data from the Conference Board, a New York-based research group. Those making more than $125,000 led the pack in 2013.


More jobs and cheaper gasoline are probably playing a role in lifting the average worker’s spirit. The unemployment rate dropped to a six-year low of 5.8 percent in October and payrolls are on track for their biggest gain since 1999, according to Labor Department data. Carpenter is among those benefiting. With a 25 minute drive to work each way, she was spending about $40 every week at the service station, she said. The drop in fuel prices has cut that to about $25 or $30. Combined with the raises, that means “I’ll actually be able to buy a little something this year” for the holidays, Carpenter said. “Last year I couldn’t.”


Stronger wage and salary growth is “essential to the macro outlook,” said Ellen Zentner, a senior economist at Morgan Stanley in New York. “You’ll get a more balanced consumer with spending across more income groups.”

Of course, there isn’t any actual wage growth. There is a drop in gasoline prices, an increase in low-paying temp workers, a surge in waiters… and of course the all-important aspect of the “recovery” – hope, if only for what little is actually left of America’s middle class.

So for all those – not in the 1% – who find solace that a Goldman spreadsheet says that are now earning more. Great. For everyone else, we go back to the words of Darrell Eberhart: “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.”

In retrospect, there really isn’t much of a mystery behind America’s “Schrodinger” middle class; there is however a mystery as to who pays to collapse the wave-function of reality, allowing such propaganda puff pieces, which in the vein of Obamacare, seem to rely on one thing and one thing only: the “stupidity” of the American voter.

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