Columns: Seven Reasons Why The US And Canadian Middle Class’ Are Disappearing
Posted on 06 November 2011
Tags: Bad Government, christy clark, Depression, Middle Class Disappearing, Recession
By David Murray. This is an old post I did on my blog almost two years ago. The issue of the middle class seems to be even more in the news with the 99 percent and Take Back Wall Street-Bay Street movement going on in Canada and the United States.
1. Falling income: The pinch that many families feel comes from incomes that have fallen while other unavoidable costs have continued to go up. From 2000 to 2008, median household income after inflation was basically unchanged, the weakest performance since at least the end of World War II. And that was mostly before the recession. Economists estimate that once additional data are tallied, they will show that median real income fell by 5 to 7 percent during the recession. That’s a huge drop that seems unlikely to reverse itself anytime soon, since a weak job market means that even those who have jobs are far less likely to get raises. And many people have absorbed pay cuts or taken new jobs that pay a lot less than they used to earn. In Canada there has not been a real jump in the mean wage in the country since the early 1990′s. Many companies have had roll backs and three years of zero,zero, and zero increases.
Christy Clark and the BC Liberals have the lowest minimum wage in Canada , yet British Columbia has the highest cost of living.
2. Reduced savings net worth: When incomes fall faster than expenses, the first impulse is often to make up the difference by borrowing. But banks and credit-card issuers have clamped down on lending, leaving many Americans and Canadians no choice but to raid their savings to pay the bills. This has happened at the same time that home values have plunged. Many homeowners now have little or no home equity, and a topsy-turvy stock market has stabilized more than 25 percent below its peak values from 2007. The result is a net loss of about $12 trillion in Americans’ net worth over the past three years, according to the Federal Reserve–about $102,000 per U.S. household. In Canada , in many regions there is high house prices , coupled with a high cost of living , is putting more and more people on the streets in Canada than we have seen since the 1930′s. People are losing hope with our current Provincial and Federal governments ability to handle this crisis.
3. High healthcare costs. The sob stories trotted out by advocates of healthcare
reform ring true. Healthcare costs rose by 155 percent between 1990 and 2008, according to the White House’s middle-class task force, while median household income rose by just 20 percent. That means medical costs take an increasing share of take-home pay for virtually every family. A separate study from 2009 found that 62 percent of all personal bankruptcies stemmed from medical problems that overwhelmed family finances. Even if Washington passes healthcare reform, rising medical costs seem likely to pressure the family budget for years, forcing many to simply spend less on other things. This has also affected Canadians. More and more pressure is being put on ordinary Canadians as we see a stronger push for a two-tier pay as you go (or can afford) health care system. Hence making it less affordable for basic health care.
4. Child-care/elder-care expenses. Many families have maintained their standard of living because both parents work. Between 1990 and 2008, for example, hours worked by both parents in a typical middle-income family increased 5 percent; in a middle-income single-parent family, hours worked spiked by 13.4 percent. That leaves less time for taking care of kids, aging parents, and anything else that needs attention–and the added costs of paying somebody else to do it. Data from the recession may show that child- and elder-care costs have eased as more people find themselves involuntarily stuck at home. And as Americans and Canadians simplify their lives, some moms and dads may decide that it makes sense for one parent to spend more time at home instead of working to pay for a bunch of stuff the family doesn’t really need.
What is really sad is that we see the people that have built our country, paid for a lot of our infrastructure with their tax dollars are now having the squeeze put on them like never before. Just a few years ago if “Jack” or “Jill” had 1 or 1 1/2 years to go before they retired. A lot of companies would try and find a way for them to finish their work career with dignity. Now many companies are targeting these older-workers. Giving them increased work loads. Trying to either make them quit early or perhaps even terminate them so they can get out of paying a pension or reducing their pension contributions. This only increases the Elder-Care expenses.
As far as child-care expenses go. We need to have in Canada an National-Child Care Strategy.
5. College costs. A typical family with two kids should sock away about $4,200 per year to pay for college. That’s a tall order. College costs have risen about 43 percent since 1990, nearly twice the rise in median income. And with federal education funds being axed, public universities are hiking tuition and fees. A budget crisis in California, for instance, has led to a 32 percent increase in tuition at marquee state schools like UCLA and Berkeley, with more increases likely. Private schools, meanwhile, are struggling with steep drops in their endowments thanks to the financial crisis and the housing bust, which trashed mortgage-based investments. The bottom line for many families is that they’ll have to take out bigger college loans, with students working more to pay for their own education. In Canada it is actually worse. There are up to 2-3 year wait lists , just to get the courses you want. This makes your time for graduation and stepping into the workplace in your late 20′s and early 30′s. Parents get ready for your kids not to leave the nest for a long time.
6. Housing costs. The cost of financing and maintaining a home soared by 56 percent between 1990 and 2008, thanks to the housing bubble that’s now deflating. Many families that bought a home near the peak of the market–say, between 2005 and 2007–are stuck with property that’s declining in value and in some cases worth less than the mortgage. That will continue to fuel foreclosures and the stress of making huge housing payments that the family income can barely cover. But the housing bust is helping bring prices back down to manageable levels for many families, one break for those who escape the recession with their household finances more or less intact. In British Columbia , where we have the highest housing costs in Canada. The highest cost of living. Yet we have the lowest corporate taxes in all of Canada and the United States. Yet Christy Clark and the BC Liberals have the 2nd highest unemployment in the country.
It is obvious giving Big Business tax breaks do not equal job creation!
7. False expectations. For the past 40 or 50 years, Americans and Canadians have lived by a series of unofficial tenets: A good education guarantees a good job, hard work will bring prosperity, and 40 years of 40-hour-a-week work earns a comfortable retirement. Then, maybe; now, not so much. Workers who believe that somebody owes them a comfortable life just because they try hard are risking bitter disappointment in a Darwinian economy, where there are likely to be more losers and fewer winners than we’re used to. The winners will be those who learn how to adapt, expect nobody to give them anything, and are prepared to work harder in the future than they did in the past. That’s how it was in the United States and Canada before anybody ever heard of the middle class, and it may be that way for a while again. The real middle class–the true bedrock of the nation–will be able to handle it.
Stats came from the United States and Canadian economic history and development.