The Recession and the Vanishing Middle Class

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Three years after the 2008 financial crisis, gloom still lingers in the form of perennially dispiriting unemployment numbers. The recent uplifting news that unemployment dropped from 9% to 8.7% last month may actually be explained by exasperated workers abandoning their search altogether (unemployment estimates count only those actively seeking work).

An optimist might describe such hardships as temporary evils caused by a precipitous drop in home prices, the freezing of credit markets and a general loss of confidence among global financial institutions. Others, however, are not so sanguine.

In September’s issue of The Atlantic, features editor Don Peck observes, “One of the most salient features of severe downturns is that they tend to accelerate deep economic shifts that are already under way.” He further argues in an essay adapted from his recent book, Pinched: How the Great Recession Has Narrowed Our Future & What We Can Do About It, that our immediate difficulties are merely the fruiting of some long-term negative trends.

“Arguably the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing out of the middle class,” says Peck.

He is hardly alone in this belief. Many who have studied the growing disparity of job opportunities in the U.S. find the gradual opening of global labor markets may be to blame for the corrosion of middle class job security. Michael Spence, a Nobel laureate and former dean of Stanford Graduate School of Business, has conducted extensive research into the area of globalization and its effects on employment, finding that free trade arguments which hold up productivity gains largely ignore its devastating impact upon middle class employment.

Writing in Foreign Affairs last March, Spence argued that since 1990, job gains in the U.S. have been concentrated within the non-tradable sectors—those which cannot be outsourced (healthcare, retail).

Conversely, the few tradable sector jobs that have withstood the allure of cheap foreign labor are confined to high value-added jobs in which Americans still retain a comparative advantage (graphic design, finance). Unfortunately, these jobs are unavailable to all but the most highly-skilled, highly-educated subset of Americans.

Of course, most Americans—especially those in the middle class—are intuitively familiar with these trends. Few of those who have lost work to low-wage workers overseas will hesitate to illustrate the role China has played in their misfortune.

Nevertheless, many Americans still cling to ideology when seeking to explain growing disparities of wealth. Free-market purists will scramble for explanations for why free trade cannot be the culprit. As the epitome of laissez-faire capitalism, free trade is cited as a way to increase productivity. The problem is those increases are shared by a shrinking portion of the population.

To be sure, our current economic condition is due to the successive implosions of highly overleveraged, unregulated financial institutions. But to focus on this while ignoring the ever-widening hole opening up beneath our struggling middle class would erase any hope for economic recovery or any sense of social and economic justice.

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