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Ed Thomas has a house in Darien, Conn., four cars, an over-achieving son at American University, and 20 years behind him as a middle-manager, earning six figures a year. He prefers not to give his age, but admits to being over 55, and the only thing he hates to admit more than that is how long he’s been out of work, which is now about 18 months. He is no longer eligible for unemployment. He can’t contribute to his son’s college tuition, which bothers him. He once had a 401(k) and investments and a little bit of money saved, but no more.
He is on the verge of expulsion from the middle class.
“I’m at the point where I’m almost out of money,” Thomas says. “It’s a constant stress. Some days I don’t feel like getting out of bed.”
In March 2009, Thomas was let go from his job in pharmaceutical sales after 18 years with the same company. Now that his unemployment has run out — he was getting $584 a week — he is hoping to sell his house for around $600,000 and maybe move to upstate New York, where the cost of living is profoundly cheaper. Instead of planning for his retirement and doing all the things he was set up to do — play golf, book a cruise, maybe consult at his leisure — he is now a “99er,” one of the 2 million people in America who have been out of work for over two years and have exhausted their unemployment insurance. (This past week, President Obama called for another extension in jobless benefits to the long-term unemployed; this wouldn’t apply to pre-existing 99ers such as Thomas, but is aimed at preventing another cascade.)
According to the most recent data, among men aged 55-64, 1 million are officially unemployed, with 5.2 million designated “not in the workforce” — a catch-all category that includes the retired, those who opt not to work and those who want to work but are so discouraged they’ve stopped looking.
These older workers are mirrored by another group, the so-called “lost generation” of this recession. According to a new study by the Census Bureau, only 55.3% of people ages 16-29 were employed in 2010 — the lowest number since WWII. Among those aged 25-34, almost 6 million were living with their parents, with men 50% more likely to do so. They are delaying marriage — 44.2% of couples in this demographic married in 2010, compared with 57% in 2000. Nor are they making long-distance moves (only 4.4% did, another low not seen since WWII) or buying homes (67.3% did in 2006, compared to 65.4% in 2010).
“I’m very concerned about the young men,” says Peter Francese, demographics expert at Ogilvy & Mather. “For some reason, men under 35 have decided not to go to college. These men who would normally begin their careers, get married, build a family — they’re not.”
Both of these demographics are in danger of becoming something unprecedented in our country’s history: millions of formerly middle-class workers who will emerge from this recession on an inexorable downward trajectory, the new permanent American underclass.
Heidi Shierholz, a labor market specialist at the Economic Policy Institute, has called this recession “a big national experiment in stress.” She is deeply alarmed by its rapacious appetite and tenacious lifespan, and though economists have looked both to the Great Depression and the deep recession of the early 1980s, in truth, there is nothing in history with which to compare it.
“We are in what is called ‘out of sample,’ ” she says. “Right now, the gap in the labor market is over 11 million jobs. To get back to where we were in 2007” — a 4.6% unemployment rate — “we’d need to create 280,000 jobs every single month for the next five years. “
Our current jobs deficit translates to five unemployed workers for every one position available. If you add in workers who are under-employed or who have stopped looking, however, that ratio jumps to 8:1.
“The jobs gap skyrocketed up through the end of 2009, and it’s held steady since,” Shierholz says. “If we just muddle along — if the economy won’t grow, won’t shrink — I don’t know how you define that as anything other than a permanent underclass.”
Though the gulf between the middle class and the rich in America has been expanding exponentially over the past 25 years, some economists believe that the recession may not be as causative of this divide as reflective of it. While the definition of “middle class” may be slippery — to a couple making $55,000 a year in the Midwest, a single person in Manhattan making $200,000 a year would likely be considered wealthy, though she would technically be middle class — its signifiers are not: A college degree, a well-paying job with benefits, vacation time, upward mobility, home ownership, marriage and kids, a college fund for the kids, who will hopefully do better than you did, and a comfortable retirement fund.
These things are rapidly becoming the province of the affluent.
“There has been a trend toward the erosion of the middle class,” says Till von Wachter, associate professor of economics at Columbia University. “There have been wage gains at the top and at the bottom, in the service sector, but it’s the middle that has been declining and stagnating.”
Over the past two years, according to Gallup, the only segment of the population in which daily consumer spending increased was among those making $90,000 and up; otherwise, it was static.
“We have seen a growth in families who are at near poverty, or at the threshold of living income,” says Bill Rodgers, professor of public policy at Rutgers and former chief economist at the US Department of Labor. “And this is not the folks at the lowest part of the education scale. Middle-income families went into the recession more vulnerable than they’ve ever been.”
New data released this week shows it’s worse than that. According to the US Census Bureau’s 2010 American Community Survey, the poverty rate nationwide jumped from 14.3% to 15.1% nationwide, with one out of 10 children living in deep poverty. “This is a historic high,” says Elise Gould, who specializes in poverty research at the Economic Policy Institute. “I was surprised. I didn’t think it would hit that.”
In New York, 1.6 million people, or one out of every five, now live below the poverty line — a 1.4% jump, higher and faster than anywhere else in the country. Wages haven’t stagnated — they’ve plummeted, with median household income here mirroring what it was in the 1980s, about $49,000. The yawning chasm between rich and poor in Manhattan is also larger than anywhere else in the country, with the top fifth making nearly $372,000 a year and the bottom fifth earning an average of $9,800.
So much has been made of the outsourcing of blue-collar jobs, but rarely is the plight of the white-collar, middle-class professional addressed. “There’s not a lot of empathy for the person who was making $80,000 a year,” says Victor Benoit, who runs free career counseling for the older, long-term unemployed in Connecticut. “I don’t think anything’s been proposed by this administration for them.”
The white-collar worker is just as vulnerable as the blue-collar one. For example, law firms now outsource much of the work that would go to a first-year associate — the drafting of wills or divorce documents — to kids in India who will work for $20 an hour. The medical industry does the same thing; chances are, your most recent labs have been read by some kid in Bangalore. Even when the economy recovers — five years from now, or 10 — what are the chances that any of these industries will want to hire educated American workers for more money? What are the chances even more of these jobs won’t be automated? What will the landscape look like in an economy that has, for years, done more with less?
“This is one of my biggest concerns,” says Leo Tilman, author of “Financial Darwinism” and a global consultant to investment firms, corporations and governments. “You have older professionals facing long-term unemployment, and young people who graduate and can’t find jobs, whose prospects are permanently impaired. I think we’re in trouble.”
Middle-aged workers who lose their job in a recession and are finally able to find another one can take 20 years or more to recover lost earnings, and those who enter the job market after a recession take from 15-20. There’s never been a study, however, on those middle-aged and younger workers who are unable to find permanent employment in the aftermath of a recession, because something like this has never happened before.
“The headwinds for current and future generations raise the odds of a structurally unemployed new underclass,” says Rodgers. “And if there’s another major national disaster or terrorist attack — anything that takes the economy off-line — it’s a recipe for disaster.”
Aside from when and how we emerge from this recession, the great unknown remains the fate of the middle class. It is only the highly educated and well-off who do not live in this recession.
“I find it difficult to think about whether there’s a downgrading of a certain class,” says Columbia’s von Wachter. “But my and other people’s research shows that there could be a group of workers coming out of this with permanent scars.”
As for Ed Thomas, he’s been moving stuff out of his house in preparation for its sale. He says he’s sent out between 250 and 300 job applications in the last 31 months, and he won’t consider Home Depot or Wal-Mart — he’s too old and sick, he says, to be on his feet all day. He’d rather have work than help, but he’s not sure what the government should do; he says he’d like to see it “get out of the way,” but he also thinks the average American is in a catastrophic state.
“I’d like to see unemployment extended to people who need it,” he says. “The conservative argument is 99 weeks, but these are extenuating circumstances. There are people who take advantage of it, but I’m not one of them. I’m looking for work. Every day.”
American nightmare
IN NEW YORK
* Number of people living below the poverty line: 20.1%
* Overall household income has declined by 5% since 2007
* Number of households relying on food stamps: 1 in 5
* 44% of renters are spending 35% of their income on housing
* Number of people aged 16-29 that are employed: 55.3%
NATIONWIDE
* Median household income has declined by 2.3%, to $49,445
* Number of people living below the poverty line: 15.1%
* Foreclosure rates: 13.1% in 2010, up from 12.6% in 2009
* Number of households without a car: 9.1% in 2010, up from 8.8% in 2006
* Enrollments in private schools: 12.8% in 2010, down from 13.6% in 2006
Source: 2010 US Census