Hooray for this piece. The authors have done a tremendous service to advocates interested in improving the economic well-being of the average American family and of those still trying to work their way into the nebulous comfort zone that is supposed to be America’s middle class.
I don’t have any quibble with the evidence marshaled to support the authors’ notion that families aren’t going broke because they are caught up in a frenzy of frivolous spending. Indeed, in October Demos will release new data from a national survey of indebted households that provide further evidence that middle-income households’ credit-card debt is being driven by hard times and bad luck. That is, most middle-class families are running up credit-card debt to cover expenses when they lose a job, pay for repairs when the car breaks down, or fix something that goes wrong with their house. Visa and MasterCard have become the new safety net for working families. As Warren and Tyagi point out, today’s families must devote three quarters of their income to fixed costs, leaving little wiggle room to deal with the curveballs of life.
While the authors’ solutions would undoubtedly alleviate some of the insecurity facing America’s middle class and aspiring middle class, there are also three other solutions that are crucial to this challenge: bolstering the unemployment-insurance system, strengthening workers’ rights to unionize, and providing paid family leave and universal child care. These reforms would also help America’s ever-growing legion of low-wage workers, who despite hard work and thrift have little chance of moving into America’s middle class.
As Elizabeth Warren’s research has shown, job loss is one of the three most common precursors to bankruptcy, delivering a financial blow from which too many households do not recover. The safety net that is supposed to cushion this crisis—unemployment insurance—is in major need of repair. Today many workers are ineligible for benefits, and the benefit levels replace only about one third of an average worker’s earnings. For example, at the end of the recession in 1975, three quarters of unemployed workers were receiving unemployment benefits. By 2001, that number had declined to only 43 percent. As a result, families often rack up thousands of dollars in credit-card debt as they struggle to keep the refrigerator full and the car in the driveway after someone loses a job.
Strong unions are critical to ensuring that America has a strong middle class. Workers who belong to unions earn higher wages and have better benefits than workers in the same occupations who don’t have collective bargaining power. Today, just under nine percent of private-sector workers are unionized—but the majority of workers say they would join a union if they could. While the long backslide of organized labor is in some part due to the changing nature of work in America, it is also the result of deliberate anti-union campaigns by employers. Over the last two decades, it has become increasingly difficult for workers to exercise their legal right to form a union. A thriving union-busting industry of lawyers and consultants is now marshaled by employers to defeat organizing attempts. Today three quarters of employers facing a union drive hire anti-union consultants. Workers seeking representation are outgunned, outspent, and outmaneuvered. And increasingly, workers are fired for trying to organize their workplace. Federal law needs to step in to guarantee the right to organize.
Warren and Tyagi rightly argue that universal pre-school and college have become necessities that should be subsidized for all families. But missing from their recommendations is the critical need for paid family leave and access to affordable and high-quality child care for children of all ages, including infants and toddlers. Young families today face a one-two punch as soon as their first little one comes along. The first punch is the lack of paid family leave, which sends most parents scrambling back to work before their baby is even 12 weeks old. The second punch lands shortly after the first, when the parents begin their search for child-care arrangements. Panic quickly sets in as parents realize that child care that is both high-quality and affordable is nearly impossible to find.
The transition to parenthood is a much steeper financial challenge for today’s generation, because late-20-somethings and early-30-somethings are often already living on the financial edge before they start a family. When children arrive, young parents are still paying off student-loan debt, which now averages $19,000 for undergrads and $45,900 for grad students. After giving birth, new parents must cope with a reduction in income as one parent—usually the mom—cuts back on work to stay home with the infant. For most young families, this leave from work is taken with only partial pay, or no pay at all, leaving the family with fewer resources at a time when they need a surplus of cash. The United States stands alone among industrialized nations for failing to provide paid family leave, and it is time to end this exceptionalism. But even with paid leave, parents will still need high-quality infant and child care.
While many policymakers have joined the pre-kindergarten bandwagon, there has been less progress on the need for infant and toddler care, which is often the hardest care to find and afford. Limited subsidies are available to help lower-income parents afford child care, mostly for single women transitioning off welfare. The generosity of these benefits is determined by each state, but in general, waiting lists for a subsidized spot can be long, and income eligibility levels are too low for moderate- or middle-income families to qualify. As a result, child care remains one of the biggest expenses in a young family’s household budget, often second only to the mortgage or rental payment. While the specifics of creating a universal system of paid leave and child care need to be carefully hammered out, the basic need for such a bold advancement is crystal clear. There are plenty of ideas about how to “build the village”; what’s missing is political leadership and public will.
Dispelling the “over-consumption myth” is important to the long-term challenge of reversing three decades of retreat from the values of fairness and opportunity that defined America’s social contract. From privatization of public goods to deregulation of the credit industry, the plight of America’s middle class is part of a much larger story about the triumph of market values and the denigration of government. This assault on the role of government in our society is the shadow lurking behind the authors’ article—a shadow worthy of more illumination.
If families are making more money than ever and are still in financial trouble, surely the critics are right: Americans are overborrowing. But the data tell a different story.
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