Henry Ford didn’t actually pay his workers a hefty five bucks a day so they could afford to buy his automobiles — that’s apocryphal — but the idea that offering working people a decent wage helps sustain strong consumer demand remains sound. Studies have found that when wealthy households see an increase in their after-tax income, they bank it; when the working poor get a few extra bucks they spend it.
With 95 percent of the income gains from this recovery going to the top one percent of American households, companies that cater to the middle class are feeling the squeeze. Nelson Schwartz reported in last Sunday’s New York Times that high-end retailers are doing fine, but those that cater to those in the middle are facing a bleak reality: their customers are broke.
As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.
If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts.
“Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.
In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers…
Although data on consumption is less readily available than figures that show a comparable split in income gains, new research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up what is already apparent in the marketplace.
…The current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
Not mentioned in this analysis is that this is also the culmination of much longer-term trends. Here are some highlights of another New York Times report by Louis Uchitelle from back in April 2008 — five months before Lehman Brothers filed for bankruptcy:
Once upon a time, a large number earned at least $20 an hour, or its inflation-adjusted equivalent, and now so many of them don’t.
The $20 hourly wage, introduced on a huge scale in the middle of the last century, allowed masses of Americans with no more than a high school education to rise to the middle class. It was a marker, of sorts. And it is on its way to extinction.
Americans greeted the loss with anger and protest when it first began to happen in big numbers in the late 1970s, particularly in the steel industry in Western Pennsylvania. But as layoffs persisted, in Pennsylvania and across the country, through the ’80s and ’90s and right up to today, the protests subsided and acquiescence set in.
Hourly workers had come a long way from the days when employers and unions negotiated a way for them to earn the prizes of the middle class — houses, cars, college educations for their children, comfortable retirements. Even now a residual of that golden age remains, notably in the auto industry. But here, too, wages are falling below the $20-an-hour threshold — $41,600 annually — that many experts consider the minimum income necessary to put a family of four into the middle class….
The high point came in the 1970s, just as the United States was beginning to lose its controlling grip on the economies of the non-Communist world. Since then the percentage of people earning at least $20 an hour has eroded in every sector of the economy, falling last year to 18 percent of all hourly workers from 23 percent in 1979 — a gradual unwinding of the post-World War II gains.
This is what a servant economy looks like — America’s economic engine is producing lots of billionaires and working poor, but the middle class is withering away.