* http://www.salon.com/news/feature/2000/10/26/wages/index.html
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Everything you know about the new economy is wrong
In California, birthplace of the high-tech boom, the wage gap is
growing, setting yet another national trend.
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By David Moberg
Sept. 20, 2000 | SAN JOSE, Calif. -- Silicon Valley is home to
some 65,000 millionaires, plus a bumper crop of billionaires.
It's one of the richest regions in the country, and a driving
force behind the nation's record economic boom. But it's also the
setting for a vexing national conundrum: The gap between rich and
poor is growing, and nowhere faster than in California,
birthplace of the new economy.
Even if families work hard at multiple jobs, they often have a
hard time making ends meet -- especially after paying for
high-cost housing. Technology drives the area's economy, but the
industry leaves many people behind.
Concepcion Garay, 49, lives in Silicon Valley. After 21 years of
working in the factories of companies like Control Data, Sperry
Univac, Amdahl and Fuji Optical -- most of which moved to Asia or
Mexico -- she's now working for $8.40 an hour as a home
healthcare aide. It's less than she was making years ago in the
factory -- despite the big boost in pay and benefits that came
after she and fellow aides organized into a union.
Marcella Juarez, 29, recently emigrated from Mexico. She makes
$488 a month at a Taco Bell; her husband makes around $1,000 a
month as a day laborer. The rent on their rundown two-bedroom
apartment in a crime-burdened neighborhood of East San Jose is
$1,225 a month. They manage to survive on an income that
officially puts them well above poverty level by living with
their two children in one bedroom, then renting out the other
bedroom to four other hardworking immigrant men.
James McCuiston, 28, found a home in San Jose when he moved from
Texas as a teenager. He graduated from high school, then worked
in a variety of jobs, including several computer-chip
manufacturing companies, but he was laid off in one of the
frequent and sudden twists of corporate fortunes characteristic
of the Silicon Valley economy. Now through a temporary employment
agency he found a job running the stockroom of a small company,
earning $10 an hour -- full-time employees who used to do his job
earned $16.25 an hour. In the evening he waits tables. He figures
that with the two jobs he might make enough to rent a room in an
apartment with someone else. For now he's crashing for free with
a friend and sharing his car.
"Some things are unfair," he reflected as he took a lunch break
in the glaring San Jose sun. "You see people younger than me
driving around in a BMW or Mercedes who don't have a care in the
world. It's real difficult for those of us who don't have Mom and
Dad looking out for them and can back them up if something goes
wrong ... I'd like to think of myself as middle class, but now I
definitely fall into the poverty level. I see myself as working
class, and I don't see myself getting out of it for a while."
Despite the long run of economic growth in the 1990s, the
economic chasm between the rich and the rest of the nation that
first opened up more than 25 years ago has continued to grow. In
some respects, that growth has slowed somewhat in recent years.
The wages of the poorest Americans have risen significantly, and
the median family income has crept upward, thanks to minimum wage
increases and a tight labor market.
On Monday, California decided to raise its minimum wage by $1, to
$6.75, over the next two years. Congress is expected to back a
similar raise in the national minimum wage, which is $5.15.
But the gap has continued to spread between the average worker
and the richest 5 percent of Americans, an elite that has been
the principal beneficiary of both soaring executive salaries --
up 63 percent from 1989 to 1999 -- and the booming stock market
(despite the hype about the growing proportion of Americans
invested in the stock market, the nation's richest 5 percent own
four-fifths of all common stock).
California's economy is still booming, outperforming the rest of
the country by many measures since 1995. But at the same time,
income inequality in California is greater and growing faster
than in the rest of the country taken as a whole, and compared to
almost every other state.
In late August a San Francisco Federal Reserve Bank study
reported that median family income dropped by 4 percent from 1989
to 1999, even though it rose 8 percent for the rest of the
nation. "In 1998," the bank reported, "a greater number of
Californians lived in poverty, a smaller number were in the
middle class and a majority had family incomes below those of
comparable families living outside of California." Only the top
30 percent of families outperformed the rest of the country.
(This in a state where incomes had been well above average at all
levels for most of the decades after World War II.)
In addition, the cost of living in California is much higher than
in most of the United States, making California workers even
worse off. Taking into account the cost of living, the Los
Angeles Alliance for a new economy recently calculated that 40
percent of Angelenos live in poverty.
The biggest factor in high living costs is housing -- especially
in the Bay Area. In San Jose, for example, the median house costs
more than $400,000. Because of those prices, fewer Californians
own homes than other Americans. Renters suffer the greatest
hardship: Forty percent of San Jose renters spend more than 30
percent of their income on housing.
Why is California, once the land of opportunity, now the leader
in inequality? The experts disagree, but it seems likely that
many of the same forces affecting the rest of the economy are
hitting California more forcefully. Also, a few special factors
-- including an influx of immigrants, aerospace cutbacks and a
movement toward cutting taxes -- have amplified those tendencies.
Once again, economists say, California may be a national
trendsetter.
The big picture for the whole country since the mid-1970s is
clear: Inequality has been growing, most strikingly when looking
at men's wages, a bit less dramatically when measuring family
incomes (since more women and other family members have joined
the workforce). There have been some small but important changes
to that picture, especially in the past five years.
Despite advances by African-Americans and other minorities, the
gap between rich and poor has widened, and the middle has shrunk,
as documented by two studies released on Labor Day, the State of
Working America, the authoritative biennial report from the
Economic Policy Institute (EPI) in Washington, and Economic
Apartheid in America from United for a Fair Economy in Boston.
According to EPI economists Lawrence Mishel, Jared Bernstein and
John Schmitt, wages -- especially at the bottom -- have been
growing, thanks both to low unemployment and a higher minimum
wage. But middle-income workers have not fared quite as well.
During the past decade, Mishel and his colleagues write, "wages
at the bottom and the middle grew closer, while the top pulled
further away from the rest." Wages are also up partly because
productivity is up. But shareholders, executives, banks and
bondholders are getting a growing share of the pie compared to
labor. The shape of inequality has changed, but the overall trend
has not reversed.
Economists are still in raging arguments about how much Silicon
Valley's computer and information technology has contributed to
the increase in productivity. The EPI crew argues that the
high-tech impact is high. In fact, its report attacks one of the
most common notions about why inequality is growing.
Many people assume that rapid technology growth is creating a
great demand for skilled workers -- and also making uneducated
workers less relevant, effectively bidding up wages for the
skilled and depressing pay for the unskilled. "The answer why
[more rapid growth of inequality] is happening in California is
fairly clear," says San Francisco Chamber of Commerce vice
president Carol Piasente. "The growing economy in San Francisco
is a highly knowledge-based, highly skilled economy -- where the
good wages are. Those jobs in knowledge-based industries paying
high wages are growing fast here." Economist Deborah Reed of the
Public Policy Institute of California argues that higher wages
for highly educated workers and the influx of immigrants explain
half of California's higher rate of inequality last year.
But the EPI economists say the surge in technological change and
demand for skilled workers have been going on for many decades.
The overall educational level of the workforce has also risen.
Although there may be spot shortages of certain kinds of
expertise now at the peak of a long boom, none of these factors
explains the continuous rise in inequality since the early 1970s.
There's been a huge growth in jobs in Silicon Valley, but
high-paid, high-tech jobs are only a small part of the picture.
Nationally, EPI reports, the information technology industry
contributes only about 7.5 percent of all new jobs. Even in
California computer-related service jobs make up only 2 percent
of all jobs (and 6.4 percent of service jobs), according to a
Labor Day report from the nonprofit California Budget Project.
More surprising, despite the high wages that systems analysts and
computer engineers command in Silicon Valley, the EPI economists
report that the wages of information-technology workers over the
past decade simply kept pace with wages of similarly skilled
workers -- for women in the technology business, wages even
slipped behind. The average computer-industry worker is not
getting fabulously richer than other workers with comparable
training.
The California economy is mainly generating crummy jobs that
offer little opportunity to use brainpower. The California Budget
Project study by economists Mary C. Daley and Heather N. Royer
reported that, despite the image of California as the vanguard of
a new information economy reliant on brainpower, only three of
the 15 job categories with the largest number of job openings in
recent years required a four-year degree, and 10 out of the 15
paid less than $10 an hour.
Many of the new jobs in California in both services and light
manufacturing have developed precisely because wages are so low,
argued Jean Ross, executive director of the California Budget
Project. And the high-tech industry -- which has shipped much of
its manufacturing overseas -- generates both bad and good jobs.
"For every systems analyst and programmer, you're having more
child-care workers, retail workers, stockroom attendants and
delivery truck drivers for goods sold through e-commerce," she
said.
But the gap isn't just between high school graduates and
engineers with a Ph.D. Employers do pay more for better educated
workers, but the EPI team found that 80 percent of the "education
premium" went to managers and sales workers -- leaving crumbs
behind for all the computer engineers and programmers. This
doesn't support the notion of technology driven inequality, but
rather buttresses the popular notion that corporate executives
are simply making out like bandits at everyone else's expense.
What does California's economy mean for the rest of the nation?
In their recent Federal Reserve study, economists Daley and Royer
argue that if California had the same population as the rest of
the country, and if the recession had not lasted longer in the
state than in the rest of the country, inequality in California
would not be so much higher than in the rest of the country.
But the recession lasted longer in part because California lost
so many good-paying, mainly unionized aerospace jobs. Over the
past decade more than 200,000 manufacturing jobs in typically
well-paid durable goods industries disappeared. And that's not
just a cyclical change; those jobs aren't likely to be coming
back, partly because many have gone overseas.
Is immigration, one of the biggest recent demographic changes in
California, the culprit? Sweatshop industries have emerged to
take advantage of immigrant labor, and contractors have used
immigrant labor to push back on unions and drastically cut wages
in several skilled trades, especially in residential housing
construction. There's intense competition at the bottom, from
farm labor to janitorial work, hotel cleaning to personal
service, and that drives down wages.
But immigration by itself isn't the explanation. As Peter Dreier,
professor of politics at Occidental College, noted, "A janitor or
hotel worker in San Francisco makes several dollars an hour more
than a typical janitor or hotel worker in Los Angeles because
more of them have been unionized for a longer time ... If
immigrant workers are undocumented, they're intimidated from
forming unions, and employers effectively discriminate in their
decisions to pay immigrants less than native workers."
But as unions adapt their strategies, "These same immigrants are
in the forefront of the struggle to unionize the workforce,"
Dreier says, as indicated by the janitor strikes earlier this
year and hotel organizing drives throughout California.
So what does explain the rising inequality? The rising influence
of corporations in politics and the labor market, according to
the Economic Apartheid in America study. Chuck Collins and Felice
Yeskel of United for a Fair Economy argue that corporations have
shaped the economy, from Federal Reserve anti-inflation policies
to global economic agreements.
The analysis in the State of Working America lays much of the
blame for growing inequality on a weakened labor movement,
Federal Reserve policies focused only on fighting inflation and
changed corporate strategies: an emphasis on increasing
shareholder value, wildly escalating executive compensation, a
relentless drive to cut costs through downsizing, subcontracting
and simply driving employees harder.
Globalization has also hit California particularly hard, because
of its proximity to Mexico and East Asia. The freer flow of
capital, goods and, to a lesser extent, labor has been a leading
force behind the changes for jobs and workers.
Whatever the reasons, in a winner-take-all marketplace, social
expectations about how employers should behave have changed.
Management strategies that emerged during earlier recessions,
which cut commitments to workers and treat them more as
contingent costs than business assets, have remained popular in
the globalized economy.
"Memories of the early '90s are still fresh in business minds in
California," Ross said. This has led many companies to hold down
pay, despite difficulties finding workers, and to rely on temps
and other contingent workers rather than build up a permanent
staff.
Many years of crimped public spending have also directly and
indirectly lowered living standards in the state. California's
education system has dropped far behind in the nation, thanks in
part to Proposition 13, passed in 1978, which limits property
taxes. And less public spending means fewer good state and local
jobs are being created.
What would the picture look like in California if things had gone
differently? United for a Fair Economy estimates that, if average
pay for production workers had grown as fast as pay for chief
executives, factory workers would be making an average of
$114,035 a year (instead of $23,753) and the minimum wage would
be $24.13 (not $5.15).
Temp workers like McCuiston, fast-food employees like Juarez and
newly unionized hourly wage workers like Garay are hoping to see
California's opportunities increase. Their frustrations are one
reason the state is now so strongly Democratic -- as well as a
hotbed of support for Ralph Nader. In fact, support for Nader has
surged in this state, from 4 percent in September to 6 percent
according to a poll taken last week by the Public Policy
Institute of California.
The state is also the center of some of the most aggressive union
organizing in the country. Whatever the causes of California's
trend-setting inequality, and whatever their proposed solutions,
a growing number of Californians seem determined to turn it
around.
salon.com | Oct. 26, 2000
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About the writer
David Moberg is a senior editor at In These Times and a fellow at
The Nation Institute.
