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We need to define America’s new middle class

Katica Roy of Pipeline Equity explains how redefining America’s middle class can improve our economy and create equity for all.

We need to define America’s new middle class
[Photo: NNehring/Getty Images]

When my parents emigrated (separately) to the U.S. from Hungary in the late 1950s and 1960s, they both landed in the Midwest: the heartbeat of America, the hub of American manufacturing, and the foundation of the American Dream. In the past 60 years, that heartbeat has changed as we’ve moved squarely into the Fourth Industrial Revolution.

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Today the United States has the largest wealth gap since before the Great Depression. That should be the focus of the 2020 Presidential election. How will the candidates restore America’s once-thriving middle class in the age of Industry 4.0?

Why we need to redefine middle-class America

The year 2015 was the first on record that middle-income families no longer made up the majority in America.Since 1971, the share of Americans in the middle class has fallen by nine points, and the share of income in the middle class has fallen by 19 points.

While the economic implications of this finding vary, one thing remains certain: In the U.S., “middle class” stands for the American dream, and the majority of those middle-class Americans live in the Rust Belt.

Between 2000 and 2010, manufacturing employment in six Great Lakes states dropped by 35% and eliminated 1.6 million jobs, a more dramatic decline than during the Great Depression. During those same ten years, median household incomes fell more in five of the six Great Lakes states than in the entire U.S. More recently, General Motors provided perhaps the most significant warnings to date when they stated their need to embrace technology to survive, a business imperative that would see thousands of workers losing their jobs.

While the U.S. has seen some of the largest gains in manufacturing jobs in the past two years, that only tells part of the story. Manufacturing jobs constitute a smaller share of U.S. jobs, down from 25% in 1970 to 8.5% today. Expenses such as healthcare and retirement chip away at wages for the manufacturing jobs that remain. For every $1 increase in manufacturing wages since 1970, workers pay $2.33 for education, $1.85 for housing, and $1.42 for out-of-pocket healthcare costs—nullifying any wage growth.

As expenses rise and advanced technologies are embraced, we need to redefine middle-class America to ensure everyone benefits equitably from the brave new world we create.

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Staying the same threatens the U.S. economy for generations

Our shrinking and relatively less well-off middle class reflects a more unequal income distribution, which in turn creates an adverse climate for economic growth. A vibrant middle class, however, would improve the economic outlook for generations to come. Children in communities with larger middle classes are more likely to be upwardly-mobile relative to their parents’ income status—the cornerstone of the American Dream. A similar intergenerational mobility trend exists in countries with less income inequality as well.

As Rust Belts states see new technologies replacing their labor-intensive manufacturing-based economy, they must also grapple with the disintegration of their employment-based safety net protections developed in the aftermath of WWII. In fact, employer-based health insurance, pensions, and unemployment insurance serve fewer Midwestern workers than ever before.

The Rust Belt renovation can be the path to prosperity for all

What the whole world wants more than anything is a good job. Good jobs provide financial security as well as raise levels of well-being and happiness. Yet, a 2018 survey from the Federal Reserve found 40% of Americans cannot cover an unexpected expense of $400 or more. In this age of Industry 4.0, rejuvenating the Rust Belt will help employees and communities bear the brunt of change as well as set the foundation for America’s new, more equitable middle class.

To ensure this, we must view the demographics of displaced workers through the lens of gender and education. From the gender perspective, McKinsey’s midpoint scenario of automation adoption found women represent 47% and men represent 53% of all displaced workers. Additionally, the share of breadwinning moms has increased by 166% since 1970 and 71% of families now rely on Mom’s earnings for their well-being. Those with a high school degree or less are four times more likely to work a highly automatable role than those with a bachelor’s degree or higher, according to another McKinsey report.

This data makes two things clear. Just as the high school movement supported the migration from an agricultural to an industrial economy, we need an employer-based lifelong learning movement suitable to an AI-augmented economy. It also shows that we must improve the representation of women in the tech sector to ensure Mom (and those who depend on her for their well-being) don’t get left behind.

A thriving Rust Belt of the future will be one where companies explore how nanomaterials, 3-D printing, and robotics integrate into industrial machinery, develop software, data, and services to deliver high-quality products around the globe, and public and private organizations understand the fundamental importance of investing in the people who are working to create our brave new world.

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America’s economy depends on the future of the Rust Belt, the heart of our middle class. We can let it collapse or we can renovate it. For the 2020 presidential candidates: Which will we choose?

Katica Roy is the founder and CEO of Pipeline Equity.

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