The Shrinking Middle Class

I have a background in Human Resources and I sometimes wonder how much my profession may have contributed to the widening gap between the middle class and the rich.  In the late 1970’s, compensation survey’s became popular.  This was were a third party company would contact all the companies in a particular industry (or geographic area) and collect data about jobs and the pay for jobs.

Companies would compile salary data by job title such as Accountant or Engineer.  This information was then compiled by the third party and sold to companies.  The concept behind it seemed fair.  Everyone would know what the average Accountant or Engineer made and decide if they wanted to position themselves (1) on the market, (2) below the market (and use trainees for example) or (3) above the market.

That followed with companies developing compensation programs that gave higher raises to those who were below the market and smaller raises to those above the market average.  This had the result of forcing people toward the average (because theoretically every year the average moved up some to keep up with the cost of living).

The degree of merit raises were also determined by surveys.  When the first difficult times arrived in the mid 90’s, surveys were already well established and as companies laid people off (especially the older more expensive workers) average salaries, averages raises, etc. went backwards.  Many companies froze wages, skipped merit increases and so forth.

There was a comfort in knowing that most companies were taking similar austerity measures and this knowledge allowed companies to take very conservative positions.  Even after business improved companies continued on a stingy path.  Today the norm is a 3% annual merit increase.  I’m not sure what the cost of living index is but it seems to me like inflation is growing at a faster rate.  If this is true then the middle class is still losing ground.

There are certainly reasons beyond surveys that effect wages.  The overall job market has been negatively effected by jobs moving overseas.  People afraid of layoffs are happy to just have a job as the supply of jobs isn’t keeping pace with the demand.  But it would be naive, I think, to believe that the group mind set that surveys help to create and maintain hasn’t contributed.  It feels a bit like collusion.  Although I realize that if the market had a better balance  – that is, if people were in great demand – then wages would be more inclined to grow.

One final note.  It occurs to me that in the period of the world when the US was becoming increasing more productive as a result of the introduction of technologies in computers and communications, and when significant wealth was being created, the middle class was moving backwards.  There is something wrong with this picture.

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