Global Shifts Raising Issues of Income Equality

Worth A Look, Globalization, Frontier Centre

BREWER, Maine — In a fast-moving global economy, driven by technology and fierce competition, there was no longer a place for Eastern Fine Paper, a century-old mill on the Penobscot River here. The same might be said for Jim Bracy.

Bracy, 47, is a high school dropout who, after losing his job at bankrupt Eastern, quickly learned that 27 years in a paper mill qualified him only for service jobs that paid a fraction of his old paycheck. Today, he works at a local Home Depot, earning just over half what he made at the mill, but enough, he said, ”to at least get by.”

It’s a different story for Joel Graber and Lindsay Shopland in nearby Bar Harbor, where the worldwide boom in biotechnology has meant expansion at The Jackson Laboratory, a nonprofit genetics research institute. Not long before Bracy lost his job, the married couple, both scientists with PhDs, took positions at Jackson at a substantial boost to their income as postdoctoral researchers. Shopland’s salary alone jumped 50 percent.

This tale of the scientists and the millworker illustrates how globalization and technology are not only reshaping the US economy but also widening income inequality among workers. With traditional middle-class jobs vanishing along with factories, some economists worry that the nation’s labor force is stratifying into a skilled, well-paid elite and a mass of lesser-skilled workers struggling to hold on to their standard of living.

The underlying cause: supply and demand. In a global market, said Mark Zandi, chief economist at in West Chester, Pa., those with specialized skills benefit from the larger pool of bidders for their services. Those without must compete with low-cost workers around the world.

”We have people who are doing very well and people who aren’t, and that polarization is intensifying,” Zandi said. ”The distribution of income and wealth is more unequal than ever. The prospects are that it will become even more unequal.”

While economic fairness is always a concern in the United States’ egalitarian culture, the issue has taken on a new urgency in the wake of a recession that led to the loss of nearly 3 million jobs, concentrated not only in traditional middle-class occupations such as manufacturing, but also newer ones in technology sectors. Many of these job losses are permanent.

Not all economists agree that a growing income gap is cause for worry. David R. Henderson, a research fellow at the Hoover Institution, a conservative California think tank, said that the focus on income distribution tends to neglect a key characteristic of the US labor market: workers who start in lower-income groups can, and typically do, move up the ladder as they gain skills, education, and experience.

Ultimately, what matters is not how one group compares to another, but that their economic conditions improve, Henderson said. Over the long run, the standard of living in the United States has risen for all groups — rich, poor, and the middle.

Meanwhile, this debate over economic fairness is front and center in a presidential campaign being fought, at least in part, along class lines. Democrats, including the party’s presumptive nominee, Senator John F. Kerry, have ripped Bush administration policies, such as the sharp cut in taxes on earnings from stock dividends, as favoring the wealthy at the expense of the middle class and the poor.

President Bush argues that such tax cuts spur economic growth, and that provides jobs and opportunities for all Americans to prosper.

Still, the benefits of economic growth are increasingly concentrating in the upper reaches of the income scale, according to Northeastern University’s Center for Labor Market Studies. Over the last decade, in both the United States and New England, only the best paid workers expanded their share of total earnings, and much of that gain came at the expense of middle-income workers. Northeastern’s analysis was based on Census Bureau data on full-time employed people, 20 to 64 years old.

By the end the 1990s, the highest-paid 20 percent of workers had increased its share of the nation’s earnings to 48 percent from 44 percent at the end of the ’80s. The middle 40 percent, meanwhile, saw its share fall to 30 percent from 32 percent. In New England, the shift was more pronounced: The earnings share of the highest-paid workers grew to 48 percent from 42 percent, while the middle’s share fell to 30 percent from 33 percent.

This erosion of what Andrew Sum, the Northeastern center’s director, calls the ”rich middle” is largely caused by the loss of manufacturing jobs, which, for more than a half century, boosted workers, like Bracy, to the middle class. Since 1990, when income inequality began to accelerate, the US has lost one-fifth of its manufacturing jobs. New England has lost a third.

The Eastern Fine Paper mill is just one of those casualties, shut down because its outdated plant and equipment could no longer keep up with more modern and productive competitors in the United States, or lower-cost ones abroad.

Bracy, who dropped out of Bangor High School after a year, began working at Eastern in 1975, at the age of 18, making just under $3 an hour ”hustling broke,” collecting scrap paper to be remixed with pulp. Before he lost his job as a millwright in May 2003, he was making just over $18 an hour, which, with overtime, put him at more than $40,000 a year.

In between, he was able to buy a home, 28 acres of adjacent land, new cars, and a pop-up camper. He took vacations and played golf regularly.

”I had a good job,” said Bracy. ”I knew I couldn’t replace the wages.”

He was right. He first looked into janitorial jobs, which paid just $8 an hour, and then applied at lumber mills, where the hourly wage was no more than $9. He eventually found his job at Home Depot, which paid a somewhat better hourly wage, enough that allows him to earn just under $25,000 a year.

But he spent the first several months there working part time, pleading for more hours and plowing through his savings. Adding to the financial predicament: Melissa Spencer, his partner of 15 years, lost her job at the mill, too. With a high school diploma, Spencer, 40, is training to become a child-care worker, which pays about half what she made at Eastern.

”The shoe shops are all gone. The mills are gone,” she said. ”There are no jobs, unless you’re a waiter or a gas attendant.”

Or a genetics scientist.

The same forces putting Maine paper workers out of jobs — advancing technology and fierce competition — are helping boost the demand for and earnings of the highly educated and skilled, widening the income gap, economists say.

In Maine, for example, only men with a master’s degree or higher made significant economic gains in last decade, according to the Center for Labor Market Studies. Their inflation-adjusted earnings rose 6 percent in the 1990s.

Inflation-adjusted earnings for men without college degrees fell at least 2 percent in that decade. For men without a high school diplomas, inflation-adjusted earnings plunged 6 percent.

Graber, the Jackson Laboratory scientist, specializes in computational biology, also known as bioinformatics, an emerging field that uses information technology to investigate the exponentially increasing amount of biological data. About two years ago, as he was finishing a postdoctoral project at Boston University, he sent out 15 job inquiries and ended up with two job offers. He chose Jackson, where scientists at his level average about $80,000 a year.

Shopland, his wife, a cell biologist, was hired as a scientist at a University of Maine biophysics program based at Jackson. After spending more than a decade as either financially struggling graduate students, or somewhat less struggling postdoctoral researchers, Graber, 40, and Shopland, 38, are enjoying some of the material rewards they put off during their studies, including buying their first home, a three-bedroom, 2-bath on nearly two acres.

As globalization and technology continue to restructure the labor force, the government is trying to help workers made the transition from old- to new-economy jobs. Maine, for example, has recently revamped its technical college system, which primarily provided vocational training, into community colleges that are steppingstones to four-year schools.

Such transitions won’t be easy. About one-third of the more than 300 workers laid off from the Brewer mill have yet to find a job or enter a retraining program, according to local union officials.

Bracy feels lucky to be working, particularly for an employer that provides health insurance.