Pinch has many pinching pennies Decline in spending power takes toll

June 21, 1992|By Gilbert A. Lewthwait | Gilbert A. Lewthwait,Washington Bureau

Washington -- Feeling the financial pinch? Join Brian and Maggie Nichols, Paul Lurz, Daniel and Jennifer Vibbert, and millions of other Americans.

All are victims of a downward trend in spending power that is creating a squeeze on individual and family budgets and hampering the nation's economic recovery.

Three forces are at work: a long-term and widespread decline in inflation-adjusted earnings over recent years; a dramatic increase in the number of workers now being forced to settle for lower pay after losing better jobs; and the continuing impact of the recent recession.

Brian Nichols, 25, is one of those caught in downward mobility. He graduated from Cardinal Gibbons High School in Baltimore in 1985. He waited tables for a year until his uncle found him a job at the local Armco steel mill. It paid $11.60 an hour.

"That was a great job. That was more money than I had ever seen. I got used to that. When you get a double-digit income you get a double-digit lifestyle. I thought for sure I was going to retire from there," Mr. Nichols said.

The job lasted three years until he was laid off.

"I went everywhere I could think of to find [another job paying] what I was making. I had said to myself I would not take anything under $10 an hour," he recalled.

He eventually became a chemical operator trainee. It paid $8 an hour. "It killed me to take $8 an hour. I found myself having to take it, having to take whatever I could get."

After three months, just as he was about to get company-paid health benefits, he was laid off again. Now he is unemployed. The only jobs he has been offered pay $5 or less an hour -- a lower weekly wage than the $210 he receives in unemployment benefits.

Mr. Nichols lives with his wife, Maggie, 23, and three daughters, ages 7, 4 and 2, on Jackson Street in South Baltimore. He pays $450 a month for rent. His car payment is $225. His auto insurance is $151. His gas bill is $85, and his phone bill usually comes to about $30. His $840 a month in unemployment does not cover the basic expenses of $941.

His wife puts food on the table with the $70 she earns weekly as a cashier at a local food store.

"I can remember when I was a kid asking my parents how they got a house and a car. I was always taught if you worked hard after you got out of school, if you worked and saved, you get these things. They come in steps. Instead of stepping up I got shoved back down. Now I'm back where I was the day I graduated from high school," said Mr. Nichols, who is planning to return to school to study electronics in the hope of re-entering the middle class.

A study by Isaac Shapiro, a researcher with the Center on Budget and Policy Priorities, a liberal group which specializes in low-income issues, showed a dramatic rise in the number of full-time workers with low earnings during the 1980s.

There were more low-wage earners in 1990 -- 14.4 million -- than at any time since 1964.

From 1964 to 1974 the proportion of full-time year-round workers whose annual earnings were less than the poverty line for a family of four -- $12,195 in 1991 dollars -- was cut in half, from 24.1 percent to 12.0 percent. It remained stable for five years, but from 1979 to 1991 it increased to 18 percent, according to the study.

"These data are key to understanding the squeeze in which millions of working families now find themselves," Mr. Shapiro said.

Lawrence Mishel, director of research at the liberal Economic Policy Institute and author of a recent study on the trend to lower earnings, said: "People are realizing that incomes are not growing . . . There is no sense of a future that is secure and prosperous. All the bright spots have dimmed."

Mr. Mishel's study, based on figures issued by the Bureau of Labor Statistics and the Current Population Survey, showed that the purchasing power, in 1991 dollars, of an average private-sector hourly wage rate dropped 82 cents, from $13.37 to $12.55, between 1987 and last year.

This does not mean that every worker is worse off. Many workers who have been promoted or received above-inflation raises over the years are better off. But it does suggest that the income floor is being slowly lowered.

Take Baltimore County firefighter Paul Lurz. He earned $23,928 last year as an entry-level firefighter. Had he started his career in 1987 he would have earned $20,454. Converted into 1991 dollars, that is the equivalent of $24,544 -- which means he's effectively earning $616 less for the year than a beginning firefighter in 1987.

"It means that many people in my situation are more dependent on part-time jobs to make ends meet," said the 25-year-old bachelor, who has a part-time job in the pulmonary laboratory at Franklin Square Hospital.

"What I think is most grim is when you look at what it means to young people," Mr. Mishel said. "People are starting out much lower than they used to. In terms of the broad majority of workers, the prospects are that they won't earn as much as the prior generation."

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