The Great Divide*


by Robert B. Reich, Hexter Professor of Social and Economy Policy, Florence Heller Graduate School, Brandeis University; former Secretary of Labor; and member of the Advisory Board, National Jobs for All Coalition.

Fed chief Alan Greenspan fears that all this prosperity is causing consumers to buy more than the economy can produce, which means that inflation is just around the corner. So Greenspan and his pals at the Fed have hiked interest rates five times since last June in an attempt to slow things down. The word on the street is that they’ll hike rates again when they meet in May, and continue raising them until consumers calm down.

Now switch your sights to the 400 janitors who recently blocked traffic in Los Angeles to complain about their pay. They earn $6.80 to $7.90 per hour–less than $16,000 a year. Adjusted for inflation, that’s less than janitors earned 15 years ago. The cleaning companies say they can’t afford a dollar more, but the janitors have been watching the rents soar in the office buildings they take care of–the same offices in which executives and professionals are pulling in larger and larger multiples of the janitors’ take.

Janitors aren’t the only ones working harder for less. More than two million Americans work in nursing homes–bathing and feeding frail elderly people, cleaning their bedsores, lifting them out of bed and into wheelchairs, and changing their diapers. They earn, on average, between $7 and $8 an hour, about the same as janitors. Some 700,000 people work as home health care aides, attending to the elderly, sick, or disabled at home. Their pay averages between $8 and $10 an hour–less than $20,000 a year. Another 1.3 million Americans work in hospitals as orderlies and attendants, at about the same rate. Adjusted for inflation, most of them also are earning less than they did 15 years ago.

An estimated 2.3 million Americans are paid to care for young children in child care centers or organized play groups, or as nannies. They feed the children, change their diapers, sing songs to them, read to them, and tend to their bruises (physical scrapes as well as occasional hurt feelings). The median wage of child care workers is $6.60 an hour, usually without benefits– less than funeral attendants ($7.30 an hour) and pest controllers ($10.60 an hour). More than 700,000 social workers attend to individuals and families with severe problems–alcohol and drug abuse, domestic violence, and mental illness. Average pay: between $8 and $15 an hour.

Why are top lawyers, executives, financiers, and dot-com impresarios earning so much more than ever before while the nation’s caretakers are earning less? Economists will tell you it’s just supply and demand. People who think for a living are in short supply and demand for them is rising, while people who take care of buildings and other people are in abundant supply and demand for them is weak. The head of the L.A. building owners’ association threatens that if unionized janitors demand too much, the owners will just switch to nonunionized janitors. But at Smith Barney, in New York, when a 23-year-old junior banker writes a memo “presenting the collective views of his co-workers,” demanding more pay and perks, the firm’s top brass roll over.

Greenspan is worrying about the wrong people. America’s caretakers and others like them haven’t participated in the economic boom. They haven’t gotten a raise in years. Most don’t own any shares of stock, so they haven’t ridden the boom-ing market. Many rent their homes, so they haven’t benefited from the big rise in home prices. In raising interest rates, Greenspan is hurting people on the bottom rungs of the income ladder by making them pay more for first mortgages, car loans, and other borrowing. And when he succeeds in slowing the economy, they’ll be among the first to lose their jobs.

The big spenders are at the other end of the income ladder, where most of the money has gone. This year the richest 2.7 million Americans, comprising the top 1 percent, will have as many after-tax dollars to spend as the bottom 100 million put together, and they’ll have 40 percent of the nation’s wealth. The top fifth of earners will have over half the nation’s income and almost all its wealth.

If Greenspan wants to put a damper on excessive s pending brought on by too much income and wealth, he ought to set his sights higher. He should urge Congress to make the income tax code more progressive, increase capital gains taxes, and pass a wealth tax on households whose net worth exceeds a million dollars.

*Copyright © 2000 by The American Prospect, Inc. Reprinted with permission from The American Prospect vol. 11 no. 12, May 8, 2000.

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