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C H A P T E R F O U R

F A M I L I E S A N D T H E N E W E C O N O M I C R E A L I T I E S

Diversity In Families

Families and the Economy Colonial Modern Post-Modern

Time Period: approx 1600-1800 approx 1800-1950 approx 1950-Present

Predominant Family Type

Nuclear (w/servants, borders, apprentices, orphans)

Nuclear (Male breadwinner, Wife Homemaker)

Nuclear (Dual-Earner) & Single-Parent

Type of Economy: Family Based Economy Family Wage Economy

Global Economy

Agricultural (Farming) Industrial, Mass Production & Factories

Globalization, Knowledge based, Info Tech & Service Sector

Primary Groups Immigrating to U.S.

European (English, Scotch-Irish, German, Dutch)

Eastern U.S. European 1st wave (Northern & Western Europe) 2nd wave (Southern & Eastern Europe) Western U.S Mexican, Asian

Latinos & Asians

Globalization

What is globalization?  The movement of people, goods, services, capital,

and culture across national boundaries.  New technologies magnify the connections between people across the globe.  Economic, social, and political changes in one part of the world affect other

parts of the world.  Media and Advertising in one place affect tastes and purchases in others.  A dramatic increase of migration flowers (especially from poorer to richer

nations).  Environment – global warming cause by the burning of fossil fuels, changes

climates, generates megastorms, and increases the spread of tropical diseases around the world.

Child making Nike soccer ball in Pakistan

Abercrombie & Fitch Sweatshop in Philippines

Children picking cotton in Uzbekistan for clothing made by

Gymboree, Hanes, and LL Bean

The internet and social networking sites helped make the Arab Spring possible

United Nations Environmental Initiatives

Cross Cultural Exchange

The Changing Nature of Jobs and Compensation

Harvard economist Joseph Schumpeter  He used the term “creative destruction” to describe

how when the economic structure of capitalism matures, some sectors will lose out, while others will gain.

 Old (Modern) Economy of the 20th century  Manufacturing sector; workers producing goods.

 New (Post-Modern) Economy (21st century)  High Tech & Service Sector – banking, insurance,

sales, health care, design, marketing, education, security, transportation.

Joseph Schumpeter 1883-1950

The Changing Nature of Jobs and Compensation

What happened to Industrial/Manufacturing jobs in the U.S. as a result of globalization? Sunset Industries (steel, tires, shoes, toys, textiles, etc.) faded and thousands of plants were closed over the past 30 years, millions of jobs permanently lost. Offshoring: When a company moves its production to another country. Outsourcing: Taking some specific task that a company was doing in-house (call centers, accounting, transcribing, etc.) and transferring it overseas. Why do American companies relocate? Cheaper labor, lower taxes, fewer workers rights, more profits.

The Changing Nature of Jobs and Compensation

Economic Restructuring: The radical shift from what had been a manufacturing-based economy to a service-based economy, with its resultant effects on the labor force. Technological Changes  Increasing robots and computers do the work that was once performed by humans.

 Technological advancement have made obsolete many categories of jobs.

The Changing Nature of Jobs and Compensation

Technological Changes

 Since 1980 the number of automobiles produced in the U.S. has increased by 65%, but the number of workers has declined by 34%.

 Voice-mail systems have replaced telephone operators and receptionists; electronic scanning machines have replaced cashiers and retail clerks.

 Computers have also replaced the jobs of musicians and artists with digital sounds and drawings.

The Changing Nature of Jobs and Compensation

Some job sectors are experiencing a slower “death” due to a shift to e-commerce:

 Retail Sales – more people are purchasing

books, consumer electronics, apparel and dozens of other products online.  Brick and mortar stores are becoming more obsolete.

 Publishing – the digitalization of books is

greatly affecting the publishing industry.  What will be the eventual fate of bookstores, book binding,

printing, book warehousing, and ink and paper suppliers?

The Changing Nature of Jobs and Compensation

Contingent/Temporary Workers  Today 30% of American workers are in part-

time, or contingent (seasonal), independent contractors, or subcontractors.

 They often earn less than their counterparts

who do the same work and receive fewer benefits such as health insurance, family leave, and retirement.

 Many of them want stable full-time work but

these types of positions are not out there. This occurs at both the low-end and high-end of the occupational spectrum and results in low job security.

The Changing Nature of Jobs and Compensation

Contingent/Temporary Workers

 75% of contingent workers are women.

 A generation ago, workers tended to work for 1-2 employers during their lifetime. They were loyal to the company and in many ways the company was loyal to them providing benefits and a pension.

 Now many workers are not allied with an employer but go from one job to the next. It may be due to the job being contingent (short-term), because they are laid off (due to downsizing or skills not keeping up with technological changes), or because they are seeking out a better job elsewhere.

The Changing Nature of Jobs and Compensation

Homeshoring (Homesourcing): When independent contractors work from their own homes.  Ex. Call centers, transcribing, editing, accounting,

information technology, tax preparation, etc.

 These workers make a wage but pay for their own health care, retirement benefits, and equipment. The company benefits from this arrangement in savings.

 The independent contractor benefits by having flexible work hours and can save on child care, transportation, and clothing.

The Changing Nature of Jobs and Compensation

Benefits Insecurity  Fewer unions and competition from low-

wage economies has led U.S. corporations to reduce their benefits to workers.

 Some corporations have declared bankruptcy to renege on benefits promised to the workers.

 Corporations have negotiated with unions for a two-tier benefit system.  1st tier - current workers maintain their benefits.  2nd tier – new workers receive lower wages and

reduced benefits packages.

The Changing Nature of Jobs and Compensation

Lower Worker Compensation  Real wages (accounting for inflation) reached a

peak in 1973 and have declined since.

 Controlling for inflation, the typical male college graduate earned about 12% less in 2009 than his counterpart did in 1969.

 For the median man with a high school degree, his earnings fell by 47% from 1969- 2009.

 This has led to the purchasing power of

workers to diminish, while the cost of housing, healthcare, and college tuition have skyrocketed.

The Great Recession and its Aftermath

What led up to Economic Crisis? 1975-1990:  Declining manufacturing led to a weakening of unions

& corporations lowering salaries and benefits.  An increase in income and wealth inequality caused

many Americans to experience downward mobility. To cope with declining salaries American

families: 1. Worked more hours, many dependent on overtime to

get by. 2. Families went into credit card debt in an attempt to

maintain a middle-class lifestyle. 3. Families became dependent on two-income household

as many woman entered the workforce.

The Great Recession and its Aftermath

What led up to Economic Crisis? (continued) Housing Bubble 1995-2006  Caused people to make risky investments flipping

homes  Caused families to borrow against the value of

their homes and take 2nd mortgages (home equity loans)

 Mortgage market lenders sold “subprime loans” – loans sold to people with low credit scores, as well as no-money-down loans and variable rate loans

 Buying and selling of subprime loans on Wall Street and little regulation of financial markets led the housing bubble to burst and “true value” of home prices to emerge

The Great Recession and its Aftermath

Unemployment & Job Insecurity:  During the recession 8.7 million American

workers lost their jobs (2007-2012).

 Unemployment Rate  2007 - 4.6%  2010 - 10%  2012 – 8.5%  2016 – 4.9%

 The official unemployment rate does not count:

 Discouraged Workers – people who have given up on looking for permanent work.

 Underemployed Workers – people who work part-time, but would prefer to work full-time.

The Great Recession and its Aftermath

The Great Recession and its Aftermath

The Great Recession and its Aftermath

The Great Recession and its Aftermath

Housing Woes

 Subprime Mortgages have led many families to have an upside down mortgage.

 The newly unemployed are

finding that they can’t pay their mortgages and are going into foreclosure.

The Great Recession and its Aftermath

Housing Woes

 Renters also suffered with the housing bubble.  When owners of apartments are foreclosed on,

their renters are evicted even though they have been paying their rents.

 Those who were evicted usually lost their security deposits.

 Families that were foreclosed on now had to move into apartments. The demand for apartments exceeded the supply, so owners raised rents.

The Great Recession and its Aftermath

Housing Woes  The dwindling supply of affordable housing hit

low-income families especially hard.  Since the 1970s, rents have increased and the stock

of low income housing has shrunk. Trends leading to less affordable housing

Gentrification: The process of converting low-income housing to condominiums or upscale apartments for the middle and upper-middle classes.  Urban developers and real estate interests buying up low income

properties, speculating they can be flipped for profit.  Federally financed urban renewal projects of the 1960’s-1980’s

demolished blighted properties in poor and working-class neighborhoods, but failed to replace the housing.

The Great Recession and its Aftermath

Financial Decline  During the Great Recession Household wealth

dropped $11 trillion.

 Individuals lost over $1 trillion in their 401(k) retirement savings.

 2.4 million workers lost health insurance they were getting through their employers.

 Americans cut back on “extra” health care costs. They also ignored seeing dentists.

The Great Recession and its Aftermath

Personal Bankruptcies  2008-2009: 1.2 million Americans filed

for bankruptcy, a 46% increase from the year before.

 2009-2010: 1.55 million Americans filed for bankruptcy, an increase of 32% over the prior year.

Sources of personal bankruptcy  Medical catastrophe, divorce,

foreclosure, credit card debt.

Downward Social Mobility

What is the “American Dream”  Home ownership  Own a new car  Go on vacation once a year  Be able to provide a college education

for your children. 1945 – 1973: Americans increasingly experienced upward social mobility 1980-Present: The middle class has been shrinking while the top 5% of the population is become more wealthy.

Patterns of Social Mobility

Mobility in the U.S. Rate of Mobility: With industrialization (1800-1950) the rate of upward mobility in the U.S. increased with 33% - 50% of people achieving an occupational status at least one level higher than their fathers.

Direction of Mobility: Most social mobility is upward. However trends over the last 30 years show a “middle-class squeeze” with people who once held secure places in the middle class finding themselves struggling to keep pace. Since 1970 economic growth has had less impact on the average family and absolute mobility has declined. Range of Mobility: When mobility does occur, the distance most people move is only marginal. Broad leaps from one class to another are not common. The rags-to-riches cases in reality are extremely rare (despite how often the media covers them).

Patterns in Social Mobility

Question: Is there greater social mobility in the United States compared to other developed nations? Answer: No  Those starting at the bottom of the income hierarchy

in the United States have more difficulty in moving upward than low-income starters in other developed nations.

 The data contradicts the widely held belief that there are greater opportunities for upward movement in the U.S. than in other developed industrialized countries.

Social Mobility

Poverty

During the Great Recession, an additional 8.9 million Americans fell into poverty. Poverty Rate: 2007: 12.5% of the population 2011: 15.0% of the population  Despite cuts to the social safety net since the

1980’s, the government’s poverty data for 2011 confirm that safety programs work:  Unemployment benefits kept 2.3 million out of

poverty.  Social Security benefits kept over 21 million elderly

and disabled out of poverty.  Nutrition Aid and Food Stamps lifted 2.9 million

people out of poverty.

Poverty

Defining Poverty

Official Poverty Line in the U.S.:  The poverty line is often criticized

because of the way it is uniformly applied, without regard for regional differences.

 Example – a family living in Washington, D.C. needs 2-3 times the income of a family in Des Moines, Iowa for basic expenses (rent, utilities, transportation, healthcare, child care, etc.)

Persons in family/household

Poverty Guideline 2019

1 $12,490

2 $16,910

3 $21,330

4 $25,750

5 $30,170

6 $34,590

Who Are the Poor?

U.S. Official Poverty 2017:

Race/Ethnicity % Living in Poverty

Number living in poverty

Total Population 12.3% 39.6 million White, non-Hispanic 8.7% 17 million Black 21.2% 9 million Hispanic 18.3% 10.8 million Asian 10.0% 1.9 million American Indian 26.2% 700,000

Source: U.S. Census Bureau, Income and Poverty in the United States: 2017, Current Population Reports

Who Are the Poor?

U.S. Official Poverty 2017:

Age % Living in Poverty

Number living in poverty

Children (under 18) 17.5% 12.8 million Adults (18-64) 11.20% 22.2 million Adults (65+) 9.2% 4.7 million

Education Level (adults 25 and older)

% Living in Poverty

Number living in poverty

No high school diploma 24.5% 5.5 million High school, no college 12.7% 7.9 million Some college 8.8% 5.1 million Bachelor’s degree or higher 4.8% 3.7 million

Source: U.S. Census Bureau, Income and Poverty in the United States: 2015, Current Population Reports

Poverty

Near Poor  Families that have incomes less than 50%

above the poverty line.  The Great Recession brought about a

massive increase in the “near poor” population.

 According to the U.S. Census, this group is diverse.  50% are non-Hispanic whites, 18% are Black, and

26% are Latino.  Nearly half live in households headed by a married

couple.  They live paycheck to paycheck. One crisis will

throw them into poverty.

Poverty

Old Poor  The poor of previous generations (1940’s-

1970s) who had hopes of breaking out of poverty. If they did not break out themselves, at least they believed their children would.

 Their hope was based on a rapidly expanding economy and good paying manufacturing jobs for people with just a high school education.

New Poor  Includes more recently displaced workers of

the recent past (1980’s – today) who are trapped in poverty. They do not have the education level or skills to move beyond minimum wage work which undercuts their efforts to be in the working class.

Food Insecurity Food Insecurity  A government term that refers to households that have

difficulty getting enough food. According to the U.S. Dept of Agriculture – in 2011 17.9 million U.S. households (50 million people), did not have enough food at all times to sustain an active, healthy lifestyle for all family members.

 Food insecure families may not know where their next meal is coming from and it is difficult for them to access affordable healthy foods.

 These families depend on government programs such as food stamps and their children receive free or reduced-cost school lunches.

 Privately funded food banks and soup kitchens during the Great Recession also reported a record demand for their services.

The New Homeless

Who are the “traditional homeless”?  Mostly people who have experienced long-

term poverty throughout their lives or constantly live near poverty.

Who are the “new homeless”?  It includes middle class families who never

expected to find themselves without shelter.

 Due to the Great Recession, people being laid off, and an increase in foreclosures.

 From 2007-2010 the homelessness increased by 38%.

Moving Down from the Middle Class

The consequences of downward mobility on families:  The loss of one’s home and the process of relocation forces

people to break ties with close friends, neighbors and others in the community.

 Children, who are dependent on peer approval, find it difficult to deal with the gap in material differences between themselves and their friends.

 Many families attempt to cover up their downward mobility

due to personal shame.

 Members of families facing downward mobility can experience high stress levels, marital tension, depression, and other health related issues. In extreme cases, physical abuse, alcoholism, desertion, and suicide can result.

Moving Down from the Middle Class

 In her book Falling From Grace: Downward Mobility in the Age of Affluence, Katherine Newman found that unemployed managers often blamed themselves for their downward mobility despite the fact that larger structural factors (downsizing, layoffs, outsourcing, etc.) were to blame.

 Downwardly mobile middle class people found that in

addition to financial hardship, they had to deal with psychological, social, and practical consequences of losing their status.

 Individual self-esteem and family honor were bruised.

Consequences of the Great Recession

Marriage & Fertility  Spurred by the Great Recession, couples cohabitated

more and married later. In 2010 the number of cohabitating couples in the U.S. grew by 13% from the year before.

 In tough economic times people are more likely to delay having children.

 Declining fertility - Annual U.S. births fell by 300,000 from 2007-2010. The number of men seeking vasectomies increased during the economic downturn as did sales for condoms and female contraceptives.

 Fertility rates similarly fell during the Great Depression of the 1930’s.

Consequences of the Great Recession

Children at Risk  The Great Recession has had a negative impact on

the economic well being of many children.

From 2007-2010  The child poverty rate rose from 18% to 22%.

 The number of children receiving the benefits of

the Supplemental Nutrition Assistance Program (SNAP) increased by 8 million.

 The number of children living in families with an unemployed parent went from 3.8 million to 6.5 million.

Consequences of the Great Recession

Divorce  A Kaiser Family Foundation 2011 survey found that

more than 20% of those who had been out of work for a year or more reported their relationships with intimate partners have change for the worse.

 Data actually indicates that couples are delaying divorce because they cannot afford to set up separate households. They continue to live together in the same house and lead “separate” lives.

 From 2008-2010 the number of divorces decreased by 7%.

Consequences of the Great Recession

Shifting Family Forms  During the Great Recession the number of relatives

sharing living quarters increased.

 The number of households where middle age adults took in their aging parents, increased.

 An increasing number of adult children lived at home with their parents due to low-paying jobs, student loan and credit card debt, and the high cost of housing.

 75% of the jobs lost during the Great Recession were lost by men. Traditional jobs for men in manufacturing and construction were slow to recover. This caused many women who had not been in the workforce or had only worked part-time to take on additional jobs.

Consequences of the Great Recession

Underground Economy  Work activities that are not regulated by the

government or reported to the IRS. In difficult economic times (fewer jobs, lower wages, mass unemployment) people engage in the underground economy to sustain their families.

The underground economy includes:  Legal Activities: childcare, yard sales, doing others’

laundry, street vendors without permits selling food and clothing, collecting recyclables, automobile repair, landscaping, selling plasma, etc. (While the work activities are not illegal, not paying taxes to the IRS on the work is illegal).

 Illegal Activities: selling drugs, engaging in sex work, selling stolen property, etc.

Consequences of the Great Recession

Shrinking Consumption Insourcing: In the business world this means producing products “in house” the opposite of “outsourcing.” The term has also been used to describe individuals who personally do activities they once paid others to do. Examples of insourcing by family members to save money:  Landscaping  Dyeing and cutting hair  Doing your own nails  Growing food in your own garden, and canning and

freezing food supplies.

Consequences of the Great Recession

Shrinking Consumption  Retailers catering to bargain shoppers such as Family Dollar,

Dollar Tree, Dollar General, and Costco thrive.  Thrift stores are booming as people are buying used furniture,

household items, and clothing.  More people are “keeping their stuff” repairing, trading, or selling

items. This results in a landfill decline.  Pawnshops and consignment stores flourish as consumers seek

cash and bargain hunters look for high-end items at reduced prices.

 Vacation travel declines, airline and cruise ship sales decline.  The sale of gas-guzzling SUVs are lower than fuel efficient vehicles.  People hold onto their cars longer rather than buying new ones.

Sales of auto parts was at an all time high during the Great Recession.

 People cut back on entertainment (eating out, attending sporting events, going to the movies, gambling, and health clubs).