For middle-out economics to gain purchase in the public sphere as the progressive alternative to supply-side economics, it has to consist of more than a slogan. It has to be right on the economics and provide a clear policy direction. Focusing on the economic challenges of the middle class offers both the empirical justification and the policy direction for a progressive agenda. No set of policies is more central to making middle-out economics concrete and appealing to the American people than those designed to help middle-class families.
Middle-class families are important to the economy in two ways. First, they create demand. U.S. households account for $7 out of every $10 spent in the economy, and, considering that 60 percent of households are middle class, their spending patterns to a large degree determine overall demand. Second, to put it bluntly, families produce and reproduce people. Families are where workers rest, eat, and prepare for the next workday; where future generations of workers are raised and educated; and where the old and the sick are cared for. If middle-class families cannot support these functions, it negatively affects the nation’s stock and flow of what economists call “human capital”—the education, training, and health of the potential labor force. This is critical because a nation’s human capital drives long-term economic growth.
To the noneconomist’s ear, studying families as the fundamental economic unit of society may sound callous. It’s as if we care about families only because we need consumers to buy things and workers to add productive capacity. But there is no getting around the fact that without well-functioning families, the structure of our economy crumbles. If we allow families to fail, they cannot be the kinds of consumers that will create demand for new, innovative products. If families are not able to provide care for and to educate their members, then we won’t have a workforce that can compete in the twenty-first-century global economy.
To understand the importance of middle-class families to our economy, let’s look at both their role as consumers and producers. We’ll see clearly that middle-class families are at the core of our economy.
Worsening income inequality has had a direct effect on how families behave as consumers in the economy. John Maynard Keynes argued that if additional income goes to those at the lower end of the income distribution, it will have a larger effect on demand than if additional income goes to those at the very top. This is a well-established fact in empirical economics so long as we include only current earnings; recent economic research also concludes that the rich spend a lower proportion of their income than do other families over a longer time horizon. Simply put, people with lower incomes are more likely to spend additional income, while the wealthy are more likely to save it. This body of work suggests that changes in the distribution of income have important implications for demand, and therefore the stability and growth of the economy.
A number of economists have been looking to measure the effect of inequality on demand, especially in light of the financial crisis and the role played by household debt. Beginning in the 1970s, income inequality began to grow as high-income families pulled away from the rest of Americans and earnings no longer kept pace with productivity. At the same time, wives began entering the labor force in large numbers, which kept family incomes rising, especially in the middle of the income distribution. Without the added earnings of wives since the mid-1970s, family income growth would have been fairly flat. Beginning in 2000, as family incomes saw little or no growth, families began taking on more and more debt. In the end, this high level of debt was unsustainable and amplified and deepened the economic crisis.
Rising income inequality has also affected how families produce and reproduce human capital. How adults in families fare matters immensely to our current workforce; how those adults care for and nurture children affects our future workforce. As women have moved out of the home and into the workplace, a caregiving gap and a “time bind” have emerged. Home production—all the work that goes into making sure there’s food in the fridge, dinner on the table, clean clothes in the morning, and everything else that keeps a household functioning—is now often outsourced or bickered over by tired and grumpy people when they return from their “day” jobs, which often run well beyond the traditional nine-to-five time frame.
Income inequality adds an important wrinkle, as families experience work-family conflicts in strikingly different ways based on where they sit on the spectrum. Some families are able to “do it all,” with adults in the labor force and family members well cared for, thanks to high incomes, workplace standards, and support from social institutions that recognize this challenge. Unfortunately, too many families do not have access to such help.
Professional families are more likely to have access to workplace policies that help them address their hectic lives, and their higher incomes mean that they can afford to purchase high-quality care and other support, like housecleaning and nutritious prepared foods. My colleagues and I analyzed data from the Bureau of Labor Statistics American Time Use Survey and found that among high-wage employees, more than 90 percent report that their employer allows them to earn paid time off or to change their schedule if they have an urgent family issue. Moreover, those who pay for child care spend only about 3 to 7 percent of their total family income on it.
While professionals tend to be in busy two-parent families, low-income families tend to be headed by single earners, have the least access to paid leave or on-the-job flexibility, and are less likely to be able to afford high-quality care. We find that unlike professional families, only one in four private-sector workers in the bottom 25 percent of earners has paid sick time, and less than half can change their schedule if they have an urgent family issue. Further, workers in low-income families are most likely to have unpredictable schedules and too few hours. Low-income families are more likely to rely on family members for child care, often because the costs of professional care are so high. Among those who do pay for care for a child under age six, the cost eats up 14 percent of total family income, even though they spend only half as much on average as professional families on that care.
Most middle-income families with children have two parents and, like high-income families, both parents typically work. But they often don’t have the resources or on-the-job flexibility to address conflicts between work and family. Middle-income families are most likely to rely on “tag-team” parenting, where one parent works while the other provides child care; when they do pay for child care, it eats up a large portion of pay, accounting for 6 to 9 percent of total family income. Like low-income workers, employers don’t often provide flexibility: Only 44 percent of workers in the second-lowest wage quintile and 68 percent in the third quintile work for an employer who allows them to earn paid sick time, and only about half can change their schedule if they have an urgent family issue.
One thing is clear: The rise in inequality and the way that work-family conflict plays out differently for low-, middle-, and high-income families have made it harder for many to be productive at work and harder for families to prepare adequately the next generation of workers. Unfortunately, there has been very little policy change around work and family issues in response to these challenges.
What can we do to turn things around? On the consumption side, we need to stabilize family income and realign growth in productivity with growth in wages so that all workers and their families benefit as our economy becomes richer. Five years after a financial crisis that threatened the global economy, we know that an economy built on middle-class debts is ultimately unsustainable. Consumers have been growing in importance in the U.S. economy since the 1960s, but in recent decades, as incomes have been squeezed, they increasingly took on debt to maintain their standard of living. And Wall Street was only too happy to oblige. But this is not a sustainable growth strategy. The incomes of middle-income families must rise commensurate with productivity gains in order to support similar consumption growth.
On the human-capital side, we need to create a variety of ways to help workers avoid conflict between their jobs and their family life. The Fair Labor Standards Act was signed into law in 1938, a time when those who had jobs also had excruciatingly long workdays. However, the overtime and hours provisions apply only to production, nonsupervisory workers who are paid by the hour, which accounts for probably under two-thirds of all U.S. workers. And there is nothing in the law to address the need for predictable schedules or sufficient hours of work.
Employers can no longer look out at a workforce and assume employees have someone at home to deal with life’s big and little emergencies. Yet we have no national standards on access to job-protected paid sick time or paid time off when a family has a new child or someone needs care for a serious illness. The Family and Medical Leave Act provides 12 weeks of unpaid leave to new parents or workers who have a serious illness or need to care for a seriously ill family member, but because it is unpaid, workers in the middle too often cannot afford to take it. Further, tight eligibility rules mean that only about half of all workers are even eligible.
But states and localites are showing the way forward for inclusive policies that support middle-class families: Connecticut, San Francisco, Seattle, Portland, New York City, and Washington, D.C., have all passed laws allowing workers to earn paid sick days, and California and New Jersey now have statewide insurance programs in place to provide income when workers need time away to welcome a new child or to care for a seriously ill family member.
If we want to have the kind of economy that can compete in the twenty-first-century global marketplace, making sure that the changes in how families work and live can support growth—both through stable consumption and through caring for workers—must be a top priority. Such policies are a cornerstone of any economics that puts the middle class first.