Manufacturing Jobs Didn't Create a Middle Class, Wall Street Did

American wealth is becoming more concentrated. The rich are getting richer, and the poor are getting poorer.

The vast disconnect between poor and rich wasn't always this way. Just decades ago, manufacturing jobs promised a solid middle class income and a pension that a worker could live on for life. Manufacturing was, for many, a way to an American dream.

So it's not a surprise that we look at manufacturing as a way to bring back the middle class. After all, manufacturing jobs sustained a middle class for decades.

If we can simply bring back manufacturing, we can bring back the middle class, right?

What if manufacturing never left?
The truth of the matter is that manufacturing never really left the United States. In fact, we produce just as much as we ever have in the United States. Factories are still here. Workers, however, are not.

The cold reality is that capital -- robots, tools, and machines -- have replaced most workers on factory floors. And, even if "Made in America" were to return, it wouldn't bring back the millions of jobs we really need.

We can survive without manufacturing
Our fascination with manufacturing is misguided. It wasn't a manufacturing job that created and sustained a middle class. It was savings, a derivative of any job.

The decline of manufacturing created the decline in the defined benefit pension. In 1980, 38% of private wage and salary workers had a classic pension. In 2008, only 20% were offered a pension, according to the Social Security Administration.

And it is this, I believe, that really put in motion the decline of the middle class. You see, in the manufacturing heyday, workers were promised a wage or salary, and a pension on top. The pension was, in effect, required savings. Businesses set aside funds that would normally be paid out in wages to fund pension programs.

Workers didn't have the choice to save for retirement. It happened automatically. 

How things have changed
Today, defined benefit plans (traditional pensions) have been mostly replaced with defined contribution plans like a 401(k). No longer are workers forced to save. Rather, they have the option.

But studies show that workers don't chose to save when given the choice. Workers save the most when they have to decide not to save.

A Harvard study complied data on opt-out retirement plans, finding that after six months of tenure, 86%-96% of employees at opt-out workplaces were contributing to retirement, a full 50-67 percentage points more than companies that didn't have automatic enrollment.

It also found that the amount of the initial starting contribution had little or no effect on how many people continued to save.

One company automatically enrolled workers in a plan to save 6% of their income in a 401(k), a rate well above average for all 401(k) plan savings. Most workers continued with that 6% contribution.

This just goes to show that most workers will work to craft their budget around their biweekly paycheck. If paychecks are reduced by a small retirement contribution, most don't feel enough of a pinch to actively reduce their retirement savings.

Why it matters
A recent report encouraged me to write this article. In 2013, only 52% of Americans own any stocks, either through a mutual fund, pension, 401(k), IRA, or individual shares in a brokerage account. That was the lowest reading since Gallup first started recording statistics. If this were 1980, at least 38% of Americans would own stocks through their pension alone.

It's a troubling statistic, and one can't help but think it is the source of wealth inequity in the United States. At the same time corporate profits are reaching new highs, fewer Americans are participating in the profits. Those that save in a 401(k) or IRA are raking in the dough. Those that aren't are slowly watching everyone around them become wealthier.

There's no easy solution to wealth inequity, but a simple step could fix some of the problem. Employers should do the right thing, and offer all employees a 401(k) plan. And I'm not talking about a lucrative match. I just mean a 401(k). Many employers don't offer a 401(k), matched or unmatched.

And if employers really cared, they would create an opt-out retirement plan, a plan that required workers to take a step not to save, but to stop saving. It wouldn't erase wealth inequity overnight, but it would allow more Americans to participate in the beautiful thing that is capitalism.

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  • Report this Comment On December 07, 2013, at 6:09 PM, thumber wrote:

    This article is terrible and covers the truth.

    Yesterday, the Bureau of Labor Statistics reported that the unemployment rate had dropped to 7% for the first time in five years, based on November numbers. American employers added 203, 000 jobs. But, by contrast, looking back to when the U.S. was truly prosperous, what was "normal" then? The answer is a jobless rate of well under 5%. It is an illusion to claim that America has returned to prosperity, when the job market is still in a shambles.

    Related Stories

    Many economists say that the REAL trouble with the present jobs market is that so many people are underemployed, and millions have left the job market altogether because there are fewer jobs available that are full time.

  • Report this Comment On December 08, 2013, at 12:56 AM, RealTalk wrote:

    this articles a joke, and the write has no clue about economics or population scale. you can shout facts preach numbers w/e but guess what the reality is ppl you know get laid off, then you get laid off and all because manufacturing went overseas. thats the cold hard truth. been homeless twice. ty for your time in reading.

  • Report this Comment On December 08, 2013, at 10:45 AM, LadyMantle wrote:

    The article speaks volumes as the truth is, manufacturing is becoming more and more autonomous. People just are not needed like they used to be. Now, manufacturing needs "babysitters" to make sure the machines are working and that requires only a handful of people. Chinese workers are now facing the same dilemma. That bit about many missing out on the recent gains on Wall Street and they should have stayed in the market is hilariously funny. Many had zero balances after the evisceration of 2008-2009. Even before the crash, wages had not kept up with inflation and people were living close to the wire and were not able to save much. Then when the housing market plummeted to all time lows, it was a double whammy. The disparity of income is not a new phenomenon, it was in the making a very long time but in the last 5-6 years, it has been a very slippery slope for most.

  • Report this Comment On December 08, 2013, at 9:38 PM, jehoover wrote:

    There is a book that explains it all... " The Triumph

    of Capital over Labor, the Judas Economy ".

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