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The Over, the Under, and the Anxious

Secretary of Labor Robert B. Reich

Center for National Policy in Washington, D.C.

August 31, 1994

On the eve of the second Labor Day of this Administration, there is much for America's working men and women to celebrate. We are enjoying a robust jobs expansion, without any signs of inflationary dangers. The unemployment rate was down to 6.1 percent at last month's reckoning. There are still a few hours left in August, and nobody -- including me -- knows what this month's jobless rate will turn out to be. But what matters is the trend, and the trend is very good. Between last Labor Day and the end of July, the economy added over 2.5 million new jobs -- more than in the full four years of the Bush Administration. In the Clinton Administration so far, the economy has generated 4.1 million new jobs, 93 percent of them in the private sector.

Comparing parallel points in the last recovery gives some perspective on this accomplishment, and the odds against which it was brought about. Private payrolls have grown by 4.2 percent in the past year and a half. Over the corresponding period of the much-vaunted Reagan recovery, private job growth was 3.9 percent. And this recovery has had to struggle against the anchor of debt left by the spending that fueled the last one -- the legacy of a profligate decade in which federal debt grew from $908 billion in 1980 to $3.2 trillion in 1990.

Not only are we delivering job growth while shrinking deficits, but through expanding the Earned Income Tax Credit we're lowering taxes for 15 million working families with modest incomes. Only a tiny fraction of Americans -- the richest 1.2 percent, who are best able to shoulder an extra burden -- are paying slightly higher taxes. The dire forecasts that spending cuts would fail to materialize, or that a small tax increase on the fortunate few would bring the economy to its knees, have been proven dead wrong. The President's plan has worked.

And yet our mission is just begun. Getting our fiscal house in order and reigniting job growth were essential to repair the damage of the recent past, but they are only the prerequisites to our broader agenda -- reversing the economic divisions that have undermined our sense of common destiny, and laying the foundation for a new middle class.

Even though it has been a long time since the picture was so bright for the average American worker, the experience of the average worker is becoming less and less relevant. Some workers are surging ahead, others are treading water, and still others are sinking fast -- in the same economy, at the same time. The state of the American workforce, in short, is divided.

In the late 1960's, as my generation was joining the workforce, the vast majority of Americans were middle class, in reality as well as perception. Their status and prospects differed only moderately from the average. In an astonishingly short time, the old middle class has splintered. The erosion of a sense of shared prospects poses what may be our nation's most critical challenge of the post-Cold War era. Reversing this erosion, giving all Americans a reason to believe once more that hard work will lead to a better life, is this Administration's central objective.

Broad trends that have converged and accelerated since the middle 1970's have split the old middle class into three new groups: An underclass largely trapped in center cities, increasingly isolated from the core economy; an overclass of those who are positioned to profitably ride the waves of change; and in between, the largest group, an anxious class, most of whom hold jobs but who are justifiably uneasy about their own standing and fearful for their children's futures.

Despite the progress of the past year, this division still casts a shadow over the state of the American workforce on Labor Day 1994. Let me describe this picture in greater detail -- with the help of new data, much of it recently compiled by the Bureau of Labor Statistics.

The fundamental fault line running through today's workforce is based on education and skills. Well-educated and skilled workers are prospering; those whose skills are out of date or out of synch with industrial change anxiously contemplate their prospects; those without education or skills drift further and further away from the economic mainstream. The notion that we're creating a bounty of bad jobs is a myth. Most new jobs are good jobs. The problem is that the jobs that remain for workers without skills or with the wrong skills are becoming grimmer and grimmer.

Skills have always mattered, to be sure, but they have not always been such potent determinants of economic destiny. As recently as 1979, a male college graduate earned 49 percent more than a similar man with only a high school diploma -- a sizable difference, to be sure, but not too large for the two to share the label "middle class". By 1992, however, the average male college graduate was earning 83 percent more than his high-school graduate counterpart, and the notion of common prospects had faded considerably. More recent data are not available, but there is no reason to believe this trend toward inequality has been reversed. The picture for women is similar, if slightly less stark. At every level of education and training, the pattern holds: The higher the skill level, the higher the earnings. And the gap has been growing.

There is a similar divergence in employee benefits. Employer-sponsored health coverage for workers with college degrees has declined only slightly, from 79 percent in 1979 to 76 percent in 1993. But rates for high school graduates have fallen from 68 percent to 60 percent over the same period, and for high-school dropouts, the 1979 rate -- already low at 52 percent -- has plummeted to 36 percent. This inequality is one reason why the Clinton Administration remains committed to comprehensive health care reform. Similar divisions apply to employer-sponsored pension coverage. Nearly two-thirds of workers with college degrees are included in pension plans at work, but fewer than a quarter of high-school dropouts.

Not only the wages and benefits that workers can command, but also their chances for holding a job at all, are divided along lines linked to skills. This gap, too, is widening over time. In the 1970s, the average unemployment rate for people who had not completed high school was 7 percent. By the 1980s, this rate averaged 11 percent, and in 1993 it was over 12 percent. High school graduates have also seen their risk of joblessness trend upward. By contrast, the unemployment rate for workers with a college degree or better has held fairly steady at around 3 percent. Over the most recent ten-year period for which data are available -- the period from 1983 to 1993 -- the number of jobs in sectors that typically require higher levels of education has grown by an annual average of 2.8 percent, while job growth in sectors requiring less education has been only 1 percent. This shift in favor of skills shows up not just in the United States, but in other advanced countries as well. Over the same period jobs in high-skill sectors have grown rapidly in Canada, Japan, France, Germany, Italy, and the United Kingdom, while job growth in low-skill sectors has been slow or nonexistent, narrowing horizons for workers without adequate education and training.

In a seeming paradox of today's economic news, financial markets fret that unemployment is too low to contain inflation, even while 8 million willing American workers remain jobless. Part of the answer to the apparent contradiction is that markets for highly skilled labor are becoming tight in many parts of the economy, creating the conditions that can kindle inflation worries. But millions of less-skilled workers remain idle or underemployed. This wasted workforce is walled off by skill barriers from the leading edges of the economy where capacity constraints loom. The best way to expand the economy's capacity and lower the level of unemployment needed to bridle inflation is to dismantle these walls by preparing underutilized workers for more productive work.

What lies behind these widening disparities within the workforce? Manufacturing jobs were once the gateway to the middle class, even for workers who started off without high-level skills. While it is a myth that international trade has robbed America of its manufacturing industries, technological changes have diminished the role of labor, especially unskilled labor, in the modern factory. And global trade and investment surely have hastened these technological changes. Even within manufacturing industries, a rising share of value is added before the assembly line begins (in the form of market research, design, and engineering) and after goods are produced (in the form of precision-scheduled delivery, customized installation, and maintenance).

Labor unions have long helped shore up wages and benefits even for workers without high-level skills. But today, only eleven percent of the private-sector workforce is represented by a union. Let there be no doubt: A revitalization of the labor movement would help reverse the erosion of the middle class. This Administration is committed to full enforcement of the laws guaranteeing workers' rights to form unions and bargain collectively.

But we cannot stop there. The forces unleashed by technology must be mastered, not merely buffered. As increasingly capable machines join ever more Americans at the workplace -- join them both as co-workers and as competitors -- the payoff to education and training has soared, and the penalty for lacking skills has stiffened.

The most striking change in the workplace has been the brash arrival of the computer. In 1984, about 25 percent of American workers used computers on the job. Last year, almost 47 percent did. And contrary to the myth that computer-literate youngsters are running circles around their technophobic elders, workers between 40 and 54 comprise the group most likely to work with computers. We're talking about my generation. Fully half of them use computers at the workplace, compared to around a third of workers between 18 and 24. Even workplace communication has been transformed, as one in ten workers now uses electronic mail to communicate with colleagues around the corner or around the world. Not long ago I arranged for 60 people at the Labor Department to report to me directly on an e-mail system piped into my home computer. I haven't had a peaceful evening since.

But the computer revolution has deepened the division of the American workforce. Two-thirds of college graduates use computers at work, but only one-third of high school graduates, and fewer than one in ten high-school dropouts. The vast majority of managerial, technical, and professional workers use computers. But people in lower-paying, lower-skill occupations use them far less frequently. The information highway promises to speed some people to desirable destinations, but it may be leaving others stranded in the high-tech version of inner-city ghettos. Indeed, a recent study of census data found that fully five percent of America's households -- disproportionately poor, or minority, or single-parent families -- lack access to a telephone, the basic ticket of entry to the information web. Other data show that minority children are less likely to use computers at school or at home. As personal computers become standard equipment for learning at home, children who are disconnected from the system will fall further and further behind.

Yet the long-term data also affirm the potential for building a new middle class. The skill-based divisions of today's workforce are in some ways more readily overcome than the divisions based on race or gender that have haunted America throughout our history.

Even as we celebrate the 30th anniversary of the Civil Rights Act, the road to opportunity is often much rockier for people of color. Last month, the national unemployment rate for black Americans was over 11 percent, more than double the rate for white Americans. Today, black men hold only three out of every 100 managerial, professional, and technical jobs in the American economy. The median income for black males working full-time, full-year in 1992 was $22,400 -- just 72 percent of the median income for comparable white males.

Hispanic Americans seeking to join the middle class have confronted similar obstacles. Their unemployment rate tops 10 percent, and their earnings -- particularly for Hispanic men -- have been steadily eroding. And Hispanic workers are significantly less likely than their white counterparts to receive health insurance on the job.

Closing these gaps requires a long, painful process of national growth and healing to which we remain committed. But virtually every willing worker can expand his or her skills; indeed, information technology itself promises to vastly increase the productivity of learning as it makes top-flight teaching tools more widely available. In path-breaking training programs in the troubled heart of Detroit and the barrios of East Los Angeles, I have seen some of the country's most stigmatized young people learning some of the economy's most sought-after skills, earning themselves entree into the new middle class.

While visiting one such program, I talked with a young woman who said, "I used to hate math." But now her perspective had changed. Math class -- once a blizzard of abstract equations -- had become a concrete way to build skills for a good job. Now, she told me, "I love geometry."

America has hope enough to go around. There is no fixed number of good jobs to be parceled out, nor any natural limit to the ingenuity of the human mind and the new products and services it can concoct. We already see emerging all around us examples of the sophisticated yet accessible work that can form the platform for a new middle class. Some of the most notable job growth has occurred among technicians, who defy the traditional categories of the old economy. Their ranks are predicted to grow by nearly 40 percent over the decade to come. Data released recently by the Bureau of Labor Statistics show the most rapid job growth in high-paying occupations, even within traditionally low-paying industries -- hinting at the proliferation of new kinds of middle-class jobs throughout the economy.

In my travels throughout America, I've met workers who repair vending machines using hand-held computers to identify problems and communicate with the home office, or who manage sections of retail stores by periodically tapping PCs to monitor sales and replenish inventories. Skilled workers use computers to monitor manufacturing machinery, or to link other computers as they install and test complex communications networks, or they go online to research cases and statutes at law firms. Some technical workers drive trucks equipped with a computer and modem and make just-in-time deliveries. Others orchestrate sophisticated spreadsheet and graphics programs to create value in ways unimaginable a decade ago.

The technician jobs that will sustain the core of the new middle class usually require some education beyond high school, but they do not always demand a four-year college degree. Degrees from community colleges -- the unsung heroes of the new middle class -- are paying off, and their enrollments are rising. Men with community college degrees earn 26 percent more, on average, than men with only a high school diploma. Women who have graduated from community colleges earn 33 percent more than women with a high school degree alone.

The Clinton Administration's workforce agenda is anchored by the proven facts that skills matter, and they can be learned. The fruits of our commitment to creating a new middle class are already emerging. We have begun to combat the forces dividing America's workers with an armory of new approaches to lifelong learning. (Ironically, many of these accomplishments have been little noticed because of the bipartisan consensus supporting them. Bipartisanship summons less attention than ideological brawls.)

Consider: An additional 130,000 children each year can now be made ready to learn at school through Head Start. School systems throughout America have millions of dollars in new incentives to improve their performance. During the summer just ending, some 120,000 disadvantaged young people who otherwise would have been on the street instead combined jobs with classroom instruction. Over the next six years, almost half a million young Americans will be entering youth apprenticeships during the last two years of high school, many of them receiving special skill training beyond high school.

Starting this fall, 20,000 young people will enter National Service, earning money that they can apply to a college education. The three and a half million people who take out education loans each year now have the option of repaying their loans as a percentage of future income. We're delivering on our promise to make work pay -- offering tax relief for 15 million working families with modest incomes. We've begun transforming the old unemployment insurance system into a reemployment system, ensuring that this year alone an additional 150,000 Americans who have lost their jobs will get the skills or the job-search help they need to find new ones. (Community colleges are quietly evolving into a core component of the emerging reemployment system, as thousands of experienced workers who have lost their jobs are able to rejoin the middle class thanks to community-college training.)

And we remain committed to staying the course on health-care reform, not least because the workforce stakes are so high. Without delivering on the promise of health security, our mission of turning the anxious class into a new, more secure, more productive middle class cannot be completed.

American business also has a crucial role to play in building a new middle class. Skills learned on the job, or in a work-related setting, tend to be especially well-tailored to the requirements of the workplace. New data on work-related training -- even though they do not capture the vital but hard-to-measure effect of informal on-the-job training -- show that the impact of such training is of the same magnitude as more traditional schooling. In fact, men and women who graduate only from high school, but who have received work-related training, earn more than people who have attended some college but who have not received any additional training, and almost as much as college graduates who lack additional work-based training.

A positive sign is the growing readiness on the part of labor unions to include training benefits in bargaining. A contract negotiated this year between Nynex and the Communications Workers of America encourages workers to earn a two-year technical degree. Employees can spend one paid day a week building their skills, with the guarantee of a $50-per-week raise upon graduation. Workers employed for five years or more qualify for up to two years of education leave, and up to $10,000 yearly for tuition.

Yet most companies are not yet doing enough training, and what training they do provide is not being directed to workers who need it most. Among young college graduates, about 35 percent now receive work-related training. That's nearly double the rate for high school graduates and more than four times the rate for high school dropouts. The workers most likely to receive training are white, male, well-educated, and working in high-paying occupations. This imbalance serves only to harden the divisions within the workforce.

The payoff to work-based training, and the inadequacy and uneven distribution of such training, highlights the need for a new social compact among American workers, business, and government. In its first year and a half, the Clinton Administration has delivered much of what business has sought in order to bolster its competitiveness -- lower deficits, low inflation, more open world markets, promotion of American companies abroad. Now business needs to do its part in this new compact by bringing all workers along on the route to prosperity, investing aggressively in their skills and making them partners in productivity. For American businesses, this new social compact is an imperative not only of corporate citizenship, but also of their own long-term interests.

A constant theme of American history has been the challenge of forging unity out of diversity. Over and over, we have had to affirm our identity as one nation, even in the face of profound differences. We are at such a point once again. This time, though, the deepest divisions aren't based on race or on national origin or on geography. They're based on the ability of individuals to make their way in an increasingly turbulent economy. The overclass is doing fine, but questioning its connection to the rest of America. The underclass is isolated in marginal enclaves walled off from hope. The anxious class is being pulled and stretched -- by the need to work two or more jobs to keep a family solvent, by uneasiness about health care, by the specter that today's job will disappear tomorrow, and by fears that their kids will be denied the opportunity for a better life.

If unchecked, these divisions can corrode our society. Unlike the citizens of most other nations, Americans have always been bound together less by a shared past than by shared dreams of a better future. If we lose that common future, we lose the glue that holds our nation together. Even now, some aspiring demagogues, feeding on the fear and anger unleashed by the splintering of the old middle class, stoke the fires of hate on the airwaves, and conspire to conceal their own agendas behind the banners of fear and division. This Administration proudly claims these cynics as adversaries.

Nothing is more vital to fulfilling our nation's defining promise than preparing all Americans for meaningful, productive working lives. This is no simple undertaking -- especially with the most austere federal budget in a generation. But if we pledge our common efforts -- business, labor, government at all levels -- we can clear the path to opportunity for today's working men and women and their children.

In this century's waning years, in the hopeful, fearful confusion of the Cold War's end, our most important mission is to restore hope to the anxious class and lift despair from the underclass, to affirm with conviction that the American dream of broadly-shared middle class prosperity still endures.

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