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Pinch has many pinching pennies Decline in spending power takes toll


Washington -- Feeling the financial pinch? Join Brian and Maggie Nichols, Paul Lurz, Daniel and Jennifer Vibbert, and millions of other Americans.

All are victims of a downward trend in spending power that is creating a squeeze on individual and family budgets and hampering the nation's economic recovery.

Three forces are at work: a long-term and widespread decline in inflation-adjusted earnings over recent years; a dramatic increase in the number of workers now being forced to settle for lower pay after losing better jobs; and the continuing impact of the recent recession.

Brian Nichols, 25, is one of those caught in downward mobility. He graduated from Cardinal Gibbons High School in Baltimore in 1985. He waited tables for a year until his uncle found him a job at the local Armco steel mill. It paid $11.60 an hour.

"That was a great job. That was more money than I had ever seen. I got used to that. When you get a double-digit income you get a double-digit lifestyle. I thought for sure I was going to retire from there," Mr. Nichols said.

The job lasted three years until he was laid off.

"I went everywhere I could think of to find [another job paying] what I was making. I had said to myself I would not take anything under $10 an hour," he recalled.

He eventually became a chemical operator trainee. It paid $8 an hour. "It killed me to take $8 an hour. I found myself having to take it, having to take whatever I could get."

After three months, just as he was about to get company-paid health benefits, he was laid off again. Now he is unemployed. The only jobs he has been offered pay $5 or less an hour -- a lower weekly wage than the $210 he receives in unemployment benefits.

Mr. Nichols lives with his wife, Maggie, 23, and three daughters, ages 7, 4 and 2, on Jackson Street in South Baltimore. He pays $450 a month for rent. His car payment is $225. His auto insurance is $151. His gas bill is $85, and his phone bill usually comes to about $30. His $840 a month in unemployment does not cover the basic expenses of $941.

His wife puts food on the table with the $70 she earns weekly as a cashier at a local food store.

"I can remember when I was a kid asking my parents how they got a house and a car. I was always taught if you worked hard after you got out of school, if you worked and saved, you get these things. They come in steps. Instead of stepping up I got shoved back down. Now I'm back where I was the day I graduated from high school," said Mr. Nichols, who is planning to return to school to study electronics in the hope of re-entering the middle class.

A study by Isaac Shapiro, a researcher with the Center on Budget and Policy Priorities, a liberal group which specializes in low-income issues, showed a dramatic rise in the number of full-time workers with low earnings during the 1980s.

There were more low-wage earners in 1990 -- 14.4 million -- than at any time since 1964.

From 1964 to 1974 the proportion of full-time year-round workers whose annual earnings were less than the poverty line for a family of four -- $12,195 in 1991 dollars -- was cut in half, from 24.1 percent to 12.0 percent. It remained stable for five years, but from 1979 to 1991 it increased to 18 percent, according to the study.

"These data are key to understanding the squeeze in which millions of working families now find themselves," Mr. Shapiro said.

Lawrence Mishel, director of research at the liberal Economic Policy Institute and author of a recent study on the trend to lower earnings, said: "People are realizing that incomes are not growing . . . There is no sense of a future that is secure and prosperous. All the bright spots have dimmed."

Mr. Mishel's study, based on figures issued by the Bureau of Labor Statistics and the Current Population Survey, showed that the purchasing power, in 1991 dollars, of an average private-sector hourly wage rate dropped 82 cents, from $13.37 to $12.55, between 1987 and last year.

This does not mean that every worker is worse off. Many workers who have been promoted or received above-inflation raises over the years are better off. But it does suggest that the income floor is being slowly lowered.

Take Baltimore County firefighter Paul Lurz. He earned $23,928 last year as an entry-level firefighter. Had he started his career in 1987 he would have earned $20,454. Converted into 1991 dollars, that is the equivalent of $24,544 -- which means he's effectively earning $616 less for the year than a beginning firefighter in 1987.

"It means that many people in my situation are more dependent on part-time jobs to make ends meet," said the 25-year-old bachelor, who has a part-time job in the pulmonary laboratory at Franklin Square Hospital.

"What I think is most grim is when you look at what it means to young people," Mr. Mishel said. "People are starting out much lower than they used to. In terms of the broad majority of workers, the prospects are that they won't earn as much as the prior generation."

The trend, which predates the recession, is likely to persist well into the recovery, he added, pointing to the continuing export of high-paying manufacturing jobs and the setbacks in the banking, real estate and retail sectors that have dislocated many white-collar workers. The government announced last month that million jobs were lost in the 1990-91 recession, more than originally thought.

The new wrinkle, according to the Mishel study, is that since 1987 the spending power decline has hit those who enjoyed real wage gains for most of the the 1980s -- college graduates, white-collar workers and most women.

Some economists dispute the extent of the income decline. Richard B. McKenzie, professor of enterprise and society at the University of California at Irvine, concluded in a paper for the conservative Cato Institute: "The core of the real economic problem of the 1970s and 1980s was not a U-turn [in incomes] but a slowdown in the growth of worker wages."

But even those whose incomes have outpaced inflation still feel the pinch.

In 1987 Shirley Isabelle, a teacher at Baltimore's Calvin Rodwell Elementary School, was earning $31,000. Her pay last year was $39,000. Allowing for inflation, she had $1,800 more annual spending power last year than in 1987. But she still feels the squeeze.

"My pay has increased, but everything else has gone up. You are at a standstill. You never seem to get ahead," said Mrs. Isabelle, 41, wife of a federal employee and mother of two sons.

She confided that she did not keep a family budget: "It would be too depressing to do that."

One depressant on Mrs. Isabelle's and most other families' pocket books: the increasing tax burden.

Since 1980, increased federal taxes and inflation have combined to hold the typical family's increase in real income to just 8 percent, according to Paul G. Merski, director of fiscal affairs at the independent Tax Foundation. And over the past four years, the typical family has lost ground.

The higher federal tax bite results mainly from higher Social Security taxes. The burden can only increase following introduction of the 1990 budget agreement, which will raise $164 billion in federal taxes over a five-year period.

Mr. Merski's analysis found that the median two-earner family with two children and an income of $53,265 was $362 dollars worse off in real terms last year than in 1990. This was the largest one-year income decline in a decade. Since 1988 the family's purchasing power has dropped by $695 a year.

His calculation did not include state taxes. In Maryland, state income and sales tax rates have remained the same over recent years, although the sales tax has been expanded to new categories. Other taxes, such as the cigarette and gasoline levies, have increased.

"The bottom line is that individuals will have less after-tax income for savings or consumption. For the foreseeable future, the picture doesn't look much brighter for the typical American family," Mr. Merski observed.

The Vibbert family is still reeling from the 1990-91 recession. Said Mrs. Vibbert: "It's month to month. There are no extras any more."

Daniel Vibbert is a carpeting subcontractor in Baltimore. His business has been blighted by the decline in construction. He earned $25,865 in 1987 but only $10,000 in 1991. His wife's income, as a teacher at Downtown Baltimore Child Care, went up from $9,945 in 1987 to S14,806 last year, enough to outpace inflation but not sufficient to offset her husband's decline.

Their joint income in 1987 was $35,810. Last year it was $24,806. In dollar terms that's a decline of $11,004. But adjusted for inflation, their comparative spending power actually dropped $18,166 over the four-year period.

Mr. Vibbert's business has started to pick up in recent months, prompting his wife to say: "I think the worst is over for us."

Are you worse off?

To find out whether your salary's spending power has declined since 1987, multiply your 1987 gross income by 1.2. This will convert it into 1991 dollars.

If the result is more than your 1991 pay, you are worse off. If it is less than your 1991 pay, you are better off. The formula adjusts your salary for inflation, but does not include the impact of federal and state tax increases.

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