State policies affect the middle class

The past 30 years has not been kind to Florida’s middle class which now ranks among the weakest in the nation. While the state enjoyed significant economic growth over this period, few of the benefits ever trickled down to the families who were not among the state’s highest earners.

Perhaps the clearest indicator of the struggles of the middle class is the recent decline of the state’s median income and its overall stagnation since the late 1980s.

In 2012—the most recent year for which data are available—a typical household earned $46,071 or roughly $5,000 below the national median. While this represented a very slight increase compared to what the typical household earned in 2011, it was still a full 11.4 percent less than what typical Floridians were earning only six years earlier, before the onset of the Great Recession.

Economic stagnation

This rapid decline—which was slightly worse in Florida than at the national level—caused the state’s median income to fall below its inflation-adjusted 1987 level. This means that middle-class Floridians are now earning less in real terms than they were 25 years ago.

For those workers near the bottom of the wage distribution who are struggling to make their way into the middle class, things have not been much better.

As was the case at the national level, some progress was made in reducing the number of Floridians in poverty during the 1990s but this trend stalled in the early 2000s and was almost entirely reversed by the economic calamities of the latter half of the decade.

The share of Floridians living below the poverty line was 15.3 percent in 2012—more than one in every seven state residents—which was slightly higher than the percentage living below the same inflation-adjusted poverty line in 1982.

Such across-the-board stagnation of working Floridians’ economic well-being might make sense if the state’s economy had struggled to a similar extent but this was not the case. Total personal income earned per capita—often used as a measure of states’ economic health—increased by approximately two-thirds in inflation-adjusted terms between 1982 and 2012.

The reason this growth has not translated into more-substantive gains for those in the middle and at the bottom of the income distribution is that an ever-increasing share of the state’s economic gains has been redirected to those at the very top.

Limited growth

The middle 60 percent of households took home 50.8 percent of the total income earned in the state in 1980 but this figure fell to only 45.5 percent by 2012—a drop of roughly 5.3 percentage points.

To place this loss in context: 5.3 percent of the total household income earned in 2012 amounts to approximately $27 billion or nearly $5,700 per middle-class household. Meanwhile, the percentage of total income going to the top 20 percent of households increased from 45.2 percent to 51 percent, meaning that the wealthiest one-fifth of Floridians took home more than half of all income earned in the state and more than 14 times the amount earned by the bottom 20 percent.

But even within this wealthy group, the majority of the gains have gone to the very highest earners. A recent study of state income growth using tax data found that of all of the income growth that occurred in Florida between 1979 and 2007, approximately 68.9 percent of it went to just the top one percent.

This study also found that even the limited growth that has occurred since the end of the Great Recession has been monopolized by the very wealthy, estimating that the incomes of the top one percent grew more than nine percent between 2009 and 2011—the most recent year for which complete data are available—while the incomes of the bottom 99 percent continued to fall.

Political choices

None of this should be particularly surprising, however, given that previous studies by economists such as Emmanuel Saez of the University of California, Berkeley, estimated that the share of income going to the top one percent at the national level more than doubled over the past four decades, from around nine percent of the nation’s income in the mid-1970s to more than 22 percent in 2012. Meanwhile, middle-class households across the country have experienced losses similar to those of Florida’s middle-class workers.

The levels of inequality currently seen in both Florida and in the United States as a whole are not the inevitable byproducts of economic growth. Certainly, some factors largelybeyond state policymakers’ control have affected the distribution of earnings among workers. Globalization, for example, has increased the competition faced by many domestic industries and placed downward pressure on some workers’ wages, while increasing monetary returns to education have disproportionately benefited better-educated workers at the top of the income distribution.

However, the gap between those at the very top and those further down has also been substantially widened by decades of conscious political choices that have placed the interests of the wealthy ahead of the needs of everyone else.

Regressive taxation

Florida’s state and local tax codes are prime examples of policymaking that puts the interests of those at the top ahead of working families’ needs. Because  policymakers chose not to have a personal income tax, the state must rely much more heavily on regressive property and sales taxes to fund state services.

According to the Institute on Taxation and Economic Policy (ITEP), the net effect of these choices is that the bottom 20 percent of Floridians ended up paying roughly 13.2 percent of their income in state and local taxes in 2013, while the top one percent paid only 2.3 percent. Indeed, ITEP ranks Florida’s tax system as the second most regressive in the entire nation, behind only Washington state.

In addition to a tax system that disproportionately taxes those at the bottom and middle, Florida’s comparatively weak wage standards have also contributed to increasing inequality.

While the 2005 introduction of a state inflation-indexed minimum wage was a significant step forward, the current value of Florida’s minimum wage is still only $7.93 per hour. This is slightly above the current federal minimum wage of $7.25 but it remains far below the inflation-adjusted value of the minimum wage guaranteed by federal law in 1968—approximately $10.77 per hour.

Spillover effects

This means that minimum-wage workers in Florida have effectively received a 26 percent pay cut since 1968. Even if workers who earn the state minimum wage work full time, year round, and always receive their full paychecks—and far too many American workers do not, due to wage theft by their employers—they will still earn only approximately $16,500 per year or roughly $3,300 below the federal poverty line for a family of three.

Choosing to leave the minimum wage this low not only harms thousands of families attempting to work their way out of poverty but also those in the middle class who benefit from the spillover effects of higher minimum wages that cause employers to raise the pay of many workers who earn well above the minimum wage.

But among the most overlooked policies that have weakened the middle class both in Florida and throughout the United States are those that have undermined unions and eroded workers’ collective bargaining rights.

Unions are essential to maintain a thriving middle class because they advocate for middle-class interests both in the workplace and in the political sphere. They encourage greater political participation among workers, advocate for the protection of programs critical to the middle class, such as Social Security and Medicare, and ensure their members receive fair pay and essential benefits. The gains these unions win for their own members can also help establish broader standards that benefit non-members as well.

Rising inequality

Unfortunately, Florida has a long history of undermining workers’ collective bargaining rights—it was the first state to pass so-called right-to-work legislation in 1943—and the state’s middle class has struggled as a result. While the percentage of workers who are members of a union has always been low in Florida compared to the rest of the nation, it has further declined over the past several decades, along with the share of total household income going to the middle class.

This correlation is no coincidence and the trend seen in Florida has mirrored that of the nation, where the decrease in national union membership since the late 1960s has been accompanied by steady declines in the percentage of aggregate national income earned by the middle class. Recent academic analyses looking at other measures of inequality have further illustrated the strength of the relationship between workers’ declining collective bargaining power and rising inequality.

For example, research by Bruce Western of Harvard University and Jake Rosenfeld of the University of Washington estimates that the decline of organized labor alone explains between one-fifth and one-third of the growth in wage inequality between 1973 and 2007—an effect comparable to that caused by the increasing stratification of wages by education.

Economic mobility

While reversing the losses of the past several decades will not be easy, it must be done if Florida’s middle class is to return to its essential role as a driver of broad-based economic growth and a promoter of economic mobility. Ensuring that the workforce is better educated—and that the returns of education are more equitably distributed—is, of course, important to supporting the middle class but there are a host of other policies that play just as critical roles.

To start, elected officials should strengthen workers’ collective bargaining rights and seek further increases in the state minimum wage above what is required to adjust the current wage for inflation.

A number of other state-level policies—such as cracking down on wage theft, ensuring that state contractors provide proper pay and benefits to their employees, and reforming regressive state tax codes—would also bolster the health of the middle class in both the short and long runs.

By implementing these and other reforms that directly benefit the middle class, Florida can ensure that future economic growth actually translates into meaningful improvements in its citizens’ standard of living—something that, unfortunately, has been all too rare in the state’s recent history.

David Madland is director of the American Worker Project at the Center for American Progress Action Fund. Keith Miller is a research associate with the American Worker Project.