the 2008 financial crisis

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In the late 20th Century, and in the 21st century, the middle class in the US has been declining because of low income .This has left the society with two dominant classes: ²the haves² and ² the have nots². ‘‘Middle class incomes have historically been shaped by three factors: how productivity has grown, how income is distributed and how many people are participating in the labour force ’’ (Furman, par 3).This paper focuses on the challenges that workers from the middle class have in regard to this three areas.

As a result the government policy to stagnate the minimum wage, many working people in the middle class face the problem of staying in the same  salary class for long periods of time. Mishel (1) notes²… by 2002 and 2003, real wages and compensation stagnated for most of the workers…² This policy has been in use for a long time, even in the hard financial times that followed the 2008 economic crisis in the world which highly affected the middle class. Consequentially, many people have not had an increase in the level of disposable income to enable them cater for all their needs in these economic times when the cost of living has drastically gone up. Many middle class families do not have enough money to cater for all their basic needs such as food, decent housing and shelter. In addition, they cannot afford to invest or accumulate savings to cater for their future needs. This has led the society to have a middle class whose future is threatened and uncertain.

In addition, policies in the US have led to loss of jobs by the middle class. For instance there are some corporate policies that were implemented after the 2008 financial crisis that are highly unfavorable for the middle working class. Jobs that were lost during this crisis were never recovered since corporate policies completely eliminated them to help companies cut on operation costs. Even more, some companies moved from America to other countries that favorable conditions to enable them carry out production at cheaper costs. Further other organizations invested in the use of technology instead of man power leading to massive loss of jobs.

Since the 1980s up to date, the government runs on a policy of financial deregulations. This has had a negative effect on the investment power of the middle class. Deregulation of the lending sector has led to cheating by lenders so as to gain high profits from unsuspecting middle class customers.as a result of the stagnation of the minimum wage, families have turned to borrowing as a way of meeting their basic needs and paying for medical bills by using credit cards. Borrowing lowers the rate at which workers accumulate wealth and save some of their income for future use because the little income available is used to repay debts that have high interest rates. Some families have even filed for bankruptcy because of the heavy debt burden facing them.

The Economic policy makers have been seeking solutions to the problems in the economy today through the signing of trade agreements with other countries to create free trading areas. However this has posed a threat to the middle class since it has led to loss of millions of jobs. After the creation of free trade areas, multinational companies come into the country seeking cheap labour from the middle class. They pay poor salaries to workers with long working hours where the work is done under poor conditions. Unlike other countries like India, Japan and China, the government has not yet put any measures in place to protect its citizens from such exploitation. On the same note, there has been loss of jobs. The creation of free trade areas has led to an influx of cheap goods from countries like China that compete with the products of American companies reducing their profitability. Henceforth, these countries lay off workers so as to be able to remain in business by reducing their operation costs (Traub & McGee, par 12-18).

In the labour market, the government has brought policies that do not favor the growth of the middle class. First, the government has introduced budget cuts in the recent years that have reduced the number of jobs available to the middle class. The public sector that used to offer millions of jobs to this class has been affected by the budget cuts. Further the tax policies in place favour the wealthy class at the expense of the middle class.in comparison with rich business men, workers with middle income levels face higher cuts in form of tax. Ehrig , (99) states: ²Two types of taxations, that have a regressive effect on the middle class, the income tax deduction for investment interest and the capital gains tax have disappropriately benefited the upper class². In the work place, it is difficult for employees to join workers unions since employers threaten to close down if workers join unions and others are fired after showing open support for workers union. Given that the government is very slow in enforcing labor laws, employees violate employees of their rights. Subsequently, employees are unable to bargain for better wages and more benefits to help them improve their living standards. Consequentially, a person remains in the middle class for a long time despite their hard work and efforts to get wealthy.

Policies in the country do not provide a platform for the middle class to improve on its productivity by investing in education. Notably the government is slowly disinvesting from the education sector by providing limited funds to support college education.²Between the 1990 and 2009 years, real funding for per public Full-Time Equivalent (FTE) student dropped by 26.1 percent, falling from $8608-$6360’’ (Traub & McGee, par 13). As such many students were unable to fund their studies and dropped out of college. Currently, it is almost impossible to get a decent job in the US without a college degree. Therefore the increasing cost of college education is affecting the current and future productivity of the middle class.  As a result of all these unfavorable policies,²the  middle class has deteriorated into an extremely  small percentage of the total population²(Ehrig,29)

Recommendations

In order to reverse this negative trend that has led to the decline of the middle class, the government should invest in education so as to increase the capacity of human capital in the nation. It should provide adequate funds to enable students complete their college studies comfortably. Secondly, the tax policies in the country should be revised so that they can be used to strengthen the middle class by providing some tax relief. Further the government should create an environment that enables citizens to acquire and build assets for future security by formulating favorable investment policies. Finally, the government should come up with laws that protect the rights of workers to form unions .as such the middle class will be empowered which transforms into growth of the economy.

 

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