Career and Jobs

American Household Wealth Is At The ‘Highest Level Ever’: Here’s What’s Really Happening

The Wall Street Journal reported Monday something that seems astounding and unbelievable to many Americans. Based largely upon a booming stock market, gains in the value of real estate and an increase in savings, the net worth of U.S. households is now at “the highest level ever.” This is “despite a record drop in the previous three months caused by an economic shock from the pandemic.”

According to reports, net worth of households jumped 6.8% to $118.96 trillion, which is roughly $380 billion greater than what was held at the end of 2019—before the onslaught of the Covid-19 pandemic. The figures were based upon data from the Federal Reserve Bank. 

This seems to fly in the face of reality. Over 60 million Americans have filed for unemployment benefits since the Covid-19 pandemic started. Many people are worried about holding onto their jobs. A large number of families don’t have an emergency fund to get them through three or four months and risk being evicted from their apartments or are unable to make mortgage payments.

Interestingly, WSJ offered contradicting reporting that claims, “The crisis is wreaking a particular kind of havoc on the debt-laden middle class.” The American middle class, it appears, is piling on too much debt to maintain the facade of a prosperous middle-class lifestyle and keeping up with the Joneses. 

Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce said, “There’s a professional workforce that’s getting slammed.” Carnevale ominously added, “What I see happening here is a core assault on successful college-educated families, which are the new breed of middle-class American families.”

The middle class is getting crushed. They’ve taken on large amounts of debt to finance automobiles, college tuition, homes, travel, medical and other expenses. This is occurring while wages have been stagnating and the job market is getting tougher to find a suitable and appropriate-paying position commensurate with their background, skills and experience.

White-collar job advertisements, such as software development and banking and finance, have declined. Indeed claims that job postings for higher-wage occupations have taken the biggest tumble. “Postings in higher-wage occupations are now 28% below trend, versus 12% below trend for lower-wage occupations.”

In today’s cost-conscious environment, companies are reluctant to spend the money to hire experienced professionals. With the resurgence of Covid-19 in many states, an upcoming U.S. presidential election and civil unrest, management lacks clarity as to what the future holds. It’s easier for them to just hold off on hiring.

There are prevalent corporate trends of “juniorization,” which calls for the erosion of middle management to cut costs and replace them with younger people who could be paid less money, and the move toward relocating jobs to lower-cost U.S. cities and foreign countries.

Indeed’s figures reflect that major cities with hubs for finance, banking and technology, such as San Francisco, New York, Boston, Chicago, Seattle and the Washington-Arlington-Alexandria metro area, saw double-digit drops in job postings—ranging from down 31% to over 40%.

Concerns are being raised that a large number of so-called temporary furloughed jobs may ultimately turn into permanent job losses, particularly in hard-hit sectors, such as commercial real estate, airlines and energy.  

Investment management billionaire Jeffrey Gundlach articulated the assault on mid-level managers. He contends that as people worked from home, he got a sense of what his employees were really doing. He noticed that junior workers rose to the occasion and was disturbed by the disappearance of mid-level management. He complained, “I wonder where they’ve gone. I’m starting to wonder if I really need them.” Gundlach said that he conferred with peers who felt the same way. Based on his personal experiences and stories shared by his peers, Gundlach predicted a “wave of more higher-end unemployment’‘ hitting white-collar workers making more than $100,000 per year.

It was reported by a top compensation consulting firm, Johnson Associates, that Wall Street is likely to cut bonuses this year by 15% to 20%. These numbers were revised downward from a dire 30% to 40% reduction made earlier in the year and could be increased again. Alan Johnson, the founder and president of the consulting firm, considers the tough climate and predicts that Wall Street firms will likely cut pay for almost everyone to save cash. Johnson figures “subpar” employees will see bonuses drop over 50% and possibly be fired. He said, “Now is the time to get rid of the people you probably should have gotten rid of before.” Johnson added, “The industry has been carrying some extra weight for a while.”

So if the middle class is hurting, what’s happening? 

Federal Reserve Board economists Isabel Cairo and Jae Sim found that “the inequality gap has risen because owners of assets like real estate and stocks are benefiting from the rise of corporate power and rising profits.” A separate Federal Reserve report indicates that the top 10% of households—by net worth—control 87.2% of the equities in this country, at the end of the first quarter. The top 1% have always controlled 70% to 80% of stock market value.

It looks like the real beneficiaries are the top 1%, 5% and 10%, as they benefited from an increase in the stock market and appreciation in the value of their homes. The uber-wealthy are skewing the numbers higher, making things look better than they really are. The .0001%, such as Amazon’s CEO and founder Jeff Bezos, have seen their net worth skyrocket during the pandemic.

Some of the recent civil unrest could also be viewed through this prism. The working and middle classes are getting squeezed hard. What’s worse is that they feel that they don’t have any options open to them for the future. They believe their lives will be worse off compared to their parents. Statistics show that younger people are putting off getting married and having children. They confront the cold, hard facts that it’s nearly impossible to garner enough funds for a downpayment on a home. Then, they need enough money to run the household. They’ll need to pay for child care and the costs and expenses keep growing, along with the overall economic uncertainty and joblessness. If we continue down this path, we could end up with a “Third World” society, in which the ultra-wealthy control almost everything. History shows that when this happens, society sees civil unrest, violence and a degradation in living standards.

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