Do We Need To Fear Oligarchs? Part 1.

Back at some point in the mid-1980’s I happened to be seated next to the CEO of Home Depot, which had just been cited in the business media as the fastest-growing big-box chain selling home fix-it supplies and appliances. This was the time when chain stores were replacing small, independent retailers in just about every product group like drug stores, hardware stores and most of all, places to eat.

At some point during the dinner, I asked the Home Depot CEO how they decided where to locate their stores and I was expecting he would start telling me about demographics, neighborhood patterns, and all the other data that they used to figure this out.

“It’s simple Mike,” he said to me. “We locate our stores near a McDonald’s franchise. Those are our customers.”

Between McDonald’s, Burger King, Subway and Dunk, there are somewhere around 85,000 outlets for these 4 chains in the United States. Currently McDonald’s has about 1,725,000 working in its stores, but at least half of their total crew numbers are part-time employees. So, for the sake of argument, let’s say that this chain supports roughly 800,000 men and women of whom the average age for the total workforce is somewhere around 30 years.

I drove past my first McDonald’s in 1968. The chain was founded in California in 1940, so it took some years for the chain to move across the country to where I drove past this franchise for the first time in Bergen County, New Jersey.

I purchased my first tank of gasoline from a convenience store in 1985. There are now nearly 150,000 convenience stores across the country, of which 116,000 sell 80% of the motor fuels we use every day. Total employment in convenience stores is estimated to be around 175,000.

Taken together, fast-food chains and convenience stores probably employ somewhere between 5 million and 6 million, in other words between 3% and 4% of the total national workforce. None of these jobs existed when I went out on the job market for the first time in 1965. There are also roughly 1 million working in the big-box chains like Home Depot and none of those stores were around in 1965.

Another employment category that didn’t exist in 1965 is IT. Current estimates put the size of this segment of the workforce at some 3 million jobs. So, along with jobs in big-box stores and fast-food joints, roughly 10 million work in ways that work wasn’t done fifty years ago, probably for the most part not even forty years ago.

What percentage of the workforce is currently employed in manufacturing? Try 8 percent or 12.8 million jobs. Back in the 1970’s, more than 19.5 million workers earned their paychecks from manufacturing, which was the highest level ever achieved since before World War II – we don’t have reliable employment data prior to the war years.

The point is that roughly the number of people who have left the manufacturing sector since the 1970’s is the same number now employed in workforce sectors that didn’t exist in the 1970’s.

These two sectors – chain retailers and IT – employ very different workforce groups. The retailers offer mostly unskilled jobs that require minimal training and pay at or near the minimum wage. Jobs in IT usually require some kind of industry-based certification and often pay in the high five figures just to start.

This is the usual reason given by the ‘wage-gap’ group of which Robert Reich is one of the founding members, namely, the idea that the shift from a manufacturing-based to a service-based economy has resulted in wage stagnation for most Americans, while the 5% at the top continue to add more money to their wealth.

Which would be a valid argument except for the fact that it neglects a fundamental change in the composition of American incomes which began to occur exactly at the time that our economy shifted from manufacturing to service jobs first in retailing and then in IT.

The Labor Department calculates the average individual and family wage by taking the total amount of income received by adding up the totals o Line 15 of every 1040 form filed each year, and then dividing this number by the number of individuals and households as estimated by the Commerce Department, numbers which are then adjusted when the census is conducted every ten years.

The term ‘taxable income’ from Line 15 is every dime that comes over the transom, whether it was a paycheck, or a private pension, or a social security payment, or a disability payment, or an investment, or a profit from a personally owned business, which is calculated using a different IRS form.

In 1970, roughly 10% of the American population was age 65 and above. As of 2022, this number has swelled to nearly 17 percent. It is estimated that nearly 11 million Americans will collect federal disability payments this year, which brings the total non-working population to somewhere around 20 percent.

That’s 20 percent of a national population count somewhere above 320 million. In and of itself, the U.S. non-working adult population is some 60 million and change, making it the 24th most populous country on the globe, just several million less than France.

What happens when a household stops depending on a salary and starts depending on a social security payment or a disability check? On average, recipient income drops by at least 50 percent, if not more. For most individuals and families that move from the working population to the retired population, this shift doesn’t necessarily mean any significant change in livings standards because much of the living costs incurred during the working years, in particular the costs related to raising children, have long since disappeared.

But how people choose to spend their incomes at different periods of their lives is not taken into account when the government publishes the data used by experts like Robert Reich to lament the growing wage ‘gap.’

To be continued tomorrow.

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