Downward Mobility
From 'Dismantling The Middle Class' part of 'America:What Went Wrong'

Vanishing Workers Orgy of Debt & Interest Executive Pay BloatedDownwardly Mobile Wages Losing Value

What happened to Weikel and Schell and other glass plant workers is not at all unusual. Nor is what happened to the company they worked for. Nor the money being made by investors and corporate executives. Their story is the story of millions of middle-class Americans who are being forced out of higher-paying jobs into lower-paying jobs, or who have lost a portion or all of their benefits, or both.

Vanishing Factory Workers.
In a letter to Congress in January 1989, President Reagan spoke enthusiastically of the many jobs his administration had created since 1980:

"Nearly nineteen million non-agricultural jobs have been created during this period.... The jobs created are good ones. Over 90 percent of the new jobs are full-time, and over 85 percent of these full-time jobs are in occupations in which average annual salaries exceed $20,000."

In fact, the job growth was centered in the retail trade and service sectors, which pay the lowest wages. Higher-paying jobs in manufacturing disappeared at a rate unmatched since the Great Depression . In the 1950s, businesses added 1.6 million manufacturing jobs. They added 1.5 million such jobs in the 1960s, and 1.5 million in the 1970s. But in the 1980s, corporations eliminated 300,000 manufacturing jobs. If the trend continues, 1 million or more will be erased in the 1990s.

While the number of manufacturing jobs fell 1.3 percent from the 1970s to the 1980s, dropping from an average of 19.6 million to 19.3 million, the number of retail-trade jobs climbed 32.5 percent, rising from 12.8 million to 17 million. The retail-trade workers, whose numbers are growing, earn on average $204 a week. The manufacturing workers, whose numbers are dwindling, earn $458 a week.

Those numbers understate the problem. For the percentage of the overall work force employed in manufacturing, people who make things with their hands — cars, radios, refrigerators, clothing — is plummeting. During the 1950s, 33 percent of all workers were employed in manufacturing. The figure edged down to 30 percent in the 1960s, and plunged to 20 percent in the 1980s. It is now 17 percent — and falling.

Orgy of Debt and Interest
One major reason for the declining fortunes of workers: American companies went on a borrowing binge through the 1980s, issuing corporate IOUs at the rate of $1 million every four minutes, twenty-four hours a day, year after year. By the decade's end, companies had piled up $1.3 trillion in new debt — much of it to buy and merge companies, leading to the closing of factories and elimination of jobs.

That debt required companies to divert massive sums of cash into interest payments, which in turn meant less money was available for new plants and equipment, less money for research and development. During the 1950s, when manufacturing jobs were created at a record pace, companies invested $3 billion in new manufacturing plants and equipment for every $1 billion paid out in interest. By the 1980s, that pattern had been reversed: Corporations paid out $1.6 billion in interest for every $1 billion invested in manufacturing plants and equipment.

Similarly, during the 1950s, for every $1 billion that corporations paid out in interest on borrowed money, they allocated $710 minion for research and development. By the 1980s, corporations spent only $220 million on research and development for every $1 billion in interest payments.

Through the 1980s, corporations paid out $2.2 trillion in interest, more than double their interest payments through the 1940s, 1950s, 1960s and 1970s — combined. It was enough money to create seven million manufacturing jobs, each paying $ 25,000 a year.

Bloated Pay for Executives.
While companies are cutting jobs that pay middle-income wages and adding large numbers of lower-paying jobs, they are paying ever-larger salaries and bonuses to people at the top. Roberto C. Goizueta, chairman and chief executive officer of Coca-Cola Company, received salary and bonuses in 1990 totaling $2.96 million. Nearly four decades earlier, in 1953, a Goizueta predecessor, Hammond B. Nicholson, earned $134,600 in the top job at Coca-Cola .

To put the salary change. in perspective, if the pay of manufacturing workers had gone up at the same pace, a factory worker today would earn $81,000 a year.

While the news media have written at length on corporate salaries, most publications have suggested that high-paid executives are the exception. They are not. An analysis of tax-return data shows that in 1953 executive compensation was the equivalent of 22 percent of corporate profits. By 1987, the latest year for which detailed figures were available, executive compensation was the equivalent of 61 percent of corporate profits.

Measured from a different perspective, in 1953 corporations paid their executives $8.8 billion in salaries, stock bonuses and other compensation. That year, those corporations paid $19.9 billion in federal income taxes. By contrast, in 1987 corporations paid their officers $200 billion in compensation, while they paid $83.9 billion in federal income taxes. That means businesses paid $2.3 billion in taxes for every $1 billion paid in executive salaries in 1953. By 1987, that pattern was reversed: Businesses paid $2.4 billion in executive salaries for every $1 billion in taxes.

The Downwardly Mobile.
Measured in terms of buying power, the wages of manufacturing, retail-trade and other service-industry employees during the 1980s fell far short of their parents and parents'and grandparents' earnings.

To understand why, let's go back in time, to 1952 and the opening of Levittown, Pennsylvania, the world's largest planned community, a symbol of a flourishing middle class. It took a factory worker one day to earn enough money to pay the closing costs on a new Levittown house, then selling for $10,000. More importantly, that was an era when the overwhelming majority of families buying homes relied on the income of one wage-earner. In 1991, it took a factory worker eighteen weeks to earn enough money to pay the closing costs on that same Levittown home, now selling for $100,000 or more.

Unfortunately, even if the average factory worker of the 1990s had the minimum down payment, his income would be insufficient for him to qualify for a mortgage in Levittown. That is because it now requires two incomes for most families to come up with a larger down payment and to meet higher monthly mortgage and tax payments. Workers in the retail and service industries are even worse off, which helps explain why so many Americans can't afford to own a house. This is especially true for young families, who in decades past were the traditional home buyers.

Wages Losing Value
On a more mundane level, a store clerk in 1952 had to work two hours to pay for 100 postage stamps. In 1991, a store clerk had to work six hours to buy 100 stamps.

All these things — shrinking paychecks, disappearing factory jobs, fat salaries for corporate executives, uncontrolled business debt, a deteriorating standard of living — are the visible consequences of the distorted government rule book.

Other consequences are harder to see. But look closely and you will find them. They range from mounting racial tensions between whites and blacks competing for a shrinking number of middle-class jobs to an increase in employee theft and shoplifting. From fraudulent worker-compensation claims approaching epidemic proportions to a growing refusal on the part of citizens to pay taxes that they owe. From a shifting of the responsibility for social-welfare programs from the federal government to the state governments to a shifting of similar burdens from the state governments to local governments. From an increase in domestic violence to a declining quality of care for residents of nursing homes. What does the government rule book have to do with care in a nursing home?

Meet Mengabelle Quatre, a former resident of a California nursing home operated by Beverly Enterprises, Inc.

Actually, let's begin with Beverly Enterprises, the product of a new economic order — one envisioned by Michael Milken and his Wall Street associates and made possible by rules set down by Congress. Like so many other businesses of the 1980s, its rapid expansion was fueled by easy debt. The company grew by acquiring small, independent nursing homes and building new ones, financed with junk bonds, bank loans and, in part, taxpayer dollars through industrial revenue bonds.

The number of beds in its facilities increased from 51,300 in 1981 to 121,800 in 1986. Revenue rose from $486 million to $2 billion. Profits went from $16 million to $51 million. And its stock shot up from $2.50 a share to $22.50, generating millions of dollars in profits for investors.

Along the way, Beverly Enterprises emerged as the nation's largest nursing home operator. Its investment adviser, Drexel Burnham Lambert, Inc., which had managed a $100 million securities offering for the company in 1983, was bullish on the prospects of making ever more money on the elderly. In a 1985 report to its clients, Drexel Burnham recommended the purchase of Beverly Enterprises stock, saying there were many opportunities for expansion.

"There is still a formidable pool of small independents," the investment firm said, adding that "management's goal is a steady stream of small acquisitions."

In a report a year later, Drexel Burnham predicted the company's profits would reach $86 million in 1987 and said "there is no shortage of growth prospects for Beverly Enterprises." And in May 1987, the Wall Street Journal reported that a Beverly Enterprises executive had confirmed that estimates by securities analysts of profits for the year between $54 million and $71 million were "in the ball park."

It turned out to be a different ball park. For Beverly Enterprises's earnings — like the earnings of so many businesses built on debt — evaporated. Instead of the $86 million profit forecast by Drexel Burnham, the company lost $33 million in 1987. It lost $24 million in 1988. And $104 million in 1989.

As the company sought to cut costs, it developed a reputation for paying low wages and having a high turnover rate among employees. Those two conditions often led to substandard care. The wages were so low and the staffing so minimal at some Beverly-operated nursing homes that regulatory authorities in one state after another cited the company time and again for patient neglect.

Beverly Enterprises also lost a civil lawsuit in which damages were awarded to residents of its nursing homes in Mississippi who complained about a reduced quality of life that was due to general neglect and abuse. And the National Labor Relations Board joined the critics when an administrative law judge in November 1990 cited Beverly Enterprises for unfair labor practices at thirty-three nursing homes in twelve states.

In an article published in December 1988 recounting Beverly Enterprises's declining fortunes, the New York Times reported:

"Perhaps the most damaging blow to Beverly Enterprises's reputation occurred in California two years ago. The state alleged that poor care at a handful of Beverly Enterprises's ninety homes caused nine deaths, and inspections turned up fifty life-threatening citations over a fifteen-month period."

All of which brings us to Mengabelle Quatre. Suffering from seizures and cancer of the bronchial tubes, unable to walk without assistance and otherwise confined to a wheelchair, she was admitted to a Beverly Enterprises nursing facility on Oct. 13, 1989. Seven weeks later, on a quiet Saturday afternoon, Dec. 2, 1989, Mengabelle Quatre died at the age of sixty-nine at the Beverly Enterprises Manor Convalescent Hospital in Burbank, California, not far from the make-believe world of Hollywood film studios.

A few lines from her death certificate sum up what happened:

Death was caused byThermal injuries
Manner of death Accident
Describe how injury occurred Clothing caught on fire while smoking

Confined to a wheelchair in a facility operated by Beverly Enterprises — the banner draped over the entrance proclaims "Love Is Ageless; Visit Us" — Mengabelle Quatre, a printer in a movie laboratory for thirty-five years, burned to death, in the middle of a hospital, while she was smoking a cigarette.

State investigators later described the incident:

"[An employee] stated in an interview that at approximately 3:10 P.M. on Dec. 2, 1989, he heard someone screaming, ran to the patio adjacent to the TV room where he observed [the patient] on fire. He extinguished the fire and yelled for someone to call the paramedics."

Mrs. Quatre was taken to an acute-care hospital where she died five hours later. According to the state investigation,

"the county coroner reported that the resident had died of thermal burns ... of yellow-brown to black discoloration over 50 percent of her body. The burns ranged between her front mid thighs to the top of her head."

A California Department of Health Services investigation concluded that Beverly Enterprises

"failed to ensure that Quatrej smoked only in a designated area under supervision" and failed to implement a "plan which required the patient's smoking materials to be kept at the nurses station and the patient to smoke in a designated place supervised by the staff."