Of the $54.9 billion in personal income that came to people in Erie and Niagara Counties in 2017, about $12.4 billion came in the from the government—mainly Social Security and Medicare for elderly people, plus Medicaid for the very poor, plus an alphabet soup of income-support programs, including disability payments, veterans’ benefits, the Earned Income Tax Credit, unemployment insurance, and more.
Back in 1933, Franklin Delano Roosevelt started to set up income-support mechanisms that Lyndon Baines Johnson greatly expanded 30 years later. Republicans including Dwight David Eisenhower and Richard Milhouse Nixon, and New Yorker Nelson Aldrich Rockefeller, endorsed the approach—because they all agreed with the consensus lesson that the faraway wars and revolutions of the 20th century taught: that the way to avoid wars and revolutions was to use government to keep poverty at bay.
Poverty, as in actual starvation and want of the kind that drives caravans out of Central America and fragile boatloads across the Mediterranean, is rare here.
But stress isn’t. As incomes for most households don’t and haven’t and won’t grow, even while for a very few they leap, ‘tis the season to warn that the broad middle class is measurably seeing its expectations defeated.
It’s not just in France
Americans with slipping incomes aren’t taking to the streets the way that thousands of rural and small-town demonstrators have been in France for the past month. Protests over a new gas tax there turned quickly into demands—now met—for a higher minimum wage, an end to a pension tax, and some other help for moderate-income families.
Looking at how incomes are trending in the Buffalo area, especially as the drums beat loudly in celebration of our economic renaissance, it’s a wonder we’re not seeing protests here—because the numbers do not show any change in how money flows.
Over the past 20 years, data from the Bureau of Economic Analysis show that the norm had been that 18 percent of all personal income here comes from federal and state government programs—including the Social Security that working people pay into all their working lives. But as of the latest available figures, that share has grown—to 22.6 percent. Here’s what that signals: New jobs don’t pay like pre-Great Recession jobs used to, and retirement income is more important than ever to the regional economy.
Pensions, disability, and Social Security comprise a fifth of personal income here. Another fifth comes from government jobs—mainly teachers, public safety personnel, and college professors, but also the broad range of civil servants, everybody from snowplow drivers to weather forecasters to road crews and school nurses.
This is what economists mean when they say we have a “mixed” economy. Private employment in the Buffalo-Niagara Falls metro accounts for at least 480,000 of the 580,000 or so jobs here. The private sector still accounts for an overwhelming share of the personal income of working people.
But as we’ve tracked for a bunch of years now (today’s analysis looks at numbers just released last month, current through the end of 2017), this region is living off its legacy as a manufacturing center. That legacy includes high-wage employment that no longer exists except in the form of private pensions.
And there’s another change afoot: The highest-income people around the Buffalo-Niagara Falls area get their high incomes increasingly from capital gains, dividends, interest, and rents—from what the tax nerds call “unearned” income. Notwithstanding the strenuous exertions of mouse-clicking day traders and stock order-takers, analysts generally distinguish between money that comes from doing a job and money that comes from money.
Attention all Rush Limbaugh listeners: The numbers published by the Trump administration are the same as those published by his predecessors. To wit:
- Eight out of 10 dollars in capital gains income here are going to tax-return filers who report incomes over $200,000.
- More than 25 percent of total income in the Buffalo-Niagara Falls area went (at last count) to folks in that category, who amounted to just under three percent of all the people who filed income tax returns last year.
So here’s what we’ve got as we head into the consumption spree known as the Christmas season:
- Two-thirds of the people who filed income tax returns last year reported incomes of under $50,000, which is about $10,000 below the statewide median income;
- about 13 percent of taxpayers reported incomes over $100,000, and they accounted for 51 percent of all the income from every source;
- that happy 13 percent has a great quality of life here, with a high-quality housing inventory that costs far less than anywhere else in the Northeast; but
- for the two-thirds reporting incomes below the $50,000 line, the cost of transportation is wrecking household budgets and pushing up household debt.
A major gripe of the middle-class French protesters is the cost of transportation. Green politicians, take note: Telling stressed out middle income suburban and rural drivers that climate change is theirs alone to pay for is a political loser.
Urban Europeans enjoy clean, cheap, convenient public transit that runs all hours, comes every few minutes, and costs families about a quarter what a car payment plus fuel, insurance, maintenance, and tolls cost. But that’s for urbanites. Rural Europe is like here: underserved, spread out, and broke. The Niagara Frontier Transit Authority delivers barely adequate service inside an area of about 50 square miles out of a two-county region of more than 1,200 square miles, and is simply not an option for our sprawling, shrinking population. It could and should be, but that’s another story.
The BEA data show that though retirement incomes are a large and growing share of total income, and that private pensions and Social Security also go to the well-off households, these sources were hugely more important to lower-income households.
- The overwhelming majority of capital gains, dividends, and rents went to taxpayers reporting over $200,000 incomes; and
- the share of overall income derived from wages went down while the share of overall income derived from unearned income went up since 2001.
There’s a new theory popping up in Washington—that income stagnation for the middle class is overstated, a myth actually, and that the chief reason that pundits and politicians are wrong about the plight of the middle class is that we’re not counting healthcare benefits and low inflation as income.
That’s hogwash, for three reasons:
- Try spending your employer-funded healthcare benefits (less than half of jobs created post-2008 have it) on housing, utilities, food, or tuition: It’s not disposable income. Indeed, most deductibles, co-payments, and drug costs gave ballooned even for those who are covered by employers.
- Most households spend at $700-$1,000 after-tax per month on a car (or two), which leaves a $4,000-a month household only $3,000 per month for everything else.
- We don’t spend inflation-adjusted dollars. Wages have not kept pace with price increases in utilities, groceries, or durable goods.
While the nominal, non-inflation-adjusted 2017 dollars look bigger than they did in 2001, some are actually much smaller: Around here, income from manufacturing dropped from $4.64 billion to $4.4 billion while most other industry sectors rose.
Income from manufacturing used to go to the workforce. There’s less overall, and less of it shows up as wages. Meanwhile, dividends, interest, and rents have risen every year (but one) since 2001, from $5.3 billion to $8.9 billion, a 69 percent increase.
Tens of thousands of high-wage, low-skill factory jobs went away more than 30 years ago. But the legacy of those jobs persists in the form of pensions—which are deferred wages from those long-ago jobs.
But spend we do
The Buffalo economy of the industrial age is gone, except that its legacy continues to pay our collective bills. How? Through transfer payments, through private and also public pensions, and through the marvel of high ratios of discretionary, disposable income thanks to the low cost of housing here.
That’s why Buffalo and other Rust Belt cities enjoy such a robust entertainment sector, as various national and major-market media seem to have discovered. Restaurateurs, cultural venues, and other market-conscious business types are wise to track the supply of elderly and near-elderly people here and in other places where big factories once pumped out retirees with nice pensions, and where public employment guarantees 20 percent of the workforce a very secure retirement. To widespread pension security add the phenomenon of the paid-off house, and voila: Even without an uptick of child-free, urban-trending millennials, the coffee shops, saloons, boutique eateries, fromageries, artisanal olive-oil shops, farmers’ markets, and middle-ticket restaurants continue to do good business.
Retiree money is critical to several sectors here, because for current workers, for the not-yet retired, there are tectonic shifts underway.
The biggest private-sector sources of income here these days are quite different than just a decade ago. In the year of the 9/11 attack, manufacturing jobs provided 20 percent of all the wages paid to working people here. Now, manufacturing provided only eight percent.
But bank employees, managers, administrators, and hospital and healthcare workers have seen their pay grow, slightly, to be more important in the region. Construction work, IT, transportation, and both wholesale and retail have all inched downward in importance. Earnings from work in scientific and technical jobs are up overall and also as a share of total compensation. And though hospitality and food-service jobs are more numerous than they were, the pay in those trades is small; in the aggregate, the share of income paid to servers looks even lower when compared to the pay of construction workers, whom servers now outnumber by a lot.
The gist: So long as there is a decent supply of elderly people bringing Social Security and Medicare benefits in to pay for healthcare workers (Medicare doesn’t go to the patient, but to the healthcare establishment), and so long as there is some steady pay for civil servants, the Western New York economy has a baseline of income stability.
Let’s hope that the next round of General Motors plant closures bypasses Buffalo. And that Tesla’s 600 employees grow to the 3,000 Elon Musk promised. And that millennials and climate refugees begin the remigration to our shrinking (our population dropped by 30,000 since 2001) but cheerful and well-promoted region. They’ll find housing in oversupply, dysfunctional public transit, and politicians flush with Christmas cheer from real-estate developers both free and, like one of our congressmen, out on bail.
They’d best arrive soon, before our retirees die off and leave a huge hole in our regional economy.
Bruce Fisher teaches at SUNY Buffalo State and is director of the Center for Economic and Policy Studies. His latest book, Where the Streets Are Paved With Rust: Essays From America’s Broken Heartland (The Public Books/Foundling Press 2018) is available at Talking Leaves Books and at foundlingspress.com.