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Income gap widens as US factories shut down

READING, Pennsylvania--In August 2008, factory workers David and Barbara Ludwig both treated themselves to new cars. With David making US$22 an hour and Barbara US$19, they could easily afford the payments.

A month later, Baldwin Hardware, a unit of Stanley Black & Decker Corp., announced layoffs at the Reading plant where they both worked. David was unemployed for 20 months before finding a janitor job that paid US$10 an hour, less than half his previous wage. Barbara hung on, but she, too, lost her shipping-dock job of 26 years as Black & Decker shifted production to Mexico. Now she cleans houses for US$10 an hour while looking for something permanent.

They still have the cars. The other trappings of their middle-class lifestyle? In the rear-view mirror.

The downfall of manufacturing in the U.S. has done more than displace workers and leave communities searching for ways to rebuild devastated economies. In Reading and other American factory towns, manufacturing's decline is a key factor in the widening income gap between the rich and everyone else, as people like the Ludwigs have been forced into far lower-paying work.

It's not that there's a lack of jobs, but gains often come at either the highest end of the wage spectrum — or the lowest.

“A loss of manufacturing has contributed to the decline of the middle class,” said Howard Wial, an economist with the Brookings Institution and the University of Illinois at Chicago. “People who are displaced from high-paying manufacturing jobs spend a long time unemployed, and when they take other jobs, those jobs generally pay substantially less.”

Globalization, automation and recession destroyed nearly 6 million U.S. manufacturing jobs between 2000 and 2009. In Pennsylvania, between 2001 and 2011, 258,000 middle-income factory jobs were lost. At the same time, Pennsylvania added jobs at the lower end of the wage spectrum — in health care and social services — and at the highest end, in sectors like management and finance.

Berks County, of which Reading is the county seat, is a mirror of that larger problem.

Decades ago, Reading was a mighty manufacturing town where the Reading Railroad — once the world's largest company, now a spot on the Monopoly game board — built a 19th-century transportation empire, and factories produced everything from hats to hardware. At one time, the city boasted so many manufacturing jobs that you could quit one, cross the street and easily land another, longtime residents say.

“You made a very, very good middle-class living. You could get a new car every couple years, send kids to college,” recalled Ed McCann, Berks County's longtime director of workforce development.

Then the factories shut down. The wealthy fled to the suburbs, their grand Gilded Age mansions carved up into apartments, and poor immigrants moved in. Now Reading, population 88,000, is one of the nation's neediest cities, with more than 40 percent of its residents living in poverty, up from 19 percent in 1990.

The Wealth Gap

As poverty grew, so too did the gap between the rich and everyone else. The difference between the income earned by the wealthiest 5 percent in Berks County and by a median-income household rose 13.2 percent in 20 years, according to the U.S. Census Bureau. Nationally, the wealth gap became even more pronounced, increasing 15.8 percent.

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