Who’s going to feel the biggest squeeze? Though they get plenty of attention, it’s not the wealthy or the middle class.
FORTUNE — Who is going to feel the tightest economic squeeze this year?
The answer is not the wealthy, although some will pay higher taxes than in recent years. The middle-tier worker might not be making huge strides, but it’s the bottom 25% of workers whose financial plight is likely to get no better, and perhaps even worse.
The bottom quadrant are not those who can’t or won’t find or keep a job, but the working families who make enough to clear the official poverty line but still cannot make ends meet. Such families, defined as those who have one adult employed full-time, are not looking at much, if anything, that will give them significant help, such as better job prospects, tax breaks, or even the financial boost of a higher national minimum wage, according to economists.
“There is a lot of suffering out there,” says Paul Osterman, professor at MIT and author of Good Jobs America. “Not enough jobs are being created to replace the ones that were lost, let alone new ones.”
While more companies are taking on workers — 157,000 jobs were added in January, according to employment statistics released last Friday — but the jobless rate, nevertheless, rose slightly, to 7.9%, as weekly unemployment claims rose.
“Overall growth remains too slow to provide work for all who want and need it,” says Christine Owens, executive director of the National Employment Law Project, reacting to the jobs data. Some 2.2 million jobs were created in 2011.
Little relief is in sight, with a heavy budget axe poised to fall as early as next month. Over $80 billion in government spending cuts will likely push even more families up against, or over, the economic edge.
Up to 1.4 million jobs could be lost, according to estimates by the Congressional Budget Office, which will add more families to some 47.5 million Americans considered among the working poor. Last year, the official poverty line was $22,811 for a family of four, with two adults and two children.
A new study by the Working Poor Families Project, a foundation-funded endeavor, examined U.S. Census data and concluded that the number of low-income working families continues to rise, with about one-third of all such households currently struggling to pay for their essential living expenses. The project defines working poor families as those earning 200% above the official poverty line, or $45,600.
Last year, the lowest earning one-fifth of families took home less than 5% of all income, according to the analysis. At the same time, the top-earning 20% of all working families took home nearly half, or 48%, of all income.
Other economists point to federal data that the costs of basic necessities, which include mortgage or rent payments, utilities, clothing and transportation, are lower now than they were in the past. In a recent Wall Street Journal opinion column, two conservative economists argued that figures provided by the Bureau of Labor Analysis, part of the U.S. Commerce Department, found that households spend only 32% on basics now compared to 44% in 1970 and a much higher 54% in 1950.
Brandon Roberts, co-author of the Working Poor Families report, says federal data shows it’s not a question of frittering away disposable income, but that “too many people are not able to pay for health care or put money away for their children’s education. Working families are not doing better than they were several years ago.”
And the ranks of the working poor are growing, he says, noting that data from the Census Bureau’s American Community Survey shows that their numbers grew by 200,000 in 2011. As a result, 10.4 million families — 32% of all working families — fit the working poor definition, an increase from 28% in 2007.
The pain is spread geographically, the report found, with every state registering a significant number of low-income working families. However, states in the South, including Mississippi, and the West, including New Mexico, had the highest percentages of working poor.
The unemployment has declined, but it has retreated more slowly than economists predicted, with long-term joblessness at its highest rate ever. About 40% of the country’s 12.3 million jobless are viewed as long-term unemployed, a situation that was underscored recently by the decline of the gross national product late last year.
Reductions in defense spending have contributed to that decline, and the upcoming billions in spending cuts are expected to ripple through the economy — a development that workforce experts like the National Employment Law Project’s Owens warn could cause major harm to workers.
“The economy is still suffering from the worst recession in 80 years — and the degree of continuing pain cannot be overstated,” she says.
Low-income working families have added more hours to their workweek, but are receiving the same pay, says Lawrence Mishel, president of the Economic Policy Institute, a left-leaning think tank.
During the three decades following 1979, American employees worked 10.7% more annually — the equivalent of working 4.5 additional weeks every year — but real annual wages grew only slightly. For middle-wage workers, wages grew 5.3%, with the biggest gains coming in the economically flush late 1990s, according to Mishel, who compiles the data annually in “The State of Working America.”
“The situation is stagnating, and workers took another blow when payroll taxes reverted to where they were before,” says Mishel, an economist, referring to the expiration of last year’s 2% decrease in taxes taken from paychecks.
“The economy is not growing enough to drive down employment,” Mishel adds. He is calling for more job training and restoring union rights, noting that workforce data suggests that “Americans started working more paid hours as part of a coping strategy to ensure some income growth despite poor wage performance.”
Wages aside, families can find little solace, if any, in talk of tax reform. Some important tax credits — including one for childcare — survived the tax deal engineered in January, but Brandon Roberts says he supports breaks for worker sick leave and affordable skills training.
An increase in the federal minimum wage could offer a boost to workers. The rate, at $7.25 per hour, was last changed in 2009. Last month, 10 states raised their hourly wage, but Congress must approve the federal minimum, which could help offset the deeper bite that the restored payroll tax cut is taking in low-income workers’ paychecks.
“We’re not supporting skills training or a higher minimum wage because they are handouts,” says Roberts, “but because they are opportunities.”