The middle class in America is disappearing.
Here are two disastrous findings from a Pew Research Center analysis of the current population survey from the U.S. Census Bureau:
But the unemployment rate, as reported by the U.S. Bureau of Labor Statistics (BLS), has fallen to 4.9% — doesn’t that mean the middle class is coming back? What you can’t see in this widely reported number is how many good-paying middle-income jobs have been replaced by low-paying hourly jobs each month.
Let’s say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour — or about $28,000 per year. That devastated American remains counted as “full-time employed” because he has full-time work — although with drastically reduced pay and benefits. He has fallen out of the middle class.
Also, when you read that 200,000 jobs were created in a month, about 400,000 new jobs were actually created and 200,000 others were lost, for a net gain of 200,000 jobs. What you can’t see is that many middle-class jobs were replaced by lower-paying hourly jobs. So the supposed “good news” about jobs each month reflected in 5% unemployment is misleading. The White House and Wall Street continue to celebrate this number because they want to sell Americans on an improving economy.
More disastrous is the emotional toll on the person — the sudden loss of household income can cause a crash of self-worth and dignity, leading to a crisis of desperation that we have now in many parts of America.
Millions of Americans, even if they themselves are gainfully employed in good jobs, are just one degree away from someone who is experiencing either unemployment, underemployment or falling wages. One could conclude that almost everyone in America knows up-close the pain of the decline of the middle class.
In fact, many Americans experience the reality found in three facts:
Free enterprise is in free fall — but it is fixable. Small business can save America and restore the middle class.
Gallup finds that small businesses — startups plus “shootups,” those that grow big — are the engine of new economic energy. According to the U.S. Small Business Administration, 65% of all new jobs are created by small businesses.
But here’s the crisis: The deaths of small businesses recently outnumbered the births of small businesses. The U.S. Census Bureau reports that the total number of business startups and business closures per year crossed for the first time in 2008. In the nearly 30 years before that, the U.S. consistently averaged a surplus of almost 120,000 more business births than deaths each year. But from 2008 to 2011, an average of 420,000 businesses were born annually nationwide, while an average of 450,000 per year were dying.
Considering all of this, how do we get small businesses to boom again — and to create the economic engine that will restore the American middle class, along with trust and confidence in American leadership?
The solution will not come from Washington, but from cities. New business startups and shootups will be revived in the U.S. city by city.
Leaders of every American city need a system for early identification and development of business builders that is as intentional as systems for identifying high IQ, athletic skill or artistic talent. Gallup scientists have created an assessment to identify that God-given talent: the Entrepreneur Profile 10 (EP10) predicts who has high potential to build multimillion-dollar organizations.
The EP10 can be used in cities to test eighth- through 12th-graders. Leaders can identify the most gifted and put them in a program that encourages them to start and build a business. And they might even give the program a cool name — something like “Operation Juilliard.”
There are 30 million kids in eighth through 12th grade. High talent is found in 2% of that group, or 600,000 kids. Kids with an extraordinary gift — those with the potential to build very large organizations — are 0.5% of the 30 million, or 150,000.
There are rare business builders in every city. But most city leaders simply don’t know who they are.
Cities in America have startup clubs and incubators. Many universities have entrepreneurship departments, but few of these systematically create new businesses. By focusing on high-potential talent, the success rate of startups could jump as much as five times.
Bottom line: The two most trusted institutions for U.S. world leadership are the military and small business. Most people know about our military’s importance, but not as many appreciate the role small business plays in creating the majority of new jobs and in national security itself. Looking back over the past 60-plus years, one could easily conclude that the world works better when America leads and dominates it — when we dominate economically, led by small businesses, we lead the world in freedom, global trade and prosperity.
America needs small business to boom again. Small businesses are our best hope for badly needed economic growth, great jobs and ultimately accelerated human development. When we get small business to boom in every city, we can save America, restore our middle class and once again lead the world.
Mr. Clifton is the creator of The Gallup Path, a metric-based economic model that establishes the linkages among human nature in the workplace, customer engagement and business outcomes. This model is used in performance management systems in more than 500 companies worldwide. His most recent innovation, the Gallup World Poll, is designed to give the world’s 7 billion citizens a voice in virtually all key global issues. Mr. Clifton is the author of The Coming Jobs War and coauthor of Entrepreneurial StrengthsFinder, as well as many articles on global leadership. His blog appears regularly in the Influencer section of LinkedIn and on Gallup.com’s Chairman’s Blog. He serves on several boards and is Chairman of the Thurgood Marshall College Fund. He has received honorary degrees from Jackson State, Medgar Evers and Bellevue Universities.