A Middle-Class Stronghold’s Uncertain Future

SHEBOYGAN, Wisc.—There is still a sizable middle class in this county of 115,000 on the shores of Lake Michigan, a pleasant hour’s drive from Milwaukee. You can see it in the cars that pour in and out of the parking lots of local factories, in the restaurants packed with older couples on weeknights, and in the bars that seem to be on every single corner. You can see it in the local parks, including one called Field of Dreams, where kids play soccer and baseball and their parents sit and watch.

About 63 percent of adults in Sheboygan make between $41,641 and $124,924, meaning the area has one of the highest shares of middle-class households in the country, according to a report from the Pew Research Center. Nationally, only 51 percent of adults are middle-class.

Wisconsin is, for the middle class, the promised land. Four out of the top 10 metropolitan areas with the highest share of middle-income families are in Wisconsin, including Wausau, Janesville, Eau Claire, and Sheboygan. Those areas have what other parts of America once had in spades: a big manufacturing sector, strong unions, good schools, and a low cost of living. Business is so good in Sheboygan that some companies are bringing workers from inner-city Milwaukee to fill open positions. According to the Sheboygan County Economic Development Corporation, there are at least 3,000 job openings in the county now, one-third of which require just a high-school degree, one-third of which require a technical degree from a two-year college, one-third of which require a college degree.

But there is also a sense in Sheboygan that things are starting to go awry, especially for the younger generation, even in this place with a large middle-class. Factory jobs still exist but they pay less than they used to. Unions have less bargaining power. And schools are facing rounds of budget cuts as the state readjusts its priorities.

Sheboygan residents like Kyle Olli, 29, are now having a harder time staying in the middle. Olli’s parents worked in the Kohler factory for decades, earning a good living, but Olli, who works in a factory owned by the plastics manufacturer Bemis, is actually seeing his wages shrink. When his department closed down, he took a pay cut to move to another part of the factory. He now makes $16 an hour, meaning he earns just $32,000 a year, even though he has years of experience and a degree from a 2-year technical college. Put his wages together with his girlfriend’s—who also works for Bemis—and their household makes it into the middle class, but barely. He doesn’t see this changing anytime soon.

“My parents worked in manufacturing all their lives, and back in the day, they made a lot more,” he told me. “But we’re still kind of stuck in the middle like everybody else.”

It’s not just Olli. Pew defines middle-income households as those with an income two-thirds to double that of the overall median household income. And as incomes across the country fell over this time period, the median income of middle-class households fell, too. In Sheboygan, middle-class median income fell 17 percent, from $80,281 to $66,719, according to Pew. This was the biggest drop in income of any middle-class area, though nationally, middle-class households lost ground in 222 of 229 metropolitan areas from 1999 to 2014.

All of this indicates that the county of Sheboygan might be a cautionary tale. From the outside, this would seem to be a place where the middle class still thrives. There are still unions with the ability to lead strikes and secure pay raises. There are family-owned companies not accountable to shareholders. There are manufacturing jobs and schools that train students to fill them. But still, despite all of this, wages are dropping, and it’s getting harder and harder to stay in the middle. Not even Sheboygan is immune to the national and global forces making it tougher for people without a college education. The middle class is faltering, even in the places where it still exists.

Sheboygan has prospered over the years in part because of the family-owned businesses that were created in the region and stayed here. They include companies like Johnsonville Sausage, founded in 1945 when Ralph and Alice Stayer, immigrants from Austria, settled in Wisconsin and decided to open a butcher shop. Their bratwurst recipe proved popular with locals, and within a few decades, their butcher shop had grown to Johnsonville Sausage, which is now one of the top-selling sausages in the world.

Johnsonville Sausage employs about 1,000 people, double the number it did two decades ago, and its campus is a flurry of backhoes and construction pick-ups as it expands its facilities. Johnsonville benefited from NAFTA and other trade agreements—the lower tariffs made it easier to ship Wisconsin-made sausages to countries overseas, in turn creating more jobs in the U.S.

Because it’s still family owned, Johnsonville isn’t as focused on dividends as a public company might be. “We’re looking at what does the company look like in 10 years, not what does the company look like next quarter,” said Michael Stayer-Suprick, who is the company’s president and the grandson of Ralph and Alice Stayer.

Other family-owned business include the cabinet-maker Richardson Industries, Wigwam Mills, Sargento Foods, Plastic Engineering Company (PLENCO), Bemis Manufacturing Company, Masters Gallery Foods and Kohler, which has been in Sheboygan County since 1873. Having these companies in town means that there are jobs, and also that there is investment in the community. A handful of companies, for instance, dismayed by what students were learning about manufacturing at the local schools, created a partnership with a local technical college and the public school district called Red Raider Manufacturing, and are building advanced manufacturing workshops with new equipment at local high schools.

Sheboygan, and much of Wisconsin, also has a history of strong unions, which helped keep wages high, according to Tamarine Cornelius of the Wisconsin Budget Project, a nonprofit that researches state tax and budget priorities. In addition, the state has traditionally invested heavily in its public-education system, which has “really underwritten our middle class,” Cornelius said.

The good schools and strong unions of Sheboygan helped Bob Bastasic and his wife raise three children on just one salary. Bastasic started working at Kohler 36 years ago, and though he had just a high school diploma, he made $7.25 an hour, which works out to roughly $21 an hour in today’s dollars. He paid nothing for health care, dental, or vision, and slowly worked his way up in the company. While he was working in the enamel shop at Kohler, his wife was raising their three children, driving them around the state so they could play sports. His daughter is now an elementary-school teacher, and his sons both went into the Marines. Bastasic now makes almost $34 an hour, and owns a home near Sheboygan’s Field of Dreams. “We were able to sustain a household on my job,” he said. “You can’t find that today.”

Still, even family-owned companies have to stay competitive. For every company like Johnsonville Sausage that is able to expand because of the benefits of trade and globalization, there are others that are shrinking. For example, the county’s biggest employer, Kohler, used to employ around 4,500 people in its local factory, and is now down to 2,300, according to Timothy Tayloe, the president of United Auto Workers Local 833, which represents manufacturing workers at Kohler. When the housing market slumped, causing the recession, Kohler saw less demand for its housing fixtures and appliances, and laid off hundreds of people. In 2010, in order to keep jobs in the region, Kohler asked the union to agree to a two-tier pay structure in which new employees made about half of what old-timers made. The union agreed—the alternative was watching jobs leave the region, Tayloe said. In December 2015, as a new contract was being negotiated, the union pushed back against the two-tier structure. But Kohler again said it couldn’t afford to keep jobs in the region at the old wages.

“Over the last 20 years, our competitors have moved to lower-cost operations in the South and offshore,” David Kohler, the company’s CEO, wrote in a column for the Sheboygan Press. “If the two-tier wage structure disappears, so do the local manufacturing jobs.” The only way the company could stay and remain competitive was to pay the same low wages that new manufacturing employees made in the rest of the country, he wrote.

The union led a month-long strike to protest the tiered structure, but eventually accepted a new contract, in which tiers remain. Now, workers like Bob Bastasic still earn $34 an hour at Kohler, but new employees can’t make much more than $18. Shawn Lehmann, one such new employee, was a supervisor making a good wage at the family-owned Schneider Cheese company until it was acquired and he got laid off. Now, he glazes toilets in the pottery department at Kohler. His starting wage was $12 an hour. After the strike, Lehmann makes $16.70 an hour, but it’s barely enough to cover living expenses for his wife and four kids, who live in a trailer the family bought a few years back.

For people like Lehmann with just a high-school education and a little bit of technical college, factory work isn’t a guaranteed way into the middle class anymore. Few things are. “I don’t think we’re there yet, we’re still struggling,” Lehmann told me, about the middle class. “We’re not doing much saving. It’s all going towards living expenses.”

What’s happening in Sheboygan is happening throughout the country. The share of Americans living in middle-class households has declined to just over 50 percent today, from 61 percent in 1970, according to Richard Fry, a senior researcher at Pew. “It’s been a slow, steady decline,” he said.

Economists are still trying to hash out how the country got to this place, where so many jobs pay less, comparatively, and so many workers are struggling to make ends meet. The work of the economist David Autor suggests that automation is partially to blame. His research finds that improvements in technology helped augment a certain class of jobs, making the people in them more productive, while also replacing the more repetitive jobs with computers and machines. That means that the top earners are able to make more money than they were in the past, and that there’s a growing need for people to fill lower-wage jobs that can’t be automated (think janitor or nursing assistant). But the jobs that once built the middle class—bookkeepers, assembly-line workers, call-center employees—have disappeared.

Other economists, such as Thomas Lemieux, argue that a shifting labor landscape is to blame for some of the decline in middle-class wages. As companies outsourced jobs to cheaper locations, U.S. jobs either disappeared or paid less, in order for companies to remain competitive. Additionally, declining union coverage means people who would normally get union wages no longer do, which also puts a downward pressure on non-union wages, since non-union plants no longer have to compete. And because the minimum wage has not kept pace with inflation, Lemieux and others argue, other wages haven’t either. If minimum-wage salaries remain low, other salaries up the income ladder—including those of managers—remain low too.

In addition, American companies have become very good at cutting labor costs, said Harry Holzer, a professor of public policy at Georgetown. They turn people who were once full-time employees into contractors, cut back on wages and benefits, and do everything possible to maximize productivity without sharing those gains with the workers. “Employers have become very good at taking the low road, minimizing labor costs, no matter what it takes,” said Holzer.

Automation and the challenges of remaining competitive in a global marketplace have certainly made middle-class jobs harder to find. But it’s worth noting that as the middle class has shrunk, wages for people at the top have continued to rise. Those with very high wages make 41 percent more than they did in 1979, while middle-wage workers earn just 6 percent more, according to the left-leaning Economic Policy Institute. And a recent Urban Institute study found that the size of the upper-middle class, defined as a family-of-three making at least $100,000, grew to 29.4 percent of the population in 2014, from 12.9 percent in 1979.

It’s no coincidence that those at the top are making big gains while middle- and lower-income workers are seeing their paychecks get smaller, says Elisabeth Jacobs, the senior director for policy at the Washington Center for Equitable Growth. The two phenomena are related. “Decisions we've made that affected the top of the income distribution have ripple effects all the way down to impacting the wage structure,” she said.

Indeed, in 1979, the poor and middle class earned 70 percent of all incomes and the rich and upper middle class earned 30 percent, according to the Urban Institute. By 2014, those groups had swapped, with the poor and middle class earning just 37 percent of all incomes, with the rich and upper middle class earning 63 percent.

Why has this happened? Since the 1980s, some CEOs and other top executives of publicly held companies have followed the mantra that companies exist to maximize value for shareholders. These companies invest less in long-term strategies and more in cutting costs so that the next quarter’s ledger will look good. They’re compensated for this strategy: Executive pay is structured so that leaders who maximize value for shareholders are rewarded with handsome bonuses, which are taxed at a lower rate than salaries are. And the best way to maximize shareholder value in the short term is to spend less money for things like training and salaries. CEOs now make 296 times what a typical worker earns, up from 59 times in 1989.

In addition, more industries are concentrated in the hands of those at the top than they were just a few decades ago, according to Barry Lynn, the director of the Open Markets Program at the New America Foundation. The decline of antitrust laws in the 1970s and 1980s have allowed more monopolies to form, he said, concentrating industry and power in certain cities while decreasing wages and competition in others. At one time, locals in Sheboygan would have owned portions of the grocery store and the local bookstore. Now those businesses are likely big chains owned by shareholders somewhere else. Today, Walmart sells 57 percent of America’s groceries. In 1966, by contrast, the Supreme Court blocked a merger of two supermarket chains in Los Angeles on the grounds that the resulting company would have controlled a whopping 7.5 percent of the local market.

In Wisconsin and much of the Midwest, consolidations have left small communities reeling. Madison is still struggling to adapt to the closure of a century-old Oscar Mayer plant, the result of the merger of Kraft Foods and H.J. Heinz (Oscar Mayer was owned by Kraft). Schneider Cheese, the company that employed Shawn Lehmann, was acquired by a bigger company, Saputo Inc., in 2005, and the company closed the Wisconsin plant in 2014. “The rise of monopolies hurts the middle class by taking away from people the ability to run their own businesses, and sell their own labor in the open market,” Lynn said.

What can be done, then, for a place like Sheboygan, where there’s still a sizable middle-class, but it’s doing worse than it once did?

Efforts to get the middle class back on track have focused mostly on the jobs lost due to automation, and on programs that could retrain people to do the types of jobs that are now being created in the economy—jobs in healthcare, technology, and advanced manufacturing. But this focus on apprenticeships and employment probably won’t be enough to pull the middle class from its tailspin. That’s because these types of programs ask the worker to adjust to the changing economy, and in essence blame the worker for not getting the skills they need.

And at the end of the day, the disappearing middle class isn’t just about people adjusting to the new economy. It’s also about how companies—and the people who run them—that are changing the rules of the game. These behaviors ripple across America, even in places, like Sheboygan, where companies and workers had tried, for a long time, to play by their own rules.