In less than six months, Richard and Maria Lipowski went from solidly middle class to struggling to make the rent.
Last year started well for the family. A construction worker with the New Jersey Laborers' Union, Richard Lipowski was benefiting directly from the nationwide building boom then entering its final phase. He earned $60,000 to $70,000 a year, enabling his family to lease a comfortable suburban home and afford regular meals at local restaurants and family vacations to the Caribbean. The couple even had money left over to put toward the purchase of a house where their two young boys, ages 3 and 2, would have more room to play.
But by mid-2008, the housing bubble had burst, construction had slowed, and the Lipowskis' bills had ballooned out of control. In April, the Lipowskis' older son, Frank, had emergency surgery to close a hole in his heart. Nearly overnight, the family's savings turned into thousands in credit card debt. Frank is autistic, and that has entailed medical expenses as well.
Then, in November, Richard Lipowski lost his job. His take-home pay was chopped in half, from $4,000 a month to about $2,000 in unemployment insurance. Despite spending cuts, the family's credit card debts swelled to $25,000.
"It's all on the credit cards," says Richard Lipowski, the family's sole breadwinner. "We are struggling with minimum payments."
Many in the middle class can empathize with the Lipowskis' circumstances. Years of high fixed expenses and negligible savings have left many middle-income families ill-equipped to sustain losses of income. Unemployment insurance often covers little more than a middle-income families' rent or mortgage. The rest of the living expenses often go on credit cards, leaving families buried in debt.
As the recession deepens, stories like the Lipowskis' are becoming more common. In March, the nation's unemployment rate reached 8.5%, a 25-year high.
"Anyone who is in the construction industry, the real-estate business, the financial sector and the manufacturing sector . . . is in deep trouble," says Rebecca Blank, an economist with the Brookings Institution, a Washington, D.C., public-policy think tank. Though manufacturing and construction employ only 15% of the labor force, those industries provide salaries for a disproportionate number of low- and middle-income workers, many of whom never fully recovered from the recession earlier this decade.
One in every five U.S. construction workers is unemployed, according to the Department of Labor.