But the corporate version of the welfare state is not just about retirement and health care. Anot... One Safety Net Is Disappea

But the corporate version of the welfare state is not just about retirement and health care. Another, much less obvious, piece of it is the steadily increasing pay that most workers receive over the course of their careers. All else equal, a typical worker in his early 60s makes about 50 percent more than a worker in his early 30s.

This arrangement produces some enormous benefits for society. It allows Americans to enjoy ever-rising living standards over their lives and helps them pay some big expenses, like their children’s college tuition and their parents’ elder care, that start to hit in middle age.

In strictly economic terms, however, paying people based on their age is a bit skewed. Sixty-year-olds are indeed more productive than 30-year-olds, studies have shown, but not 50 percent more productive. Experience isn’t quite as valuable as we might like to believe. In effect, most companies are underpaying their younger workers and overpaying their older ones.

This somewhat uncomfortable fact was a big part of the extraordinary layoff announcement from Circuit City Stores last week. On Wednesday, the company dismissed 3,400 people, or about 8 percent of its work force, not because they were doing a bad job and not because the company was eliminating their positions. Instead, executives said the workers were being paid too much and that the company would replace them with new employees who would earn less. It was the second such layoff at Circuit City in the last five years, and it offered an unusually clear window on the ruthlessness of corporate efficiency.

Whatever you think of the urge behind that efficiency — whether you see it as the wellspring of American competitiveness or the source of middle-class insecurity — there’s no question that it is a cause of the dismantling of the private-sector safety net that has served the country well over the last half century. What, then, is going to replace that safety net?

The laid-off Circuit City employees worked in the company’s stores and warehouses, selling electronics, unloading boxes and the like. They generally earned $10 to $20 an hour, making them typical of the broad middle of the American work force. Nationwide, the median hourly wage of all workers is about $15.

Like a lot of companies, Circuit City sets “pay ranges” for its various jobs. Once associates reach the top of the range, they are not supposed to get further raises — beyond the basic cost-of-living increases that also push up the pay range — unless they are promoted.

But Circuit City’s store managers found it hard to stick to the policy. When they were divvying up the yearly pool of raise money, they would often increase the pay of all workers who had done a good job, even those at the range’s ceiling, said Bill Cimino, Circuit City’s chief spokesman. It just seemed like the decent thing to do.

Eventually, though, the company’s executives decided they couldn’t afford decency for decency’s sake. In recent months, there has been a price war over flat-panel televisions that’s an excellent case study of the benefits and drawbacks of globalization. The price cuts have made the televisions, which are manufactured in Asia and Mexico, affordable to many more families, but have also squeezed Circuit City’s margins.

But there’s no question that corporate America is moving in the same direction as Circuit City. Companies are wringing out what they see as inefficiencies, like traditional pensions and health insurance coverage, and tying workers’ pay more closely to their performance.

It’s probably not possible to halt these changes. It may not even be desirable. The flexibility of the American labor force seems to be one reason that recessions have become less frequent and unemployment is less of a problem here than in Europe, notes Jason Furman, a leading Democratic economist. In this country, fast-growing companies can hire new workers without worrying that they are making a 30-year commitment.

But it would also be foolish to pretend nothing is changing. The corporate safety net of the 20th century is going away, and a fundamentally different private sector will require a fundamentally different public sector.

If companies aren’t going to provide health insurance, the government will need to. It can do so directly, through a single-payer system similar to those in other countries, or indirectly, by pooling together the uninsured and helping them buy coverage, as Massachusetts is now planning. If companies aren’t going to provide pensions, the government will have to provide better incentives to save, helping people overcome their natural instinct to choose a flat-panel TV today over an adequate retirement tomorrow. And if companies aren’t automatically going to give workers raises over the course of their lives, the country will probably need a new strategy for giving older workers new skills, something considerably more ambitious than the current, meager retraining programs.

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