How Just a Handful of Setbacks Sent the Ryans Tumbling Out of Prosperity
The
family's plight mirrors a trend in which common events like layoff and
illness increasingly prove devastating, The Times finds.
By Peter G. Gosselin
Times Staff Writer
December 30, 2004
By last Christmas, the Saab and Volvo were long gone. The big clapboard
house with the wraparound porch was headed for a sheriff's sale.
As the last vestiges of wealth were being stripped away, John and
Kim Ryan couldn't help but be startled at how far they had fallen.
The two had risen so quickly in the world. Now in their late 40s,
both were products of small-city Iowa, both the first in their families
to go to college. John landed a job straight out of law school with the
electric utility where his father was a unionized power-plant operator.
Kim Ryan traveled the country recruiting students for a local college.
Along the way, the couple made a few mistakes. In the early 1990s,
they purchased their home before selling a smaller one, saddling
themselves with two mortgages for a time. Neither saved enough.
"I'm kind of embarrassed we didn't take better care of the money," Kim Ryan said.
But nowhere in the hundreds of pages of dunning notices and legal
briefs on file with the U.S. Bankruptcy Court is there evidence of some
wild investment or irresponsible career move. Nowhere is there a hint
of unbridled spending.
"They look like you and me," said Elizabeth Warren, a Harvard Law
School professor and co-author of a book on the rising rate of personal
bankruptcy in America, who reviewed the Ryans' court files at The
Times' request.
In fact, what happened in the Ryans' case — an economic implosion
triggered by a succession of layoffs for John and a medical crisis for
Kim — has become increasingly common among the nation's working
families during the last 25 years.
Setbacks such as job losses and prolonged illnesses have always
taken their toll, of course. But they haven't always packed the
economic punch they now do.
Since the 1970s, the odds that a family will see its income
chopped in half when hit by this kind of shock have nearly doubled to
more than 20%, according to statistics generated by The Times in
cooperation with researchers at UC Davis.
"Working families stand a good chance of sustaining big blows to
their incomes even from fairly commonplace events," said UC Davis
economist Marianne E. Page, who with colleague Ann Huff Stevens helped
The Times with its analysis. "The odds of suffering a sizable setback
have grown considerably in recent years."
*
Paradox of Prosperity
Throughout this series, The Times has sought to make sense of an
American paradox: why so many people report being less financially
secure even as the nation, by many measures, has grown far more
prosperous.
The answer, the newspaper has found, lies in the shifting of
economic risks from the broad shoulders of business and government to
the backs of working families.
Over the last quarter of a century, many safeguards that people
once counted on to shield them from financial harm have been weakened
or completely lost. These include formal protections such as guaranteed
corporate pensions and state and federal unemployment benefits. And
they include informal ones, like the loyalty that employers once showed
their workers by offering secure jobs with relatively little prospect
of long-term layoff. Other cushions that families like the Ryans have
relied on, such as the financial stability that comes with a college
education, also have eroded.
The result is that families, even well-off ones, operate with
little margin for economic error. And they can pay a steep price if
anything goes wrong. The price grows exponentially if, as in the Ryans'
case, several things go wrong at once.
The Times has tried to gauge the effect of this risk shift over
the last 25 years by tracing the rising volatility of family income.
During the early '70s, the inflation-adjusted income of most of
those in the middle of the economic spectrum — making about $50,000 a
year in today's terms — bounced up and down by no more than $6,500
annually. By the beginning of this decade, those fluctuations had
climbed to as much as $13,500, the newspaper's figures show. At the
same time, the increase in volatility has been far greater for the
working poor, while even top earners haven't been immune from
ever-larger income swings.
To supplement these findings on income volatility, the paper
looked at specific income-rattling experiences. In conjunction with
Page and Stevens at UC Davis, it explored how frequently a
representative sample of families was hit by any of seven common but
potentially destabilizing events. They were: divorce or separation, a
decline in a spouse's work hours, death of a spouse, birth of a child,
retirement or disability of the main breadwinner, unemployment and
serious illness.
The Times then assessed what fraction of the families touched by
any of these episodes suffered a 50% or greater decline in their annual
income. For every type of setback, the size of the group that took such
a huge financial hit climbed substantially between the 1970s and 2000.
This occurred even though the odds of at least one of these events
befalling a family over the course of a decade remained fairly
constant, at about 1 in 5.
For example, among families in which the head of the household was
unemployed for two months or more, 13% watched their income shrink by
at least half during the '70s. But in recent years, that number surged
to 27%.
Even seemingly positive events such as childbirth are more likely
to have potentially threatening ramifications today — in large part
because of families' increased dependence on working wives. During the
1970s, only 4.5% of sample families in which a child was born saw their
yearly income fall at least by half. But by the last decade, that had
jumped to more than 11%.
"Ordinary work and family events are having a larger impact on
families' economic circumstances than they used to," Stevens said. "And
that's causing incomes to swing around more and raising the risk of
steep income declines."
The Times' calculations are based on the Panel Study of Income
Dynamics, a database funded by the National Science Foundation and run
by the University of Michigan. In contrast to most economic indicators,
which involve taking random samples of different Americans at different
points in time and comparing them, the panel study has followed the
same nationally representative sample of 5,000 families and their
offshoots for nearly 40 years. It is the most extensive publicly
available record of family income in the world.
In using the panel-study data, the newspaper has uncovered a
degree of financial instability that usually is associated with the
nation's past, rather than its present.
"It turns out we don't have to look back to cataclysmic events
like the Great Depression to find frequent instances of turbulence and
loss," said Northwestern University economist Greg J. Duncan, who along
with Cornell's Richard V. Burkhauser devised the techniques that the
paper used in its most recent analysis. "Steep income decreases — and
the risk that they pose to families' living standards — are significant
at virtually every stage of life during the last three decades."
And they're getting more significant all the time.
*
Upwardly Mobile
Armed with college diplomas, John and Kim Ryan aspired to lives
well beyond the reach or even the imagination of their parents, who had
barely finished high school.
Kim acknowledged that her status as a college grad put a distance
between herself and her parents. Her father spent most of his work life
as a millwright and union leader at a DuPont Co. chemical plant. Her
mother worked in a shoe store. "The more education I got, the farther
away I got," Kim said.
As he advanced, John kept a reminder of his past — his first car,
a blue 1967 Pontiac GTO that his family had helped him buy as teenager.
He vowed to restore it once he had made his fortune.
Government statistics show that at the end of the 1970s, when the
Ryans got out of college, an individual with a college education
started his or her work life making 25% more than a typical high school
grad. (By the end of the 1980s, this "college premium" had climbed to
50%, and by 2000 it stood at almost 70%.)
In the Ryans' case, the payoff seemed to come almost instantly.
Kim's student-recruiting job for Coe College, a small liberal arts
school in Cedar Rapids, sent her crisscrossing the country all week.
Then, she would call her new husband and meet him in Kansas City or
some other place where they could have fun.
"It was heady," she remembered.
John, a $30,000-a-year labor and environmental lawyer for Iowa
Electric Light & Power Co., was smitten. Asked what he would do if
he won the lottery, he told a local newspaper that he'd "buy diamonds
and rubies for my wife" and book a cruise.
Life only got better with the arrival of the couple's first child,
Jackie, in 1984 and a 1988 offer for John to join Chambers Development
Co., a fast-growing company in Pittsburgh, as assistant general
counsel. With the new job, John's salary more than doubled to $70,000.
It then swiftly rose to almost $100,000.
Chambers had set out to modernize the waste-hauling and landfill
business. As the company's stock price took off, so did the firm's
aspirations and its chief executive's charitable giving — to the
Pittsburgh Opera, the Carnegie Science Center and Duquesne University.
Decked out in formalwear, the Ryans were invited to society events
across the region.
"We really saw the big life," Kim said.
With John working long hours and the birth of Julianna, their
second daughter, Kim quit traveling and opened a shoe store called
Boop, Boop de Shoe. She threw herself into fundraisers and social
events in the prosperous bedroom community of Oakmont, where they had
moved.
In 1991, the couple bought a six-bedroom, four-fireplace Victorian
house at 1109 Pennsylvania Ave. It was only five blocks from the
Oakmont Country Club and its U.S. Open Championship golf course.
John worried that the new house was a financial stretch. But with
the future at Chambers looking so bright, his qualms began to fade. "It
seemed like our lives would always be this — entertaining, traveling,"
then coming home to 1109 Pennsylvania, Kim said.
When she bought a pair of Kennedy rocking chairs, painted them
green to match the awnings and placed them on the front porch, the
Ryans appeared ready to tuck in for a life of affluence.
*
The First Blow
In March 1992, 10 months after the Ryans had moved to Pennsylvania
Avenue and close to the birth of their third daughter, Kelsey, Chambers
announced that it had uncovered an accounting error. It would have to
restate its earnings.
By the time the reckoning was over, $362 million in past profit
had vanished. The company's stock price plummeted by two-thirds.
Ultimately, Chambers was sold.
At first, John Ryan was confident that he would survive the
turmoil. In mid-1993, he and Kim celebrated their 15th wedding
anniversary with a cruise to the Bahamas. About six months later, they
leased a new beige Volvo 940 sedan to go with their 1987 Saab 900. They
hired a baby sitter, a house cleaner and a gardener. And they prepared
to send their two oldest daughters to private school.
Slowly, though, as conditions at Chambers worsened and the
possibility of layoff loomed, the Ryans began making adjustments. In
September 1994, they refinanced their mortgage and used some of the
money to pay off debts. The next month, they took out a second mortgage
and paid off still more debts.
Kim, who had closed her shoe store, began readying herself to go
back to work, taking classes to obtain a teacher's certification. But
the classes cost several thousand dollars and pushed the Ryans' debts
back up.
In December 1994, John's run at Chambers came to an end. The new
owner cut the company's legal department by half. John's position was
eliminated — a sign of an economic change that was beginning to trump
the college premium.
Twenty-five years ago, college graduates not only made higher
wages than less educated Americans but also enjoyed more income
stability. Starting in the late 1970s, however, college-educated
families began to experience increasingly large swings in their annual
incomes as white-collar workers found themselves whipsawed by corporate
downsizing.
The Times' statistics show that for a period in the mid-1990s —
about the time that John was fired — the income volatility of
college-educated families actually jumped above that of households
lacking someone with a college degree.
The Ryans' income — which reached $110,000 during John's final
year at Chambers — dropped 12% between 1994 and 1995. And that was only
the beginning of the tumble it would take.
"A college education is still a good thing, but it's not the
surefire protection against economic upheaval that it once was," said
Northeastern University labor economist Paul E. Harrington, who has
studied the connection between education and earnings.
For a while, John didn't worry about nailing a new job. That was,
in part, because Chambers granted him eight months of severance pay —
plenty of time, it seemed, to figure out what to do next. As the months
passed, however, his confidence waned.
When John started to collect $300 a week in unemployment
compensation, Kim made him cash the checks in another town so that the
bank teller wouldn't recognize them.
It took until Thanksgiving of 1995 for John to finally find a new
position, this one as a lawyer with FedEx Corp. in Memphis. The family
visited Tennessee to shop for a new house. But John clashed with his
boss, and after three months of commuting from Pittsburgh to the
company's headquarters on 3 a.m. cargo flights, he was let go.
In 1995, the Ryans stopped making mortgage payments on 1109
Pennsylvania. By the following summer, PNC Bank went to court to
foreclose on the house.
After a flurry of legal action and with nowhere else to turn, the Ryans staved off foreclosure by declaring bankruptcy.
*
Falling Behind
Bankruptcy is one of the oldest economic safety nets that the
government provides working people. It was so important in early
America that the Constitution specifically authorized Congress to
establish laws on the subject.
In effect, bankruptcy limits debtors' losses to the value of most
or all of their current belongings, shifting the risk of any greater
losses onto creditors. In this way, Abner Lipscomb, a 19th-century
Texas Supreme Court justice approvingly noted, people can "commence
again, Antaeus-like, with renewed energy and strength and capacity for
business."
Still, for much of the post-World War II period, the process was
little used. In 1980, government statistics show, only 287,570
Americans filed for personal bankruptcy. Most were young, with
relatively little education and few assets.
But in the last two decades, personal bankruptcies have
skyrocketed. Last year, a record 1.6 million cases were filed. (That
number declined only slightly this year, to 1.58 million.) Like the
Ryans, many filers were middle-aged, well-educated and — until their
assets fell short of their liabilities — of considerable means.
Some financial industry executives and Bush administration
officials suggest that the rise in bankruptcies reflects profligacy
among Americans. They are particularly incensed about Chapter 7
bankruptcies, which let people effectively wipe out their debts after
forfeiting most of their assets but not their future earnings. These
critics of the law want to change it by making it harder to go bankrupt.
A Chapter 7 filer is a predatory borrower, Assistant Treasury
Secretary Wayne A. Abernathy suggested in a speech last year, someone
who "in a calculated way borrows as much as he can, with little thought
of paying it back, or in some cases, with no intention of paying it
back."
But Warren, the Harvard law professor whose Consumer Bankruptcy
Project has conducted extensive surveys of bankrupt families, believes
that fundamental economic change — rather than moral laxness — is
behind the increase in filings.
"People's jobs have grown more unstable," she said. In many
communities, "the basics of middle-class life — a good house in a good
neighborhood with good schools — have gotten so much more expensive.
That's what is knocking families off their financial blocks."
Warren said that, in interviews for her project, people described
the extraordinary lengths to which they would go to avoid filing for
bankruptcy.
"For the overwhelming majority of these families," she said,
"bankruptcy is a humiliating admission that they just can't make it in
the middle class."
In the Ryans' case, the couple initially refused to file for
Chapter 7. Instead, they filed for Chapter 13, under which they agreed
to reimburse their creditors the full amount due them, but with the
payments stretched out over four years.
For a time, the plan worked. John was hired by a Pittsburgh-based
division of Philip Services Corp., a rapidly expanding Canadian firm
that was pushing into environmental work. Kim pieced together part-time
employment on her way to a full-time teaching job.
As the couple's income grew again, the bankruptcy judge raised the
amount that they had to repay each month to more than $4,100 from
$3,000. The family even found the funds to start Jackie at the
$10,000-a-year Ellis School for girls.
Then, in January 1998, the Ryans' world was shaken anew. Just
weeks after moving into elaborately renovated offices atop the 54-story
One Mellon Bank building in downtown Pittsburgh, Philip, like Chambers
before it, disclosed that it had accounting problems. The company
eventually filed for bankruptcy protection, and John was laid off for
the third time in five years.
As it turned out, being unemployed again wasn't the worst thing
that would befall the family. In April, Kim suffered a miscarriage,
which led to tests. In June, she was diagnosed with cervical cancer.
"I was so scared," Kim said. "I couldn't believe that we had to
declare bankruptcy. Then I got cancer, and the bankruptcy didn't
matter."
*
The Price of Illness
The costs of coping with sickness and disease can be devastating.
Harvard's Warren and some of her colleagues estimated that in
2002, 424,500 families, or nearly one-third of those filing for
bankruptcy, did so in part because of crushing medical expenses. That
was a 20-fold increase from two decades ago.
For the Ryans, who had health insurance, the hit wasn't quite so
direct. Court records show that they wound up with about $3,000 in
unpaid medical bills, compared with more than $30,000 in past-due
school loans. Yet Kim's condition proved a financial burden in other
ways.
In July 1998, she underwent a major operation. She then spent most
of the fall receiving radiation treatments, delaying her return to
full-time employment and leaving the Ryans dependent on John's
uncertain work situation.
There was an era in America when a family could live comfortably on the income of just one worker. Not anymore.
Today, three-quarters of college-educated families like the Ryans
are two-earner households. Only one-quarter try to make it on the wages
of a single earner.
Meanwhile, the influx of wives to the workforce has been
especially important for middle-class families without college
educations. Government figures show that fully 80% of their
inflation-adjusted income growth over the last 25 years has been the
result of the rising earnings of women. During the same span, men's
wages have stagnated.
As time went by, the financial strain on the Ryans began to show
itself in small indignities. The gas company complained it wasn't being
paid fast enough and went to court. The family had to apply for
Medicaid to cover some of the girls' healthcare costs. The younger
girls qualified for free hot lunch at school, a benefit that Kim
adamantly refused.
"The tickets were a different color," she said.
But the family couldn't always keep its troubles under wraps. When
the leasing company took away the Volvo and the Saab broke down, John
was forced to take his boyhood car, the 1967 GTO, out of storage. No
longer blue, but rusting and without a muffler, it blared trouble.
"It wasn't as bad as it sounds," Jackie said, "except when I had to be driven to school."
*
Refuge in Faith
John Ryan looked for a new high-paying job for a full year after his layoff from Philip.
At one point, to keep up his spirits and maintain some contact
with the business world, he started working for $10 an hour at United
Way. "It had me in a suit," he explained. "It had me downtown every
day."
The Ryans also turned to their church, Oakmont United Methodist.
With Kim debilitated during the worst of her illness, members of the
congregation brought the family meals, washed their car and ferried the
kids around town. Kim, in particular, found refuge in her religion.
"I used to think people who relied on their faith were simple,"
she said. "I thought smart people didn't need faith." Her ordeal, she
added, taught her otherwise.
In late 2000, the perfect job seemed to fall into John Ryan's lap.
Marsh USA Inc., a subsidiary of insurance brokerage giant Marsh
& McLennan Cos., decided to start a new business in Pittsburgh
advising companies on environmental risks. The company wanted John to
help with the launch.
In early December, he went to work at Marsh's downtown office as
an assistant vice president, making about $90,000 a year. In short
order, he was promoted to a full vice president. By the following
April, he was being featured in the Pittsburgh Post-Gazette's
question-and-answer profile "People on the Move."
Ambition: To add value and integrity wherever I am …
Dream Vacation: My wife and I zipping along on an ocean liner, headed to a beautiful white sand beach …
Three months later, he was fired.
John said he was given no reason. Papers in a subsequent court
dispute between him and the company over $40,000 in severance pay offer
no insight. (The case was settled for an undisclosed sum.) A Marsh
spokesman declined to comment.
Dominick DeSalvo, for whom John worked while at Philip and who has
used Marsh's services, said that Marsh's Pittsburgh office went through
a period of unrest several years ago and that virtually everybody who
worked there at the time was now gone.
Chambers, Philip and Marsh all "have had their problems," said
DeSalvo, who described John as "a good worker." "Unfortunately, John
was always there on the downside, not the upside."
The Ryans held on in Pittsburgh for a couple of years more.
John took on several short-term law firm assignments and found
other employment through a temp agency called the Legal Network. Kim
recovered enough to take a full-time job at Quigley Catholic High
School and later at a small private school in the community next to
Oakmont.
Still, it wasn't enough. As Jackie was finishing her senior year
at Ellis in 2003 and watching the mail for college acceptance letters,
the bank sent word that it was renewing its efforts to foreclose on
1109 Pennsylvania. As soon as Jackie graduated, Kim and the girls moved
to Wilmore, Ky., where Kim planned to attend Asbury Theological
Seminary. She was intent on becoming a minister. John followed a few
months later.
In July 2003, the Ryans again filed for bankruptcy, this time
under Chapter 7. The house on Pennsylvania Avenue was sold at a
foreclosure auction this year.
*
Trying to Regroup
Sitting one evening last spring in the five-room brick bungalow
that they rent in Wilmore, the Ryans tried to take stock of all they
had lost.
"You lose it in pieces," Kim said. "Now I wonder: Did we ever live that life?"
They had regrouped the best they could. Jackie had enrolled, with
financial aid, at Davidson College in North Carolina, her sights set on
becoming an emergency-room doctor. Besides preparing for the seminary,
Kim got a job with the Jessamine County school system and was about to
begin writing a column for the local weekly newspaper, the Jessamine
Journal.
As for John, he was working for the University of Kentucky reviewing research protocols.
The Ryans' income was $46,000 last year — about half of what they
made in 2001 when John worked at Marsh and about the same as what they
had earned 25 years ago in Iowa.
Only when a visitor asked about the green Kennedy rockers in which
mother and daughter were sitting did the family lose its composure.
"It doesn't make any sense to me that he doesn't have more successes," Jackie said of her father.
*
Facing the Odds
One Friday in late July, soon after being assigned to teach high
school honors English and while studying for exams for her first
seminary class, Kim was told that doctors had discovered a spot on her
lung.
A few weeks after school opened in August, she took a leave of
absence to begin radiation treatment and chemotherapy. Her departure
from work cost the family her wages, which would have totaled more than
$20,000 for the year.
In early September, it looked as if John, now 49, might land a
well-paying job with the Kentucky government that would help the family
through its latest crisis. But things didn't pan out.
By mid-October — even with the insurance from John's university
post covering most of the cost of Kim's expensive medical treatments —
the Ryans had no choice but to start looking for smaller, cheaper
quarters.
Kim, 48, has Stage III lung cancer and only a 35% chance of
survival. In one of her newspaper columns after receiving the
diagnosis, she wrote about the odds that skunks face when crossing the
county's rural roads — and about one she'd recently hit.
"I'd like to hope that my chances increased when that poor …
stinky skunk sacrificed himself for the 35% of us that are still
trying" to get to the other side.
"I'll let you know…. I plan to write once I'm safely across."
Families in crisis
The chances of experiencing a major setback - such as layoff,
divorce or death - in the course of a decade have remained fairly
constant or fallen for working families over the last 30 years. But the
consequences have grown more severe. Those hit by a setback have seen
the odds that their incomes will be chopped at least in half nearly
double to more than 1 in 5.
--
Hits come no more often ...
Percentage of families beset by at least one of seven income-shaking events in the 1970s, '80s and '90s
1970-79: 20.0%
1980-89: 21.4%
1990-00: 17.0%
... But they land harder
Percentage of families whose annual incomes fell by at least 50% when struck by one of these events
1970-79: 12.0%
1980-89: 19.6%
1990-00: 22.1%
--
Shocks to the system
Percentage of families experiencing a plunge of 50% or more in annual income when hit by one of the following events:
Separation or divorce
1970-79: 23.9%
1980-89: 34.1%
1990-00: 39.0%
Death of a spouse
1970-79: 24.9%
1980-89: 23.0%
1990-00: 30.5%
Birth of a child
1970-79: 4.5%
1980-89: 8.7%
1990-00: 11.2%
Illness hits head of household**
1970-79: 9.6%
1980-89: 17.3%
1990-00: 16.4%
Unemployment for head of household**
1970-79: 13.1%
1980-89: 23.3%
1990-00: 27.0%
Major drop in spouse's work hours*
1970-79: 7.3%
1980-89: 12.8%
1990-00: 15.2%
Retirement or disability for head of household*
1970-79: 21.2%
1980-89: 30.1%
1990-00: 32.6%
* Results in a reduction in work hours of at least 520 hours - or
the equivalent of three months of employment - in the course of a year
** Results in a reduction in work hours of at least 320 hours - or
the equivalent of two months of employment - in the course of a year
Source: Times analysis of a nationally representative sample of 5,000
families and their offshoots in the Panel Study of Income Dynamics
Times researcher Janet Lundblad in Los Angeles contributed to this report.