Anxiety Attack

The current period mirrors the early to mid-1990s, when "worker anxiety" drew media coverage. This was also a time when corporate icons like GM and IBM were undergoing wrenching changes. Both periods began with short recessions and followed long economic booms.

"It might be that there was such a big economic boom that people feel we have lost ground from the boom, which tends to muddle the reality of their current situation," says Daniel Pink, author of A Whole New Mind: Moving From the Information Age to the Conceptual Age. Pink adds that worried Americans might be experiencing a phenomenon that behavioral economists call "aversion to loss." Studies have found that people tend to be twice as sensitive to decreases in their wealth as to increases. It's a psychological quirk neatly captured by the saying that it's worse to be rich and lose your money than to never have been rich at all.

Yet while those income numbers may irk you if you're not in the top quartile, unequal distribution of income isn't necessarily a bad thing if you're an economist. Nobel Prize-winning economist Gary Becker of the University of Chicago contends that rising earnings inequality in the United States "is on the whole beneficial" because it reflects "higher returns to investments in education and other human capital." Rather than raise taxes on higher earnings--which would discourage investment in human capital--Becker suggests it's better to improve the education of those on the bottom end as a way of bringing up incomes.

Volatility. It may just be that income inequality isn't the real story. Instead, suggests Hacker of Yale, it may be income volatility. "While the gaps between the rungs on the ladder of our economy have increased, what has increased even more quickly is how far people slip down the ladder when they lose their footing," Hacker says. According to his research, pretax family income volatility peaked in the early to mid-1990s at a level between four and five times as high as its level in the early 1970s. Although volatility fell during the strong economy of late 1990s, it remained well above 1970s levels, and it's on the rise again. "I just analyzed the 2002 data," he says. "Family income volatility increased by 50 percent over the past two years, so it is now three times its early-1970s level." Hacker says the median decline in income for families that suffer a drop has increased from more than 25 percent in the 1970s to about 40 percent today. Moreover, research by Princeton University economist Henry Farber found that people who lost their jobs after the Internet bubble popped--and then found new ones--earned on average 13 percent less in their new positions.

Heather Burns, 30, lost her job in May 2005 as a product manager at CCB bank in Raleigh, N.C., after it was acquired by SunTrust. "It's discouraging," she says. "You work hard at a company to become a team, and you don't know if tomorrow you will get a call saying that you've been bought out and the headquarters is in another city and you're out of luck." So Burns decided to start her own online business, SmartMomma. At first it reviewed maternity products and linked to other sites. But the site was generating little in sales. She rejiggered the business model so that SmartMomma has become more of an online store selling pregnancy and baby-related items. Burns, who is pregnant herself, says that only now is the site starting to earn a profit. "Doing this takes a lot of trial and error," she concedes. And that's not to mention the loss of potential income from her original job.