Posted on 09/05/2006 10:18:21 AM PDT by Hydroshock
The US economy has been generating strong economic growth over the past few years as it has come out of recession.
After growing at more than 3% a year in 2004 and 2005, the pace picked up to a blistering 5.6% annual rate in the first quarter of this year - although the pace has since then slipped back to 2.9%.
So far, though, little of that growth has translated into the hands of the average worker, according to new research from the Economic Policy Institute (EPI).
Click here for a graph of wages vs. productivity For real household incomes, the median point - the level at which half of households earn more and half less - has actually fallen over the past five years.
The unprecedented split between growth and living standards is the defining economic agenda
Jared Bernstein, Economic Policy Institute
That marks a notable contrast with the 1990s, when the economic boom boosted both jobs and incomes.
The puzzle of economic expansion without significant job or wage growth has been troubling US economists and commentators of all political persuasions.
Slowing wages
"The unprecedented split between growth and living standards is the defining economic agenda of the day," says the EPI's senior economist, Jared Bernstein.
During the five years from 2000 to 2005, the US economy grew in size from $9.8 trillion to $11.2 trillion, an increase in real terms of 14%.
Productivity - the measure of the output of the economy per worker employed - grew even more strongly, by 16.6%.
But over the same period, the median family's income slid by 2.9%, in contrast to the 11.3% gain registered in the second half of the 1990s.
The wages of households of African or Hispanic origin fell even faster.
And new entrants to the labour market fared particularly badly.
Average hourly real wages for both college and high school graduates actually fell between 2000 and 2005, and fewer of the jobs they found carried benefits such as health care or company pensions.
The poor performance of the US economy in delivering fuller wage packets may be one reason why the public gives the Bush administration's such a low rating on economic policy.
According to the latest Gallup poll, only 37% approve of Mr Bush's handling of the economy, and 70% think economic conditions are getting worse, substantially worse figures than in 2004.
With mid-term elections to the House of Representatives and Senate - both, currently, held by Mr Bush's Republicans - due in November, the contrasts are concentrating minds in both main parties.
Where has the increase gone?
One way to comprehend what is happening is to look at the split between how much of the economy is won by profits and how much by wages.
The share allotted to corporate profits increased sharply, from 17.7% in 2000 to 20.9% in 2005, while the share going to wages has reached a record low.
Meanwhile, a large section of the workforce - the unemployed or those not seeking work - have not benefited from economic growth.
Unemployment has remained stubbornly high despite the economic recovery, with the latest figure at 4.7% compared to 4% at the end of 2000. Overall job growth in the first half of the current decade has been just 1.3%.
In the 1990s, job growth of some 12% goes some way towards explaining why prosperity in that earlier period spread down the income scale.
Rising inequality
Even for those with jobs, the fruits of economic growth have been more unequally distributed within the labour market.
The incomes of the top 20% have grown much faster than earnings of those at the middle or bottom of the income distribution. The income of the top 1% and top 0.1% have grown particularly rapidly.
From 1992 to 2005, the pay of chief executive officers of major companies rose by 186%.
The equivalent figure for median hourly wages was 7.2%, leaving the ratio of CEOs' pay to that of the average worker at 262.
In the 1960s, the comparable figure was 24.
There has been much debate about the extent to which the tax policies of the Bush administration, which lowered many taxes on capital, have contributed to this trend.
The administration argues that the tax cuts have been vital to the economic recovery, and that more jobs and higher wages will eventually follow GDP growth.
It also says that the encouragement to invest delivered by lower taxes has made the US more productive, and therefore more competitive in the global economy.
Explanations
The authors of the EPI report argue that low minimum wages, weakened union power, and the loss of both blue and white-collar jobs to off shoring do much to explain the jobs picture.
Admittedly the Federal minimum wage has been static for a decade, but the downward pressure on wages is probably coming from other sources.
One is immigration, which may have a greater effect on the wages of low-skilled workers.
Another is the "China effect,", the idea that low prices of imported manufactured goods are pushing US industry to cut its workforce in order to increase productivity.
The head of the US central bank, Ben Bernanke, recently admitted that globalisation was producing losers as well as winners.
"The changes in the pattern of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity," he said.
So for politicians of all parties, trying to understand how the average family can gain a greater share in future prosperity may prove one of the biggest electoral challenges of the year.
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hunh. so the brits have called the end of the American dream after 250 or so years? How many times does that make it now?
When these article mention nothing on taxes (which take almost 50% of the average middle class person's salary) - it makes wonder about their bias...
E.P.I. alert.
Figures.
The Economic Policy Institute or EPI is a leftist United States think tank based in Washington, D.C. and concerned with, as its name implies, the formulation of economic policy. It was established in 1986 by a group of economists including Jeff Faux [1], Barry Bluestone [2], Robert Kuttner [3], Ray Marshall, Robert Reich, and Lester Thurow. Its current president is Lawrence Mishel [4].
EPI states it was founded "to broaden the discussion about economic policy to include the interests of low- and middle-income workers," It states as its mission, "to provide high-quality research and education in order to promote a prosperous, fair, and sustainable economy."
As we all know, it is not the accuracy of the data, it is the seriousness of the charge.
http://www.bloomberg.com/apps/news?pid=20601102&sid=a9pC5dZyxChA&refer=uk
U.K. Unemployment Increases to Highest in Four Years
http://www.4rfv.co.uk/nationalnews.asp?id=54109
UK unemployment rate continues to rise
The unemployment rate also rose to 5.5%, up 0.3% over the quarter and 0.7% over the year, with the number of unemployed people increasing by 92,000 over the quarter and by 243,000 over the year to reach 1.68 million.
Regardless, I'd still like to see the Fed stop blaming inflation on rising wages and economic growth.
The Fed exists as welfare for bankers. They would love to depress equities relative to the fixed dividend device.
Their inflation fetish is harmful to the nation.
Me too - I'd like to see them blame themselves and their fiat currency schemes.
good review of that here:http://www.opinionjournal.com/weekend/hottopic/?id=110008889 from Saturday's WSJ
I have no problem with fiat money provided that it's managed well.
I'd prefer a return to the gold standard, then we wouldn't need management of fiat currency.
Inflation is not a result of the things you mention - overspending, inefficiency, over-regulation and the like. Those are just a function of normal government, and it's why the Founders knew limited government is the only good government.
Household income is cyclical. It is not sound analysis to measure off the top of a peak.
http://www.census.gov/hhes/www/income/incxrace.html
Household income is driven by the business cycle.
Note the peaks normally top out just prior to the following recession, which creates a long trough, previous to a fairly steep increase leading to a new peak. The 1989 peak was not matched again until about 1997.
In terms of household income we bottomed out of this cycle in 2004, and have seen a weak increase in 2005, and the signs have been good that 2006 will see a strong increase, which is on schedule based on previous experience. We can also hope that this series of increases will run for another 5 years or so and produce a new peak.
"Unemployment has remained stubbornly high despite the economic recovery, with the latest figure at 4.7% compared to 4% at the end of 2000."
??????
You now use your house as capital to save, invest and borrow.
It is up to the Fed to keep those housing assets growing through inflation.
Tongue in cheek.
BUMP
Yep, insane thinking in that thing. Leftists have never been good at perspective.
Gotta Love when 4.7% unemployment is "stubbornly high."
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