Gauging economic climate change, Pt. 2: Jobs and income

In my previous post, I reviewed the past five recessions to provide one backdrop for business strategy. In this post, I’ll discuss jobs and household income: two of the underlying issues that make our current crisis unlike past recessions.

We’re still in the storm, but we can already see some of the likely contours of the future business environment. Jobs and household income were increasing at glacial rates long before the crisis and ongoing downward pressure is anticipated. To the extent that the fitness of our individual enterprises is tied to a general “rising tide,” said tide is lifting fewer boats and not as high.

Like global warming, we frequently have a vague recognition of the trends in job and income growth but without scale or detail. Let’s take a look.

Job creation was a crisis before the recession
Last April, financial blogger Hale Stewart assembled a fact-filled critique of the recent economic expansion (2002-2007).  He included a version of this graph showing that expansions in the 1960s and 1970s grew jobs at about 3% per year. In the 1990s expansion, job growth dropped to 2% per year. Then, in the 2000s, job growth flat lined for 29 months before eking out an average 1% annual growth – not even enough to absorb the 1.25% annual growth in the labor force.

Most people lost ground in the last economic expansion
Throughout the recent presidential campaign, we heard a growing angst about the plight of the middle class. The bottom line is that median household income, adjusted for inflation, has stopped rising. Stewart offers this Census graph with the comment: “Real median household income is now at the same level it was in 2001.”

In early 2008, before the housing and credit collapse, New York Times correspondent Steve Greenhouse examined this trend in The Big Squeeze: Tough Times for the American Worker:

One of the least examined but most important trends taking place in the United States today is the broad decline in the status and treatment of American workers — white-collar and blue-collar workers, middle-class and low-end workers — that began nearly three decades ago, gradually gathered momentum, and hit with full force soon after the turn of this century. A profound shift has left a broad swath of the American workforce on a lower plane than in decades past, with health coverage, pension benefits, job security, workloads, stress levels, and often wages growing worse for millions of workers.

That the American worker faces this squeeze in the early years of this century is particularly troubling because the squeeze has occurred while the economy, corporate profits, and worker productivity have all been growing robustly. In recent years, a disconcerting disconnect has emerged, with corporate profits soaring while workers’ wages stagnated.

…this may be the first time in American history that the typical working household goes through an economic expansion without any increase in income whatsoever.

This, unfortunately, is the continuation of a long-term squeeze. Since 1979, hourly earnings for 80 percent of American workers (those in private-sector, nonsupervisory jobs) have risen by just 1 percent, after inflation. The average wage was $17.71 at the end of 2007. For male workers, the average hourly wage actually slid by 5 percent since 1979. Worker productivity, meanwhile, climbed 60 percent. If wages had kept pace with productivity, the average full-time worker would be earning $58,000 a year; $36,000 was the average in 2007. The nation’s economic pie is growing, but corporations by and large have not given their workers a bigger piece.

The squeeze on the American worker has meant more poverty, more income inequality, more family tensions, more hours at work, more time away from the kids, more families without health insurance, more retirees with inadequate pensions, and more demands on government and taxpayers to provide housing assistance and health coverage. Twenty percent of families with children under six live below the poverty line, and 22 million full-time workers do not have health insurance. Largely as a result of the squeeze, the number of housing foreclosures and personal bankruptcies more than tripled in the quarter century after 1979. Economic studies show that income inequality in the United States is so great that it more closely resembles the inequality of a third world country than that of an advanced industrial nation.

Greenhouse goes on to report that the average middle-class husband and wife combined are working three months more per year than 25 years ago! They have also turned to debt: the topic of my next post.

Topics: Economy, Jobs, Middle class