State of Working America Preview: Productivity Up; Wages, Living Standards Down

by James Parks, Aug 12, 2008

The business cycle that began in 2001 could be the first ever in which America’s middle class will end the cycle with less real income than they had at the beginning.  

America’s workers are among the most productive in the world, but they are not sharing in the profits from their work. According to The State of Working America 2008/2009 by the Economic Policy Institute, the nation’s gross domestic product rose 2.5 percent, but the lion’s share of the benefits ended up in the pockets of the nation’s wealthiest, bypassing most of those whose work made that growth possible. An online preview of the biennial report will be released Aug. 28. The authors plan to add chapters later this year on poverty and health care. The full printed report will be released in January 2009.  

In their review of the current economic picture, EPI’s economists found that despite surging productivity, Americans suffer from dwindling income, rising inequality, eroding living standards and declining expectations.

More than 400,000 jobs were lost in the first half of 2008, as the unemployment rate rose to 5.7 percent—up from 4.4 percent in March 2007. Economists expect unemployment to reach 6.4 percent in 2009.

For African Americans and Hispanics the outlook is even graver. While both groups made significant gains in employment rates during the late 1990s, those gains were reversed in the 2000–2007 cycle. Based on historic patterns, the authors expect unemployment among African Americans to be around 11 percent by the end of 2009. Long-term unemployment rose dramatically. The share of unemployed workers without work six months or longer rose from 12.1 percent during the 1990s to 19.4 percent in the 2000s.  

For years, the Republican majority in the U.S. House and Senate blocked Democratic efforts to extend unemployment benefits. This year, Congress passed a bill that would extend an additional 13 weeks of unemployment insurance benefits for the estimated 300,000 jobless workers a month who don’t find a new job before running out of benefits. As part of the supplemental funding bill for the war in Iraq, the unemployment extension passed the Senate in June and was signed by Bush. 

Says co-author Heidi Shierholz: 

If job growth from 2000 to 2007 had matched the 1990s cycle, the economy would have added 7 million more jobs than it did. The weak jobs situation means that the potential of millions of productive, hard-working Americans has been left untapped—a profound disservice to them, their families, and the economy as a whole.

The lack of jobs affects those who are working as well. When jobs are scarce, employees have little leverage to bargain for better wages and benefits. The share of workers who want full-time work but cannot find it continues to rise, as employers cut costs by reducing work hours. As of June 2008, the number of people involuntarily working part-time jumped to about 5 million. That same month, nearly one-fifth (18 percent) of the unemployed had been out of work for at least half a year. 

Meanwhile, most Americans’ household income is stagnant or dropping. The real income for the median family fell by 1.1 percent from 2000–2006. Yet income grew dramatically for another group. For the top 1 percent, income more than tripled (203.7 percent). 

“While most Americans were struggling, the good times were rolling among the top 10 percent,” says co-author Lawrence Mishel.

We have seen a large scale skimming of the benefits of growth from the bottom 90 percent of Americans to the top 10 percent, and especially to the top 1 percent and, even more so, the top 0.1 percent. 

Income inequality is the highest it has been since the Great Depression—meaning it is less and less true that hard work guarantees success, the authors say. While some income mobility exists, significant numbers of families remain near their same position in the income scale. For example, some 60 percent of families that start in the bottom fifth are still there a decade later. At the other end of the income scale, 52 percent of families that start in the top fifth finish there at the end of the decade. 

Inequality also squeezes out opportunities to succeed. In comparing completion of college degrees among students with academic potential in families at the top of the income chart versus the bottom, the report finds the gap is so wide that high-achieving students from low-income families are no more likely than low-achieving students from high-income families to complete a college degree. Says co-author Jared Bernstein: 

When income concentration creates barriers to the resources and opportunities that would enable people to get ahead through their own initiative and efforts, that violates our fundamental sense of fairness. Americans do not object to unequal outcomes if they mean that some people are working harder and smarter, but we do object if the deck is being stacked by unequal opportunities.

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