The State of Working America 2006-2007

The Economic Policy Institute (EPI) has been providing accurate and objective economic analysis that has consistently shown that neoliberal economics have clearly worsened social inequalities at the core of neoliberalism. Indeed, the EPI's The State of Working America 2006-2007 report, a biannual series published since 1988, shows that starting in 1995, a new and important change occurred in the U.S. economy: productivity-- the output of goods and services per hour worked--began to grow more quickly. Yet, despite this unequivocally beneficial development, many people in the U.S. report dissatisfaction with where the economy seems to be headed, and many worry about their own and their children's well-being. These concerns have led some policy makers and economists to ask: why aren't people happier about the economy? Th EPI´s findings show that while faster productivity growth creates the potential for widely shared prosperity, if that potential is to be realized, a number of other factors have to be in place. Those factors include labor market institutions (such as strong collective bargaining), an appropriate minimum wage, and, importantly, a truly tight labor market, all of which are necessary to ensure that the benefits of growth reach everyone, not just those at the top of the wealth scale. When these institutions are weakened or absent, growth is likely to bypass the majority of working families. These findings remain consistent with those reported in previous editions of the report. The key findings are:
 

  • Family income: "New economy" drives a wedge between productivity and living standards. A family's income is one of the most important determinants of their economic well-being. Most working families depend on their income to meet their immediate consumption needs (like food and gas), to finance longer-term investments in goods and services (like housing and education), and to build their savings. Many families face two separate but related challenges regarding the growth of their real incomes: (1) post-2000 wage stagnation, especially among middle- and lower-income families, and (2) the gap between income and productivity growth. Despite the fact that the most recent economic expansion began in late 2001, the real income of the median family fell each year through 2004, the most recent available data. Between 2000 and 2004, real median family income fell by 3%, or about $1,600 in 2004 dollars. This is a function of diminished employment opportunities, not just during the recession, as would be expect, but over the protracted jobless recovery that followed. This decline in median income during the initial years of expansions appears to be more the norm than the exception in recent recoveries. Over both the 1980s and 1990s recovery, it took seven years for median family income to regain its peak, far longer than in earlier cycles. Higher inequality shows up whether we look at consumption or income. Although inequality is not driven by tax changes, lowering the tax burden on the wealthy has demonstrably exacerbated the problem. Greater inequality has also been generated by an expansion of capital income and an increased concentration of capital income among the very highest income families.
     
  • Income-class mobility: How much is there? The extent of income mobility across generations plays a significant role in the living standards of U.S. families. Surprisingly, international comparisons reveal less mobility in the U.S. than other countries with comparably advanced economies. For example, one study reveals the intergenerational income correlations in Finland, Sweden, and Germany to be 0.22, 0.28, and 0.34, respectively, compared to the U.S. correlation of 0.43. It should be noted that these are countries that U.S. economists often criticize for their extensive social protections-- each one has universal health coverage, for example--yet their citizens experience greater mobility than in the U.S.. The evidence reveals that mobility is either flat or diminished over the very period when inequality has been on the rise. What explains the lack of mobility in the U.S.? Certainly unequal education opportunities and historical discrimination play a role. As such, opportunities for advancement are limited for those with fewer economic resources.
     
  • Wages: Growth stalls while productivity and compensation diverge. The major development in the labor market in recent years has been the stunning disconnect between the rapid productivity growth and pay growth, especially given the rapidity of productivity's growth and the how stunted pay growth has been in the past several years. Also of great concern is the tremendous widening of the wage gap between those at the top of the wage scale, particularly corporate chief executive officers, and other wage earners. The importance of these two developments cannot be overstated because wages and salaries make up about three-fourths of total family income, and as such, are the primary driving force behind income growth and income inequality. Over the 1995-2005 period, productivity grew a remarkable 33.4%, and over half of that growth has occurred since 2001. This pace of productivity growth far exceeded that of the earlier period from 1973 to 1995. However, despite enormous growth in productivity, wages for the typical worker and for those with either a high school or a college degree were about the same in 2005 as in 2001. The erosion of the extent and quality of employer-provided benefits, most notably pensions and health insurance, is also an important aspect of the deterioration in job quality for many workers.
     
  • Jobs: Diminished expectations. Strong job creation that fully utilizes the available workers and skills in the workforce is a critical component to a strong, lasting, and equitable recovery. A robust job market is what is needed to ensure that the proceeds of economic growth are broadly shared. By that measure, the current recovery has fallen short. As is well known, this recovery, which began in late 2001, was a "jobless recovery" well into 2003. That is, real gross domestic product was expanding, jobs were lost on net for a year and a half into the expansion (net jobs refer to the number of jobs created minus the number of jobs lost).
     
  • Wealth: Unrelenting disparities. The distribution of wealth is unequally distributed, more so than wages or incomes. Moreover, wealth has become more concentrated at the top of the distribution over time. In 2004, those in the top 1% of the wealth scale held over one-third of all wealth. The top-fifth controlled 84.7% of all wealth in the United States, while the bottom 80% could claim only 15.3% of the country's total wealth in 2004. Over the 1962-2004 period, the wealth share held by the bottom 80% shrunk by 3.8 percentage points, and that 3.8% share of wealth shifted to the top 5% of households. Over time wealth inequality has increased--as measured by the ratio of the wealthiest 1% to median wealth. In the early 1960s, the wealthiest people in the U.S. held 125 times that of the median wealth holder; in 2004 the wealthiest held 190 times more. As the wealthiest continue to thrive, many households are left behind with little or nothing in the way of assets and often have significant debt. Approximately one in six households had zero or negative net wealth.
     
  • Poverty: Rising over the recovery as the job market stalls. Trends in poverty are still revealing of changes in the living standards of the most economically vulnerable families. After falling steeply throughout the latter 1990s, poverty rates increased not only in the recessionary year of 2001, but in each year through 2004 (most recent data available), from 11.3% in 2000 to 12.7% in 2004, when 37 million persons, including 13 million children, were in poverty. This is the first time that poverty rose through each of the first three years of a recovery, another indicator of the narrow distribution of growth over this recovery. If we use a threshold of twice poverty, then the increase over the 2000-04 period went from 29.3% to 31.2% (about 91 million persons were below twice poverty in 2004).
     
  • International comparisons: How does the United States stack up? While the United States is one of the wealthiest countries, it also has the highest degree of inequality of the OECD countries analyzed. The gap between richest and poorest is largest in the United States--whether measured in terms of Gini coefficients or the ratio of high earners (90th percentile) to low earners (10th percentile), the United States' inequality stands out. Low-income earners in the U.S. not only earn relatively lower incomes than their OECD counterparts, but they also are worse off because of limited social policy and safety nets. The U.S. spends more on health care (whether measured as a percentage of gross domestic product or per capita spending) than any of these other countries. Even with such high spending, 46 million people in the United States do not have health insurance, and access to health care is much more limited than in the countries of its economic peers. The United States has the lowest life expectancy, the highest infant mortality rates, and the highest overall and child poverty rates of all the countries studied. The relatively poor performance of the United States in these categories is symptomatic of the high degree of economic inequality and unequal access to health care in the United States.

    For a full review of the Executive Summary of the State of Working America 2006-2007, click here.

 


 

 World Bank and IMF Overlook Key Factor in Global Economic Growth: Labour Standards

A major topic of the Bretton Woods institutions -World Bank and International Monetary Fund (IMF)- is finding the way to solve the economic crisis in many so-called "developing" countries. A 2003 report by the Economic Policy Institute, Rights Make Might, shows how countries that adopt core labour standards reap the rewards of economic growth and stability.

The core labour standards (CLS), outlined by the International Labour Organization (ILO) are the freedom of association, the right to collective bargaining, the abolition of forced or compulsory labour, the abolition of child labour, and freedom from discrimination (visit the Labour Data page in the resources section for further detail). The report shows that:

 

  • Child labour and forced labour increases the supply of cheap or free labour, which drives down all wages, removes incentives for developing new technologies and impedes the growth of a nation's stock of human capital in the future
     
  • Economies are more productive when jobs are allocated on the basis of skills and ability instead of ethnicity, gender, or caste
     
  • Labour unions and collective bargaining contribute the greatest potential for economic growth by reducing turnover, developing job-specific skills and encouraging employers to invest in long-term training
     
  • Workers' rights have an indirect impact on the equal distribution of wealth nationally.

 

 For a full review of the EPI's Rights Make Might, download the pdf file here.

 

 

 


 

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