What's wrong with the economy?

Updated June 12, 2006 | EPI Policy Memorandum

by EPI President Lawrence Mishel and Policy Director Ross Eisenbrey

1. Profits are up, but the wages and incomes of average Americans are down.

Inflation-adjusted hourly and weekly wages are below where they were at the start of the recovery in November 2001. Yet, productivity—the growth of the economic pie—is up by 14.7%.¹ (Figure A)
Wage growth has been shortchanged because 46% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 20% in previous periods.²
Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.³

Figure A. Wages have not kept pace with productivity growth

2. More and more people are deeper and deeper in debt.

The indebtedness of U.S. households, after adjusting for inflation, has risen 42.0% over the last five years. ⁴
The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 120% of after-tax income, more than twice the level of 30 years ago.⁵
The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.9%.⁶
The personal savings rate is negative for the first time since the Depression.⁷

3. Job creation has not kept up with population growth, and the employment rate has fallen sharply.

The United States has only 1.9% more jobs today than in March 2001 (the start of the last recession). Private sector jobs are up only 1.5%. At this stage of previous business cycles, jobs had grown by an average of 8.8% and never less than 6.0%.⁸
The unemployment rate is relatively low at 4.6%. But the percent of the population that has a job has never recovered since the recession and is still 1.3% lower than in March 2001. If the employment rate had returned to pre-recession levels, almost 4 million more people would be employed.⁹
More than 3 million manufacturing jobs have been lost since 2000.¹⁰

4. Poverty is on the rise.

The poverty rate rose from 11.3% in 2000 to 12.7% in 2004.¹¹
The number of people living in poverty has increased by 5.4 million since 2000.¹²
More children are living in poverty: the child poverty rate increased from 16.2% in 2000 to 17.8% in 2004.¹³

5. Rising health care costs are eroding families' already declining income.

Households are spending more on health care. Family health costs rose 43-45% for married couples with children, single mothers, and young singles from 2000 to 2003.¹⁴
Employers are cutting back on health insurance. Last year, the percent of people with employer-provided health insurance fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. Taking population growth into account, 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level.¹⁵

SOURCES

1. Bureau of Labor Statistics, Current Employment Statistics Survey. 2006 http://www.bls.gov/ces/home.htm. BLS, Labor Productivity and Costs. 2006. http://www.bls.gov/lpc/home.htm. Productivity is non-farm business output per hour.

2. Bureau of Economic Analysis. 2006. NIPA Table 1.14. http://www.bea.gov/bea/dn/nipaweb/index.asp.

3. U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States. 2004. http://www.census.gov/hhes/www/income/income.html.

4. Federal Reserve. 2006. Flow of Funds Accounts, balance sheet tables: total household liabilities. http://www.federalreserve.gov/releases/z1/. Deflated using CPI-U from the Bureau of Labor Statistics.

5. For disposable income: Bureau of Economic Analysis, NIPA Table 2.1. 2006. For mortgage and consumer debt: Federal Reserve Flow of Funds Accounts, balance sheet tables. 2006. http://www.federalreserve.gov/releases/z1/.

6. Federal Reserve. 2006. http://www.federalreserve.gov/releases/housedebt/default.htm.

7. Bureau of Economic Analysis. 2006. NIPA Table 2.1. http://www.bea.gov/bea/dn/nipaweb/index.asp.

8. Bureau of Labor Statistics, Current Employment Statistics Survey. 2006. (total nonfarm employees and total private employees data.) See also Price, Lee. 2005. The Boom That Wasn't. EPI Briefing Paper #168. http://www.epi.org/content.cfm/bp168.

9. Analysis of Bureau of Labor Statistics data. See also Bernstein, Jared and Lee Price. 2005. An Off-Kilter Expansion. EPI Briefing Paper #164. http://www.epi.org/content.cfm/bp164.

10. Bureau of Labor Statistics, Current Employment Statistics Survey. 2006. http://www.bls.gov/ces/home.htm. See also Bivens, Josh. 2005. "Trade deficits and manufacturing employment." Economic Snapshot. Nov. 20. http://www.epi.org/content.cfm/webfeatures_snapshots_20051130.

11. U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html.

12. U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html.

13. U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html.

14. Mishel, Lawrence et al. 2004. Less Cash in Their Pockets. EPI Briefing Paper #154. http://www.epi.org/content.cfm/bp154.

15. Mishel, Lawrence et al. 2004. Less Cash in Their Pockets. EPI Briefing Paper #154. http://www.epi.org/content.cfm/bp154.

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