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What’s wrong with the economy?

Policy Memo #110

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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

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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