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Full Employment Behind Us, Nation faces Growing Economic Insecurity Ahead

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EMBARGOED UNTIL:
Sunday, September 1, 2002

CONTACT:
Nancy Coleman, Karen Conner or
Stephaan Harris, (202) 775-8810

The State of Working America 2002-2003, released today by the Economic Policy Institute, looks instead at what matters most to working families – jobs and paychecks. It provides an extensive review of the benefits of the late ’90s boom for working families and the costs of the lingering downturn.

“The tight labor markets of the late 1990s brought the first persistent, broad-based prosperity in decades,” said Lawrence Mishel, president of EPI and one of the book’s authors. “But now, with the boom gone bust, American workers are heading back to an economy marred by slow wage growth and no job growth, with wage and income disparities widening once again.”

This year’s State of Working America, the eighth in a series published biennially since 1988, is co-authored by Mishel and EPI economists Jared Bernstein and Heather Boushey. It incorporates data through the first half of 2002 in a comprehensive roadmap through the economy as it is experienced by America’s working people and their families. For economy watchers and policy makers, the book offers an authoritative window on how the economy affects the vast majority of Americans.

The book examines the strong economy that persisted throughout the latter 1990s, when historically low unemployment combined with faster productivity growth to lift the economic fortunes of working families for the first time in decades. But the authors also focus closely on the end of this period – the labor market recession that began in 2001 and that continues to the present.

With unemployment up sharply and job growth stagnant at best, the tight labor market of the ’90s boom is quickly unwinding and its benefits are beginning to fade. On the positive side, strong productivity growth remains a lasting legacy of the “new economy,” and wages, though growing more slowly, continue to outpace inflation, at least for those who remain employed. But the recovery is jobless and unless growth accelerates soon, high and rising unemployment will generate wage stagnation, higher poverty rates, and rising inequality.

Déjà vu with a Difference
“For decades, the economic progress of working families was stifled by an array of forces including declining job quality and de-unionization, deregulation of key industries, increasingly lopsided trade and the loss of the manufacturing base,” said Bernstein. “These problems were offset temporarily by the low unemployment in the late ’90s, but today’s weak labor market is reviving them.”

“Most important, the ’90s boom laid to rest the notion that unemployment lower than 6% would trigger a destructive inflationary spiral,” Bernstein added. “Instead, what we’re now learning is that without full employment, many working people don’t have enough bargaining power to claim their fair share of the economy’s growth.”

The book notes that without the full employment of the late ’90s, employers are under less pressure to keep raising wages in order to attract and keep workers. Thus the wage growth that picked up steam during the boom has already begun to tail off. Although hourly wages for production workers in manufacturing and non-supervisory service workers (about 80% of all workers) are still growing faster than inflation, that growth is the slowest since the beginning of 1995.

Jobs are being created too slowly to pull the economy out of the doldrums. Job declines that began before 9/11 accelerated after the events of that day, and as of June 2002, private sector employment was still 2% below its February 2001 peak.

As another casualty of rising unemployment, the wage gap between the top and bottom, which narrowed somewhat during the boom times, is already showing early signs of re-widening.

Rising unemployment has hit minorities hard, with unemployment among African Americans hitting 10.7% in the second quarter of 2002. Overall, however, the pain of unemployment has been more evenly shared across education groups in this recession than in previous ones. Between the end of 2000 and the middle of 2002, the rise in unemployment stayed fairly uniform among those who didn’t finish high school (2.0 percentage points), those with a high school diploma (2.1), and those with some college (2.3).

Even a college degree provided less protection in this recession than in the past. The 1.4 point rise in unemployment for this group, although smaller than for the groups listed above, is larger that we have seen in previous recessions.

Working Hard[er] for the Money
As wages grew during the boom, so did the hours worked by parents, whether married or single. Due primarily to the growing numbers of wives working more hours per week and more weeks per year, the average middle-income, two-parent family now works 660 more hours per year – or 16 more weeks – than in 1979.

This growth in women’s work continues a trend begun in the ’60s when job opportunities began to expand and discrimination became illegal. Today working mothers’ income is essential to the family. Without it, the real incomes of middle-income families, which rose by 6.3% between 1979 and 1989, would have fallen by 2.5% during that period.

These increases in hours were not primarily driven, as conventional wisdom would have it, by high-income, highly educated families, however. Increases in hours worked have been just as large for families headed by high school graduates.

The same is true of minority families. However, middle-income black and Hispanic families work many more hours than white families to reach the same income level. In 2000, middle-income black families worked 12 more weeks than white families to earn the same money.

The extremely low unemployment of the boom years greatly helped low-income single mothers, as well, who experienced historically large increases in employment. A strong labor market and welfare reform combined to dramatically reshape the sources of their families’ income. In 1979, labor market earnings and cash assistance each made up about 40% of these families’ income; by 2000, about 70% of their income came from earnings and less than 10% from cash assistance and food stamps.

Nevertheless, even while their incomes are higher, these working families face significant new work-related expenses, including child care. Although their average income, about $16,000, is above the poverty line, it is far less than what working families need to meet basic needs.

America remains the reigning workaholic nation, according to this year’s edition. Not only does the U.S. economy employ a larger share of its working age people, the average worker worked 1,877 hours in 2000 – more than in any other rich, industrialized country. At the same time, Americans reap fewer benefits for these extra hours, whether in the form of more vacation or holiday time or paid leave time of the sort provided by almost every other advanced economy to care for their families.

Impact of the Boom
“Despite all the attention that has been focused on the stock market, the vast majority of American families still depend on their paychecks, not their portfolio,” said Boushey. “For most families, the real prosperity of the second half of the ’90s had little or nothing to do with the stock market.”

Although about half of all households now hold some stock – either directly or through a retirement plan – these holdings add up to only about $4,000 for the bottom 60% of families. The distribution of this investment wealth is extre
mely skewed. The top 1% of stock owners hold almost half (47.7%) of all stocks, by value, while the bottom 80% own just 4.1% of total stock holdings.

One of the biggest gains for minority households was reflected in the increase in home ownership for these families – from 42.9% in 1989 to 47.7% in 2001. White home ownership reached 71.6% in 2001.

On the downside, household debt has increased significantly, totaling 109% of annual disposable income by 2001. In 1998, the average household’s debt – typically mortgage and credit card debt – added up to $45,800. Even in a time of prosperity, the growth of debt is troubling. In 1998, about one in 12 households paid at least one bill at least 60 days late. In 2001, seven out of every 1,000 adults declared personal bankruptcy, a share nearly twice as high as in the last business cycle peak in 1989. This rising debt is especially troubling in the midst of an ongoing labor market recession, when income is growing slowly at best.

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To read the Introduction and Executive Summary online go to:
http://www.epi.org/page/-/old/press/embargoed/swa2002.pdf (password required).

Please call Nancy Coleman, Karen Conner or Stephaan Harris at (202) 775-8810 for above password, or to receive an advance copy of the book by mail.

The Economic Policy Institute is a non-profit, non-partisan economic think tank founded in 1986. The Institute is located on the web at http://www.epinet.org.