Postcards from an ailing economy
By Max B. Sawicky
November 1, 2006

November 1, 2006 | EPI Policy Memorandum #117

Postcards from an ailing economy

by Max B. Sawicky

Why do most Americans think the American economy isn’t working for them?  Why are they anxious about the future?  A look at some of the trends shows that they have good reason to worry. 

What’s happened to family income?  

• Despite a rising stock market and strong profits, the income of the typical working family has fallen farther behind rising prices each year for the past five years.  Since 2000, the median family headed by someone of working age (65 or less) has seen its income drop 5.4% after adjusting for inflation.  This represents a loss of $3,000 in annual income. (See the EPI Income Picture.)

The stock market and you.  

• The Dow Jones Industrial Average of the stock market has returned to the record heights it achieved in 2000, just before the bubble burst and a recession set in.   But how important is the index to the average person?   Fewer than half of Americans own any stock at all, and the richest 20% of the population owns 90% of all stock market wealth.  (See Dow's all-time high inconsequential for most Americans.)
  
• As usual, most of the growth in wealth is to the wealthiest.  In 1962, the wealth among the richest 1% of the population was 125 times that of the median household.  Today, that ratio has risen to 190. (See Wealth inequality is vast and growing.)
  
• One cause of the growth in inequality is the meteoric rise in CEO pay, from 71 times the pay of the average worker in 1979 to 262 times it in 2005. (See CEO-to-worker pay imbalance grows.)
  
• A second cause is the uneven distribution of tax cuts since 2001.  The cuts were advertised as “across the board,” but in the end they gave a much bigger boost to the after-tax income of the highest earners (especially the top 1%). (See How to spot a progressive tax cut.)

The job market and you.  

• Adjusted for inflation, the median earnings of full-time workers have fallen since 2001, even after Bush’s second round of tax cuts in 2003 were supposed to have jolted the economy.  (See Critiquing misleading White House statements about the economy: Income growth and median earnings.)
  
• Some claim that wages grow slowly because people are getting fringe benefits, particularly health insurance.   For the bottom 20% of the workforce, wages fell by 1.9% from 2004 to 2005, despite the fact that only 24% of these workers even receive health insurance.  (See Increasing health costs can't explain earnings dip for low-wage workers.)
  
• In the corporate sector, the share of labor compensation (wages plus fringe benefits) in total corporate income has fallen by 5.6 percentage points, while profits increased 7.8 percentage points.  (See Gross domestic income: profit growth swamps labor income.)

Children left behind.  

• The percentage of children not covered by employer-provided health insurance has been growing for the past five years and has now risen to two out of every five.  (See More children are uninsured.)

Can’t afford to get sick.  

• Fewer employees receive health insurance through their employers now than in the past, as coverage has declined from 61.5% in 1989 to 58.9% in 2000 to 55.9% in 2004. Less well-known is the fact that those who still receive employer-provided coverage are now paying a larger share of those insurance costs than ever before.  From 1992 to 2005, this share has risen from 14% to 22%.  (See Employers shift health insurance costs onto workers.)

No more shelter from the storm.  

• One of the few props to a weak economy has been housing, but a slowdown in this sector that will retard job growth has commenced.  Last year, housing could be credited for creating over 15% of the year’s new jobs; this year housing-related jobs will account for less than 5% of the economy’s new jobs.  (See The wide impact of the housing slump on the economy.)

Read more  about the state of the economy.