Income gains in 2015 don’t reverse long-run trend toward greater inequality
In recent decades, the vast majority of Americans have experienced disappointing growth in their living standards—despite economic growth that could have easily generated faster gains in their living standards had it been broadly shared. Today’s excellent news on family income growth over the past year doesn’t make up for this long legacy of rising inequality. It is certainly a good start. But, we’ll need a run of years like this to restore the income losses suffered during the Great Recession for most American families, let alone make up for a generation of income growth that lagged far behind the economy’s potential.
As with most economic analysis, assessing the growth of living standards for the vast majority requires specifying benchmarks against which to measure actual performance. I offer up two reasonable benchmarks. The first is how income growth differs for families at different parts of the income distribution. What we have seen since the last business cycle peak in 2007, before the Great Recession hit, is growing income inequality. Today’s news about income growth in 2015 is a welcome break from this trend, but does not yet overturn the general pattern that we have seen since 2007. The second benchmark I posit is income growth relative to that of earlier historical epochs. What this benchmark shows is that in the three decades following World War II, income growth was both much faster as well as more broadly shared than it has been since 1979.
By the Numbers: Income and Poverty, 2015
Key numbers from today’s new Census reports, Income and Poverty in the United States: 2015. All dollar values are adjusted for inflation (2015 dollars).
Earnings
Median earnings for men working full time rose 1.5 percent, to $51,212, in 2015. Men’s earnings are down 0.7 percent since 2007, and are still 0.1 percent lower than they were in 2000.
Median earnings for women working full time rose 2.7 percent, to $40,742, in 2015. Women’s earnings are up 1.5 percent since 2007, and are 7.8 percent higher than they were in 2000.
Median earnings for men working full time
- 2015: $51,212
- 2014–2015: 1.5%
- 2007–2015: -0.7%
- 2000–2015: -0.1%
Median earnings for women working full time
- 2015: $40,742
- 2014–2015: 2.7%
- 2007–2015: 1.5%
- 2000–2015: 7.8%
Superb income growth in 2015 nearly single-handedly restored incomes lost in the Great Recession
Today’s report from the Census Bureau shows impressive (and long-awaited) across-the-board improvements to household incomes over 2014–2015, as inflation-adjusted wages improved and unemployment fell (from 6.2 to 5.3 percent) while inflation was absent. Inflation-adjusted wages for women finally exceeded their pre-recession levels in 2015, rising 2.7 percent, while the 1.5 percent increase in men’s earnings leaves them just 0.7 percent down from 2007 levels. These findings reinforce the centrality of wage growth for reestablishing household income gains—as we argued in Raising America’s Pay—and the importance of lowering unemployment. This is for the simple reason that most households, including those with low incomes, rely on labor earnings for the vast majority of their income.
Despite gains in 2015, household incomes have still not fully recovered from the deep losses suffered in the Great Recession—the bottom 95 percent of households still had incomes in 2015 below those of 2007 (while those in the top five percent are now three percent ahead). One more year of modest growth will bring the broad middle class back to pre-recession incomes.
Non-elderly household incomes rebound
The Census data show that from 2014–2015, median household incomes for non-elderly households (those with a head of household younger than 65 years old) increased 4.6 percent, from $60,531 to $63,344. This increase is a superb and most-welcomed improvement. Median household income for non-elderly households in 2015 ($63,344) was 5.0 percent, or $3,304, below its level in 2007—roughly half the total loss that prevailed over the 2007–14 period. The disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000–2007, during which the median income of non-elderly households fell significantly, from $69,016 to $66,648, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000–2015, the median income for non-elderly households fell from $69,016 to $63,344, a decline of $5,672, or 8.2 percent.
What to watch for in the Census income and poverty data
Next Tuesday, the Census Bureau will release its data on income, poverty, and health insurance coverage for 2015, which will give us a better picture of how working families are—and are not—recovering from the Great Recession. Even in the full business cycle of 2000-2007, earnings and incomes never fully recovered to the pre-recession peaks reached in 2000, so when the Great Recession hit, the economic impacts were especially devastating for many. To the extent the data allow, next week’s release will let us see how much the recovery has improved the economic lot for typical Americans, paying particular attention to differences in the recovery across racial and ethnic groups.
First, EPI researchers will examine the data on median earnings, by gender, race and ethnicity. Hourly wage data for 2015 suggest decent growth between 2014 and 2015 across the board, driven mostly by unexpectedly low inflation, driven mostly by falling oil prices. Median hourly wages grew 1.7 percent between 2014 and 2015. Hand-in-hand with stable average weekly hours, this suggests an uptick in median annual earnings.
We’ll look at changes over the last year, as well as changes since before the Great Recession, and since 2000—the last business cycle peak that can be confidently associated with genuine full employment. Women have already exceeded their 2000 real earnings level; the hourly wage data indicate a return to 2007 prerecession levels of earnings for men in 2015. We’ll also analyze these changes by race and ethnicity to understand how the economy has treated demographic groups. Again, the hourly wage data is the best predictor of what we can expect for these sub-groups. (For a taste of these comparisons, check out EPI’s new State of Working America Data Library.) I expect the 2015 annual earnings data to show a slight decline in the gender wage gap, and the Hispanic-white wage gap, but a slight increase in the black-white wage gap.
Top H-1B employers use visa program for temporary labor—not as bridge to permanent immigration
Hoping to equate the H-1B temporary foreign worker program with permanent immigration, advocates often lump the H-1B visa together with lawful permanent residence (also known as “green card” status). But the H-1B is a temporary, nonimmigrant visa for guestworkers, not a permanent immigration status that would eventually put a migrant worker on a path to American citizenship.
The H-1B program can serve as a bridge to permanent immigration for many educated and skilled foreign workers; in fact, between 2010 and 2014, an average of 44,000 H-1B guestworkers became immigrants (i.e., lawful permanent residents) each year. The U.S. government approved an annual average of 115,000 new H-1B guestworkers over that same timeframe. The H-1B path to a green card is controlled by the employer. The employer—not the H-1B worker—has the discretion of applying for a green card, and as a result, employers hold a lot of power over the hundreds of thousands of H-1B workers here.
The first step an employer must take to put an H-1B nonimmigrant worker on the path to a green card is to file for permanent labor certification with the U.S. Department of Labor (DOL), to check if there are any U.S. workers available to fill the job that the H-1B worker is already doing. (These are sometimes referred to as “PERM” applications or the PERM process, which stands for Program Electronic Review Management, the name of the electronic system used by the DOL.) Public data are available showing which companies applied for permanent labor certification for their H-1B workers and for how many, and these data let us examine whether employers typically use the H-1B program as a bridge to permanent immigration—or not. As the table below shows, the top employers received large numbers of new H-1B workers in fiscal 2014 but applied for very few green cards for their H-1B workers.
Manufacturing job loss: the consequences of malign neglect of the dollar and Chinese overcapacity
Today’s jobs report from the BLS showed that the U.S. manufacturing sector lost 14,000 jobs in August and has now lost 57,000 jobs since January of this year. This job loss is, in part, a consequence of the sharp rise of the dollar in 2014 and 2015, which has gained nearly 20 percent on a broad, trade-weighted basis, as shown below. The rising dollar has reduced the cost of imports, increased the cost of U.S. exports resulting in growing trade deficits. Growing exports support U.S. employment, but growing imports cost U.S. jobs, so the manufacturing decline was entirely predictable from the expected increase in the U.S. trade deficit, which responds to changes in the dollar with a lag of one to two years. Yet the U.S. government continues to do nothing about destructive exchange rate movements, whether they are caused by intentional currency manipulation or more recent, market-driven misalignments.
Data for the U.S. trade deficit in July were also released this morning. The trade deficit in manufactured products (Exhibit 1S) increased 3.1 percent, year to date, relative to the same period last year, despite a decline in the overall U.S. trade deficit. U.S. imports of petroleum products declined sharply in this period, while the trade deficit in non-petroleum goods (which is dominated by trade in manufactures) increased sharply. The single largest cause of the growing manufacturing trade deficit is malign neglect of currency manipulation over the past 20 years by the U.S. government.
China, which has been the most important currency manipulator over the past two decades, was responsible for nearly two thirds (61.3 percent) of the U.S. trade deficit in manufactured goods in 2015. The trade deficit with China increased in July. China has also distorted trade by generating massive amounts of excess production capacity in a wide range of industries, including steel, aluminium, glass, paper and renewable energy products. China’s capacity growth has been fueled by illegal subsidies and other unfair trade practices. A new report from Duke University explores the impacts of overcapacity in China’s steel industry.
Looking under the hood of today’s jobs report
Today’s jobs report came in somewhat underwhelming. This morning, I compared payroll employment growth to weak tea and the labor market saw little to no improvement in other key measures. Yesterday, I urged readers to look under the hood of the headline jobs day numbers and see how well the economy is treating workers across various demographic groups. Today, I’m going to take one statistic from today’s report and see how various groups have fared.
According to the Bureau of Labor Statistics, the official unemployment rate is 4.9 percent. Let’s just remember for a moment that the unemployment rate only counts people actively looking for work, taken as a share of the labor force. So, this leaves out the estimated 2.2 million workers who we expect will return or join the labor force as job opportunities improve. With these missing workers, the unemployment rate would be 6.2 percent. It also leaves out workers who want to work full-time but could only find part-time work or those who might have looked in the last year, but not in the last month. Adding these in, the underemployment rate would be 9.7 percent.
Even with those caveats, I must admit the official unemployment rate is still quite a useful measure. And, along with nominal wage growth, it’s a key measure the Federal Reserve watches when deciding how to act on interest rates. At 4.9 percent, the unemployment rate is 0.3 percentage points higher than it was in 2007, before the recession began, and 0.9 percentage points higher than the last time the economy was at full employment (2000). In fact, for five months in 2000, the unemployment rate was below 4.0 percent, hitting a low of 3.8 percent in April 2000. Examined another way, the unemployment rate is 1.1 times higher today than in 2007 and 1.2 times higher than in 2000.
Looking at the latest wage data by education level
Earlier this week, I analyzed the latest wage data by percentile, which shows that inequality has grown since the last business cycle peak in 2007. Today, I’m going to discuss the latest wage data by education groups. The main takeaways are four-fold. First, women are consistently paid less than men across all education groups. Second, wages have increased more for those with a college or advanced degree than for those with lower levels of education, both in the past year and since 2007. Third, the increase in the college premium since 2007 is dwarfed by the growth in wage inequality generally. And fourth, much of the increase in wages in the last few years has been driven by historically low inflation, as opposed to strong or accelerating nominal wage growth.
The table below shows first half (FH) average wages for 2007, 2015, and 2016 by highest level of education attainment and by gender. You can see that at every level of education, men are paid more than women—illustrating the difficulty of women to educate their way out of the gender wage gap. In fact, the gap grows with increasing levels of education. One particular striking finding is that men with just a bachelor’s degree are paid more, on average, than women with an advanced degree.
What to Watch on Jobs Day: Beyond the headline numbers
While we eagerly await the top line numbers in the Employment Situation Report every month, here at EPI, we also try to look under the hood and compare how various demographic groups are faring. As part of our effort to present a clear, accessible, and in-depth view of the economy and how it affects the workers in it, we’re launching EPI’s State of Working America Data Library. Right now, it’s got a great set of data on the labor force, but it’s going to be continually updated and expanded to include lots more.
Within the library, you can find up-to-date labor force statistics, including the unemployment rate, the long-term unemployment rate, the underemployment rate, the labor force participation rate, and the employment-to-population ratio. Not only do we provide a historical series back to 1979, but you can also sort the data by your variable of choice and download it as an Excel file. Within each series, we’ve disaggregated the data by various demographic groups and education categories. For example, you can find a consistent data series on the unemployment rate of prime-age black male workers, or the underemployment rate of young Hispanic female workers, or the long-term unemployment rate of white men, 55-64 years old. You can also examine the data by gender, race, and educational attainment at the same time—looking at labor force statistics such as the prime-age employment-to-population ratio for high school educated white women or the labor force participation rate of black men with an advanced degree.
Rising wage inequality continues to be a defining feature of the U.S. labor market
It’s well documented and widely understood that wage inequality has grown dramatically over the last four decades as productivity and compensation growth have become delinked. Despite an expanding and increasingly productive economy, wages have stagnated for the vast majority. Looking at the most recent data—through the first half of 2016—we see that wage inequality has continued to grow, with top earners faring far better than those in the middle or bottom of the wage scale. First, the data paints a striking picture of growing wage inequality since the last business cycle peak in 2007. Second, average wage growth overall is slow, and any significant real wage growth continues to be driven by low (and below target) inflation—not meaningful acceleration in nominal wage growth. Last, strong payroll employment growth the last couple of months suggests positive future trends for not only wage growth, but also declining unemployment and rising labor force participation.
The figure below shows the disparate growth across the wage scale from 2007 to 2016 (using the most recent data, for the first six months of 2016, and comparing to wages at each decile and at the 95th percentile to those of the comparable period in 2007). I’m comparing the first half (FH) of both years to maintain the same seasonality in the data. Plus, it gives us a glimpse of what’s happened through the first half of this year. Except for the lowest wages—at the 10th percentile—what you see is a clear increase in growth as one moves up the wage distribution, from negative growth at the 20th percentile (-2.8 percent) to the fastest growth at the 95th percentile (10.4 percent). At the median, real wages grew a total of only 0.8 percent over the nine-year period. So, not only did the labor market since 2007 perpetuate the wage stagnation and inequality of the previous three decades, it has actually exacerbated it.