The economy isn’t sick right now—but it has chronic conditions that demand attention
Despite consumer sentiment about the economy improving through the end of 2023, there is still a disconnect between how people feel about the economy and what the data show. Consumer spending was up in 2023, especially through the holiday season, yet inflation anxiety and recession fears were still present. Where does this disconnect come from? Are people simply wrong about the economy, or are the numbers lying to us?
We can square this circle by acknowledging that two things can be true at once: The economic data showing low unemployment, rising wages, and slowing inflation are indeed accurate evidence that the economy is not in a crisis, and yet people’s anxieties reflect legitimate economic concerns. Those anxieties highlight a series of structural issues that have plagued the U.S. economy for decades. It is precisely because we are not currently in an acute crisis like a recession that people have the latitude to identify these chronic economic conditions that deserve to be addressed.
Let’s start by looking at what economists mean when rightly pointing out how strong our economy is right now, especially when compared with the past few years. Then, we can dig into the chronic problems that have been facing the U.S. economy for decades.
Indicators of economic strength
Unemployment is historically low
Considering that most U.S. families secure their economic well-being through employment, the fact that the labor market is as healthy as it has been in many years holds weight. As of December 2023, the overall unemployment rate is 3.7%, ending a second full year of unemployment being below 4%. The gap between the white and Black unemployment rates is the lowest it has ever been in recorded unemployment data (5.2% versus 3.5%, respectively). The prime-age labor force participation rate is 83.2% and has fully recovered to its pre-pandemic state. Altogether, these numbers demonstrate that the overall labor market is clearly not in crisis, especially when compared with the months following the pandemic downturn in 2020.
Inflation is finally slowing
Rising prices have been the primary economic concern of U.S. households since we prevented the sharp pandemic downturn from becoming a prolonged labor market recession. Smart economic policy that met the moment with an appropriate amount of spending and direct economic stimulus (expanded unemployment insurance, tax credits, and stimulus payments) allowed the U.S. economy to bounce back relatively quickly. However, the massive disruptions to global supply chains caused by COVID-19 and the Russian invasion of Ukraine have taken longer to rectify. These supply chain disruptions combined with opportunistic corporate profiteering to produce steadily increasing prices in the two years following the pandemic. Following a decade where the average inflation rate was below 2%, 2021 and 2022’s annual average inflation of 4.7% and 8%, respectively, represented a major change in economic life for most U.S. households.
By the end of 2023, however, that period of rapid price increases was finally easing, with monthly inflation consistently below 4% in the last half of the year. Prices will likely not fall back to where they were pre-pandemic, but the good news is the pace at which prices are increasing has slowed as supply chain restrictions have been addressed globally and production has increased domestically to meet household demand.
Real wages are growing for most workers
Adding to the good news of low unemployment and slowing inflation, real wages are rising for most workers, and low-wage workers have seen the biggest gains. The lowest 10th percentile of earners experienced 9% real wage growth between 2019 and 2022, their largest three-year increase in 40 years. That means the wage increases aren’t just a mechanical result of low-income workers falling out of the labor market entirely so that the remaining jobs are better paid—this recovery is happening from the bottom up.
Chronic problems facing the U.S. economy
The economy is currently in a position to solidify recent gains and set a course for further improvements. That said, the economy being “as good as it has been” is not a synonym for “just,” “equitable,” or “acceptable.” It is possible to hold in our minds the dual realities that the economy is at its recent best and it is still not enough for many families to thrive. The U.S. economy has structural issues that have left some workers and their families in a precarious economic position for decades. In other words, there are chronic problems with the U.S. economy that have been with us for too long and require sustained attention to address.
A decimated labor movement has led to too-slow wage growth for decades
The labor movement is in the midst of a resurgence, with workers organizing at a pace not seen in decades. But more than 40 years of efforts to weaken unions have taken a toll on the U.S. economy. Though we see real wage growth today, that exists against a backdrop of 40 years of too-slow wage growth that failed to keep pace with productivity growth. As welcome as the changes are, a few years of improving labor market conditions and aversion of a severe economic crisis cannot offset a generation of stagnant wage growth. Many U.S. families are still just barely above water.
We need policymakers to pass labor law reforms to make it easier for workers to unionize throughout the economy to solidify recent wage gains. We also need to institute protections for workers’ employment security and safety on the job in anticipation of the next crisis.
Misdirected public investment led to health care and education becoming sources of economic stress
The past 40 years of increasing inequality and stagnant wages have also been accompanied by reduced public investment by the government. Though some important measures have eased the economic burden facing U.S. families, like the creation of the Child Tax Credit and the Affordable Care Act (ACA), much of economic policy has centered on dismantling the government’s ability to provide its citizens with the resources to thrive and fully participate in the economy. The exploding cost of higher education and resulting spike in student debt burdening Gen X, Millennials, and now Gen Z is an example of this failure to invest in human capital development.
Accessing quality, affordable health care also remains too difficult for many families, despite the ACA increasing access to health insurance in those states that accepted Medicaid expansion funds. This country’s poor health outcomes and stark health disparities also represent a long-standing failure of public investment.
We need improved access to affordable higher education and health care, and ideally the creation of a single-payer health care system and widespread student debt relief, to lift these burdens of economic anxiety.
Discrimination within the labor market and financial system continues to entrench racial disparities
Black and Brown Americans continue to face significant barriers toward equitable participation in the economy, even after growing real wages and record-low unemployment rates in recent years. Because of occupational segregation, Black and Brown workers within a given industry are more likely to work in jobs with lower pay, worse benefits, and more exposure to dangerous working conditions compared with their white and Asian counterparts. Occupational segregation is even more severe for Black and Brown women, who are systematically concentrated in the lowest-paid occupations and barred from those occupations with the greatest prestige. Racial and gender wage gaps reflect these long-standing trends and provide context as to how certain groups may still feel left out even as the “overall” economy continues to improve.
Discrimination limits economic participation for Black and Brown families outside the labor market as well. Recent reporting of discrimination in lending practices—from Wells Fargo to Navy Federal Credit Union—demonstrates that financial institutions’ history of unfair treatment of Black families continues today. When fair lending practices are not guaranteed, homeownership is moved even further out of reach, exacerbating an already inaccessible housing market facing supply shortages and high interest rates. This ongoing discrimination reveals the absence of necessary regulation to ensure equitable access to homeownership, which is most U.S. families’ major source of wealth (and even more so for Black and Brown families).
This all comes alongside continuous attacks on efforts to improve racial equity in schools and workplaces across the country and to call out unfair treatment when and where it happens. It is understandable that people might be less enthusiastic about their economic prospects when new injustices are discovered regularly and attempts to address them are met with hostility.
We need a fully funded and reinvigorated system of anti-discrimination enforcement, starting with full support for the Equal Employment Opportunity Commission but also extending support throughout our regulatory institutions so that bad actors can be identified and stopped, and victims can see restitution. We also must continue to resist pressure to withdraw commitments to diversity, equity, and inclusion made in the aftermath of 2020’s racial reckoning, and we must push that work forward by further interrogating our history to uncover what harms have occurred and how to redress that harm in the pursuit of justice.
We should take advantage of this time we are not in crisis to address our chronic economic health conditions
When the economy is facing a prolonged recession like in 2008, or the one we narrowly avoided in 2020, public attention is focused on ensuring people can get back to work as quickly as possible. A recession is like an economic flu—if the fever of high unemployment lasts for too long, there are severe consequences that we want to avoid. Right now, the economy is not facing a recession and on many accounts is undergoing a steady recovery with low overall unemployment, falling inflation, and rising real wages. However, a steadily recovering economy is not the same as a healthy economy, and avoiding sickness is not a synonym for being in good health.
When U.S. workers and their families express anxiety about their economic prospects, they are reacting to decades of stagnant wage growth, a lack of workplace representation, underinvestment in public goods and services, and rampant discrimination throughout the economy. These are the chronic conditions that the economy has been living with. We can take the time to treat these conditions today—while we are not in a crisis—by making it easier for workers to organize, making proper investments in our public institutions, and improving our capacity to combat discrimination and redress its victims.
Enjoyed this post?
Sign up for EPI's newsletter so you never miss our research and insights on ways to make the economy work better for everyone.