Commentary | Economic Growth

A tale of two economies


A tale of two economies

By  Lawrence Mishel

After two and a half years of sluggish growth and persistent employment losses, the nation’s overall output of goods and services shot up in the third quarter of 2003 and unemployment has ticked down to just under 6 percent. Accordingly, some analysts have declared that the economy is “fixed” and we have “turned the corner.” Some commentators are now saying that the economy, which had been expected to drive the 2004 political debate, will not be a major election issue.

Not so fast.

Despite these improvements, working families are still facing sizable economic problems that are not likely to be solved over the next year. The economy may be looking brighter on spreadsheets, but their economy — the one they live in — is plagued by shrunken paychecks, fears of job loss and little opportunity.

Even though production has been growing for more than two years, the United States has just experienced the sharpest loss of jobs this far into a recovery since the Great Depression, with nearly 2.9 million private-sector jobs lost. For every job vacancy there are now three unemployed workers, and nearly half of all Americans personally know someone who has lost their job. We are a long way from a healthy labor market with strong real-wage improvements and unemployment steadily dropping toward the 4 percent level we enjoyed in 2000. In economic terms, there is a huge gap between the rising GDP, productivity, and capital investment that is exciting business analysis and the business press and what is happening in the labor market.

And job growth, much ballyhooed before Friday’s dismal report, averaged only 43,000 jobs per month over the last three months of 2003, with the bulk of the gains coming in October. December’s preliminary count put gains at only 1,000 for the month — statistically, no gain at all. This is not nearly enough job growth either to employ the new workers who enter the labor market each month or to reduce unemployment and underemployment to any great extent over 2004. That would require an increase of 300,000 jobs each month.

The current job creation rate of 43,000 jobs per month also falls far short of the 306,000 jobs each month that the Bush administration told us we could expect starting in June 2003 as a result of the president’s tax cut package.

Employers have seized on the weak labor market to reduce or suppress the growth of wages and benefits. Jobs are rapidly disappearing overseas, including many white-collar technical and computer-related jobs not previously at risk. Meanwhile, jobs are being lost to layoffs or attrition as the remaining work force is pressed to maintain or increase production.  This restructuring has brought strong profit resurgence, with income growth in this recovery tilted far more toward profits and away from wages than in any other postwar recovery. Most workers’ hourly wages are now rising more slowly than inflation. Moreover, the new jobs being created pay 14 percent less than the jobs being lost.

What can we expect in 2004? Economic forecasters are predicting that GDP will grow at about 4 percent and jobs will expand by some 145,000 each month. Unemployment will likely stay around the current level of 6 percent.  Although GDP growth could exceed 4 percent, there is at least as much chance that our trade imbalances, record consumer debt burden, and sluggish wage growth will lead to growth that’s slower than expected.

What’s more, if employers continue their dramatic cost restructuring, job growth will be even less satisfactory than these projections, and we will not see a decrease in unemployment and a boost in real wages anytime soon.  If so, working families will likely continue to feel vulnerable and pessimistic about a sense of growing prosperity. It’s hard to see how such a scenario would not play itself out in the voting booth.

Lawrence Mishel is president of the Economic Policy Institute.