Data Source: U.S. Census
Chart by MB
Combine that stagnation with high unemployment and it produces the crash that can be seen in the chart at right. Between 1999 and 2009, the last year for which complete Census Bureau data are available, median household income fell 5 percent when adjusted for inflation, about $2600, to $49,777. Note: That's household, not individual income. The situation likely did not improve in 2010, nor will it this year:
[Median household incomes] probably dipped last year to $49,650, estimates Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego and a board member of the National Association for Business Economics. That would mark a 0.3 percent drop from 2009. And incomes are likely to fall again this year—to $49,300, she says.
Much of the reason for this can be seen in some other statistics. In January 2000, there were 130.781 million payroll jobs in the United States. Last month, the Bureau of Labor Statistics reported that there were 130.738 million payroll jobs. During the Great Recession, 8.8 million people lost their jobs. Millions more kept their jobs but were pushed into part-time work. Despite individuals' stagnant wages, many households had made some gains as a consequence of becoming two-income families as more women entered the workforce. But during the recessions of 2001 and of 2007-2009, they lost ground from lay-offs and shifts to part-time work of one, sometimes both, spouses.
Since the beginning of 2010, about 1.6 million new jobs have been created, according to the Department of Labor's most recent survey of businesses. But we're still 7.2 million short of where we were when the recession officially began in December 2007. And that doesn't take into account the increase in the working-age population since then—variously estimated at anywhere from 125,000 to 200,000 a month. If the current rate of job growth does not improve markedly, it could take until 2017 or later to reach reasonable unemployment levels of 5 percent. And that doesn't take into account the quality of the jobs being created. So far, the greatest increases have been in lower-paying positions.
Bottom line: That median household income isn't likely to return to where it was in 1999 any time soon, much less grow beyond that level. In other words, business as usual for as long as most of today's working-age Americans have been alive. Not only have they spent decades coping with what a business would call a flat revenue stream, they are pinched by the rising prices of commodities, including energy and food, as well as tuition and health care. If they're lucky enough to be employed, they live paycheck to paycheck while corporate profits set new records and corporate bonuses rise again.
When even some of the staunchest supporters of globalization are pointing out these interrelated problems, we ought to be hearing more than crickets in response from Congress and other leaders. One working paper proposing a response, The Evolving Structure of the American Economy and the Employment Challenge, written by Nobel Memorial Prize-winner A. Michael Spence and Sandile Hlatshwayo for the Council on Foreign Relations, was published last month. You can't get much more establishment than that. Among other things, Spence is an adviser to the Chinese government on globalization. Not exactly a protester who storms meetings at World Trade Organization get-togethers; rather someone who sits on the conference panels inside.
In summary, the CFR working paper notes that almost all of U.S. job growth in the past two decades has been in "nontradable" arenas, that is, goods and services that must be produced and consumed in the same country. For example, retail, hospitality and leisure, restaurants, government and health care. In fact, 40 percent of the non-tradable growth was in government jobs and health care. Pressure on public spending means there will likely be little if any future growth there, and health care already absorbs nearly a sixth of gross domestic product, meaning that it is not likely to expand much either.
In the "tradable" sectors of the economy—manufacturing, finance and insurance, consulting and pure services that can be produced in one country and consumed in another—growth has been flat since 1990. Moreover, competitive pressures from foreign-based operations have driven wages and salaries downward in these arenas and are likely to do it even more in the coming years. Consequently:
To create jobs, contain inequality, and reduce the U.S. current-account deficit, the scope of the export sector will need to expand. That will mean restoring and creating U.S. competitiveness in an expanded set of activities via heightened investment in human capital, technology, and hard and soft infrastructure. The challenge is how to do it most effectively.
In the view of multitudes of corporate CEOs and the folks at the American Enterprise Institute and its ideological compatriots, the market is working just fine. As traditionally measured, that's true. A multinational operation that maintains efficiency and manages, for instance, to sell plenty of cars at a good profit around the planet is doing what such enterprises are supposed to do. It's no skin off a shareholder's nose if new employees are hired at half the rate their predecessors were and the benefits they receive are trimmed. If they can no longer afford, as they could working for Henry Ford, to buy one of the cars they make, so what? And it doesn't matter to shareholders if jobs are exported where workers paid 20 percent of what Americans receive can build cars just as efficiently. Or computers. Or televisions. Or software. You name it. If it doesn't matter to those own the stock, it certainly doesn't matter to the CEOs.
While this decades-in-the-making manufacturing shift makes goods cheaper, it doesn't help if low- and middle-income people no longer make enough money to afford them. As Spence and his co-author point out:
One possible response to these trends would be to assert that market outcomes, especially efficient ones, always make everyone better off in the long run. That seems clearly incorrect and is supported by neither theory nor experience. It is true, as in the United States, that many goods and services are less expensive than they would be if the economy were walled off from the global economy, and that the benefits of lower prices are widespread. But these cost savings do not necessarily compensate for diminished employment opportunities, and it would be presumptuous in the extreme for policymakers to tell voters what their values and preferences should be. People might trade cheaper goods for assurances that a wide range of productive and rewarding employment options would be available, now and in the future, for themselves and their children and grandchildren, even if the cost of goods they consume were to rise.
A second position acknowledges the distributional effects. If we want to use the market system in the context of an open global economy, distributional implications are inevitable, but we have to accept them. Why? Because, the argument goes, the alternative is not having an efficient market system operating in a relatively global open economy, which would be far worse. However much one might wish otherwise, it is impossible to fully compensate those whose employment opportunities or incomes are adversely affected. This stance is more realistic than the first one. There probably are real choices between aggregate income levels and efficiency on the one hand, and distributional equity and employment opportunities on the other.
But, to complete the assessment, one needs to explore policies that may improve the trade-off. In principal, one could restrict access to the domestic market by foreign suppliers. This generally falls under the heading of protectionism, risks reciprocal action, and sets an escalating pattern almost certain to cause more harm than good. Further, it raises prices for many goods for the whole population. It is not a good idea when carried out aggressively on a broad front. The G20 is right to caution repeatedly about widening protectionism. A preferable approach is to accept globalization but to look for domestic policies that will reduce the distributional impact at home.
One can argue over whether protectionism, for which there are growing calls, is the (or an) appropriate response to this predicament. Or to take a grander approach, whether 21st Century capitalism itself can and should be controlled to deal with the negative distributional effects of economic globalization. For some, merely tweaking the existing system instead of shifting to some form of democratic socialism is a waste of time, and political parties that fail to drive in that direction a waste of votes. But advocates for such a move have yet to show a politically viable means of reaching that objective short of a revolution in American attitudes that seems remote.
Unfortunately, even mere tweaking seems not to be on the agenda of very many liberal leaders. Some are decent fighters when it comes to right-wing attacks on the social safety net and other outbursts of class warfare. But when it comes to a positive agenda—adopting an industrial plan, for instance—they are all but silent.
Where are the champions of rank-and-file Americans with the willingness and clout to do something about the off-shoring of jobs and the failure of our economic system to deliver the fruits of productivity gains to workers? Where are the foes of two-tiered hiring systems that mean new workers will never do as well as those who preceded them? Where are the congressional leaders—and, more to the point, where are the foot-soldiers—willing to say Enough! and actually do something to prove they mean it?
