Over the past few months, there have been several indicators that the American economy may be humming on all cylinders again. They include:
- A report from the Hamilton Project of the Brookings Institution showed that in July, nearly a decade after the start of the Great Recession, employment had recovered to its “demographically adjusted pre-recession level.” This means that more than 10 million jobs were added in that 10 year period.
- The Census Bureau’s annual report on Income and Poverty in the United States disclosed that household incomes had grown for the second year in a row with the median household income climbing to a record $59,039.
- A Gallup poll in June on class identity found that 62 percent of the respondents labeled themselves middle class compared to only 51 percent in 2015. Gallup noted that these new results were “close to the prevailing pattern before 2009.”
These are encouraging signs. Sadly, however, they prove the old truism that data in the aggregate conceals as much as it reveals.
There are contra-indicators that, because of the changing nature of jobs, the middle class and the American Dream, getting ahead or doing better in the American economy is becoming more challenging for many of our fellow citizens.
The Hamilton Project on jobs reports that since 2007, the overall labor force participation rate has fallen from 66.0 percent to 62.9 percent. It observes
Indeed, while some economic markers indicate a tight labor market – a low unemployment rate and relatively abundant job openings – others, like the depressed 25-54 year old employment rate, an elevated share of people working part time for economic reasons, and restrained wage growth, are consistent with a weaker labor market.
Good paying jobs in two male-dominated occupation groups – production and construction – have not recovered as well as those in other groups. While jobs have been created and the unemployment rate has shrunk, overall wage growth remains low.
Most importantly, the “gig economy” or jobs held by independent contractors, or contingent workers or those in some form of alternative working arrangement are definitely growing.
The exact size of the gig economy today is not known with estimates from as low as approximately 16 percent to as high as 34 percent. What is known is that these jobs do not provide the same security, benefits and wages that come with full time employment.
The changing nature of jobs has an impact on the changing nature of the middle class. To put it simply, it has made the distance from the upper middle class to the lower middle class much greater and it has changed the construct of the middle class itself.
Robert Samuelson notes this in his Washington Post article ― written after the Census Bureau’s report was released ― in which he discloses “three sobering takeaways”:
- Men’s median wages for full-time year round work have stagnated. The median income for male year round, full-time workers in 2016 was $51,460. In 1975, the median income was $51,766.
- The upper middle class is flourishing – but not the lower classes. Using a threshold of $100,000 as upper middle class for a household, the share in that cohort has gone up from 19.4 percent in 1990 to 27.7 percent today. By contrast, the movement for household median income at lower middle class levels was miniscule – only 1 percent higher than the “previous record of $58,665 achieved in 1990.”
- Almost three–quarters of the rise of Americans living in poverty since 1990 reflects an increase in Hispanic poverty.
The downward trajectory in earnings – especially for those males in the age group from 25 to 55 with only a high school education or less ― is not of recent origin. It started in the late 1960s.
Drawing upon a research study by Mark Rank of Washington University in St. Louis and Fatih Guvenen, of the University of Minnesota, in the New York Times, Patricia Cohen writes:
… a 25 year old man who entered the work force in 1967 and worked for the next decade earned as much as $250,000 more, after taking inflation into account than a man who had the same type of career but was 15 years younger.
The changes in jobs and the middle class have had an impact on the potential of living or achieving the American dream. There is no standard definition for the American dream but key elements usually include doing better than your parents and the ability to own a home.
The recent progress in the economy has made the opportunities in this area look more likely for some citizens but much less likely for others. For example, the Hamilton Project discovered that:
- … the employment rate of individuals aged 25 to 54 … has not returned to its pre-recession levels
- … whites are now in a worse position relative to the pre-recession employment rates than are blacks and Hispanics
- Women of each race have seen their employment rate gaps improve – relative to a 2007 baseline – more than men
- … the strong recovery among Hispanics is driven by women, while Hispanic males still face a – 1.9 percent point employment rate gap
There have definitely been winners and losers in the economic recovery to date. However, stagnation of middle class income and income inequality put many of those in the lower tiers of the middle class and the working class in the same boat with regard to housing – especially in metropolitan areas where the preponderance of new jobs are being created. They don’t earn nearly enough to own a home or even to live in those locations.
A new study by found that out of the top 50 largest cities, only 12 were considered affordable for the “working class.” That study showed the best cities where the working class would have a net surplus remaining after their living expenses were Fort Worth, TX ($10K+) and Newark, NJ (10K+). The worst cities where there would be a deficit were New York, NY (-$91K) and San Francisco, CA (-$83K).
The bottom line in looking at all of this is while there has been a slow but steady economic recovery there is still substantial inequality and stagnant or shrunken incomes for far too many American workers. The question becomes what to do about it.
There is no easy answer or silver bullet. What is required is a comprehensive plan to address the issues discussed herein. Over the years, we have identified elements of that plan such as increasing the minimum wage, development of a 3-I (Industry, Innovation and Infrastructure) Bank, and special initiatives and reallocation of resources in metropolitan areas in prior blogs.
We would add to that list a proposal that Steven Pearlstein made in a recent Washington Post article titled “Don’t Move Workers; Shift the Jobs to Them.” Pearlstein recommends accomplishing this by moving businesses to and establishing start up ventures in smaller cities where “the cost of living and doing business is significantly lower, they still have plenty of room to grow, and they can build additional public infrastructure quicker and cheaper.”
What we will not put on our list is: restrictive immigration laws; tax cuts for the wealthy; provisions that elevate the interests of business owners over those of workers; and, ineffective labor productivity enhancement measures that do nothing to increase jobs or workers’ wages. We will explain why these won’t go on our list in our next blog.
In conclusion, the changing nature of jobs, the middle class, and the American dream are posing new challenges for the United States. The country is at a pivot point. It needs to have private and public sector leaders who understand this and are willing to work together with workers to work that pivot point to move America forward.