Low pay- still the missing piece

Two reports out in the last week illustrate why so many people think the U.S. economy has been slow despite GDP and employment numbers going up for the last several years. And in both cases, the source of the discontent is obvious- low and stagnant wages for most in a time where the richest people are thriving.

The first is a report by the U.S. Conference of Mayors describing changes in income across Metro areas over the last decade. There are a number of tidbits to grab from, particularly on inequality of household incomes in various metro areas, but the biggest item media seems to have seized on is this one, which shows that the damage from the Great Recession went past the millions of jobs lost.

In 2008 and 2009 the US economy lost 8.7 million jobs (Figure 1). By examining the sectors from which the jobs were lost, most notably manufacturing and construction (Figure 2), we find that the average annual wage in sectors (current wages weighted by number of jobs) where jobs were lost in the downturn was $61,637. A similar accounting of the jobs gains through 2014q2 shows average wages of $47,171 per year. This wage gap, at 23%, is significantly larger than that of the earlier recession and recovery, and implies $93 billion in lower wage income...

Extensive job losses in high-wage manufacturing ($63K) and construction ($58K) sectors were replaced by jobs in the lower wage sectors of hospitality ($21K), health care ($47K), and administrative support ($37K).

But while middle-class and lower-class wages stagnate or go down, the upper levels of the country have done just fine ober the last two decades.

The lowest two quintiles, or 40% of households, received just 6.6% of all US income gains since 2005, and 9.5% of gains since 1995. The share of total income gains from 2005 to 2012 which was captured by the highest 20% was 60.6%, and the top 5% received 27.6%. The comparable share of all gains from 1995 to 2012 was 55.0% and 24.5% respectively.

Gee, you think these two items might be interrelated? The richest households grab more of the gains of the economy, at the expense of the rest of the work force.

The same pattern repeats when you look at the recently-released productivity stats. The report was especially interesting since it also included revised productivity numbers for 2011, 2012, and 2013, keeping in line with the revisions for GDP that we saw a couple of weeks ago. And those revised figures show that workers have often been getting paid less than the rate of inflation, despite producing more.

Non-farm worker productivity, real compensation, 2011-2013
2011- Productivity +0.1%, Real Hourly compensation -0.9%
2012- Productivity +1.0%, Real Hourly compensation +1.0%
2013- Productivity +0.9%, Real Hourly compensation -0.3%

Manufacturing worker productivity, real compensation, 2011-13
2011- Productivity +1.0%, Real Hourly compensation -1.4%
2012- Productivity +1.9%, Real Hourly compensation -0.3%
2013- Productivity +2.3%, Real Hourly compensation -0.8%

Interestingly, these trends reversed in the First Quarter of 2014, when GDP and hours worked fell during the polar vortex winter, and incomes were given a start-of-the-year boost. But things reverted to the form of 2011-2013 in the Spring, and over the last 12 months, the disconnect between productivity and compensation remains. (quarterly numbers = change at an annual rate)

Non-farm worker productivity, real compensation, 2014
Q1 2014- Productivity -4.5%, Real Hourly Compensation +4.8%
Q2 2014- Productivity +2.5%, Real Hourly Compensation +0.1%
Q2'13- Q2'14- Productivity +1.2%, Real Hourly Comp. +1.0%

Manufacturing worker productivity, real compensation, 2014
Q1 2014- Productivity +3.2%, Real Hourly Compensation +6.2%
Q2 2014- Productivity +3.6%, Real Hourly Compensation -0.8%
Q2'13- Q2'14- Productivity +2.1%, Real Hourly Comp. +0.9%

So despite the odd beginning of the year, it's pretty obvious that American workers still aren't being rewarded for their efforts, despite there being improved output and these workers working more efficiently. Which shows that the fruits of this hard work is being stolen and transferred to the higher incomes, often in the forms of improved profits and higher stock prices.

When you look at these numbers, it has to be asked- why are so many of us allowing this race to the bottom of lower wages and higher levels of inequality? In fact, it seems that many people vote to continue this destructive cycle out of 1. envy of the few middle-class people that were smart enough to organize to receive their fair share, and 2. the hope that one day you could be the one to steal the workers efforts for yourself?.

Instead, why aren't more of those people who have had a lower quality of life imposed on them in the last 7 years demanding that they get a slice of the improved macro-economy that they've helped to create? Is it because demanding this takes too much effort, and it's easier to blame it on the black guy in the White House (the guy that's constantly being blocked by cynics in Congress, who are owned by oligarchs who want you to stay as indentured servants)? And what makes the critical mass wake up to that reality and organize to get the significant change in our economy that is long overdue?

One thing's obvious- this two-tier society isn't working, and it's leaving a whole lot of people behind, which is keeping this country from being everything it can be.