Posts Tagged ‘incomes’

employment-incomes

U.S. capitalism has a real problem: there don’t seem to be enough workers to keep the economy growing.

And it has another problem: capitalists themselves are to blame for the missing workers.

As is clear from the chart above, the employment-population ratio (the blue line) has collapsed from a high of 64.4 in 2000 to 59 in 2014 (and had risen to only 60.1 by the end of 2017).* During the same period, the average real incomes of the bottom 90 percent of Americans have stagnated—barely increasing from $37,541 to $37,886.

That should be indicator that the problem is on the demand side, that employers’ demand for workers’ labor power has decreased, and not the supply side, that workers are choosing to drop out of the labor force.

But, as I explained back in 2015, that hasn’t stopped mainstream economists from blaming workers themselves—especially women and young people, for being unwilling to work and turning instead to public assistance programs and raising children and being distracted by social media and digital technologies, as well as Baby-Boomers, who are choosing to retire instead of continuing to work.

So, which is it?

Katharine G. Abraham and Melissa S. Kearney have just completed a study in which they review the available evidence and their conclusion could not be clearer:

labor demand factors, in particular trade and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment.

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Over the course of the past two decades, U.S. capitalists have decided both to increase trade with China (through outsourcing jobs and importing commodities) and to replace workers with robots and other forms of automation (it is estimated that each robot installed displaces something on the order of 5-6 workers).

That’s the main reason the employment-population ratio has declined so precipitously and that workers’ wages have stagnated in recent years.

Clearly, U.S. capitalists have been remarkably successful at increasing their profits. But they have just as spectacularly failed the vast majority of people who continue to be forced to have the freedom to work for them.

 

*The Bureau of Labor Statistics defines the employment-population ratio as the ratio of total civilian employment to the 16-and-over civilian noninstitutional population. Simply put, it is the portion of the population that is employed. Thus, for example, in 2000, the total number of civilian employees in the United States was 136.9 million and the figure for the civilian noninstitutional population was 212.6 million. By 2014, the civilian noninstitutional population had grown to 247.9 million but the total number of workers had risen to only 146.3 million. The employment-population ratio differs from both the unemployment rate (the number of unemployed divided by the civilian labor force) and the labor force participation rate (the share of the 16-and-over civilian noninstitutional population either working or looking for work).

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It’s clear that, for decades now, American workers have been falling further and further behind. And there’s simply no justification for this sorry state of affairs—nothing that can rationalize or excuse the growing gap between the majority of people who work for a living and the tiny group at the top.

But that doesn’t stop mainstream economists from trying.

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Look, they say, American workers are clearly better off than they were before. Both real weekly earnings (the blue line in the chart) and the median household income (the red line) are higher than they were thirty years ago.

There’s no denying that, on average, the absolute level of worker pay and household income has gone up. That’s proof, mainstream economists argue, that workers are enjoying the fruits of their labor.

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The problem, though, is that the increase in workers’ wages (the blue line, the same as in the previous chart) pales in comparison to the rise in labor productivity (the green line in the chart above): since 1987, real wages have gone up only 8 percent, while productivity has grown by 75 percent.

In other words, American workers are producing more and more but getting only a tiny share of that increase.

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It should come as no surprise, then, that the wage share of national income (the purple line in the chart above) has fallen precipitously—by 8 percent since 1987 and by 16.5 percent since 1970.

American workers are in fact experiencing a relative immiseration compared to their employers, who are able to capture the additional amount their workers are producing in the form of increased profits. Moreover, American employers have every interest—and more and more means at their disposal—to continue to widen the gap between themselves and their workers.

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Not surprisingly, the relative immiseration of American workers shows up in growing inequality—with the share of income captured by the top 1 percent (the orange line in the chart) increasing and the share going to the bottom 90 percent (the brown line in the chart) falling. Each is a consequence of the other.

American workers are getting relatively less of what they produce, which means more is available to distribute to those at the top of the distribution of income.

That’s what mainstream economists can’t or won’t understand: that workers may be worse off even as their wages and incomes rise. That problem flies in the face of every attempt to celebrate the existing order by claiming “just deserts.”

There’s nothing just about the relative immiseration and growing inequality faced by American workers. And nothing that can’t be changed by imagining and creating a radically different set of economic institutions.

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Last Wednesday, as part of my Unhealthy Healthcare series, I showed that the recent slowdown in U.S. healthcare costs has been invisible to American workers, because they have been forced to pay much higher premiums and deductibles in order to obtain access to healthcare for themselves and their families.

That conclusion has been confirmed by a recent Wall Street Journal article about the fact that workers are increasingly feeling the pain of paying for their healthcare.

Middle-class households are finding more of their health-care costs are coming out of their own pockets.

David Cutler, a Harvard health-care economist, said this may be “a story of three Americas.” One group, the rich, can afford health care easily. The poor can access public assistance. But for lower middle- to middle-income Americans, “the income struggles and the health-care struggles together are a really potent issue,” he said.

A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%, a rise of more than three percentage points from 1984 to 2014.

By 2014, middle-income households’ health-care spending was 25% higher than what they were spending before the recession that began in 2007, even as spending fell for other “basic needs” such as food, housing, clothing and transportation, according to an analysis for The Wall Street Journal by Brookings senior fellow Diane Schanzenbach. These households cut back sharply on more discretionary categories like dining out and clothing.

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While middle-income households are spending 25 percent more on health care, their real incomes actually fell 6.5 percent between 2007 and 2014, from $57,357 to $53,657.

Clearly, American workers are increasingly being squeezed by their employers at both ends—while they’re at work (since they’re working less and less time for themselves and more for their employers) and while they’re away from work (since they’ve been forced to assume a larger and larger share of the costs of their healthcare)

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The world economy only grew by 3.1 percent in 2015. But the world’s billionaires did much better. As David Barks, associate director of custom research for Wealth-X, understands, “Wealth helps accumulate more wealth.”

According to the latest Wealth-X report on the global billionaire population, the world’s billionaire population grew by 6.4 percent, to 2,473, last year. And their combined wealth increased by 5.4 percent, to a record $7.7 trillion.

Needless to say, the members of this group of ultra-wealthy individuals form one of the most exclusive clubs in the world; there is only one billionaire for every 2.95 million people on the planet.

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So, what were the world’s billionaires doing in 2015? Well, they were busy taking money off the table (liquidity was up to 22.2 percent of their net worth), diversifying their business exposure and investments (finance, banking and investment represent just 15.2 percent of all billionaires’s investments compared to 19.3 percent in 2014), and planning their 2016 social calendar (from Davos to St. Bart’s).

The billions of people who are not in the billionaire club, meanwhile, had quite different worries, including capitalism’s slow growth, precarious employment, and flat or falling incomes.

That’s because they don’t have much in the way of wealth—and what little wealth they do have isn’t the kind of wealth that helps them accumulate more wealth.

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The existence of public colleges and universities is the way the American working-class has traditionally been able to achieve a higher education and broaden their individual and social worlds. It started with the land-grant universities and then expanded, especially in the 1960s, with enormous increases in facilities, professors, and public financing. The children of U.S. workers were thus able to enroll in state institutions that, in many cases, provided them a high-quality, affordable education.

As we all know (and, if we didn’t, Bernie Sanders has been quick to remind us), that is no longer the case. The decrease in state funding for public colleges and universities, which has led them to increase tuition and fees and to chase out-of-state (and, increasingly, out-of-country) students, together with stagnant incomes for the majority of the population, has made public education less and less affordable for many workers and their children. The result is that many students have been forced to choose lower-quality schools (including for-profit colleges and universities), extend their time in school (because they have to hold one or more jobs while going to school), and take on more and more debt (both student debt, to finance their education, and consumer debt, to make other purchases).

In creating the chart above, I calculated the cost of public four-year colleges and universities (as reported by the College Board) as a percentage of the average income of the bottom 90 percent of Americans (from the World Wealth and Income Database). Thus, for example, in 1975-76, annual tuition and fees amounted to about 7 percent of 90-percent incomes; adding room and board increased that figure to 24 percent. Now, tuition and fees alone are 28 percent and the total cost (including room and board) is up to 59 percent.

In other words, right now, it costs the American working-class almost 60 percent of one year’s income to pay for one of their children to attend one year in a public four-year college or university.

What’s the American working-class to do? The same as in many other rich countries: demand free higher education for all high-school graduates who want to attend an in-state public college or university (and, while they’re at it, forgiveness for the student debts they’ve been forced to take on in order to attend increasingly out-of-reach public colleges and universities).

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The folks are Bankrate have calculated, for each of the fifty largest U.S. cities, the affordable price for a new car. Their analysis is based on median incomes, average insurance costs, payments on a new car loan, and sales tax data.

The chart above shows how those affordable price points compare. The lower a city appears on the list, the more difficult it would be for the typical car buyer to come up with the money for what Kelley Blue Book said was the average price for a new car or light truck at the time of their analysis: $33,865.

Thus, for example, the average buyer in San José can afford a new car that was priced close to the national average, while residents of Detroit can only afford a car worth just over $6,000, less than a fifth of the cost of the average new car.

Sure, the average price of a new car continues to rise. But the list tells us much more about what’s happened to incomes in the United States. From 2000 to 2014, the average income of the bottom 90 percent of Americans actually fell by $4561 (from $36,913 to $32,352).*

That’s the real reason why most of the residents of the fifty largest U.S. cities can’t afford to come up with the money to purchase a new car.

 

*The data, from the World Wealth and Income Database, are in real 2014 dollars.

RoseEveryone (including the Financial Times) knows that the U.S. middle-class is shrinking— and that’s because the share of income going to those at the very top has increased enormously and average incomes for most of the population have declined over the course of the past three decades.*

But that’s not the story Stephen J. Rose (pdf) wants to tell. According to him, only those at the very bottom (6 percent) have lost ground and the real story is the growth in the size of the upper middle-class—what he calls “a massive shift. . .in the center of gravity of the economy.”

However, Rose’s conclusion is just an illusion created by the bizarre way he divides up the population.

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For example, Rose sets the lower bound of the upper middle-class at $100,000 (ranging up to the “rich,” at $349,999), which is five times the poverty level. However, there’s nothing middle-class about that threshold, not when you consider that (according to the World Wealth and Income Database) the average income in the United States in 2014 was $55,133 while the top 10 percent threshold was $118,140, the top 5 percent threshold was $167,220, and the top 1 percent threshold was $387,810.

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Even with such a strange treatment of income thresholds, Rose finds an enormous increase in inequality between 1979 and 2014: combined, the share of income going to the rich and upper middle-class more than doubled, from 30 to 63.1 percent, while the amount of income going to everyone else—middle-class, lower middle-class, and poor—fell precipitously, to less than 40 percent.

That, in the end, regardless of the names attached to income groups, is the real story. It’s a case of relative immiseration: those at the very top were able to capture a large share of the growing surplus while everyone else—who were forced to have the freedom to work for falling wages—was being left behind.

 

*According to the World Wealth and Income Database, the share of income captured by the top 1 percent more than doubled, from 8.03 in 1979 to 17.85 in 2014, while the average income for the bottom 90 percent of the U.S. population fell (in 2014 dollars) from $34,607 in 1979 to $32,352 in 2014.