Posts Tagged ‘wages’


The economic crises that came to a head in 2008 and the massive response—by the U.S. government and corporations themselves—reshaped the world we live in.* Although sectors of the U.S. economy are still in one of their longest expansions, most people recognize that the recovery has been profoundly uneven and the economic gains have not been fairly distributed.

The question is, what has changed—and, equally significant, what hasn’t—during the past decade?


Let’s start with U.S. stock markets, which over the course of less than 18 months, from October 2007 to March 2009, dropped by more than half. And since then? As is clear from the chart above, stocks (as measured by the Dow Jones Composite Average) have rebounded spectacularly, quadrupling in value (until the most recent sell-off). One of the reasons behind the extraordinary bull market has been monetary policy, which through normal means and extraordinary measures has transferred debt and put a great deal of inexpensive money in the hands of banks, corporations, and wealth investors.


The other major reason is that corporate profits have recovered, also in spectacular fashion. As illustrated in the chart above, corporate profits (before tax, without adjustments) have climbed almost 250 percent from their low in the third quarter of 2008. Profits are, of course, a signal to investors that their stocks will likely rise in value. Moreover, increased profits allow corporations themselves to buy back a portion of their stocks. Finally, wealthy individuals, who have managed to capture a large share of the growing surplus appropriated by corporations, have had a growing mountain of cash to speculate on stocks.

Clearly, the United States has experienced a profit-led recovery during the past decade, which is both a cause and a consequence of the stock-market bubble.


The crash and the Second Great Depression, characterized by the much-publicized failures of large financial institutions such as Bear Stearns and Lehman Brothers, raised a number of concerns about the rise in U.S. bank asset concentration that started in the 1990s. Today, as can be seen in the chart above, those concentration ratios (the 3-bank ratio in purple, the 5-bank ratio in green) are even higher. The top three are JPMorgan Chase (which acquired Bear Stearns and Washington Mutual), Bank of America (which purchased Merrill Lynch), and Wells Fargo (which took over Wachovia, North Coast Surety Insurance Services, and Merlin Securities), followed by Citigroup (which has managed to survive both a partial nationalization and a series of failed stress tests), and Goldman Sachs (which managed to borrow heavily, on the order of $782 billion in 2008 and 2009, from the Federal Reserve). At the end of 2015 (the last year for which data are available), the 5 largest “Too Big to Fail” banks held nearly half (46.5 percent) of the total of U.S. bank assets.


Moreover, in the Trump administration as in the previous two, the revolving door between Wall Street and the entities in the federal government that are supposed to regulate Wall Street continues to spin. And spin. And spin.

median income

As for everyone else, they’ve barely seen a recovery. Real median household income in 2016 was only 1.5 percent higher than it was before the crash, in 2007.


That’s because, even though the underemployment rate (the annual average rate of unemployed workers, marginally attached workers, and workers employed part-time for economic reasons as a percentage of the civilian labor force plus marginally attached workers, the blue line in the chart) has fallen in the past ten years, it is still very high—9.6 percent in 2016. In addition, the share of low-wage jobs (the percentage of jobs in occupations with median annual pay below the poverty threshold for a family of four, the orange line) remains stubbornly elevated (at 23.3 percent) and the wage share of national income (the green line) is still less than what it was in 2009 (at 43 percent)—and far below its postwar high (of 50.9 percent, in 1969).

Clearly, the recovery that corporations, Wall Street, and owners of stocks have engineered and enjoyed during the past 10 years has largely bypassed American workers.


One of the consequences of the lopsided recovery is that the distribution of income—already obscenely unequal prior to the crash—has continued to worsen. By 2014 (the last year for which data are available), the share of pretax national income going to the top 1 percent had risen to 20.2 percent (from 19.9 percent in 2007), while that of the bottom 90 percent had fallen to 53 percent (from 54.2 percent in 2007). In other words, the rising income share of the top 1 percent mirrors the declining share of the bottom 90 percent of the distribution.


The distribution of wealth in the United States is even more unequal. The top 1 percent held 38.6 percent of total household wealth in 2016, up from 33.7 percent in 2007, that of the next 9 percent more or less stable at 38.5 percent, while that of the bottom 90 percent had shrunk even further, from 28.6 percent to 22.8 percent.

So, back to my original question: what has—and has not—changed over the course of the past decade?

One area of the economy has clearly rebounded. Through their own efforts and with considerable help from the government, the stock market, corporate profits, Wall Street, and the income and wealth of the top 1 percent have all recovered from the crash. It’s certainly been their kind of recovery.

And they’ve recovered in large part because everyone else has been left behind. The vast majority of people, the American working-class, those who produce but don’t appropriate the surplus: they’ve been forced, within desperate and distressed circumstances, to shoulder the burden of a recovery they’ve had no say in directing and from which they’ve been mostly excluded.

The problem is, that makes the current recovery no different from the run-up to the crash itself—grotesque levels of inequality that fueled the bloated profits on both Main Street and Wall Street and a series of speculative asset bubbles. And the current recovery, far from correcting those tendencies, has made them even more obscene.

Thus, ten years on, U.S. capitalism has created the conditions for renewed instability and another, dramatic crash.


*In a post last year, I called into question any attempt to precisely date the beginning of the crises.


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Economic journalists, like Neil Irwin, are falling all over themselves celebrating the strength of the current economic recovery.

According to the latest data from the Bureau of Labor Statistics, 313 thousand new jobs were added in February. The official unemployment rate remained at a relatively low 4.1 percent. Hourly wages grew at an annual rate of 2.6 percent. And so on.

Here’s Irwin:

This is not the kind of data you expect in an expansion that is nine years old, or out of a labor market that is already at full employment. . .

the February numbers are a delicious sweet spot for the economy. Many more people are working, including people who hadn’t even been in the labor force. If that trend continues — and it’s worth adding the usual caveat that each month’s jobs numbers are subject to revision and statistical error — there’s no reason to think this expansion is reaching its natural end.

What Irwin and his colleagues fail to mention is this is an economic recovery that, as in previous years, continues to be spectacularly one-sided. It’s all on capital’s terms.

Let’s look at some other numbers, as illustrated in the charts at the top of the post. The profit share (the blue line in the top chart) has in fact rebounded nicely since the depths of the Great Recession—from a low of 6.2 percent in the fourth quarter of 2008 to 11.9 percent in the third quarter of 2017 (the latest period for which data are available). And that’s true across the board—in both major sectors, nonfinancial (the red line) and financial (the green line). Profits quickly recovered from the crash and, as a result of government economic policy and capital’s own decisions, they’ve stayed at or near the peak of the pre-crash period.

Meanwhile, workers are still waiting for their recovery. The wage share (in the second chart), while currently higher than its nadir (52.1 percent in the third quarter of 2014), is still (at 53 percent) only equal to its previous low (in 2006)—and therefore much lower than it was in the midst of the Great Recession and, on average, for much of the postwar period. Even with lots of new jobs and low unemployment, workers are still getting the short end of the stick.

So, Irwin is right about one thing: the current numbers are a “delicious sweet spot”—for capital, not labor. Capital is getting all the workers it wants, to make even more profits. And workers continue to be forced to have the freedom to find jobs and then to labor in return for a historically low share of what they produce.

No, there is no natural end to this one-sided expansion. Only a fundamental transformation in economic institutions, not pie-in-the-sky promises, will actually benefit American workers.


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.


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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