Bush's Legacy Stagnant Pay and the Lowest Rate of Job Creation in the Last 40 Years
There are two underlying fundamentals of this economy that have questionable strength. The first is overall job growth which has been the weakest of the last 40 years. This has led to stagnant wages for the duration of this expansion.
As the numbers below illustrate, job growth for this expansion is the weakest of the last 40years.
For these numbers, I used total nonfarm jobs from the Bureau of Labor Statistics.
The dates are the dates of the official business cycles from the National Bureau of Economic Research
2/61 - 12/69Beginning number of jobs: 65,588,000
Ending number of jobs: 78,740,000
Total Jobs Created: 13,152,000
Compound rate of establishment job growth: 2.09%
11/70 - 11/73Beginning number of jobs: 78,650,000
Ending number of jobs: 86,320,000
Total Jobs Created: 7,670,000
Compound rate of establishment job growth: 3.15%
3/75 - 1/80Beginning number of jobs: 85,187,000
Ending number of jobs: 99,879,000
Total Jobs Created: 14,692,000
Compound rate of establishment job growth: 3.35%
11/82 - 7/90Beginning number of jobs: 99,112,000
Ending number of jobs: 118,810,000
Total Jobs Created: 19,698,000
Compound rate of establishment job growth: 2.39%
3/91 - 3/01Beginning number of jobs: 117,652,000
Ending number of jobs: 137,783,000
Total Jobs Created: 20,131,000
Compound rate of establishment job growth: 1.59%%
11/01 - ?Beginning number of jobs: 136,238,000
Ending number of jobs: 146,140,000
Total Jobs Created: 9,902,000
Compound rate of establishment job growth: 1.26%
But there are further problems with Bush's employment numbers. The BLS uses a model called the "birth/death" model to account for new businesses that aren't counted in the survey This means the most recent job reports -- those over the last 6-9 months -- are probably too high:
The BLS surveys about 160,000 businesses in its sample model. There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm "births" generate a significant portion of employment growth each month, non-sampling methods must be used to estimate this growth. To make up for this, they add or subtract a certain number of jobs, called the birth/death (of new businesses) ratio.
......
Remember the jobless recovery of the first Bush term and the constant criticism about the poor economy? Why was the economy doing so well and yet job creation was so poor? It turns out that a great deal of the explanation is that the BLS underestimated the number of new jobs being created by small business in the early years of the recovery, rather badly.
Likewise, the BLS data will overestimate jobs when the economy is slowing down.
There is also the issue of a declining labor participation rate. This statistic calculates the percentage of the available workforce that is working. Here is a chart from the Bureau of Labor Statistics that goes back to 1990. Notice the LBR declined until mid-2004.
And there is a compelling argument that lower-paying health care and social assistance jobs are the primary driver of job growth for this expansion.
But the very real problems with the health-care system mask a simple fact: Without it the nation's labor market would be in a deep coma. Since 2001, 1.7 million new jobs have been added in the health-care sector, which includes related industries such as pharmaceuticals and health insurance. Meanwhile, the number of private-sector jobs outside of health care is no higher than it was five years ago.
And here's a chart from the author's blog:
And higher paying manufacturing and information technology jobs have also suffered:
Manufacturing Jobs:
Information technology jobs:
No matter how you slice the job growth of the current expansion, it is the weakest the country has seen in the last 40 years. The compound annual growth rate is the lowest we have seen. And the higher-paying jobs lost have been replaced by lower-paying jobs.
If the economy were really at full employment, we should be seeing far faster increases in pay. But we're not. This indicates the employment numbers have a pretty good possibility of being optimistic, as explained above by the birth/death model adjustments and the low labor participation rate.
There are several sources for wages. Let's start with information from the Federal Reserve. Their latest report on consumer finances was published in 2005, titled the Survey of Consumer finances. It stated:
The survey shows that, over the 2001-04 period, the median value of real (inflation-adjusted) family income before taxes continued to trend up, rising 1.6%, whereas the mean value fell 2.3 percent. ... These results stand in contrast to the strong and broad gains seen for the period 1998 and 2001 surveys and to the smaller but similarly broad gains between the 1995 and 1998 surveys.
The Federal Reserve is not the only source that indicates wages have been stagnant. The Census Bureau keeps track of median and mean incomes. The last year they have computations for is 2005. Median income in 2005 dollars was $46,569 in 2001 and $46,326 in 2006. Mean income in 2005 dollars was $64,191 in 2001 and $63,344 in 2005. Notice that after adjusting for inflation, mean and median income statistics are lower in 2005 than in 2001. These are not healthy developments.
The Bureau of Labor Statistics also keeps track of wages in the form of average hourly earnings of production workers. These figures have to be adjusted for inflation. According to the National Bureau of Economic Research this expansion started in November 2001 when the wages was $14.72. This figure was $17.38 in June of 2007 for an increase of 18.07%. Over the same period the price level increased from 177.4 to 208.352 for an increase of 17.44%. That means that since this expansion began, wages have increase .63%. From a practical perspective, this means wages have basically stood still.
The Bureau of Economic Analysis issues the personal income figures every month. The problem with this statistic is it is a macro-level statistic. This means it includes the top 10%, which has disproportionately gained income during this expansion:
Those earlier barons disappeared by the 1920s and, constrained by the Depression and by the greater government oversight and high income tax rates that followed, no one really took their place. Then, starting in the late 1970s, as the constraints receded, new tycoons gradually emerged, and now their concentrated wealth has made the early years of the 21st century truly another Gilded Age.Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution -- currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.
Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Mr. Weill is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.
This same observation was made in the latest Foreign Affairs article titled A New Deal For Globalization:
The astonishing skewness of U.S. income growth is evident in the analysis of other measures as well. The growth in total income reported on tax returns has been extremely concentrated in recent years: the share of national income accounted for by the top one percent of income earners reached 21.8% in 2005 -- a level not seen since 1928. In addition to high labor earnings, income growth is driven by corporate profits, which are at a nearly 50-year highs as a share of national income and which accrue mainly to those with high labor earnings.
To sum up the basic problems, we have seen
1. Weak job growth, 2. A lower labor participation rate 3. The loss of higher paying manufacturing and information technology jobs, 4. High job creation in lower paying jobs areas.
These three factors have led to stagnant wages for the duration of this expansion.
Comments for this post are now closed
Comments for this entry are currently under maintenance but will be restored soon.
Posted July 26, 2007 | 12:47 PM (EST)