Sunday, June 19, 2011
Jobs and Recovery
THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, around November or December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone. Today there are not enough jobs, as you should know, and we can create them. About 16% of all jobs are government jobs today, we can create more, we are rich enough to do so. And the lower 80% of workers earn only 28.2% of the national income through their jobs. One dollar in income at the bottom 80% is matched with $6 in income at the top 20%. That is an insane income distribution; no other advanced country is as bad. We can change the wage ratios with taxes, incentives and income credits. The economy generates $47,000 per person, per human being, per infant, child, adult, elder, everyone, $47,000 a year. That's about $141,000 for every family of three, on average. We are rich enough. We have a broken system. We need more jobs, and higher wages. It's your future, your family's future, and your and their happiness.
Jobs and the Recovery
Officially the economy has recovered. How do we know? Economic production, the GDP, has recovered to its pre-recession level, but 7 million jobs were lost in the process. So is it a real recovery? The Great Recession lasted from December 2007 to June 2009 when the GDP declined by 4.2%, it reached its nadir or trough. The economy then began to grow, an 18 month rebound which recaptured its pre-recession level. The drop and recovery had a symmetry to it, 18 months for each. Since the trough, corporate profits have increased by nearly 40%, or $465 billion, accounting for 92% of the growth in national income. The casualty of the rebound was the American worker who saw the elimination of over 7 million jobs. The economy shed 8.750 million jobs according to the Bureau of Labor Statistics (Monthly Labor Review, April 2011). The economy has since recovered 1.3 million jobs, far below the bare minimum rate needed to absorb new workers entering the work force, leaving a 7.45 million job deficit. At the Economic Policy Institute one researcher places the net job deficit at 11 million when one adds on the influx of unemployed new workers to the workforce. Economists estimate that the economy is performing at 10% below of its capacity.
A staggering 45% of the unemployed have been unemployed for over half a year as of May, 2011. Heather Boushey reporting at the Center for American Progress, June 2011, states, "The share of workers who are long-term unemployed — that is, out of work and searching for a job for at least six months — ticked back above 45 percent in May. This share has hovered above 40 percent for 18 months. Those are highs not seen since the Bureau of Labor Statistics began tracking these data in 1948."
Since the recession's trough the aggregate wages and salaries of workers have actually gone downward even further, so the “recovery” has yet to affect wages in the least. The median wage earner has earnings 0.6% below the June 2009 level.
Is the word “recovery” truly apropos in this condition? Recovery for whom? For people who create the economy, or for the economy as a concept? Was there prosperity for most before the Great Recession? The GDP per capita, the amount of economic production per citizen, is over $47,000 a year, therefore would not poverty and income inadequacy be difficult to explain?
Arguably, the largest casualty of the Great Recession was the wealth of the bottom 80% of households. U.C. Berkeley professor Sylvia Allegretto reports, “Average wealth of the bottom 80% was just $62,900 in 2009 --- a dropoff of $40,900 from 2007 and slightly less, in inflation-adjusted terms, than it was more than a quarter-century ago in 1983.” This 39% drop in wealth, from $103,800 to $62,900, resulted from the 32% decline in housing prices; the median family holds 95% of its wealth in home equity. Homeowner equity or “home equity as a percent of home value fell from 59.5% in the first quarter of 2006 to 36.2% in the fourth quarter of 2009. For the first time on record, the percent of home value that homeowners own outright dropped below 50% --- meaning that banks now own more of the nation’s housing stock than people do.” As most people know, the banks are doing much better, they have recovered. Housing prices have not recovered, in fact after a year of stability they have recently been falling. The foreclosure epidemic continues apace, as well --- no recovery there.
Allegretto reports that in 2009, “nearly one in four households had zero or negative net worth, while 37.1% had net worth of less than $12,000. In other words, more than a third of U.S. households have wealth holdings that are so low they are extremely vulnerable to financial distress and insecurity.” My own “other words” are: three out of eight Americans are hanging by a thread in the wealthiest nation on earth where the per capita economic production is over $47,000 a year.
This is the greatest or one of the greatest problems our nation faces.
Corporate profits on the other hand have increased since June 2009 by almost 40%. The Center for Labor Market Studies, May 2011, reports, “Annualized corporate profits in constant 2010 dollars rose very strongly . . . Over the first seven quarters of recovery, this would represent a gain of $465 billion in corporate profits or just under 40%.” From a profit level of $1.203 trillion in the second quarter of 2009 to $1.668 trillion in the first quarter of 2011, profits increased by just under 40%. The S & P 500 Stock Index rose by 44% in this same 21 month period.
The May 2011 report adds that in the 21 months of recovery from the recession’s trough, “corporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.” “To date,” the report concludes, “through the first quarter of 2011, the nation’s recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.” Allegretto’s wealth report shows that 80% of stock market wealth is owned by 10% of U.S. households.
If the economy had the same labor participation rate as 2007 the unemployment rate would rise from 9.1% to 11.5%. And if the participation rate were equal to 2000, the present U3 unemployment rate would be 13%. An amazing 29.0% of Americans workers --- 45 million adults in all --- fall into the unfortunate categories of either being out of work (11.5%), involuntarily without enough work (5.5%), discouraged from looking for work (1.4%), or working year-round and full-time for less than poverty level wages (10.6%). The purchasing power, which drives the economy, is severely limited by low wages, under-utilization of labor, and very sluggish private-sector job creation. Recovery does not apply to the labor market.
The National Jobs for All Coalition reports, "In April, 2011, the latest month available, the number of job openings was 3.0 million." Thus with an 18.4% unemployment rate, as I have calculated it, or 28 million full-time job seekers, there are more than 9 workers seeking every one job opening. Using only the usual U3 unemployment rate, 9.1% in May 2011, the Economic Policy Institute reports that the ratio has exceeded more than four workers for every job opening for the entire past 28 months. New job hiring has not recovered.
There were more private sector jobs in December of 1999, eleven and a half years ago, than today (110 million versus 107 million); and the economy is barely adding on jobs at the rate of growth of the labor force, according to researchers at Rutgers University. (See September 2009 and July 2010 reports) Not since the 1930s has the nation had a decade of net job loss.
The nation is in a strange policy vacuum. Most people recognize that employment is the central problem, yet the major political parties limit their discussion to the size of cuts in government services and expenditures, indicating they are at a total loss to discuss job creation proposals. The Bush tax cuts of the 2000s cost the government $2.5 trillion over ten years in lost revenue, and the Republican Party insists on extending these cuts for the wealthiest minority whose fortunes have recovered, and who arguably needed recovery less than the poorer majority who lost a greater portion of their savings. The low tax policy after ten years has proved to be a total wash-out; job creation in the 2000s matched the housing bubble.
Running in contrast to this paralysis, on April 14, 2011, 40% of the Democrats in the House voted for a public job creation proposal costing $145 billion a year. This was the “People’s Budget” from the Congressional Progressive Caucus. Other Congress members have proposed direct public job creation: Representative Conyers is sponsoring again the Humphrey-Hawkins full-employment bill; Representative Jan Schakowsky has presented a budget that would devote $200 billion to public jobs. Demos in January 2011 published professor Philip Harvey's plan "Back to Work" that for less than $200 billion a year would create a net of over 8 million jobs; and the Economic Policy Institute, the Chicago Economic Political Group, the National jobs for All Coalition, Jobs for Justice, and many others are putting forward proposals for public job creation.
At the New Deal 2.0 web site, Marshall Auerback wrote (8.30.09) that between 1933 and 1937 Roosevelt’s job creation program reduced the unemployment rate from 25% to 9.6%, indicating the power of the federal government to ameliorate the economic doldrums when the private-sector refuses to hire.
Political power is as unevenly distributed as income and wealth: the top ten percent of households earns nearly 50% of the pre-tax yearly income and owns over 70% of all wealth. The disparity in political power is just insurmountable, and the poor remain powerless and unemployed -- wageless and jobless. The nation seems locked into a depression with lower wages and record rates of long-term unemployment. Simultaneously, the Recovery continues with high corporate profits. Housing prices are again falling, and one wonders how long corporate profits can stay high with a diminishing purchasing base.
But not to worry. The wealthiest 1% has an average wealth holdings 225 times the median household, which ratio has increased from 125 times in 1962, and 131 times in 1983. If you converted the wealth holdings of the nation’s households into piles of $100 bills, you would have a wide circle with half the piles less than one inch high, and an inner circle of piles representing 40% of the households each pile reaching 14 inches, a still inner circle (9%) with piles reaching six feet high, a center of the circle representing 1% rising to over 50 feet high, and in the very center a few piles reaching over 20 miles high. This is our America today.
“Apres moi le deluge” was said by a) Louis XV, or b) George II --- ?
My friend read this essay and replied:
I don't think it's a policy vacuum. I think the analysis works better if you assume that the government is totally controlled by multi-nationals who's purpose is to rob all world-wide populations of any wealth. Eisenhower warned us 60+ years ago. Then don't worry. I could send you more articles that I notice, but not really any point in it. Your own numbers say only 40% of democrats voted for public jobs. That is not contrast - it's a sign of who controls democrats.