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Friday, October 28, 2011

Half of U.S. workers have incomes below $26,364, yet the average output per worker is $109,000 ---- please explain (see #3 below)
I often show on this site startling economic conditions, like the one above. This week I show four ideas and conditions. 
1.) FDR in 1938 takes on Fascism in the U.S. -- Will Obama?  
2.) The Real Unemployment Rate and the Misery Rate 
         (21.4% and 32.3%)
3.) The Sinking Median Income  ---
       $26,364 or less is the income of half of working America.
             75 million make more, 75 million make less. 
4.) Productivity Gains Over the Years and Middle Income Stagnation 

So much attention to economics in the country, happy days are : 
American Idle
(Thank you Brian Narelle for the use of your cartoons  -- See his site here.)
Here are four topics that are relevant to my thinking and their inter-relationship will become clear. 
1.) On April 29, 1938, Franklin Roosevelt addressed Congress about  
"Curbing Monopolies" in which he defines Fascism. 

"Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people.
The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.
The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.
Both lessons hit home.
Among us today a concentration of private power without equal in history is growing.
This concentration is seriously impairing the economic effectiveness of private enterprise as a way of providing employment for labor and capital and as a way of assuring a more equitable distribution of income and earnings among the people of the nation as a whole."
Read more at the American Presidency Project:

There are fewer "private sector" workers today than in 2000, 11 years ago. Today there are 109 million, in 2000 there were 110 million. See this Bureau of Labor Statistics reference, and another BLS reference in section 2 just below. The population that makes up the labor force has grown by 33 million people, from 207 million to 240 -- and private sector employers have added a net ZERO new jobs in the past 11 years. This should concern everyone who lives in this country. See below for more about this.

I received the Roosevelt quote from the writings of John Weeks, a Socialist economist from Great Britain. (See the source.)

Wouldn't be pleasant to hear our president speak as FDR spoke, and even more pleasant to live in a country where most people knew what he was talking about?   


21.3% -- the True Unemployment Rate   
32.2% -- the Misery Rate 

Since 1999 we have added a net zero to the number of private employees in the U.S.A. There were 109 million private sector workers in 1999, and there are still 109 million private sector workers in 2011 --- 12 years and no growth in the private employment sector. View the data here:

Since 1999 the population of potential workers -- everyone above 16 years old -- has grown by 33 million or by 16%, from 207 million to 240 million. Let us suppose that the labor force would have grown at the same rate as the working population. Then today there would be 20.5 million additional workers participating in the job market. But in fact the labor force participation number grew by only 15 million. Some 5.5 million workers are missing, people who chose not to enter the labor force. They are not counted in any BLS figures of unemployment or underemployment. That is an additional 3.2% added to the unemployment rate of 9.1%, or a total of 12.3% unemployed. 
(See BLS figures at 

To that you can add the discouraged workers and the under-employed workers, an additional 9.3% to the 12.1%, for a total of 21.4% true unemployment. (See

And that's not all. Add the additional 10.9% who work full-time and year-round in jobs that pay less than the official poverty rate for a family of four. Then you find that 32.3% of working America are either 1) out of work, 2) can find only part-time work and want full-time, 3) have dropped out of the job market, or 4) have a lousy paying job. Find the figures for all these under- and unemployed here. 
Distribution Figures 
$47,000 --- The economy generates over $47,000 of output per citizen, man, woman, child, and elderly person --- over $47,000 per capita. 
$109,000 --- It generates over $109,000 of output per worker (see 
$26,364 --- But the median wage, according to a very recent report by the Social Security Administration is now $26,364. See the David Cay Johnson article . The net compensation for all 150.4 million payroll stubs is $6 trillion, which averages $40,000 per worker ($39,959.30 to quote the SSA exactly). This figure includes only what is reported on the W-2 paycheck statement, and does not include compensation from capital gains and business income, about 18% of all income. Nor does it report pension income, nor government transfers such as Earned Income Tax Credit or Temporary Aid to Needy Families. This is pre-tax income for wage earners. The figures on wages are "awful" according to Johnson. Worse than last year. 
The Citizens for Tax Justice site reports a mean average income at $68,900 for 2009. The U.S. Census reports a mean average income for 153 million individuals as $42,466. The reports are widely different. I expect that the U.S. Census just does not capture all income in their figures. The CTJ figure may include more income from the very highest 1% of earners, driving $42,466 to $68,900. U. C. Berkeley professor Emmanuel Saez reported that 23.5% of all income went to the top 1% in 2007, exceeding the pre-tax income of 60% of households. Another problem is an explanation for the low median figure of $26,362. One conjecture is that pension income may be very large, driving upwards the mean average, separating the $26,362 median from the $42,466 mean. The questions abound, and they are important because, in the words of professor Robert Wade, "I have suggested, first that the West is likely to experience several more years of slow and erratic growth; and second, that another big financial crisis within a decde is quite possible. . . . The second prediction rests on the failure to push through reforms to finance that would stamp on the practices that produced the current crisis, and to change the incentive structure facing the banks, with its built-in bias toward moral hazard. It also rests on factor beyond the financial sector. The latter high top-end income and wealth inequality."
"Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks, which the U.S. government posted on the Internet on Wednesday," says Johnson. 
The Tax Policy Center generated a breakdown of income, its sources and distribution, in 2006.  The State of Working America, 2006/2007, published it on page 79. The lower-earning 80% of households received 40.0% of all pre-tax income, the top-earning 20% received 60.3% (as you can easily see if you link to the table). 
This is pre-tax income. I made a point to calculate the fraction of total income that the lower-earning 80% received through wages and salaries: it was 28.2% of total 100% of personal income. About 80% of the work force are non-supervisory workers. 28.2% is their labor-reward share of all income that our economy produces. The labor-reward share for the top 20% is 36.3% of total income, 8.1% higher than all 80%'s share. The lower-80% receive 11.8% of their income from pension and other sources. 

Using the Tax Policy Center's numbers, for every $1 of income received by the lower 80%, $6 of income are received by the top-earning 20% of households. (When 40 is divided by 80, each receives 0.5, and when 20 is divided 60, each receives 3.0. The ratio is 1 to 6.) The figures from David Cay Johnson are alarming, but not as alarming as the Tax Policy Center. The Johnson figures do not include the capital and business income that goes almost entirely to the top 20%, mostly the top-most 5% who own 72% of all financial assets.   


See the report by Citizens for Tax Justice on overall effective tax rates. You will find average incomes for each 20% grouping and the overall tax bite each income group pays effectively or actually, not just the nominal rate.   

Workers Produce More, But Wages Stagnate 

What would be the median worker's income if wages had matched productivity? Les Leopold writing at Alternet, 10/23/11, gives his best analytical guess: 
Click for larger version

I calculate that the median would have risen from $31,824 to $61,360. That's about  double.  Imagine your neighbor has a normal job, but he earns $60,000 instead of $30,000. It is possible even still. See my February essay. Read  this link to the chapter "What Should Be Done: A New Deal for the Middle Class" in Aftershock by Robert Reich. Les Leopold uses weekly wages to find the median, not annual median as David Cay Johnson reports from the Social Security Administration. Thanks, Les. 

The same graph but done by the Economic Policy Institute at their site State of Working America looks like this:
No matter how you slice it, compensation is not keeping up with productivity chart

The median compensation increased by about 15% and productivity increased by 92%. Using the Social Security Administration figure for median income, $26,364 in 2010, then the median would increase by 77% to $46,600. Half of 150 million workers would earn less than $46,600.

And finally, the Congressional Budget Office presented their study last week that showed the changes in the sizes of the income-pie-slice received by different income groups. Their graph shows the top one percent getting most if not all the economy's increase, while the other income quintiles shrunk in relative size. Note: "After Transfers and Federal Taxes". That would be transfers like welfare and Earned Income Tax Credits.

homepage graphic

Now, why do I do all this calculating? The same reason people are sleeping outside at the Occupy sites. The economic arrangements are perverted. On top of this we send about $1.4 billion a day over seas to our commercial foreign trade partners. For four years it was over $2 billion a day. The wages for manufacturing labor in China is reported by the Department of Labor, Monthly Labor Review, March 2011, to be $1.36 an hour, and in the U.S. it's $34 an hour. We have an uphill fight to stabilize our median income. I think the population should respond intelligently by viewing the facts as clearly as they possibly can. That's why I write. 
Dollars and Sense Magazine published an article that summarizes our problems and presents solutions that match what I have presented on this blog. The author is Katherine Sciacchitano in the September/October 2011 issue. This is a short quote: "It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%."
How could unemployment fall so rapidly? Answer: public job creation. SeeRutgers  University professor Philip Harvey's solution and follow the campaign at the Full Employment web page.
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, 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.