Dear Dr. Dollar:
We’re hearing the economy is so good. We’re hearing that there’s plenty of jobs around and wages are up. But I’m not so convinced things are so great. The middle class is shrinking. Underemployment is up, and people don’t have health care. What’s the story?
—Bruce Boccardy, Allston, Mass.
This article is from the May/June 1998 issue of Dollars & Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org
at a 30% discount.
This article is from the May/June 1998 issue of Dollars & Sense magazine.
Whether the story is “good” or “bad” depends in large part on what you compare it to. If your basis for comparison is the situation of the early 1990s, for example, when the monthly official unemployment rate rose to 7.8% of the labor force, then the 4.6% unemployment rate in February 1998 looks pretty good. In fact, as those who tell us we have never had it so good are fond of pointing out, the last time the unemployment rate was this low was October of 1973.
Likewise, people are getting paid more. In January, average weekly earnings of nonsupervisory workers (excluding agriculture) were $436. After adjusting for inflation, this was 4.3% above the level of January 1993, when Bill Clinton first took office; most of the increase, about 3.5%, has come in the last year.
Yet to rally ’round the statistical office on the basis of these numbers would be a bit short-sighted, to say the least. Our experience with jobs and earnings has always had its short-run ups and downs. If we pick an “up” point - now - and compare it with the last “down” point - the early ’90s - then yes, things are better. If we take a little longer and a little broader perspective, however, we find that there is good reason for refusing to join in the songs of praise.
For example, let’s go back to 1973, when the official unemployment rate was as low as it is now. In January of that year, average earnings (adjusted for inflation) were 22.6% higher than in January 1998. That’s right, 22.6% higher. Even in 1985, shortly after the most severe recession since World War II, average wages were still 4% higher than they are now.
As one might easily figure out from these numbers - along with the fact that the stock market has been booming along for the last ten years - income distribution has become much more unequal in recent decades. In 1973, the situation was more unequal than most of us would like: the total income of the richest 5% of households was 16 times as much as the total income of the poorest 20%. In retrospect, however, 1973 looks good: in 1996 (the most recent year for which data are available), the richest 5% of households were getting 23 times as much as the bottom 20%.
The facts on health care and hunger fill in the picture suggested by this income distribution data. In spite of economic “progress” in recent years, during 1996 the number of people in the United States without health care rose to 41.7 million from 40.6 million in 1995. The number of children without health insurance rose from 10 million to 10.6 million. As to hunger, a recent survey indicates that during the past year, while the official unemployment rate was falling and average earnings were rising, the number of people showing up at free food distribution centers did not decline. The survey indicates that many of those seeking free food are employed, but earning too little to provide fully for themselves and their families.
The “good times” of the last several months may lead to a slight improvement of the income distribution data. When unemployment declines, as it has in the last couple of years, the big gainers in percentage terms are the people who move from no job to some job, even a relatively poorly paying job. But one robin does not make a spring, and a blip in the data would not tell us that a long term trend has been reversed.
Also, before we get even mildly excited about the recent figures, we should note their limits. The “official” unemployment rate does not include people who would like a job but who have given up looking, and it counts as fully employed those people who are part-time but who would like to work full time (the “underemployed”). Taking account of these people, we might reasonably say that the real underemployment rate is about twice the official rate, meaning that about one in ten Americans has inadequate work hours.
In sum, it never does any good to deny positive developments, and recent economic events are an improvement over a few years ago. Also, from the perspective of people whose incomes have soared along with corporate profits and the stock market - the top 5% - the current economic story is very good. Yet only someone with a crippled imagination and a very short memory could look at our overall economic reality today and describe it as a “good” story.