Numbers, Analysis Show 30 Years of Failed US Economic Policy

Wednesday, September 12, 2012 by Common Dreams
Census numbers show persistent poverty, falling wages, and rising inequality

The latest US Census Bureau numbers on poverty, income inequality, and healthcare, coupled with newly released economic analysis of US public policy reveals the reality and the reasons behind the persistent rut of the poverty-stricken, the working-poor, and the middle class in America.

More than three years after the collapse of the housing bubble, the federal government's bailout of Wall Street, and the start of the Great Recession, the US poverty rate remains persistently high with nearly 1 in 5 Americans living at or below the poverty line, according to new figures released on Wednesday by the US Census Bureau.

In addition, the numbers show rampant joblessness, stagnant or falling wages among workers, household incomes that continue to fall, and an inequality gap that continues to grow.

Meanwhile, the Economic Policy Institute released their annual review of US economic policy which includes a wide variety of data on family incomes, wages, jobs, unemployment, wealth, and poverty that allow for a clear, unbiased understanding of the economy’s effect on the living standards of working Americans.

As the Census reports, "the nation's official poverty rate in 2011 was 15.0 percent, with 46.2 million people in poverty. After three consecutive years of increases, neither the poverty rate nor the number of people in poverty were statistically different from the 2010 estimates."

New data on the continued rise in inequality—where income inequality increased by 1.6 percent between 2010 and 2011—prompted Robert Greenstein, President of the Center on Budget and Policy Priorities, to underscore that the nation's wealthiest should begin to share in the sacrifices that will be needed to correct the economy in the coming years.

"Given the need for substantial sacrifice and the skewing of income gains to those at the top," he said in a statement, "it is difficult to justify extending the rather lavish tax cuts for high-income individuals that policymakers enacted in 2001 and 2003, which average $129,000 a year for people who make over $1 million a year, according to the Urban-Brookings Tax Policy Center."

The Economic Policy Institute, which on Tuesday released its 12th annual "State of Working America" report, listed the key numbers from the Census report:

Poverty

• 15.0%: The share of the population in poverty in 2011
• 21.9%: The percent of children under 18 in poverty
• 46.2 million: The number of people in poverty in 2011
• $22,811: The poverty threshold for a family of four with two children
• 44.0%: The share of the poor population in “deep poverty,” or below half the poverty line
• 2.3 million: The number of people unemployment insurance kept out of poverty in 2011
• 21.4 million: The number of people Social Security kept out of poverty in 2011
• 5.7 million: How many fewer people would be in poverty if the Federal Earned Income Tax Credit was included in the Census definition of money income
• 3.9 million: How many fewer people would be in poverty if food stamps (SNAP) were added to money income

Income

• -1.7%, +5.1%: The change in average household income between 2010 and 2011 for the middle 20 percent, and the top 5 percent, respectively. The disparity means income inequality increased in 2011. 

• $7,887, -12.4%: The decline in median working-age household income from 2000 to 2011 in level terms and percentage terms, respectively 

• $6,518, -16.8%: The decline in median African-American household income from 2000 to 2011 in level terms and percentage terms, respectively 

• $4,695, -10.8%: The decline in median Hispanic household income from 2000 to 2011 in level terms and percentage terms, respectively 

• $50,622, $48,202:  Median earnings for a man working fulltime, full year in 1973 and 2011, respectively 

• $28,699, $37,118:  Median earnings for a female working fulltime, full year in 1973 and 2011, respectively

Putting the Census numbers in the context of public policy in their new report, EPI explains how economic policies, including policymakers’ actions and failures to act, have continuously undercut the ability of workers to benefit from economic growth in the United States. Its primary findings include:

• America’s vast middle class has suffered a “lost decade” and faces the threat of another. The wages of typical Americans, including college graduates, are lower today than they have been in over a decade. Because hourly wages and compensation failed to grow after the 2001 recession, household incomes had declined even before the Great Recession. Furthermore, forecasts of high unemployment for many years ahead suggest that another lost decade for typical American workers and their families, as measured by wages and income, has already begun.

• Income and wage inequality have risen sharply over the last 30 years. Income inequality has grown sharply since 1979, a fact that is universally recognized by researchers. The trends that have driven this growing inequality in overall incomes are growing concentration of both capital income (the returns to financial assets) and labor income (wages and benefits), as well as a shift from labor income toward capital income.

• Rising inequality is the major cause of wage stagnation for workers and of the failure of low- and middle-income families to appropriately benefit from growth. The typical worker has not benefited from productivity growth since 1979, though there has been sufficient economic growth to provide a substantial across-the-board increase in living standards. Instead, higher earners have reaped a disproportionate share of wage income, and the top one percent of households have received a disproportionate share of all income growth. Aside from the period of strong growth in the late-1990s, wages for low-and middle-wage workers were stagnant from 1979 to 2007, and incomes for lower- and middle-class households grew slowly.

• Economic policies caused increased inequality of wages and incomes. Inequality between the very top wage earners and all others grew from 1979 to 2011 except during stock declines, driven by growing executive compensation and an expanded and increasingly highly-paid financial sector. Inequality between the top wage earners and middle-wage earners also grew from 1979 to 2011. A number of policies played a role in this growth, including those that: (1) targeted rates of unemployment too high to provide reliably tight labor markets for low- and middle-wage workers; (2) hastened global integration of the U.S. economy without protecting U.S. workers; (3) failed to manage destructive international trade imbalances; (4) allowed employer practices hostile to unions to flourish; (5) privatized and deregulated industry, including the financial sector; and (6) eroded labor standards. Inequality between middle-wage earners and the lowest wage earners grew only in the 1980s, fueled by the erosion of the purchasing power of the minimum wage and, again, the targeting of rates of unemployment that were too high. Tax and budget policies have compounded the inequalities that have been generated in market-based, pre-tax incomes.

• Claims that growing inequality has not hurt middle-income families are flawed. Some recent studies have suggested that measures of comprehensive income since 1979 show that middle-income families have seen adequate income growth. Rather, incomes for the middle class have not grown as fast as average incomes, and middle-income growth was much slower between 1979 and 2007 than it was between 1947 and 1979. Furthermore, more than half of the income growth between 1979 and 2007 was made up of government transfers, which reflects the strength of programs like Social Security, Medicare and Medicaid, not the strength of the labor market. In fact, higher household labor earnings can be traced to increasing work hours, not higher wages. Finally, the data on comprehensive incomes are technically flawed because they count rapidly rising health expenditures made on behalf of households by employers and the government as income, without taking excessive health care inflation into account.

• Growing income inequality has not been offset by increased mobility. There is no evidence that mobility—changes in economic status from one generation to the next—has increased to offset rising inequality, and some research shows a decline.

• Inequalities persist by race and gender. Key economic measures, including unemployment, wealth, and poverty (particularly child poverty), continue to show staggering disparities by race and ethnicity. Gender disparities also persist, and while gaps in labor market outcomes have closed in recent decades, a number have done so because men lost ground, not because women gained it.

“The State of Working America, 12^th Edition” includes new and compelling data on:

Income

• the components of the Congressional Budget Office’s “comprehensive income” growth for the middle class (health care insurance, wages, pensions, work hours, government benefits)
• the growth of capital income by income group and the growing concentration of capital incomes

Mobility

• the stagnation of economic mobility
• the poor performance of the U.S. economy in international rankings of mobility

Wages

• flat or falling wages for college graduates in almost every occupation over the past 10 years
• wage trends by education, decile, gender, and race/ethnicity
• the growth of wage inequality for the three key wage gaps: between the top one percent and others, between the top and middle (95/50 wage gap), and between the middle and bottom (50/10 wage gap)
• the impact of rising health care costs on wage growth and wage inequality
• the factors driving the gap between productivity and median hourly compensation growth
• the role of the financial sector and CEO compensation in fueling the top one percent’s income growth

Jobs

• the extent to which changes in the labor force participation rate are due to the weak economy or are structural/demographic
• why current unemployment is cyclical and not structural

Wealth

• the decline of median wealth between 1983 and 2010 (while wealth at the top grew strongly)
• the collapse of wealth in African American and Hispanic households
• the role of housing equity’s collapse on middle class wealth
• the increasing concentration of stock ownership

Poverty

• the factors driving high poverty and low-end wages
• the large role income inequality plays in growing poverty (as opposed to demographic factors like family formation)
• the contribution of longer work hours to low-income families’ income
• the relatively small role tax and transfer policy plays in reducing poverty in the U.S. in comparison to peer countries
• high child poverty rates in comparison to peer countries