3/2/2011 2:25 PM ET|
It's a recovery only if you're rich
The economy is looking up. But the latest numbers show ever more clearly why, if you're on the lower rungs, things haven't improved. Conditions are now changing, though.
Clearly, the economic situation is improving. Corporate profits are at record highs. New jobs are slowly being created and the unemployment rate is falling. Consumer spending is up. Stocks have nearly doubled in the last two years. We're a long way from the dark days of 2008-2009.
Yet the gains have not been equally distributed. Where you sit in the socioeconomic strata largely determines how you view the economy and how much you've benefited from the recovery so far.
If you are well-educated and relatively well-to-do, and you have a sizable portfolio of financial assets, chances are you're feeling pretty good right now. You're probably working. You've enjoyed the stock market's doubling from its bear-market low. And you've probably even managed to convince your boss to give you a raise.
If you are less fortunate, with fewer assets and no college degree, and you are more reliant on that day-to-day paycheck, things have hardly improved at all. And now, with the costs of fuel and food on the rise, things have taken a turn for the worse.
By all indications, this is a recovery only if you're rich.
It's worth remembering that rising inequality was largely responsible for getting us into this mess in the first place. Over the last 10 years, in the wake of the dot-com blowup, Americans used cheap credit and rising home equity to mask the fact that in inflation-adjusted terms, their wages weren't growing. There were social consequences, too: People were forced to work longer and harder, and embrace the two-income earner lifestyle to keep up.
After the Great Recession, there was hope that these problems would fade. But they haven't. Now, our two-speed recovery could be sowing the seeds of the next crisis. But instead of financial turmoil, the next iteration will likely play out in the political sphere, as it has in places like Greece, Egypt and even Wisconsin as new pressures are placed on the working class.
Thankfully, there are signs that change -- positive change -- could be coming.
There are structural problems at work here. They relate to the fact that over the last 40 years, labor has become less and less valuable relative to capital in the global economy. Those with cash to invest or machinery to sell have done well. Those selling a hard day's work with their hands, their backs or their minds have suffered.
Factors for this include technological innovation, globalization and, recently, record productivity gains as businesses have used the threat of firings to squeeze more and more work out of each employee.
And of course, there has been a massive influx of new laborers into the global workforce: According to the IMF (.pdf file), there has been a fourfold increase in the number of workers competing in the global market since 1980. And this army of new workers has been cheap to hire. Workers in places like China, India and the former Soviet Union have been willing to accept wages from one-half to one-tenth those seen in rich countries.
To put it bluntly, U.S. workers were simply too expensive. And as executives has engaged in wage arbitrage (thanks to lower trade barriers) and defanged private-sector unions, wages and benefits in the United States have been pulled down toward the global mean.
As a result, heading into the recession, more U.S. jobs were cut than historical models would suggest based on the depth of the economic contraction. And as we've recovered, job creation in the United States has lagged that of places like Australia, Canada, Germany and the United Kingdom. Because of all this, corporate profits have surged, and they continue to represent a larger and larger share of the overall economy -- a trend that started 30 years ago.
On the other hand, labor's share of the economic pie has dropped to its lowest levels since records started after World War II. This is a global trend that is affecting all of the advanced economies. But it's hitting the United States particularly hard.
It's better on top
For those on top, things are great. They've benefited from their ownership of corporate bonds and stocks. And they've benefited from the wage gains that have accrued to the highly skilled and educated -- setting them apart from the great masses of unskilled laborers in Asia, Africa and Latin America. Right now, the unemployment rate for those with less than a high school education is a whopping 14.2%, compared with just 4.2% for those with a four-year college degree or more. That's up from unemployment rates of 5.8% and 1.7%, respectively, in 1999.
The evidence suggests that much of the recovery in consumer spending has been driven by the upper crust. You may have heard that the University of Michigan's Index of Consumer Sentiment jumped 4.4% last month to a three-year high as people became more optimistic about the economy. But the gains were driven exclusively by high-income earners: The sentiment index rose by 9.7% for households with incomes above $75,000 but fell by 1.4% among lower-income households.
This is a continuation of a trend that's seen since the recession ended back in 2009. As shown above, improvements in the Conference Board's Consumer Confidence Index have varied by income level. While confidence has bounced back for those in the upper-income brackets, it continues to languish for everyone else. For those making between $25,000 and $35,000, there has been hardly any improvement since the recession officially ended in the summer of 2009.
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[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 added just over a point, holding its weekly gain at 1.0% while the Nasdaq lost 0.4%.
The major averages began the day on an upbeat note, but relinquished their opening gains during the first 90 minutes of action. The early sentiment was boosted by a better-than-expected nonfarm payrolls report for February (175K versus Briefing.com consensus 163K), but a closer look into the report suggested that ... More
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