An Economy That Turns American Values Upside Down

By BOB HERBERT

New York Times

September 6, 2004

The Labor Department reported last week that 144,000 payroll jobs were created in August. Let's put that in perspective.

The number was below market forecasts. It was also below the number of jobs needed to accommodate the growth in the employment-aged population. In short, this was not good news. It's only by the diminished job-creation standards that have prevailed since the last recession that any positive spin could be put on last month's performance.

As the Economic Policy Institute tells us, in a book-length report it is releasing today: "The United States has been tracking employment statistics since 1939, and never in history has it taken this long to regain the jobs lost over a downturn."

In "The State of Working America 2004/2005," the institute shows in tremendous detail how those lost jobs and other disappointing aspects of the recovery are taking a severe economic toll on working families.

According to the institute:

"After almost three years of recovery, our job market is still too weak to broadly distribute the benefits of the growing economy. Unemployment is essentially unchanged, job growth has stalled, and real wages have started to fall behind inflation. Today's picture is a stark contrast to the full employment period before the recession, when the tight labor market ensured that the benefits of growth were broadly shared.

"Prolonged weakness in the labor market has left the nation with over a million fewer jobs than when the recession began. This is a worse position, in terms of recouping lost jobs, than any business cycle since the 1930's."

What is happening is nothing less than a deterioration in the standard of living in the United States. Despite the statistical growth in the economy, the continued slack in the labor market has resulted in declining real wages for anxious American workers and a marked deterioration in job quality.

From 2000 through 2003 the median household income fell by $1,500 (in 2003 dollars) - a significant 3.4 percent decrease. That information becomes startling when you consider that during the same period there was a strong 12 percent increase in productivity among U.S. workers. Economists will tell you that productivity increases go hand-in-hand with increases in the standard of living. But not this time. Here we have a 3.4 percent loss in real income juxtaposed with a big jump in productivity.

"So the economic pie is growing gangbusters and the typical household is falling behind," said Jared Bernstein, the institute's senior economist and a co-author of the new book.

This is the part of the story that spotlights the unfairness at the heart of the current economic setup in the U.S. While workers have been remarkably productive in recent years, they have not participated in the benefits of their own increased productivity. That doesn't sound very much like the American way.

According to the institute, "Between 1947 and 1973 productivity and real median family income both grew 104 percent, a golden age of growth for both variables." That parallel relationship began to break down in the 1970's, but it is only recently that it fell apart altogether, leaving us with the following evidence of unrestrained inequity:

"In the 2000-03 period income shifted extremely rapidly and extensively from labor compensation to capital income (profits and interest)," so that the "benefits of faster productivity growth" went overwhelmingly to capital.

American workers are in an increasingly defensive position. In a tight labor market, when jobs are plentiful, workers have leverage and can demand increased wages and benefits. But today's workers have lost power in many different ways - through the slack labor market, government policies that favor corporate interests, the weakening of unions, the growth of lower-paying service industries, global trade, capital mobility, the declining real value of the minimum wage, immigration and so on.

The end result of all this is a portrait of American families struggling just to hang on, rather than to get ahead. The benefits of productivity gains and economic growth are flowing to profits, not worker compensation. The fat cats are getting fatter, while workers, at least for the time being, are watching the curtain come down on the heralded American dream.