State of Working PA 2011
A strong current of recent opinion suggests that there is “nothing we can do” about an economy threatening to again spiral down and a middle class under assault. We strongly disagree. While most of this report will focus on how poorly our economy is performing from the perspective of typical families, do not mistake that emphasis for pessimism or fatalism. Our economic problems, in the short and the long run, are largely self-inflicted. We can have a U.S. and Pennsylvania economy that is dynamic and innovative and has a strong middle class. The end of the report briefly outlines how.
In the last year—and for three decades as detailed in a mid-summer report from the Keystone Research Center in partnership with Demos—the U.S. and Pennsylvania economies have not been serving the vast majority of the population well.
Over that time, and most transparently in the last year, public policy in the United States and Pennsylvania has centered on “austerity economics,” which fixates on short-term spending when that is not our most immediate problem. This has often served to worsen the U.S. economy for most people. It has increased joblessness, pressed down on wages, increased economic inequality and undercut the American Dream of upward mobility.
One of the political questions of our time is how long this perverse situation can continue.
There are some signs that the willingness of people to accept policies that negatively impact their living standards and economic security may not be unlimited. For example, Hershey’s reliance on 400 foreign exchange students—who between them earned roughly two-thirds of the company CEO’s salary in 2010—to package the company’s candy provoked broad outrage, suggesting a deeper resentment at corporate restructuring that undermines the middle class.
One factor that keeps a lid on popular discontent is the perception that the economy and conservative economic policies are still performing “OK” for most people. Some conservatives, going further, suggest that “unemployment” is a “choice”—the unemployed are taking a vacation. Another argument is that the unemployed do not have the right skills.
The gist of this report is that, from the perspective of the overwhelming majority of Pennsylvania workers, our economic system is not performing “OK.”
A Broken Job Market
In the 1930s, unemployment peaked at 25% and the collapse of the economic system was palpable to almost everybody (the exception being a few conservative economists who even then insisted unemployment was “voluntary”). In the recent Great Recession, the American Recovery and Reinvestment Act and federal government actions to stabilize financial markets stopped the freefall of the economy. As a result, the official unemployment rate peaked nationally at about one in 10 workers and peaked in Pennsylvania at roughly one in nine.
Since the federal actions of 2008-09, however, at the federal and state levels, a focus on government “spending less” even though businesses and consumers are not yet willing or able to sustain the recovery on their own has stalled our recovery and kept unemployment high. With the new debt limit deal in Washington, austerity economics appears locked in for at least another two years.
Over time, more and more Pennsylvanians experience first-hand the impact of these misguided economic policies.
- Over one in four Pennsylvania workers—and nearly one in three U.S. workers—have had less paid work than they want during the last 12 months. This total includes
o The roughly 8% of people unemployed each month (the Pennsylvania unemployment rate in July 2011 was 7.8%).
o An additional roughly 6% of the labor force each month who are not officially unemployed but are “underemployed”—either working part-time when they want full-time work or jobless but not counted as unemployed.
o An estimated 11-14% of the labor force that are currently employed but were unemployed or underemployed at some other point in the year.
- National poll results reveal that, between 2009 and 2011, 43% of likely voters had been unemployed or someone in their family has been unemployed. Since likely voters are a significantly more educated, higher-income group than typical voters, the share of all workers that have been unemployed or had a family member unemployed almost certainly exceeds 50%.
- For every job opening in Pennsylvania, there are approximately eight Pennsylvania workers who want more paid work. This total of eight includes four unemployed people and another nearly four people who are underemployed.
- In July 2011, Pennsylvania’s job deficit—the number of jobs needed to reach “full employment” (defined as the employment to population ratio prior to the Great Recession)—remained 227,100.
Declining Middle-Class Wages and Incomes, a Big Increase in Profits and CEO Pay
Most Pennsylvanians who do not experience joblessness themselves or within their family, feel the impact of austerity economics in the form of wage and income stagnation.
- Over the business cycle from 2002 to 2010, wages were stagnant for all Pennsylvania earners except the highest-paid 5%. Lower down in the earnings distribution, wage changes in this eight-year period ranged from a fall of 1.5% to an increase of 2.1%.
- A college education no longer protects workers against wage stagnation: college-educated Pennsylvanians experienced a 3.1% decline in hourly earnings from 2002 to 2008.
- Meanwhile, CEO pay rose 23% in the United States in 2010.
- Profits nationally reached 26% of national income in 2010, their highest share since World War II. (No state-level data exist on profits.)
Austerity Economics Doesn’t Work
Our economy is broken and most people now know that first hand.
Even so, some voices call for more extreme austerity and for government to do nothing—to trust the market to right itself automatically. They advocate a balanced budget amendment or call the actions of the Federal Reserve Bank treasonous.
In the three quarters of a century from around 1860 to the 1930s, the United States actually ran an experiment similar to the suggestion now being made that we stop using federal government (fiscal or monetary) policy to strengthen the economic recovery.
How well did this work? Not too well.
From 1857 to 1928, the U.S. economy was in recession nearly half the time. Following that, Herbert Hoover’s policies—the culmination of our grand experiment in assuming our national economy could self regulate—brought us the Great Depression.
Since 1945, with the Federal Reserve Bank and national government more actively seeking to prevent deep economic downturns, the economy has been in recession 18% of the time.
Those who do not know this history, or choose to ignore it, are threatening to doom us all to repeating it.
Even the members of the conservative business organization, the National Federation of Independent Business (NFIB) know full well that the problem today is a lack of demand—not taxes, not regulation. In regular surveys of NFIB members, a lack of sales jumped up to become far and away the greatest concern early in the Great Recession. Lack of sales has remained the clear top concern since then.
What the U.S. and Pennsylvania need today is a bold departure from austerity economics. In the short run, this departure needs to create jobs and get the economy moving. In the longer run it needs to rebuild the American middle class, so that rising living standards rather than debt-financed consumption and government spending drive our economy. The last section of this report sketches how a new direction for U.S. policy could create a “moral economy”—one that is more competitive economically and that supports rather than undercuts American values including the American Dream.