How Workers are Faring

in the Real Bush Economy

 

 

A Report Prepared by the Democratic Staff of the House Financial Services Committee

 

September 22, 2006

 

 

 

 

"Obviously, it's frustrating to us that the American people don't recognize how well the economy is doing."

 

Allan Hubbard

Assistant to the President for Economic Policy and

Director, National Economic Council- July 12, 2006

 

 

 

 

 

 

The Bush Administration has tried to achieve victory on the jobs front by dramatically lowering the bar for success - and still they've failed. 

 

 

 

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In a 2003 paper promoting the Bush administration's latest tax cut package, the Council of Economic Advisors claimed that passage of the tax cuts would result in average job gains of 306,000 per month over an 18 month period.  Monthly job creation never reached that level in any of the quarters through 2004, let alone through the entire period.

Since then, the Administration has repeatedly lowered its jobs forecast, and each time has failed to meet the lower target. In fact, since 2003 when the Administration was making their most optimistic predictions about job gains resulting from their tax cuts, job growth has averaged just 150,000 per month, short of even Chairman Lazear's most recent, and most pessimistic, predictions. 

These modest gains follow a period of persistent net job losses in the economy, beginning during the recession of 2001 and continuing into 2003.

Job creation in the Bush economy stands in stark contrast to the job gains made during the 1990s.  Over comparable periods in the two administrations, average job growth during the Clinton administration outpaced job growth during the Bush years by nearly 100,000 a month.  Importantly, the job gains made from 1995 onward did not follow a period of heavy job losses, as during the Bush years.  Typically, we would expect the economy to add many more jobs following an economic slowdown, and relatively fewer jobs after an extended period of economic growth.  Yet, the opposite was true for the Clinton and Bush economies.

 

 

 

 

Workers' wages are not keeping up with inflation, so that any increase in their paychecks has been outpaced by higher prices for basic goods and services.

 

 

 

 

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Workers are not being compensated for their productivity gains in this economy.

As the economy has grown since the 2001 recession, workers' wages have not kept pace with productivity growth.  Historically, workers' real wages (adjusted for inflation) have risen as workers become more productive in the economy.  Workers are substantially more productive today than they were four years ago.  And yet, they have not been rewarded for their increased productivity.

 

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The economy is growing, but the typical family's income is falling.

As the economy has expanded since the 2001 recession, national income has increased.  But at the same time, median household income has fallen.  So the economy is generating more income, but even less of it is going to the typical household.

 

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The Bush administration has argued that wages and incomes are simply "lagging" economic growth and that they would catch up given some time.  But the evidence suggests that the catch up is not happening as it should according to historical norms.  During the four years following each of the past four recessions, median income has grown by at least 2% in real terms.  The current recovery is the only one in which most workers' incomes have failed to grow after four years of economic growth. 

 

 

 

 

 

Corporate profits are accounting for a larger share of the economy's gains.

 

 

 

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Since 2001, the evidence is clear that previous gains to workers from a growing economy are now going to corporate profits and the very small number of very wealthy who stand to benefit the most from gains in corporate profits.  During a period when the corporate profit share of national income has increased by nearly six percentage points, worker compensation has lost nearly three percentage points of the national income.

While the shares have fluctuated somewhat over time, they typically tend to move as a result of business cycles.  So, for example, as the economy expands and labor markets tighten, workers enjoy higher wages and capture a somewhat larger share of national income.  Yet, in the midst of the current economy expansion, we have seen workers losing ground to corporations in their national income shares.

 

 

The lack of job creation and wage growth for most Americans has led to a remarkable increase in income inequality.

 

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The shift in the distribution of economic gains away from workers in favor of corporate profits has resulted in rising income inequality, with income gains increasingly concentrated among the extremely wealthy.  From 2001 to 2004, while the 90% of families in America with incomes below $92,000 saw their incomes decline, the very wealthiest families - those with incomes above $5 million - saw gains of 13.5%.  For the 14,400 families who represent the wealthiest 0.01% of the population, average income grew from $17 million in 2001 to $20 million in 2004.  

 

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Treasury Secretary Henry Paulson has acknowledged the problem of growing income inequality, but he has characterized it as an education problem.  In his view, if workers simply educate themselves more, they will succeed in today's economy.  

Yet, while that may have been a prescription for success during the 1990s, when workers with college degrees made large income gains, it is no longer the case.  In fact, college educated workers have seen their incomes fall since 2000.  So the large increases in income inequality in recent years are not being driven by a growing divide between the skilled and unskilled.  The vast majority of Americans, skilled and unskilled, have failed to see income gains in recent years, so that the increase in income inequality is fundamentally being driven by very large income gains by a very small group of wealthy Americans.