More than five years after the great recession hit, the US economy is still sputtering. The government revised GDP growth figures down last month to a meager 1.8 percent for the first quarter of this year. It does not take a PhD in economics to understand why: We have a demand problem. And we have a demand problem because the vast majority of consumers — aka workers — are not earning enough to pay for healthcare, education and retirement, let alone all the other stuff stores and service providers have to sell.
The reality is that we are hollowing out the middle class by wiping out well-paid jobs with benefits and replacing them with low-wage ones that often lack them. That is damaging not only to people who are living on smaller paychecks — or who are indeed unemployed — but also to the health and viability of the overall economy.
No matter what New York Times columnist Thomas Friedman and his followers say, we are not living in a “sharing economy.” We are living in a zero-sum economy — in which a handful of investors and owners win at everyone else’s expense.
Ultimately it will catch up with investors, too. The US economy is engaged in a vicious cycle in which low-wage jobs and under-employment stimulate little demand, giving companies little reason to hire workers. Would-be workers then get discouraged and drop out of the workforce. They lack money to buy things, so consumer spending sags and companies do not hire or offer raises to workers they know they can keep. Repeat.
So, sorry Friedman et al: You can strain your brains for as many offbeat ideas and back-of-taxicab discoveries as you like, but the only way to break the cycle is to ensure everyone can work — and that those workers get more of the fruits of their labor. Until we address the following 10 problems head-on, the idea that the economy is truly recovering will remain a fantasy.
Problem 1: Wages are falling
The recession caused a giant drop in consumer demand, but the culprit was not just a loss of housing wealth. Wages for most workers are either stagnating or declining. In fact, real median wages fell by about 2.8 percent between 2009 and last year. That is bad for workers and bad for the economy. It is also insulting because the drop happened even as productivity increased 4.5 percent. So much for the sharing economy.
What is worse, lower-wage workers — who are already struggling to keep up — saw bigger declines than those in the middle and higher end. Those earning between US$10.61 and US$14.21 per hour saw real wages drop by 4.1 percent on average.
As Reuters’ Felix Salmon points out in his crafty analysis of the data, hairstylists and cosmetologists earned US$12 an hour on average in 2009. However, by last year, they earned just US$10.91 an hour — a drop of more than 9 percent. Restaurant cooks lost 7.1 percent over the same period.
Problem 2: The middle class is losing ground and getting hollowed out
The most recent census data shows that while a small group of rich people are getting richer, the middle class is taking a serious beating. US median income fell to US$50,054 in 2011, the most recent full year in which that data is available. That is down 8.1 percent since 2007, just before the great recession started. Overall, median income has fallen 8.9 percent from its peak in 1999. Meanwhile, the middle class is shrinking, as many US citizens slide down the economic ladder — the very inverse of the American dream of economic mobility.