Warning: Bush Economy Causing Wage Decline
by: Editor Republicons.org
4/29/2003
The Economic Policy Institute
Following are excerpts from an address given by Lawrence Mishel, President of the Economic Policy Institute, a Washington DC based non-partisan think tank. Mishel offers his opinions on the impact of the invasion of Iraq and the relative health of the US economy. Mishel’s speech was delivered as the keynote address to the Society of American Business Editors and Writers April 27.
“First, unless our nation’s economic policies change, growth will be slow and unemployment high throughout this year and next year. Working people’s wages will continue to decline; working families’ incomes will continue to decline; and most Americans will conclude–correctly, in my view–that the economy isn’t improving as much or as fast as it should.
“Second, the problem with the economy is not the war and the end of the war will not lead to a rapid recovery.
“That leads me to my third conclusion: Attention must be paid to what has been happening to jobs, to wages, and to workers.
“There has been a severe deterioration in the labor market – with jobs disappearing and wages decelerating – with severe macroeconomic effects that have been under-appreciated by most analysts.
“Given the continuing unraveling of wage growth, it is hard to see how current consumption growth can be sustained. It’s even harder to see how consumption can be improved enough to spark the job and investment growth that we need.
“That leads to my fourth–and final–conclusion: The best way to strength the recovery is through tax and spending measures that are one-time, immediate, and temporary. Such measures can stimulate demand this year and create the jobs we need – NOW. The alternative approach of permanent tax cuts, including a new exclusion for dividend income, is not really about creating jobs in 2003.
“So how is the economy doing? Not too well when you look at the basic indicators of jobs and paychecks.
“First, unemployment has been hovering around 5.8% for over a year. Although unemployment has not reached the levels of other recessions, it is still almost 2% higher than it was in 2000. I believe that returning to a 4% unemployment rate is both possible and desirable.
“Second, a better indicator of labor market slack is the severe loss of jobs, especially private sector jobs. When newly revised data are available in June, you will see that private employment has fallen by 2.8 million jobs in this downturn. This is a 2.6% employment decline, far larger than in any other postwar recession.
“How can we reconcile these developments – severe job loss but without historically high unemployment? The answer is that the labor force, which was expected to grow 1% a year, has grown far more slowly than that. Why? Because about two million people have not come into or have dropped out of the labor force and are not being counted as unemployed. If they were still in the labor force, unemployment would be at least 6.5%
“The third important indicator is household income. Labor market weakness forced an across-the board decline in household incomes in 2001, with the median household losing 2.2%, or $934.
“That is a large loss for what seems a relatively small rise in unemployment from 4.0% to 4.8%.
"When the 2002 data are released in September, you can be sure that they will show an even larger decline between 2001 and 2002. Moreover, there is a further decline occurring now because of employment losses and real wage decline.
“Fourth, high unemployment has thrown wage growth into reverse in 2003. Wages have responded slowly, but surely, to higher unemployment. The fast productivity and low unemployment of the late 1990s generated real wage growth that carried forward into 2001, when real weekly wages grew 2.5% at the median. But last year nominal wage growth slowed (by 1 to 1.5%) and, with higher inflation, has led to real wage declines for high, middle, and low wage workers. This has macroeconomic implications I will explore later.
“Last, consider this: unless employment starts growing, President Bush will be the first president since Hoover to preside over an actual decline in employment. To avoid that dubious honor and keep unemployment where it is, the administration would have to figure out a way to create 140,000 jobs a month. To get unemployment down to 5%, the economy must generate 210,000 jobs per month.
“This seems very unlikely to me, especially given the administration’s preferences for backloaded rather than front-loaded tax cuts.
“Here’s where I give you some breaking news. Sustained high unemployment has substantially dampened wage growth, causing real median weekly wages to decline for four consecutive quarters. Such a continuous real wage decline has not occurred since 1990! And it will not readily reverse itself until vigorous employment growth resumes. Meanwhile, these wage problems will sap the strength of the recovery.
“There are many reasons why the Bush plan will do little for the economy soon. The biggest one is that it was not designed to do so. The administration has been clear, at moments, that it is concerned with other matters: long-term growth rather than “stimulus,” shifting taxes from capital onto labor, and shrinking the size of government. Not surprisingly, therefore, the plan provides little stimulus in FY2003–just $41 billion, or 1.5% of a 10-year total of $2.7 trillion The total effect on this year and next is only 6.5% of the total increase in costs over 10 years. And, its components are not geared to boosting demand–high-end tax cuts and the dividend exclusion would be on nobody’s top list of ways to boost immediate consumption, or investment. Tax cuts in 2005 and beyond have nothing to do with creating jobs in 2003."
Download the entire speech through the link below
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