After the worst jobs report in months came out last Friday, the President, in an almost Stepford-like fashion, asserted that his tax cuts are working and the economy is “strong and getting stronger.”
In fact, fewer than 100 days before the presidential election, unemployment is stuck where it was when the recovery began two-and-a-half years ago. Real wages are down over the past few months. And many who have found new employers after losing their jobs during the recession or its jobless recovery are earning less than they used to.
The fact that some in the Bush camp are in denial about the data is to be expected at this point in the game, but it seems like a good time to set out the relevant facts, both positive and negative.
First, the positive (don't be discouraged that there are only a few bullets in this section -- the first two are huge, and should be weighted very heavily):
- The jobless recovery is over. Since September, we've added 1.5 million jobs. These job gains have not been concentrated in any one industry or occupation; most sectors are adding jobs again. As noted below, the pace has slowed in recent months, but at least we're consistently adding jobs.
- Productivity growth has been very strong in this recession/recovery period, which raises the potential for higher living standards than would otherwise be the case.
- Overall compensation (wages and benefits together) is up, continuing to outpace inflation. The reason this can happen when wage growth (as opposed to benefit growth) is lagging inflation is due to rising healthcare costs.
Here are the negative:
- The unemployment rate in July 2004 is about the same as it was in November 2001, when the recovery began (5.6 percent then versus 5.5 percent last month).
- There are 1.2 million fewer jobs now than there were 28 months ago, when the last recession began. In every other post-war recovery, we had surpassed the prior jobs peak by this point.
- While employment grew relatively quickly earlier this year -- 225,000 average monthly growth, January through May -- it slowed sharply in the last two months, growing 55,000 jobs per month, well below what's needed to tighten up the job market.
- A broad measure of average wages in the economy -- the Bureau of Labor Statistics (BLS) Employment Cost Index -- rose at an annual rate of 2.5 percent in both of the previous quarters. This is the slowest wage growth on record for this series, going back to the early 1980s. Since inflation was 2.8 percent in the second quarter, real wages were down slightly.
- Another important wage series, one for blue-collar and non-managerial workers, is down in real terms in six out of the past seven months;
- Between 2001 and 2003, 6.3 percent of the “tenured workforce” -- those who had had their jobs for at least three years -- lost those jobs due to layoffs, plant closings, or other reasons not for cause (i.e., they didn't get fired). That's the highest level on record going back to the early 1980s, when this survey began. That's barely above the 1981-83 displacement rate of 6.2 percent but unemployment was 9 percent back then.
- Of those displaced workers who were rehired in full-time jobs, 57 percent earned less in their new job, the highest share going back ten years. The difference in median earnings between new and old jobs was 16 percent, tied with 1991-93 for the biggest negative pay gap on record.
- GDP rose 3 percent in the second quarter, well below expectations. It was held back largely by slow consumption growth, which likely relates to these negative wage trends. In fact, in June aggregate wages -- the grand total of everybody's wages throughout the economy -- fell slightly, as did consumer spending.
- Over the course of this business cycle, 85 percent of the growth of corporate income has gone into profits, and 15 percent to compensation; on average, these values in past recoveries were 23 percent (profits) and 77 percent (compensation).
None of this is especially complicated. These facts should not be controversial. Depending on the speed of your Internet connection, I could point you toward every one of them in seconds. And, moving ever so slightly into interpretation, they paint a pretty clear picture of an economy in transition.
Simply put: Last fall, we finally emerged from the most protracted jobless recovery on record. Such a long period of joblessness did some damage, and the damage doesn't disappear the month you turn the corner on job growth. The labor market remains slack and the benefits of growth have flowed largely to profits. From the perspective of working families, it's an unbalanced outcome thus far, especially compared to where things were at the end of the last recovery.
While we don't yet have up-to-date family income data (the 2003 income and poverty numbers will be out at the end of this month), it's probably the case that the typical working family is not much better off than it was four years ago; some are worse off. Middle-income, working families lost some earnings but gained a bit of tax relief, and the value of their home is probably up (although so is their debt). Their employment situation is more insecure now than in the latter 1990s, but it's better than it was a year ago.
How does all this square with what the presidential candidates themselves are saying? In such settings, those running for office amplify certain facts, ignore others, and invariably invent some along the way. They're neither economists nor accountants, and they tend to paint with a broad brush.
If the real wages of middle-income workers are falling they talk about a middle-class squeeze. If the benefits of growth are flowing largely to capital, they talk about “two Americas,” despite the fact that no academic studies to date have found the second one. If, as is the case, industries and occupations that pay less are growing faster than those that pay higher wages, they argue that “the new jobs pay less than the old ones” (which, as the displaced-workers data noted above shows, happens to be true, although you wouldn't know that from the data on which industries are growing fastest).
Or, on the other hand, they might argue that their tax cuts are working and that broadly shared prosperity is just around the corner.
It is not, however, that simple. The problem is that the data fog machine is up and running. Economists at the Heritage Foundation have a cottage industry attacking the data source for the jobless recovery and the recent downturn in real wages: the BLS Establishment Survey. This despite the fact that, as the Congressional Budget Office unequivocally put it, “The establishment survey better reflects the state of labor markets.” Federal Reserve Chairman Alan Greenspan and even the White House have made similar claims. Perhaps most convincing is the extent to which financial markets rely on employment and wage information from the establishment data -- those folks have real money riding on this stuff. Nevertheless, one Heritage economist recently argued in a debate we were having that “you really can't look at this BLS earnings report now anymore and really understand the economy.”
Factcheck.org, a group claiming to be a watchdog for both sides, has a recent piece that says: “Kerry also said ‘wages are falling' when in fact they are increasing.” Their evidence: “[W]ages have increased steadily. Kerry would be correct to say that in recent months, wages haven't kept up with inflation …” but this is due, according to Factcheck.org, to rising inflation, “not falling pay rates.” In other words, they say Kerry is wrong because nominal wages are up.
In the same vein, Factcheck.org attacks Kerry for saying that the new jobs pay $9,000 less than the old ones. This factoid comes from some of our own research which finds that amount to be the pay gap between industries that are expanding as a share of total employment versus those contracting as a share.
These are both thoughtless criticisms that add little to voters ability to separate fog from fact. Nominal wages are almost always up. Candidates always speak to real wage and income trends, adjusted for inflation, because that's what matters to voters: the purchasing power of their paychecks. They don't need to add, “in real terms …” And while Kerry should correctly frame the $9,000 figure, his point about diminished job quality is correct. Such “factchecking” only adds confusion.
(For more on our argument with Factcheck.org regarding job quality, see here.)
OK -- enough venting. The only way out of a fog like this is to follow the facts and keep your foghorn at the ready.
Jared Bernstein is a senior economist at the Economic Policy Institute (EPI) in Washington, D.C.