Burgess COMMENTARY

Peter Burgess

Income Indicator

Our expert and Advisory Board member, Lawrence Mishel, President of the Economic Policy Institute (www.epinet.org) of Washington, DC provides deep analyses of US income and wealth trends. Our Income Indicator dissects conventional macro-statistics to reveal important information concealed by the averages. US incomes at the low end have been essentially flat for over a decade and the 2001 recession and higher unemployment rates caused setbacks for many wage earners. The gap between rich and poor Americans is still historically high, an issue that does not bode well for any democracy.

As the US economy slowed in mid-2004, higher unemployment pushed many low-income families back below the poverty line. Election debates focused on the role of tax cuts and the extent to which the tax code and public policy favor powerful interest groups over vulnerable groups and average middle-class taxpayers. The second term of the Bush administration will target more tax cuts -- while several states, including Florida, passed constitutional amendments raising the minimum wage. Even Business Week (May 31, 2004) ran its cover story on these issues -- calling for urgent policy changes, including raising the US minimum wage to $7 per hour. Other issues include the extent to which technology and globalization are squeezing the incomes of less skilled Americans. The London-based Economist (Aug 30,2004) noted that the number of Americans in poverty is rising -- 35.9 million or 12.5% of the population fell below the poverty line in 2003, 1.3 million more than the year before.

The US economy produced 157,000 new jobs in December. The offical unemployment rate for 2004 was 5.5%. However, this figure is the result of 152,000 leaving the labor force and omits millions of other discouraged workers no longer counted among those seeking work. Growing awareness of the need to 'unpack' such macro-economic indicators led to many media stories on the 'hidden unemployment' of those discouraged job seekers, under-employed part-timers, structurally-unemployed youth and minorities (click on the Employment Indicator). The spurt in hourly productivity (up about 4% over last year) translates into fewer jobs as companies strive for efficiency and profits by downsizing their workforces. The 10-year study by The Russell Sage and Rockefeller Foundations of the changing structure of US employment and declining average wages pointed to some startling conclusions. Almost one American worker in five reported having been paid less than $8 per hour in 2001. Furthermore, the median American worker's real hourly wages rose only 7% between 1973 and 2001 (click on the Income Indicator) according to The State of Working America, published by the Economic Policy Institute. Clearly the stimulus of tax cuts and rock-bottom interest rates has flowed largely to company profits, while wage increases have lagged behind.

Why do ordinary American workers get to keep less of what they produce than ordinary workers in other rich countries? The Russell Sage-Rockefeller Foundations'; reports on why the gap between rich and poor is wider than in most other rich democracies: 'its politics, stupid'! These differences in income distribution seem to be traceable to differences in constitutional arrangements, electoral systems and economic institutions. These differences, in turn, affect the political balance, the level of spending on the welfare state and a wide range of other economic policies. Economic inequality is less pronounced in countries that favor multi-party systems and proportional representation (rather than a two-party system) and produce more equal economic outcomes. A summary of this ground-breaking research is published in The American Prospective, January 2004 (www.prospect.org).

These issues also relate to our Employment, Education and Shelter Indicators. And what are we to make of the 1995 national survey by the Merck Foundation and the Harwood Group that found 28% of Americans had opted for lower incomes and moved to rural communities in order to improve their quality of life? Clearly, values are changing and new trade-offs are being made between more money and more time, tranquil and less-polluted environments, as the PBS television special Affluenza describes. The debate extends to the issue of choosing shorter workweeks while sharing the loss in productivity with employers. This is how the Kellogg Company of Michigan reduced its workweek to 35 hours, a move followed in France in the late 1990s as a measure to reduce unemployment. Historically, workweeks in most industrial societies have steadily dropped and preferences for more free time have become 'quality of life' issues. Lagging returns to employees versus top managers and investors have become an issue in the 2004 presidential election - and have revived the debates of the 1960s and 1970s about automation, jobless economic growth and the need for guaranteeing incomes so that sufficient purchasing power among the poor and middle-class can keep US industries humming.