The latest business cycle never brought median income back up to the level it peaked at in 2000.
The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.
This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?
In the second half of the 20th century, the United States passed the test in a way that arguably no other country ever has. It became, as the cliché goes, the richest country on earth. Now, though, most families aren’t getting any richer.
Demographics plays a large role in this outcome. The large growth in lower income Hispanics has begun to weigh down American living standards. I'd like to see these numbers broken out by race. Did whites achieve as high a median income in this business cycle as they did the last time around?
Still, other things are going on as well. Globalization is one big one. The owners of capital are using lots more foreign labor and this is holding down wages of employees. Though the decline of the dollar is cutting demand for imports and boosting domestic demand for labor.
Another biggie? The commodity price rise. The high costs of energy, food, and raw materials weigh on living standards. I expect oil prices to go much higher when global oil production starts declining. Due to the coming of Peak Oil I do not see how living standards can rise in the next 10 years.
Recent history has not been kind to working-class Americans, who were down on the economy long before the word recession was uttered.
The main reason: spiraling health-care costs have been whacking away at their wages. Even though workers are producing more, inflation-adjusted median family income has dipped 2.6 percent -- or nearly $1,000 annually since 2000.
This isn't new news. But is it a good or bad trend?
Employees and employers are getting squeezed by the price of health care. The struggle to control health costs is viewed as crucial to improving wages and living standards for working Americans. Employers are paying more for health care and other benefits, leaving less money for pay increases. Benefits now devour 30.2 percent of employers' compensation costs, with the remaining money going to wages, the Labor Department reported this month. That is up from 27.4 percent in 2000.
But if total compensation was rising more rapidly then the rising cost of medical benefits would not so easily swamp the effects of rising output.
Poor people don't buy medical insurance. But even over $15 an hour the rate of getting health insurance is quite high.
While about three out of four full-time workers who earn $15 an hour or less have access to health-care coverage on the job, just over half buy it, according to a report by the Bureau of Labor Statistics. Many analysts say that the cost -- lower-wage workers pay about a third of the plan premiums with employers picking up the rest -- discourages many from having coverage. By comparison, nine out of 10 full-time workers making more than $15 an hour have health coverage available, and overall almost three in four are covered by their jobs.
The huge flood of low skilled Hispanic immigrants (both legal and illegal) is expanding the ranks of the poor and disproportionately boosting the number who do not have medical insurance.
Among people under age 65, minorities were substantially more likely than whites to lack health insurance. For all Hispanics under 65, 37.7 percent were uninsured, compared to 20.2 percent of black non-Hispanics and 14.9 percent of white non-Hispanics (Figure 2). Although 68.4 percent of non-elderly Americans were white non-Hispanics, they accounted for only 54.3 percent of uninsured persons (Figure 3). Among males under age 65 (Figure 4), being uninsured was more likely among Hispanics (39.9 percent) than among black non-Hispanics (21.3 percent) or white non-Hispanics (15.7 percent). Similarly, among females under 65, being uninsured was more likely among Hispanics (35.5 percent) than among black non-Hispanics (19.2 percent) or white non-Hispanics (14.2 percent).
This results in more government spending on medical care. Immigration expands the welfare state. Immigrants who have low productivity make society as a whole worse off.
The US economy is entering a recession. So how did we do during the period of economic gowth since the last recession that started in 2000? Most American households have yet to regain the level of income they achieved before the last recession.
And if the good times have really ended, they were never that good to begin with. Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.
David Leonhardt of the NY Times thinks a whole decade will go by before most Americans receive a raise. I think he's being optimistic.
The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.
The 1999 high point might persist for a long time. We are in a period of a bumpy oil production plateau while Asian oil demand is rising and internal demand by oil exporters is preventing increased production from translating into increased oil exports. At the end of the production plateau comes the fall. To put it mildly, I expect that to be most unpleasant.
We can no longer afford to party like its 1999.
Median family income in the United States has decreased about $1,000 since peaking in 2000. The income decline came after more than a quarter-century of slow growth. Between 1973 and 2000, incomes increased at just a third the rate of worker productivity, a sharp break from the previous generation when family incomes and productivity both doubled, fueling an unprecedented expansion of the middle class.
The wage stagnation experienced by many Americans has been accompanied by a sharp growth in income inequality. After-tax family income for the nation's middle tier of wage earners increased 21 percent between 1979 and 2005, to $50,200. Incomes of the top 1 percent of wage earners, meanwhile, tripled, to just over $1 million, even as the after-tax income of the bottom fifth of income earners grew just 6.3 percent, to $15,300.
Rose says that if total compensation -- which includes the increasing cost of health and other benefits -- is included, American workers have done better than census numbers would indicate.
Yes, costs of non-wage benefits have gone up faster than salaries. Rising medical insurance costs are the major reason why. How much of that rise in medical costs is due to newer and better yet more costly treatments?
But some economists think we really are doing better since people own more gadgets and live in bigger houses.
Items once considered luxuries -- dishwashers, central air conditioning, video cameras -- are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.
I wonder how much of that improvement came before 2000.
The big China export engine drove down costs of lots of products as factories closed in the US and opened in China. But that way to lower product costs came with drops in wages of those who used to get paid to make things in the United States. Now that the US dollar is dropping and inflation is heating up in the US and China the foreign sourcing of products isn't going to be a source of lower prices any more.
I see a few things coming together to cause at best a stagnation of US living standards. First off, we live in what Warren Buffett calls Squanderville where we run up debts to the world and our government destroys wealth in a pointless war while signing itself up for more unfunded liabilities for old folks. Plus, our demographic picture looks grim between the retirement of the more skilled Baby Boomers and the swelling ranks of low skilled Hispanics. On top of all that comes Peak Oil. We aren't going to build new capital equipment to generate energy from non-oil sources fast enough to make up for the decline in oil production.