-Caveat Lector-
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From: [EMAIL PROTECTED]
Date: June 16, 2007 9:19:01 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: End of the American Dream
The end of the American dream?
By Steve Schifferes
Economics reporter, BBC News website
http://news.bbc.co.uk/2/hi/business/5303590.stm#graph
The US economy has been generating strong economic growth over the
past few years as it has come out of recession.
After growing at more than 3% a year in 2004 and 2005, the pace
picked up to a blistering 5.6% annual rate in the first quarter of
this year - although the pace has since then slipped back to 2.9%.
So far, though, little of that growth has translated into the hands
of the average worker, according to new research from the Economic
Policy Institute (EPI).
For real household incomes, the median point - the level at which
half of households earn more and half less - has actually fallen
over the past five years.
The unprecedented split between growth and living standards is the
defining economic agenda
Jared Bernstein, Economic Policy Institute
That marks a notable contrast with the 1990s, when the economic
boom boosted both jobs and incomes.
The puzzle of economic expansion without significant job or wage
growth has been troubling US economists and commentators of all
political persuasions.
Slowing wages
"The unprecedented split between growth and living standards is the
defining economic agenda of the day," says the EPI's senior
economist, Jared Bernstein.
During the five years from 2000 to 2005, the US economy grew in
size from $9.8 trillion to $11.2 trillion, an increase in real
terms of 14%.
Productivity - the measure of the output of the economy per worker
employed - grew even more strongly, by 16.6%.
But over the same period, the median family's income slid by 2.9%,
in contrast to the 11.3% gain registered in the second half of the
1990s.
The wages of households of African or Hispanic origin fell even
faster.
And new entrants to the labour market fared particularly badly.
Average hourly real wages for both college and high school
graduates actually fell between 2000 and 2005, and fewer of the
jobs they found carried benefits such as health care or company
pensions.
The poor performance of the US economy in delivering fuller wage
packets may be one reason why the public gives the Bush
administration's such a low rating on economic policy.
According to the latest Gallup poll, only 37% approve of Mr Bush's
handling of the economy, and 70% think economic conditions are
getting worse, substantially worse figures than in 2004.
With mid-term elections to the House of Representatives and Senate
- both, currently, held by Mr Bush's Republicans - due in November,
the contrasts are concentrating minds in both main parties.
Where has the increase gone?
One way to comprehend what is happening is to look at the split
between how much of the economy is won by profits and how much by
wages.
The share allotted to corporate profits increased sharply, from
17.7% in 2000 to 20.9% in 2005, while the share going to wages has
reached a record low.
Meanwhile, a large section of the workforce - the unemployed or
those not seeking work - have not benefited from economic growth.
Unemployment has remained stubbornly high despite the economic
recovery, with the latest figure at 4.7% compared to 4% at the end
of 2000. Overall job growth in the first half of the current decade
has been just 1.3%.
In the 1990s, job growth of some 12% goes some way towards
explaining why prosperity in that earlier period spread down the
income scale.
Rising inequality
Even for those with jobs, the fruits of economic growth have been
more unequally distributed within the labour market.
The incomes of the top 20% have grown much faster than earnings of
those at the middle or bottom of the income distribution. The
income of the top 1% and top 0.1% have grown particularly rapidly.
From 1992 to 2005, the pay of chief executive officers of major
companies rose by 186%.
The equivalent figure for median hourly wages was 7.2%, leaving the
ratio of CEOs' pay to that of the average worker at 262.
In the 1960s, the comparable figure was 24.
There has been much debate about the extent to which the tax
policies of the Bush administration, which lowered many taxes on
capital, have contributed to this trend.
The administration argues that the tax cuts have been vital to the
economic recovery, and that more jobs and higher wages will
eventually follow GDP growth.
It also says that the encouragement to invest delivered by lower
taxes has made the US more productive, and therefore more
competitive in the global economy.
Explanations
The authors of the EPI report argue that low minimum wages,
weakened union power, and the loss of both blue and white-collar
jobs to off shoring do much to explain the jobs picture.
Admittedly the Federal minimum wage has been static for a decade,
but the downward pressure on wages is probably coming from other
sources.
One is immigration, which may have a greater effect on the wages of
low-skilled workers.
Another is the "China effect," the idea that low prices of imported
manufactured goods are pushing US industry to cut its workforce in
order to increase productivity.
The head of the US central bank, Ben Bernanke, recently admitted
that globalisation was producing losers as well as winners. "The
changes in the pattern of production are likely to threaten the
livelihoods of some workers, even when [it] leads to greater
[corporate] productivity," he said.
So for politicians of all parties, trying to understand how the
average family can gain a greater share in future prosperity may
prove one of the biggest electoral challenges of the year.
See what's free at AOL.com.
www.ctrl.org
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