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Troubling Trends on Americans' Incomes

September 4, 2006

Despite grandiose claims from the White House regarding the strength of the U.S. economy, a flood of new data helps explain Americans' continued feelings of insecurity. While the unemployment rate (4.7%), GDP growth (2.9%) and productivity gains (2.3%)look impressive, below the surface the picture for wages and income grows bleaker still. Whether the incumbent Republicans pay a price in November for that dismal performance remains to seen.
The disturbing trends for Americans' incomes are beyond dispute. Since President Bush took office, median incomes have dropped 5.9%. That translates to working age Americans seeing their median income drop by $275 over the past year. And while a new report from the U.S. Census Bureau showed the Bush economy finally produced gains in median household income in 2005 (up 1.1% to $46,326), the improvement masked the continued downward trend for full-time workers. Falling incomes were offset only by more family members entering the workforce. USA Today summarized the foreboding meaning of the statistics:

Earnings actually fell for people working full-time. Household income rose because more people worked in the households, albeit at lower paying jobs. Median earnings of men declined 1.8% last year. For women, the decline was 1.3%.

The wage and income landscape is especially rocky for new entrants to the labor market. An analysis of Labor Department figures by the Economic Policy Institute showed that entry-level wages for high school and college graduates tumbled 4% between 2001 and 2005. The findings mirrored the Census Bureau conclusions, which revealed "median income for families with at least one parent age 25 to 34 fell $3,009 from 2000 to 2005, sliding to $48,405, a 5.9 percent drop, after having jumped 12 percent in the late 1990's."
Perhaps most alarming is the disconnect between productivity gains and wage growth in the American economy. Unlike past economic recoveries, workers have lost ground after inflation, as wages and incomes badly trailed the improvements in output. While productivity has grown at 2.4% over the past 12 months, real median hourly wages declined 2% since 2003. It's no wonder American workforce participation has remained stagnant.
Clearly, American workers did not reap the benefits of strong U.S. productivity. It is no mystery who did. As the New York Times put it:

Wages and salaries now make up the lowest share of the nation's gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960's. UBS, the investment bank, recently described the current period as "the golden era of profitability."

Making matters worse for American workers is the uninterrupted health care crisis. The August 2006 Census Bureau report noted that the ranks of the uninsured swelled to 46.6 million in 2005 from 45.3 million one year before, a 2.9% increase. Health insurance premiums jumped by 9.2%, triple the overall rate of inflation.
As Perrspectives detailed in December, stagnant incomes and skyrocketing health care costs are just two components of an "Insecurity Index" that explains Americans' ongoing economic discomfort. With soaring energy prices, mounting personal debt and high-profile mass layoffs, these factors undermine Americans' standard of living and reinforce the precariousness of their consumption-driven lifestyles.
None of which means President Bush and the Republican Party will pay a political price this fall. But like American workers, they shouldn't expect a windfall any time soon.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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