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Friday, October 28, 2016

Recent news has highlighted that employment numbers continue to improve, with the 5.8 percent unemployment rate announced Friday morning—the lowest rate since July 2008, before many of us felt the impact of the Global Financial Crisis. So why don’t we feel better off?

While in the aggregate things are looking up – the U.S. economy grew 3.5 percent in the year ending September, beating forecasts –  the benefits of the economic recovery (and of economic growth in general for the past 20 years) are being felt by a smaller and smaller segment of the population. As Federal Reserve chair Janet Yellen said last month: “Unfortunately, the past several decades of widening inequality has often involved stagnant or falling living standards for many families.” We’ve gone from an economy where everyone benefits from growth to one where the “winners” take all, and the rest of us are left out.

Chart One

Unemployment has broadly improved since it peaked at 10 percent in October 2009.  But while these numbers are looking good, labor participation numbers are not. Unemployment measures how many people who are looking for a job find a job, whereas the labor participation rate measures how many of us in the country as a whole are looking for jobs at all.

Previously, when unemployment has improved after a recession, the labor force participation rate has gone up – as more people find jobs, more people who weren’t looking start to look. You can see this in the first chart: After the last big recession in the early 80s, the red participation line goes up as the blue unemployment line goes down sharply.

This time around, that hasn’t happened. As the unemployment rate has gone down, the labor participation rate has actually continued to go down at a rate faster than before the Great Recession. This means that even though more people looking for jobs are finding jobs, fewer people are looking for jobs than ever before.

And while overall unemployment has been rough during the Great Recession, employment numbers for those without the skills necessary to compete in the modern economy have been even worse.

Chart 1

The unemployment rate of those who haven’t completed high school has been significantly higher than the overall unemployment rate and at the peak was triple the unemployment rate of college graduates. Those without high school diplomas are much more likely to drop out of the workforce entirely, becoming dependent on family and friends and keeping the labor participation rate low.

Chart 2

This comes against a background where income for everyone outside of the upper class (the much disparaged 1 percent, to borrow from Occupy Wall Street) has stagnated over the past 20+ years.

An easy way to measure inequality is an indicator called the Gini Ratio, which measures how “unequal” a society is. At zero, everyone earns the same as everyone else; at 1, no one earns the same amount, and each citizen can be ordered between the richest and poorest members of society. Over the past 20 years, the Gini Ratio in the United States has crept up steadily, indeed almost constantly since the Federal Reserve began tracking it in the early 70s. This is during an era when other countries seen as case studies of inequality – like Brazil or Mexico – have seen their Gini Ratios decline.

Two forces that complement and can substitute for each other have driven this: globalization and automation. Globalization is the transition of manufacturing jobs from the United States to other countries with cheaper wages (such as China) in exchange for cheaper goods here at home. Automation is the transition of jobs from human employees to automated processes and robots. The bottom line of these two forces is that while it feels like it has been tough to find a job for the past 6 years, things have really been getting tougher over the past 20 to 30.

The bad news? It’s getting worse. Automation and offshoring have already hollowed out the American blue collar, but they are now beginning to make the American white collar tradable, and hollowing that out, as well. Previously protected industries such as law and medicine are being pressured by legal services provided by back offices in India and telemedicine from anywhere in the world. And automation is moving up the value chain from factory-line assembly work to algorithms that can replace decision makers in even the most white-collar professions. Deep Knowledge Ventures, a Singapore-based VC firm, has even appointed an algorithm to its board of directors, complete with voting power.

So while we’ve seen it tough for anyone who isn’t the most highly skilled to find jobs since the Great Recession, there is a bigger, longer-term trend showing that gains in the economy have been going to those at the top of the income scale. This combination of a jobless recovery and an economic model shifting benefits away from labor (in the form of jobs and salaries) and towards those who hold the scarcer resources in the economy: capital and innovative ideas. As Fed chair Yellen says, this raises bigger questions: “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.” These winners are taking all the gains from our economy, and undermining what makes us great as a nation.

Mike Derham is a partner at Novus Pontis and a Fellow of the Truman National Security Project. Views expressed are his own.

Photo: peoplesworld via Flickr

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  • Dominick Vila

    Why don’t we feel better about an economy growing at an average 4% per quarter, lower unemployment, job creation, low inflation, credit availability, low interest rates, and all the other economic factors that ought to be evident to everyone? Because a large segment of our population did not pursue the education needed to succeed in the 21st century, because our expectations are unrealistic, and because the business community knows it can abuse the labor force with impunity.
    We have to go no further than at the decision to raise the number of H1b visas to understand that good paying jobs are available…and are being filled by foreign professionals because there are not enough American workers qualified to fill those vacancies. Companies, large and small, are advertising vacancies and desperately looking for applicants. Why do so many people prefer to stay at home? In part because there have always been people among us who prefer to spend the day watching TV, playing video games, sleeping, or whining, and that is not going to change until their elders and the government stop giving them handouts. Another reason for many Americans not accepting many of the good paying, full time, jobs that are available is the expectation or preference to work 9-5, in an air conditioned facility, preferably no more than 15 minutes from our house, that does not interfere with babysitting arrangements and, obviously, that does not interfere with our social life. Unfortunately, there are not too many companies like Google around…
    One of the easiest ways to encourage those who are qualified but who prefer to sit at home is to stop supporting them. Parents and grandparents are not helping their 28 year old “child” when they allow him/her to spend the day playing video games or texting; and the government (Federal, state and local) is not helping by giving them handouts indefinitely. One thing is to help someone who lost his/her job because of reasons beyond their control, helping bums forever is an entirely different matter.
    Our economy is strong and getting stronger, and there are many good paying, full time, jobs available. Get off your butts, pursue a higher education, go to trade school, and make a few “sacrifices” such as driving for 30 minutes or taking a train to go to work, or pay the consequences for your decisions.

  • Eleanore Whitaker

    Dominic, I agree with your post per se. But, if a large segment of our population did not pursue education and this is why they can’t keep up, please explain how a 20 year old during the boom, with no college degree and no experience could become a CEO?

    The reality is that every generation becomes one generation removed from the newest hi-tech and scientific advances. When these advances occur in the blink of an eye, only the most unusually gifted keep up.

    The reality is that had the GOP allowed President Obama free rein to create jobs as FDR did when the US when in the throes of the Great Depression, the average less educated, hands on blue collar work would be there.

    Now, ask yourself which party most supports funding to the biggest US businesses. Does anyone for a moment believe that CEOs of these companies knew exactly what they were doing when they downsized, outsourced and offshored US jobs? This was what they’d call a “magnificent stroking of their profits and by association, their salaries.”

    This back room corporate decision was driven by men who lust for No. 1 position among the most powerful men in the US. Kicking American workers to the curb was step one.

    • Fishy Fishy

      There is a philosophical argument whether the private sector or government creates jobs. The government “creates” jobs but only at the expense of the private sector, which provides the income (taxes) for government to spend. The private sector, on the other hand, is obligated to produce income without any direct financial sourcing from the government. While we can argue about tax breaks, and so on, these items only become pertinent after if the private sector has expended vast sums of money, time and effort to produce a profit–a taxable sum. Take for example, govt. guaranteed/insured loans to so-called private enterprises like Solyndra or Fannie Mae. When they failed, the tax payer has to pay back the investors. In the private sector if a venture fails, the investors lose their money, period. No insurance policies.

      • Eleanore Whitaker

        Let’s clear up a HUGE misconception about how much businesses pay in taxes. As much as the hundreds of millions of individual Americans?

        The private sector is obligate to make their business operate efficiently, lawfully and profitably.

        Yes..I intend to argue tax breaks. Here’s my argument. Republican Governor Christie recently gave a 65 year contract to a crony industry to get a $62 billion tax cut. Who makes up the losses of that $62 billion? Then, in 2009, the federal government (read GOP house) sanctioned the tax cut on corporations.

        Your pro-business argument fails and the proof comes from a 2004 GAO report on how much wealth was amassed by the 1% who own the biggest US wealth …their wealth increased 11% …with one single tax cut. 2 more tax cuts were handed to them in 2008 and again in 2009. Both years when banks and mortgaging loan businesses begged bailouts in the tens of billions. Who made up that loss?

        Sorry, but it is not now nor EVER has been our responsibility to keep poorly financially managed businesses in existence. Particularly when they don’t hire or create jobs and all of their tax exemptions are funded by their consumers, employees and taxpayers.

        Big Deal…So what? Solyndra was one single solar energy company that failed. You want solar energy success? 62% of Germany’s energy today comes from solar. CA and NJ lead the US in solar energy businesses. In NJ, Trinity Solar is now a multi-million dollar business that started all without federal funding …the Big Oil GOP addicts refused to allow.

        Shows what happens when men like you decide you think taxpayers have to keep Big Oil in business exclusively on our tax dollars.

        As for Wall Street, you’ve got a case there. I see the Wall Street sheep boarding NY buses every day. If these are boy geniuses who are mounting those greed campaigns for self-wealth using our tax dollars and hard earned money, who the hell cares if Wall Street crashes for the 7th time in nearly 100 years?

        Get this and get it straight. I and millions of other Americans are not responsible to make ANY business a success. Nice dump job and landfill of excuses you are making for moronic business men who are only in it to line their own pockets while we all work harder, longer and oh gee……a lot less.

        • Fishy Fishy

          One can debate endlessly what is a fair tax rate for corporations and individuals. I don’t know of any rationale that can equate the corporate tax rates to personal tax rates. It’s an apple/orange argument. The famed 1% pay 35% of the income tax collected while the bottom 90% pay 19% of the income tax. Corporate taxes accounted for about 10% of federal revenue, personal income tax accounts for about 42% and payroll taxes, paid by both corporations and individuals, account for about 40% of federal revenue. The issue of what is fair or equitable is a fuzzy topic. One can complain about tax breaks for the wealthy and corporations, but individuals have not been left out of the tax cut game. Individuals get tax breaks for marital status , having children, paying for education, having low income, earned income credits, installing energy saving home improvements and so on. Blaming Republicans for the ills of government fails the test of time: The Democratic party has been the controlling party for about 60 of the last 80 years. I used Solyndra as an example of a failed business that that cost the tax payers a lot of money. Nothing more. I have absolutely no ill feelings toward the solar industry. I firmly believe it is not the function of the tax payer to bailout a failing business. The bail out of the financial institutions a few years ago was flat wrong as was bailouts for automobile and insurance companies before these. No business is too big to fail. From the ashes of these failure, entrepreneurs , good managers and companies that manged themselves well will always fill the gap if need be. In closing, will you kindly quit calling everybody you don’t like a male? You are so wrong on that assumption. Your credibility is in the toilet if you continue to credit only one gender, one political party, or a particular business type as the cause of all the economic ills you perceive. It makes you come across as a bitch.

          • Eleanore Whitaker

            Let’s stop playing games here. You certainly do know the rationale for tying the corporate tax to personal taxe rates. It’s not apples and oranges. Please find the citation in the US Constitution that demands our tax dollars feed obscene tax dollars to corporations is the responsibility of all American citizens as taxpayers. You can’t. There is none.

            Conservatives today are not working for the people. They are working to enforce taxes on individual taxpayers that unfairly keep the biggest, most profitable and many, obsolete businesses in existence. No American live to work and works just to live. No AMerican will live and work till they drop at their desks to pay taxes to keep filthy rich in foi gras or caviar.

            When you work and bust butt and the find out it was all for nothing, let me know.

            Answer please. Are those marital, dependent and earn income cedits equal to the percentage these same 1% and corporations get in exemptions? YOu bet they aren’t.

            I’v got some apples and oranges for you. Consumers, taxpayers and employees have every right to have their tax dollars support the need for defense, infrastructure and to enhance quality of life. Period. End of your attempts to launder greed. Name one single indiviudal taxpayer who pays 28% in income taxes who gets the tax subsidies the prison industry, gun manufacturing or military industrialists get. Can’t can you?

            I’ll be damned if I want to work my life away some Blankfeing, Dimon and Benmosche can live like pigs off my tax subsidies. Enough with the poor Lil Rich bois script. Nothing you posted contradicts the Bush “MY way or the highway” takeover that created the biggest single gap between rich and poor.

          • Fishy Fishy

            Weeding through the vehemence, I do see one point you and I agree: ” Consumers, taxpayers and employees have every right to have their tax
            dollars support the need for defense, infrastructure and to enhance
            quality of life.” Of course, government would like to make all the decisions as to what constitutes adequate defense and quality of life. One of the tough issues to address is that not all workers are of equal quality. I don’t care if we are talking about a CEO, an LPN or the person making burgers at a fast food restaurant. Those that excel, deserve more. One problem is that government has chosen to reward the slackers with various entitlements rather than letting the harsh reality of life make its full impact. As for the super rich:
            The Koch family, one of your favorite super rich, are worth about $80 billion. They also have about 70,000 employees world wide. Why are Gates at $82 Billion, the Waltons at $153 Billion, Zuckerman at $33 billion not equally vilified by you?

          • Eleanore Whitaker

            Let’s look at the reality of conservatism as it exists in Kansas today. Brownback ran 2 times and was re-elected on a campaign that promised to lower taxes on the highest income earners in KS, lower the sales taxes and put more tax dollars into Kansas businesses. When you study the history of the past decade of Brownback in office, what you see is not prosperity for all KS citizens. You see the same lopsided effect as we see elsewhere in the US today under conservative rule: Working class Americans struggling to fill in the gaps left by handing out too many tax cuts to the wealthy and Big Businesses. That’s corporate welfare by any other name.

            The low and middle incomes in KS are struggling to keep their heads above water. No matter what anyone says to the contrary, when you reduce taxes on those who earn the most in an effort to make them virtually tax free, the rest of us have to fill in the gaps left by all of those reductions.

            I loath both Charles and David Koch. Powerful men don’t need power. Weak men like the Koch bois do.

            As for the other billionaires. Only Gates has a record of giving back as much as he earns.

            You should be far more concerned about men like Lloyd Blankfein, Robert Benmosche, Jamie Dimon and the rest of the banking Wall Street thieves.

            In a recent Rolling Stone Magazine article, Alayne Fleischmann, a form due diligence manager at JP Morgan reported on her efforts to stop this banking titan from passing off subprime mortages as “good investments,” between 2006 and 2008, when she sent emails to her managers about her concerns.

            Fines do nothing. The SEC has to stop playing games with these thieves. If they knowingly make chief decisions they know are not going to hold up to the court of public opinion or a jury of their peers, they should be jailed. Dimon got away with $9 billion in fraud from these phony mortages.

            You just try to get away with $9 and see how fast you go to jail.

        • Fishy Fishy

          Shoot me a link or two about Cristie’s egregious crony deal, will ya?

    • Dominick Vila

      Unfortunately, the ability of people without a college degree to become the CEO of a high tech company is the exception to the rule, rather than the norm or something that should be expected.
      I agree with you on the issue of investment in infrastructure, especially at a time when the private sector was struggling to stay afloat and millions of Americans were unemployed. Had the GOP abandoned their obsessive goal of ensuring President Obama was a one-term president, and had agreed to that initiative, the economic recovery would have been expedited and thousands of Americans would not have gone through the misery they endured for so long. The fact that so many people don’t understand who was responsible for what we just left behind, and put them back in control, presumably because they think the GOP is more capable of solid economic growth and job creation is nothing short of amazing.

  • ps0rjl

    Let me put just a little different spin on those high-paying jobs. I worked for over 25 years as a programmer. When I was close to retirement, my company offered me a buyout to leave early. I took it as within about six months I was going to retire anyway. The company kept just enough people in the US to run projects and fix the day today problems. All the other jobs were shipped overseas. Many of even those high tech jobs are being shipped overseas where salaries are cheaper.

  • Steven Meeks

    The US government’s debt on January 20, 2014 was over 17.2 trillion dollars.

  • Cy Nin

    It took me awhile to recognize that Obama is the problem. But, now I see it.