Unemployment May Be Down, But So Are Wages and Benefits
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In many respects, the jobs market is improving. Friday, the Bureau of Labor Statistics will report how many jobs the economy added in March. Economists expect it will be the fourth straight month in which the economy creates more than 200,000 payroll jobs. The unemployment rate has fallen from 10 percent in October 2009 to 8.3 percent in February. At the end of January, there were 3.5 million jobs openings at the end of January.
That's the good news. The bad news? As I discuss with Robert Reich, former Labor Secretary in the Clinton Administration, according to several less-publicized metrics, the overall job market and the experience of workers continues to decline or remains at highly depressed levels.
"We do know that more jobs are being created," said Reich, professor of public policy of the University of California at Berkeley. "The problem is that the actual labor participation rate, the ratio of people who are in the labor force relative to the people who are eligible to work, it's down to almost the lowest point it was during the great recession. We haven't seen much pickup in that." In February, it stood at 63.9 percent, which was down from 64.2 percent in February 2011, and significantly below the 66 percent levels of 2006 and 2007.
In addition, while the economy has been expanding for nearly three years and hiring is picking up, Reich notes, "we also see some major declines in terms of median wage. And that's particularly true for the bottom 90 percent."
In the past, economists argued that wage growth lagged in part because employers were spending more on benefits like health care and pensions. But that hasn't been the case in the past few years. A recently released study from the National Institute for Health Care Reform shows that in 2010, the percentage of Americans with insurance who got insurance from employers fell to 53.5 percent, down sharply from 63.6 percent in 2007. "At the top of the talent chain, employers are providing very generous health insurance, deferred compensation, and everything you can imagine," notes Reich. "But as you go down the job ladder, particularly to people who are doing routine jobs, they're getting less and less. There has been a substantial erosion of health care benefits for the bottom 90 percent.
Simply put, companies have better negotiating power vis a vis employees, thanks to the decline of unions, slack in the labor market, and the ability to access a global pool of labor. Which means Companies keeping more of the money for themselves? "Here again, the bottom line is not terribly encouraging," says Reich. "The ratio of profits to wages basically is the highest it has been. More corporate earnings are going to profits relative to wages than at any time since the government has been keeping track of this ratio since 1947." Here's a chart that shows how labor's share of national income has declined in recent years, courtesy of Business Insider,
In theory, sustained economic growth and rising demand will lead to higher wages and the greater provision of benefits. The labor market remains enormously loose by historical standards. But many of the issues workers face are structural forces that have been at work in the economy for many years, and are difficult to arrest. But Reich argues that we shouldn't adopt a fatalistic approach to these trends. "We don't have to accept anything. The economy is framed by laws and regulations that define the obligations of corporations, stakeholders. The question is whether we have the political will to do anything about all of this," he said. Reich argues that regulations that stipulate that benefits must be offered more broadly to employees, or a higher minimum wage, and a larger earned income tax credit could help improve matters. None of those seems likely, given the current political situation in Washington.
As the econo-pundit complex gears up for another potentially positive jobs report, Reich believes we should keep these other data points in mind. "We still have a long way to go."
Daniel Gross is economics editor at Yahoo! Finance
Follow him on twitter @grossdm; email him at grossdaniel11@yahoo.com
His next book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy, will be published in May and is available for pre-order.
