The Recovery That Left Out Almost Everybody

America's economy has not worked for average families since the Clinton administration ended

William A. Galston

Sept. 23, 2014



If they were judging the economy by the monthly jobs report, working Americans would be popping champagne corks. Total employment has risen every month for more than four years. According to the Current Population Survey, more than eight million jobs have been created since the trough, while the number of unemployed has been cut by nearly six million. The unemployment rate has declined to 6.1% from 10%, and the number of Americans enduring long-term unemployment (27 weeks or more) has fallen to three million from 4.3 million in the past 12 months.



Yet average Americans remain gloomy about the current economy and anxious about its future.



According to a Pew Research Center report released this month, only 21% rate current conditions as excellent or good, versus 79% fair or poor. Only 33% say that jobs are readily available in their communities; when asked about good jobs, that figure falls to 26%. Only 22% believe the economy will be better a year from now; 22% think it will be worse, while fully 54% think it will be the same.



More than five years after the official end of the recession, the Public Religion Research Institute finds, only 21% of Americans believe the recession has ended.



Two recent reports help explain the disconnect between the official jobs numbers and the economic experience of most Americans. Every fall, the U.S. Commerce Department issues a detailed analysis of trends in income, poverty and health insurance. Although economists have some technical quibbles with the Commerce data, the broad trends are unmistakable.



This year's report found that median household income was $51,939 in 2013, 8% lower than in 2007, the last year before the recession. Households in the middle of the income distribution earned about $4,500 less last year than they had six years earlier. No wonder 56% of Americans told the Pew Research Center that their incomes were falling behind the cost of living.



The Federal Reserve's triennial Survey of Consumer Finances confirms these findings. Between 2010 and 2013, the Fed reports, median family income fell by 5%, even though average family income rose by 4%. This is, note the authors, "consistent with increasing income concentration during this period."



Only families in the top 10%, with annual incomes averaging nearly $400,000, saw gains during these three years. Families headed by college graduates eked out a gain of 1%, while those with a high-school diploma or less saw declines of about 7%. Those in the middle—with some postsecondary education—did the worst: From 2010 to 2013, their annual incomes declined to less than $41,000 from $46,000—an 11% plunge. Families headed by workers under age 35 have done especially badly—even when the heads of those young families have college degrees. The economic struggles of the millennials are more than anecdotal.



What's going on? The Census report offers a clue. The median earnings for Americans working full-time year round haven't changed much since 2007. But more than five years into the recovery, there are fewer such workers than before the recession. In 2007, 108.6 million Americans were working full time, year-round; in 2013 only 105.9 million were doing so. Although jobs are being created, too many of them are part-time to maintain growth in household incomes.



This is not by choice. About the same number of Americans were employed last month as in December 2007. But during that period, according to the Bureau of Labor Statistics, the number of Americans working part time who wanted a full-time job jumped to 7.2 million from 4.6 million. Not only are hourly wages stagnating; America's families want more hours of work than the economy is providing.



Although the Great Recession was the most severe since World War II, in many ways it underscored trends that have been under way for decades. Adjusted for inflation, median earnings of men working full time, year-round are no higher than they were in 1980. Median household income is almost $5,000 lower than it was in 1999, and no higher than it was it 1989.



The modest income increases of the past two generations have occurred because women have surged into the paid workforce—and because their real wages have grown at a compound annual rate of 0.8%. But both these trends peaked in 2000. Not surprisingly, the years after the 2001 recession witnessed the only postwar recovery in which median incomes failed to regain their previous peak.



The American economy hasn't worked for average families since the end of the Clinton administration. A recovery that leaves them out is no recovery at all, and they know it. This simple fact goes a long way toward explaining the tone of our current politics and the temper of our society. It will not change for the better unless we can recreate an economy in which work is rewarded and family incomes rise.



That is the great task of the next decade—and must be the prime focus of the next presidential election.