Work harder, take home less

From 2000 to 2007, worker productivity rose significantly in the United States, but real income fell for middle-class families, a group of economists says.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Goldman, CNNMoney.com staff writer

Photos
America: Better off and worse off America: Better off and worse off America: Better off and worse off
It's been seven years since the last recession. Times are tough once again, and people are telling us how they're doing.
Are you better off than you were seven years ago during the last economic downturn?
  • Yes
  • No
  • About the same

NEW YORK (CNNMoney.com) -- For most of the past decade, the economy grew much stronger - but middle-class Americans had little to show for it.

That's the conclusion of a trio of economists who on Thursday released a preview of their book The State of Working America in 2008/2009 due out next year.

Despite two periods of recession in the past decade, U.S. worker productivity still rose 18% in the 2000s - about 2.5% per year, according to author Jared Bernstein, a widely followed economist from the liberal-leaning Economic Policy Institute.

But inflation-adjusted income for the American middle-class family actually fell during the same period. The median real income for working-age middle-income families in the United States dropped $2,000 between 2000 and 2007, from about $58,500 to $56,500, the U.S. Census Bureau reported Tuesday.

As a result, the 2000-2007 business cycle was the first ever in which the nation's middle-class families had less real income at the end than when they started.

"It's a compelling example of a large disconnect," said Bernstein. "Americans aren't being rewarded for their productivity."

That's a stark change from 1989 to 2000, when the median income for working-age middle class families rose 10% - about half of the productivity growth over the same period, according to EPI. Had the trend of the '90s continued, the median income of working-age households would have risen by $3,600 instead of falling in the 2000s.

Not every economist agrees with that assessment.

"The numbers are misleading, because you need to take into account everything that workers are earning, including substantially more in health care and retirement plans," said James Sherk, the Bradley Fellow in Labor Policy at the conservative-leaning Heritage Foundation.

Weak job market

Bernstein said the middle class has not taken out an equal share of what it put into the economy because of weak job creation during the decade and a widening gap between rich and poor.

"This is a story of missed opportunity," Bernstein said.

The nation suffered through a weak job market in the 2000s. Jobs grew only 0.6% during the period, which wasn't enough to keep up with the growing population, the EPI said. As a result, there were 1.5 million more unemployed workers at the end of the business cycle than at the beginning.

"The official unemployment rate understated how difficult it was to find a job in the 2000s," said EPI economist Heidi Schierholtz. "The U.S. jobs creation machine came to a screeching halt after the 2001 recession and barely picked up steam in the recovery."

Schierholtz cowrote The State of Working America with Bernstein and another EPI economist, Lawrence Mishel. The book was originally published in 1988; the new edition includes updated chapters on jobs, wages and income.

According to the book, the economy took four years to return to the previous peak jobs level after the 2001 recession - an unprecedented amount of time. The recovery took more than twice as long as the 21-month average of all other recoveries after 1945.

Jobs weren't helped by a second round of very weak economic growth toward the end of the cycle.

"The economy of the 2000s has been like shampoo instructions: Bubble, bust, repeat," Bernstein said. "We need to generate growth that's sustainable, not on bubbles."

By the end of the business cycle, nearly one in five unemployed workers had been out of a job for at least half a year.

Furthermore, one in 11 workers were underemployed in the 2000s, as they were looking for full-time work but involuntarily took part time jobs. Workers' hours were cut by 2.2% in the 2000s, which negated the median family's 1% rise in hourly wages.

Sherk said, however, that unemployment levels are comparable to other decades other than the 1990s, when the tech bubble added a disproportionate number of jobs to the economy.

"Unemployment is high compared to the late '90s, but not the '80s," Sherk said. "It's not unusually high, especially when you consider that the labor force hasn't grown as rapidly this decade as it did in the 90s."

Increased inequality

Another finding from the book: Many middle class Americans who had jobs probably found that their bosses were getting big raises, while their paychecks were staying about the same.

That's because 90% of the growth in U.S. workers' income from 1989 to 2007 went to the top 10% highest earners, EPI said. Income for the top 1% grew 204% since 1989, and the top 0.1% saw their income grow 425% in that span.

But Sherk said the top earners are rarely the same today as they were five years ago. "This is coming from people who weren't in the top 1% before," he said.

"Bill Gates, Jeff Bezos, the Google founders. It looks like they're getting more than their share, but it's actually something else: They're all setting new high standards," Sherk said.

Still, the gap continues to grow. In 2006, the top 1% held the highest share of total U.S. income since 1928, according to EPI.

"There was a vast disconnect in what people earned with what they produced," said EPI's Mishel.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
These 10 food trends could dominate 2015 So long, kale. Here's what's expected to shake up the food industry next year. More
Beyond Russia: Geopolitical hot spots in 2015 Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More
These 20 antique guns could fetch big bucks Morphy Auctions in Pennsylvania is putting nearly 1,000 old guns on the block. Here are just a few. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.