The "Recovery" Has Done Nothing to Help Wages

The economic “recovery” in the U.S. has not helped the income of most Americans. That seems counterintuitive. A recession is supposed to depress pay, and pay is supposed to rebound in a recovery. But, it has not worked that way this time.

A new study by former Census Bureau executives, called “Household Income Trends During the Recession and Economic Recovery,” reports that:

Real median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009.

And:

During the recession, real median annual household income fell by 3.2 percent, from $55,309 in December 2007 to $53,518 in June 2009. During the economic recovery, real median annual household income fell by an additional 6.7 percent, from $53,518 in June 2009 to $49,909 in June 2011.

The conclusions are not really a surprise because in the minds of many businesses, large and small, the recession never ended. If it did end from the standpoint of profits, it was often due to cost cuts.

There is a great deal of evidence that people unemployed for more than 99 weeks have more trouble finding jobs than the freshly jobless. Also, after 99 weeks, most of the unemployed lose all government benefits. These people lost jobs at the depths of the Great Recession. Their incomes go to zero, which drags the national average income down. This group continues to grow, as do the ranks of people who no longer look for work.

Real wages have risen only 12.5% since 1989. Productivity, on the other hand, is up 62.5% over the same period. Companies do not have to offer employees higher wages when they need fewer workers to keep output at the levels of a decade ago.

The average household income problem could actually worsen. Productivity continues to increase most quarters, based on federal statistics. What appears to be a new recession will force many companies to rely on their current workforces or even smaller ones. It looks as if the Administration’s jobs bill will not pass or, if it does, the amount put into job creation will be pared down from White House expectations. It also will take any aid that is put into law several months to work its way into the economic system.

The household income problem is probably not permanent. The economic cycle is such that a recovery will gather force, but that could take another two or three years. Until then, wages are unlikely to rise at all.

Douglas A. McIntyre