Good news, bad news for economy and workers

Bill Knight column for Thurs., Fri., or Sat., Jan. 9, 10 or 11

Differences on Capitol Hill have made recovery from the Great Recession difficult.

Differences in interpreting what’s good and what’s bad in what’s happening with the economy have made recovery efforts worse.

Housing starts, Gross Domestic Product statistics and productivity all seem to be improving; unemployment, hourly compensation and inequality seem to dampen optimism.

The U.S. economy in the third quarter grew at its fastest pace in almost two years, the Commerce Department announced on Dec. 20 – far better than previously forecast. The annual growth rate from July through September was 4.1%, 0.5% more improved than projected and significantly better than the second quarter’s 2.5% annual rate.

Meanwhile, housing starts in November were up about 30% from last year, Commerce showed – their highest level since 2008. And the unemployment rate fell to 7.0% for November, as the U.S. economy added 203,000 jobs.

But sometimes the quality of jobs matters as much as the quantity.

“While the November BLS report shows gains over the previous month, post-recession trends speak to a sharp, steady increase in the percentage of low-wage jobs in the economy,” said Ben Henry, Senior Policy Associate for the Alliance for a Just Society.

His colleague LeeAnn Hall, Alliance Executive Director, added, “Post-recession trends demonstrate a serious erosion in the quality of jobs created. This is an erosion of a fundamental American value that full-time work should pay enough to provide for a family, which – as the 51.4 million Americans we found to be in low-wage jobs will tell you – just is not a reality anymore.

“We must be cautious and not get overly excited about numbers that show a slight uptick from month to month, because it doesn't tell us the full story,” she continued.

Indeed, Business Week reported that unemployment now is historically bad: In 1968 (when the minimum wage was at its “inflation-adjusted peak” of $10.70), 81% of male workers 20 years old and up had jobs; today, with a much-less valuable minimum wage, only 67% of men have jobs.

Those with jobs are valuable to their employers. U.S. workers’ productivity was up at a 3% annual rate in the third quarter, according to a recent report from the Labor Department.

However, “labor costs” fell in the same time period. After factoring in even a low inflation rate, reflected in the Consumer Price Index (CPI), real hourly compensation is down at an annual rate of 1.0%, BLS reports. The most recent Midwest CPI, for November, was up 0.5%, influenced by cheaper motor fuel (down 8.7%) and more expensive natural gas (up 16.8%).

Further, income inequality is holding back a recovery, according to a survey of dozens of economists.

As reported by the Associated Press, about 80% of the stock market is owned by just 10% of people, so the affluent are making gains, but not the rest of us – and the rich spend less of their money than everyone else.

“What you want is a broader spending base," said Scott Brown, chief economist at the financial advisory firm Raymond James. "You want more people spending money."

Instead, people being productive aren’t able to benefit from their work, and neither is the national economy.

That 3% increase for “total non-farm business sector labor productivity” was higher than expected, and better productivity should empower companies to pay better. But it also lets employers refrain from hiring because output is up without new jobs being added.

The Federal Reserve, which watches productivity and labor costs to help it gauge inflation, noted that 2013 productivity has been dramatically better than the previous two years. Productivity was up 1.5% in 2012 and a meager 0.5% in 2011.

The other side of that story, again, is that overall labor costs were revised downward, to -1.4%.

The Bureau of Labor Statistics defines labor costs as the ratio of hourly compensation to labor productivity, so increases in pay boost labor costs; better output per hour reduces them.

So, ironically, a more productive American labor force is not being rewarded for its output, and that’s punishing the economy because U.S. consumer spending helps the economy and the less workers have to spend, the less they can contribute to the recovery.

Until employers take action to share the rewards of good workers doing good jobs by raising pay and hiring more employees, discretionary income will stagnate and consumer spending without going into debt won’t be able to help drive the recovery.

[PICTURED: Economic Policy Institute chart showing disparity between workers' value and compensation.]