In contrast, from 1982 to 1984, the economy grew by nearly 11 percent and real median incomes grew by 5 percent.
Today, nearly four years after the Great Recession, 12 million Americans are actively looking for work but can’t find a job; 11 million others are stuck working part time when they would like to be full time, or they would like to work but are too discouraged to job-hunt. Meanwhile, workers’ median wages were lower at the end of 2012, after adjustments for inflation, than they were at the end of 2003. Real household income was lower in 2011 than it was in 1989.
Obama alluded to the breakdown between growth and middle-class wages and jobs in his State of the Union address. “Every day,” he said, “we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?”
But outside of some targeted help for manufacturing jobs and some new investments in skills training, the proposals Obama offered focused comparatively little on repairing the relationship between growth and jobs, or growth and income. Obama’s boldest plans included increasing the minimum wage and guaranteeing every child a preschool education. Both aim largely at boosting poorer Americans and helping their children gain a better shot at landing the higher-paying jobs.
The Republican response to Obama’s speech did not appear to nod to the new reality at all. Sen. Marco Rubio (Fla.) said that “economic growth is the best way to help the middle class” and offered few job-creation proposals that appeared materially different from what Republican politicians have pushed since the 1980s.
Economists are still trying to sort out what broke the historical links between growth and jobs/incomes.
Federal Reserve Bank of New York economists Erica Groshen and Simon Potter concluded in a 2003 paper that the recoveries from the 1990 and 2001 recessions were largely “jobless” because employers had fundamentally changed how they responded to recessions. In the past, firms laid off workers during downturns but called them back when the economy picked up again. Now, they are using recessions as a trigger to lay off less-productive workers, never to hire them back.
Economists at the liberal Economic Policy Institute trace the problem to a series of policy choices that, they say, have eroded workers’ ability to secure rising incomes. Those choices include industry deregulation and the opening of global markets on unfavorable terms for U.S. workers.
In the latest edition of their book “The State of Working America,” EPI economists argue that an “increasingly well-paid financial sector and policies regarding executive compensation fueled wage growth at the top and the rise of the top 1 percent’s incomes” at the expense of average workers.
Robert Shapiro, an economist who advised Bill Clinton on the campaign trail and in the White House, traces the change to increased global competition.
“It makes it hard for firms to pass along their cost increases — for health care, energy and so on — in higher prices,” he said. “So instead they cut other costs, starting with jobs and wages.”
Shapiro said the best way to restart job creation is to help businesses cut the costs of hiring, including by reducing the employer side of the payroll tax and pushing more aggressive efforts to hold down health-care cost increases.
Obama seems to have embraced an approach pushed by Harvard University economists Claudia Goldin and Lawrence Katz: helping more Americans graduate from college and go on to high-skilled, higher-paying jobs. It’s a longer-term bet. But as senior administration officials like to say, the problem didn’t start overnight, and it’s not likely to be solved overnight, either.