Mr. Bush and Labor Day
Workers aren't benefiting from growth.

Monday, September 4, 2006

EMERGING FROM a meeting with his economic team at Camp David on Aug. 18, President Bush declared that "solid economic growth is creating real benefits for American workers and families." This assertion was false. Mr. Bush should use this Labor Day to rethink his rhetoric and adjust his policies.

The latest evidence on what the economy is doing for workers comes from last week's Census Bureau report. This showed that the growth cycle that began at the end of 2001 has in fact created remarkably few benefits for most Americans. Between 2001 and 2005 the income of the typical, or median, household actually fell by 0.5 percent after accounting for inflation, even as workers' productivity grew by 14 percent.

The picture is hardly any better if you consider 2005 alone. Workers' pay usually takes a while to pick up after a recession: In the first stage of a recovery, unemployment falls; in the second stage, a tight labor market pushes up wages. But this second stage is taking an awfully long time to arrive. In 2005, the fourth year of the expansion, the median income did rise slightly, but that reflected a gain for retirees. The typical full-time worker continued to fall backward.

Since 1980 the wages of the typical worker have tended to decline during bad times and recoup the losses during good ones, with the overall result that they've been stagnant. That stagnation, which contrasted with rapid gains for workers at the top, was bad enough. But the recent phenomenon of wages falling even during good times is disturbing and exceptional. In the first four years of the last expansion, from 1991 to 1995, median income rose 2.9 percent; in the two upswings before that, the first four years delivered gains of more than 8 percent. So whereas past presidents could declare that a rising tide lifted all boats, Mr. Bush cannot honestly do so.

The current growth cycle has also failed to dent poverty. In fact, between 2001 and 2005, the poverty rate rose from 11.7 percent to 12.6 percent. Again, this is exceptional: In the previous five economic cycles, the poverty rate fell during the first four years of the recovery. Moreover, 5.4 percent of the population now occupies the ranks of the extremely poor, with incomes less than half the poverty line. That's the highest rate of deep poverty since 1997.

In a speech at Columbia University on Aug. 1, Treasury Secretary Henry M. Paulson Jr. rightly acknowledged that "amid this country's strong economic expansion, many Americans simply aren't feeling the benefits." Mr. Paulson needs to explain this point to Mr. Bush, who appears to see things differently. But beyond a change of language, the president needs to understand that his tax and spending policies must do more than target growth. If policies do not take inequality into account, the majority of Americans won't benefit from economic expansion -- and popular support for free trade and other pro-growth ideas will continue to deteriorate.