More jobs, less pay

July 04, 2004

A LEADING consumer confidence index hit a two-year high last week, and polls show that President Bush's approval ratings have been hurt by Iraq but helped by a growing belief that the economy is improving. Certainly, there are more signs of that now than in the first three years of Mr. Bush's administration. The economy has been adding an average of more than 300,000 jobs a month since March, the unemployment rate has fallen over the last year from 6.3 percent to 5.6 percent, and consumer spending set a record in May.

All for the good -- but not everything is so good. Beneath the surface lurks disquieting fragility:

Under Mr. Bush, the labor-force participation rate has fallen sharply to almost a 10-year low. That means growing numbers of workers have given up looking for jobs. The real unemployment rate, adjusted for those who are discouraged or who have had to settle for part-time jobs, is almost 10 percent. In all, a million fewer people are working now than when Mr. Bush took office.

For all but the top 20 percent of wage-earners, real income -- income adjusted for inflation -- has been falling this year and now stands at an average of $15.64 an hour, right where it was in November 2001. Moreover, the average weekly hours worked by wage-earners has dropped under Mr. Bush, from 34.2 hours a week to 33.8 hours. This deteriorating job quality -- fewer hours and declining or stagnant pay relative to inflation -- means less purchasing power, threatening consumer spending, the main engine of the current recovery.

Since last fall, lower-wage jobs -- at, say, restaurants and nursing homes -- have been added to the U.S. economy at almost twice the rate of higher-wage jobs in such industries as transportation and manufacturing. As a result, last week's U.S. economic review by the Canadian investment bank CIBC World Markets was titled (wryly) "Do You Want Fries With That?"

None of this should be news to anyone who's out and about these days. Urban centers such as Baltimore, with its devastatingly low labor-force participation rate of 57 percent, are full of workers disconnected from jobs by lack of training, motivation or transportation. Out in the suburbs, ask that prime-working-age adult working at the big-box retailer about his or her last job, and we'd bet they used to bring home more bacon. As CIBC put it, if jobs now aren't so hard to get, "good jobs are still scarce."

The continuing slack in the U.S. labor market -- and the resulting lack of upward wage pressures -- has had one positive impact: moderating the return of inflation. But the main result has been a 50 percent gain in corporate profits during this recovery -- profits mostly fueling record hoards of corporate cash, not pay raises.

Of course, the weak income picture has become a major issue in the presidential campaign. It only looks favorable to Mr. Bush if after-tax disposable income is taken into account; it's risen faster than real income due to his tax cuts. But as these cuts are the main source of record federal deficits, this added spending power is based on mortgaging tomorrow for today.

The likely Democratic candidate, John Kerry, has approached the job quality problem by vowing to plough more resources into education. That, at least, begins to speak to the source of wage restraints: growing global labor competition, technological gains driving rapidly rising productivity, and too many American workers whose training and skills lag behind the demands of advanced and higher-paying sectors.

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