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Beware of this misleading snapshot

Jobless rate, Wall Street not the best way to gauge true strength of U.S. economy.

Workers and activists marked May Day with rallies

Workers and activists marked May Day with rallies around the world -- including on Wall Street -- to demand their government address labor issues. Photo Credit: AP / Mark Lennihan

By the most commonly cited measures, the U.S. economy is doing great. The Dow fell during the first quarter of the year, but over the longer term it’s up considerably. Economic growth has kept steady. Most strikingly, the national unemployment rate, at about 4 percent, has been at lows not seen since 2000.

The problem is, these headline economic figures — which Republicans and Democrats regularly cite in taking credit for a booming economy, or criticizing a flagging one — have become less useful measures of how well the economy is doing for ordinary Americans. This is partly because of a dramatic increase in income inequality.

By the best estimates available (tax data), the country’s top tenth of earners take in about half of the country’s income — more than the same group did in the decade of opulence and inequality leading up to the Great Depression. In this tale of two Americas, it is the best of times for well-educated people in higher-income households, who have largely seen their assets accumulate and job opportunities abound. But things are not so good for Americans with less schooling and earnings. They face a much tougher economy, forcing some to settle for dead-end jobs and leading others to drop out of the labor market.

Growing inequality

This surging inequality means that looking at the well-being of the largest U.S. corporations or levels of unemployment nationally provides a misleading snapshot of how the economy is treating most Americans — who, it is important to remember, don’t own much, if any, stock, don’t have bachelor’s degrees, and don’t make more than $60,000 a year.

While many more people are working than during and right after the last recession, there has also been a sharp rise in the number of people who are out of the labor force — that is, not working, but not looking for work. These folks are not counted in the unemployment rate because the government defines the unemployed as people who have searched for work in the last four weeks. If unemployed people stop job searching, the government considers them to have left the labor force, and its measure of unemployment goes down. In other words, today’s unemployment rate is so low not just because more Americans are back to work, but also because some people have stopped looking for work.

Some of them are in school. Others are retired. But a large and growing number of American between the ages of 25 and 54 — old enough to be done with college, but not old enough to retire at the conventional age — have joined this jobless group, too. The vast majority of them are men, and the vast majority do not have college degrees.

There are various reasons why these prime-age adults have fallen out of the labor force, but the two chief culprits, according to an analysis of recent research, are competition from Chinese manufacturing and the use of industrial robots. These two trends eliminated millions of manufacturing jobs and did not replace them with well-paid work that those with less education could fall back on. Fruitless job searches have led many of them to give up actively looking for work.

At the same time, there has been a rapid spread of what social scientists call “precarious” work — jobs as temp workers, contractors, and on-call workers that are unpredictable and offer few protections to workers. A recent study found that all the net employment growth over the past decade is from jobs in this category. Combine this trend with the expansion of low-wage jobs in retail, restaurants, and the larger service sector, and it becomes clearer why many people out of work because of globalization and automation can no longer find decent employment to replace what they lost — and why some have given up in despair.

Worrisome trends

Overall, these trends have created a growing division of non-labor — from “underemployed” to “unemployed” to “not in the labor force” — that weakens the bargaining position of those who do have jobs. That speaks to another trend obscured by the headline figures: the fact that American workers have not seen much in the way of wage growth in this supposedly booming economy. Over the past year, wages have gone up more or less at the same pace as inflation — even as large corporations have seen their stock valuations soar.

Because ordinary workers have so little power in today’s workplace, they have enjoyed a dwindling share of the economy’s expanding pie. Worker productivity and wages — which during the heyday of America’s labor movement, rose in lockstep — have become uncoupled.

This disconnect also means that the recent Republican tax reform legislation, which slashed corporate taxes, will likely not pay off for the average employee. Without worker power to wring concessions from management, companies are more likely to plow their extra cash into rewarding investors with stock buybacks and dividends rather than raising wages. (So far, there is evidence they’re doing just that.)

For decades, presidential administrations have more or less argued that what’s good for General Motors is good for America. In this view, policies that help large corporations flourish will ultimately lead not just to greater wealth for stockholders, but also higher wages for workers, better products and services for consumers, and heftier tax revenues for government agencies.

But the extreme widening of income inequality has changed that feel-good economic story. Today, what’s good for GM is not necessarily good for America — and what’s good for GDP is not necessarily good for ordinary Americans.

Victor Tan Chen, a former Newsday reporter, is a sociologist at Virginia Commonwealth University. He is the author of “Cut Loose: Jobless and Hopeless in an Unfair Economy” and the editor-in-chief of In The Fray, an online magazine.

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