United States: Happy anniversary, the 'economic recovery' turns two
By Martin Hart-Landsberg
July 7, 2011 -- Reports from the Economic Front, posted at Links International Journal of Socialist Renewal with the author's permission -- The charts above deserve a long careful look. According to the US National Bureau of Economic Research, the Great Recession ended in the United States in June 2009. Not many working people are celebrating the expansion’s second anniversary.
As Paul Wiseman, an Associated Press economics writer, notes:
[This economic] recovery has been the weakest and most lopsided of any since the 1930s. After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.
As the top chart shows, labour’s share (including both wages and benefits) now stands at 57.5 per cent of national income. It has been trending downward for some time, but the decline since 2001 has been truly dramatic.
In fact, worker compensation has fared far worse than this trend suggests. The reason is that labour’s share includes executive pay and executives have generally enjoyed huge compensation increases over the last decade. For example, according to the New York Times:
The final figures show that the median pay for top executives at 200 big companies last year [2010] was $10.8 million. That works out to a 23 percent gain from 2009...
Pay skyrocketed last year because many companies brought back cash bonuses, says Aaron Boyd, head of research at Equilar. Cash bonuses, as opposed to those awarded in stock options, jumped by an astounding 38 percent, the final numbers show.
Granted, many American corporations did well last year. Profits were up substantially. As a result, many companies are sharing the wealth, at least with their executives. “We’re seeing a lot of that reflected in the pay,” Mr. Boyd says.
Profits, as the bottom chart above shows, have indeed been on the rise. In fact, as Wiseman explains, they “are up by almost half since the recession ended in June 2009. In the first two years after the recessions of 1991 and 2001, profits rose 11 percent and 28 percent, respectively.” However, CEO compensation appears largely unrelated to how well corporate shares performed for investors; we are talking about structural power here.
These positve trends in corporate profitability and CEO compensation stand in sharp contrast to the experience of most workers. The earnings of the average US worker rose by only 0.5 per cent in 2010; adjusted for inflation they actually fell. In fact, ”The average [US] worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May [2011] than a year earlier.” Moreover there is little reason to hope that economic dynamics will eventually create a sound foundation for future wage growth. “The jobs that are being created [during this expansion] pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.”
Not surprisingly, there is a connection between the steady growth in profits and CEO compensation and labour’s deteriorating position.
As the chart above shows, productivity (output per worker) has steadily grown while average wages (compensation per worker) have barely budged since 1979. The difference represents a measure of exploitation, with those running corporate USA well placed to enjoy the benefits. Fear of job loss is one reason for this continuing growth in productivity. Another, according to Monika Bauerlein and Clara Jeffery, is our demanding work schedule:
Just counting work that’s on the books (never mind those 11 p.m. emails), Americans now put in an average of 122 more hours per year than Brits, and 378 hours (nearly 10 weeks!) more than Germans. The differential isn’t solely accounted for by longer hours, of course—worldwide [as highlighted in the maps below], almost everyone except us has, at least on paper, a right to weekends off, paid vacation time, and paid maternity leave.
Tragically, but predictably, all we hear from our media is the need for austerity, as if somehow government spending or public sector workers are responsible for our current economic problems. But, slashing spending and weakening trade unions will only deepen these problems.
The trends highlighted above are the direct result of a corporate directed transformation of the US economy that began decades ago. That transformation produced its desired outcome: a weaker labour movement and a wealthier and more powerful finance-oriented corporate sector. However, it also produced a highly unstable growth process, one built on debt, which culminated in the Great Recession.
Massive government spending was required to halt the crisis and it continues to sustain the recovery. While the corporate sector initially supported this spending to stabilise the system, it now finds itself in an uncomfortable position. The legitimacy of its political project rests on claims of government inefficiency and business leaders fear that if they don’t take firm action to reduce the size and reach of government spending, public policy debates might well galvanise serious efforts to boost tax revenue and reshape government spending priorities as a first step towards a radically new economic system.
Despite mainstream claims, government spending is not driving us into crisis. At the same time, sustaining the status quo should not be our goal. We need to reject austerity policies and intensify our efforts to, as Karl Beitel suggests, “open the political space to pose meaningful questions about the efficiency of markets, the class interests served by present policy initiatives, and the viability of more progressive and egalitarian alternatives”.