The Daily Item, Sunbury, PA


February 13, 2013

Growth not enough to help middle class


The pattern began to break down in the 1992 recovery, which began under President George H. W. Bush. It took about three years — instead of one — for job creation to ramp up, even when the economy was growing. Even then, the "job intensity" of that recovery barely topped 0.4 percent, or about two-thirds of normal.

The next two recoveries were even worse. Three-and-a-half years into the recovery that began in 2001 under President George W. Bush, job intensity was stuck under 0.2 percent. The Obama recovery is now up to an intensity of 0.3 percent, or about half the historical average.

Middle-class income growth looks even worse for those recoveries. From 1992 to 1994, and again from 2002 to 2004, real median household incomes fell — even though the economy grew more than 6 percent, after adjusting for inflation, in both cases. From 2009 to 2011 the economy grew more than 4 percent, but real median incomes grew by 0.5 percent.

In contrast, from 1982 to 1984, the economy grew by nearly 11 percent, and real median incomes grew by 5 percent.

Economists are still trying to sort out what broke those historical links between growth and jobs/incomes. Robert Shapiro, an economist who advised President 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 the Harvard economists Claudia Goldin and Lawrence Katz: helping more Americans graduate 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.

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