Daily Archives: 07/08/2011

How Is This Economic Recovery Unlike the Rest?


Photo: Saad.Akhtar

A recent study by a team of economists at Northeastern University’s Center for Labor Market Studies argues that the current economic recovery is the worst since World War II for worker pay and job growth — but the best for corporate profits. The headline:

Over this six-quarter period [from Q2 of 2009 to Q4 of 2010], corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income.

That’s right. Of the $528 billion in real national income gained between the second quarter of 2009 and the fourth quarter of 2010, pre-tax corporate profits accounted for $464 billion, while wages rose by just $7 billion. If you extend that out to the first quarter of 2011:

[C]orporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.

Wowsers. Here’s how those percentages compare to previous recoveries measured by the first six quarters of economic growth (Roman numerals designating the quarters):

  • 1975 I – 1976 II
    Corporate Profits Share of Growth in National Income: 32%
    Aggregate Wage and Salary Share of Growth in National Income: 38%
  • 1982 IV – 1984 II
    Corporate Profits Share of Growth in National Income: 28%
    Aggregate Wage and Salary Share of Growth in National Income: 25%
  • 1991 I – 1992 III
    Corporate Profits Share of Growth in National Income: -1%
    Aggregate Wage and Salary Share of Growth in National Income: 50%
  • 2001 IV – 2003 II
    Corporate Profits Share of Growth in National Income: 53%
    Aggregate Wage and Salary Share of Growth in National Income: 15%

HT: Roya Wolverson

How Is This Economic Recovery Unlike the Rest?
Wed, 06 Jul 2011 13:27:55 GMT


Super Post at the Atlantic: Read it all

Megan McCardle has a superlative post on unemployment.

The whys,  not unemployment:

The above graph shows separations, hires, and the unemployment rate.  What it shows is that separations didn’t rise during the recession–except for a brief uptick during the financial crisis, they actually fell.  That seems to be because people stopped quitting their jobs, which by late 2009, is offsetting layoffs:

Screen shot 2011-07-08 at 5.11.18 PM.png

But as of April, the latest JOLTS data that’s available, hiring had only recovered slightly. (And of course, in the last two months, it basically fell back to zero net new jobs.)  That means that we’re left with a giant overhang of unemployed people.Screen shot 2011-07-08 at 5.11.35 PM.png

That’s why long-term unemployment has become such a problem.  Our unemployment problem is not, as in previous recessions, that too many people are entering unemployment. Layoffs and discharges are actually lower than they’ve been in a decade.  Rather, our problem is that people aren’t exiting unemployment.  And that’s a much bigger issue.

Human capital is like almost any other form of capital: it is a depreciating asset.  The longer you stay out of the workforce, the less valuable you are to potential employers.  You lose market intelligence and industry connections.  Your technical knowledge and skills atrophy.  And as my colleague Don Peck wrote in a devastating piece last year, the psychological effects of long-term unemployment change you permanently.  Many of the people who have now been unemployed for years may never work again, or not at anything like the income that they had been expecting.

Equally compelling is her own story of extended unemployment.

The least important change was the one that is best measured: people who have a bout of unemployment at the beginning of their careers still earn less than their peers ten years later. What really matters is how it changed my outlook on the world.  I became afraid then in a way that has never really left me.  I obsess about economic security.  I catastrophize small setbacks. Before 2001, I was fairly blithely indifferent to the prospect of misfortune; now I spend an awful lot of time cataloguing everything that could possibly go wrong.  My grandfather used to hide pretty substantial sums of money around the house, the legacy of the Great Depression’s bank failures, which I thought was very funny. Now it sounds sort of sensible.

There was also the crushing sense of isolation, and failure.  I avoided friends who found my unemployment an awkward topic of non-conversation.  I couldn’t do much of anything else, because I didn’t have any money.  And dating was . . . awkward.  I remember being on a date with someone who took me to see Avenue Q.  It was a great show–but hard to enjoy as I writhed at its similarity to my own life, and at what the guy next to me must be thinking. (We ended up dating for years, and when I finally told that story, much later, he was incredulous. "Are you nuts?"  Yes, yes I was.)

When I was finally offered a job by The Economist, I was taken aback; I had stopped believing anything good would happen, ever.  Then I blurted "I’ll take it" before I even asked how much it would pay.  As soon as I got off the phone with my new boss, I called my boyfriend (Avenue Q guy, now a year in), said "I got a job", and then, to my surprise and horror, burst into tears.  It is the only time in my life, except for my wedding, that I have cried from joy.

The whole post is excellent.  Read it all.