November 6, 2006


Doing Just Fine After All (DIANA FURCHTGOTT-ROTH, November 6, 2006, NY Sun)

We are creating jobs faster than we know how to count them. But here's the real mystery — with such strong employment numbers, why the dissatisfaction with the economy? [...]

Much of the angst comes from appearances of worsening inequality and limited economic mobility. The Financial Times ran articles on two successive days last week entitled "Anxious Middle: Why Ordinary Americans Have Missed Out on the Benefits of Growth" and "Politicians Must Focus on Middle America."

But these well-intentioned concerns belie the evidence. Friday's job data showed that over the past year real earnings have increased by 2.4%. Another measure of compensation, hourly compensation in the non-farm business section, has risen by over 3% after inflation over the past year. Benefits such as health insurance, vacations, and pensions are rising and form a larger share of compensation.

Friday's numbers showed gains by minorities, not just last month, but over the past year. Unemployment rates for African-Americans fell to 8.6% last month from 9.1% in October 2005 , and unemployment rates for Hispanics reached their lowest level ever, declining from 5.9% to 4.7% a year earlier. Now, only 16% of the unemployed have been out of work for 27 weeks or more, compared with 19% a year ago.

The least-educated have made substantial gains. The unemployment rate for adults without a high school diploma was 5.8%, down from 7.1% this time last year. The unemployment rate for adults with only a high school diploma declined to 4.1% last month from 4.8% in October 2005.

The middle class is declining because over the past 25 years more families have moved to upper income brackets. It's true that in 2004, the latest year Census data are available, only 21% of families earned between $50,000 and $75,000 (in 2004 dollars), compared to 25% in 1979.

But the disappearing families have moved up, not down, so we now have more families in higher-income brackets and fewer in lower-income brackets. This is cause for self-congratulation, not angst. In 2004, 34% of families earned $75,000 and above, compared with 21% of families in 1979, adjusted for inflation. And 46% of families earned less than $50,000 in 2004, compared with 54% of families in 1979.

American family incomes are even better off than they appear because the size of the American family is declining, so family incomes support fewer people. Families averaged 3.29 people in 1979 and 3.13 people in 2004, due to divorce, later marriage, and fewer children.

Those who suggest that inequality has increased are looking at incomes before tax and transfer payments. Once taxes are subtracted from the incomes of top earners and transfer payments such as food stamps, housing vouchers, and child credits are added to lower-income earners, the distribution of income looks a lot more equal, according to Alan Reynolds in his new book "Income and Wealth."

A better guide to well-being is levels of spending, because spending includes tax payments and transfers. The lowest fifth of the population is spending 11% more in real terms now than 20 years ago; the middle fifth is spending 10% more; and the top fifth is spending 19% more. Although the top fifth is doing better than the rest, all are better off than before.

Friday's employment numbers show that all Americans are making gains in the current expansion. This is due not to government programs, but to employers' need for workers. This report cannot fix Iraq's problems, but it should put economic dissatisfaction on hold.

The premise of the French model is that you'd rather not have your 10% if it means someone else got more. Of the Anglo-American, that so long as you -- and your kids -- have an equal shot at the more, you'll gladly take the 10%. Democrats campaign on the French model, the GOP on the Anglo-American, and then the Left wonders why it can't connect with Americans.

Posted by Orrin Judd at November 6, 2006 7:39 AM
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