Two Americas, Or Two Economies?

Some months ago I made some flippant remarks about Dollar General opening up new stores and going on a hiring spree. Flippant remarks of a particular variety, as in: “how do you expect people to make it on lousy salaries?”

I also mentioned that I was reading Robert Reich’s latest book, Aftershock: The Next Economy and America’s Future.  More on Robert Reich, his fabulous blog and his book, later.

Well, today everyone is talking about the February jobs numbers just coming out.  In short, 192,000 new jobs last month -- 220,000 new jobs in the private sector with a drop in government employment.  Unemployment has fallen below 9%.

I offer an article published earlier in the week as a backdrop for trying to understand what is happening. Something I am admittedly not too good at.

From The New York Times:

While the country’s recessionary job losses skewed to middle- and higher-paying jobs, its job gains since then have skewed to lower-paying jobs.

That is the conclusion of an unsettling report from the National Employment Law Project.
America’s private payrolls shrank from January 2008 through February 2010, losing 8.84 million jobs on net. They have been growing every month since that nadir, adding 1.26 million jobs on net. (Public payrolls are another story — they’ve been falling over the last year.)

All this means, of course, that the private sector job market still has a long way to go before it returns to its previous peak. Worse, those jobs that have been created in the last year typically pay less than the jobs they’re replaced.

According to NELP:

Lower-wage industries (those paying $9.03 -$12.91 per hour) accounted for just 23 percent of job losses, but fully 49 percent of recent growth.

Midwage industries ($12.92 -$19.04 per hour) accounted for 36 percent of job losses, and 37 percent of recent growth.

Higher-wage industries ($19.05 -$31.40 per hour) accounted for 40 percent of job loss, but only 14 percent of recent growth.

You can read the complete policy brief the article is based on, here.

So just how can the economy fully recover under these circumstances?  If the buying power of the middle class is, well -- shrinking, as it seems to be doing?

And this from President Bill Clinton's former Labor Secretary Robert Reich today as he addressed the statistics put forth in the NELP study.  The emphasis is mine:

But to get to the most important trend you have to dig under the job numbers and look at what kind of new jobs are being created. That’s where the big problem lies.

The National Employment Law Project did just that. Its new data brief shows that most of the new jobs created since February 2010 (about 1.26 million) pay significantly lower wages than the jobs lost (8.4 million) between January 2008 and February 2010.

While the biggest losses were higher-wage jobs paying an average of $19.05 to $31.40 an hour, the biggest gains have been lower-wage jobs paying an average of $9.03 to $12.91 an hour.

In other words, the big news isn’t jobs. It’s wages.

I highly recommend Robert Reich’s latest book, Aftershock: The Next Economy and America’s Future as a way of understanding how we got to where we are. And how to make changes. It is the story of two economies: a high-wage economy based in corporate centers that is indeed in recovery vs. most of the rest of us.

Reich does not necessarily believe that Americans buying too much and saving too little is all the idea that it’s cracked up to be. Quite the opposite. Reich believes there is no way the rich can spend us out of the mess we are in, even if they wanted to. That in reality only the middle class has the power in numbers to do so, with a caveat: it’s the declining earnings potential of the middle class, and thus the lack of middle class buying power that is largely responsible for the slump in growth. Give more of us more money to spend, and we can start to grow our economy again.  Getter jobs.  Better wages.  Better benefits, so we have money to spend.

Reich is also sympathetic to the idea that most of us do indeed want to increase consumption. Why not? After all, we see the rich do it. And, we live with the memories of what the post-WW II generation was able to accomplish with fair wages and good benefits. Furthermore, if we work hard, don’t we deserve to have things? And by that he doesn't just mean the newest cell phone and flashiest electronic toy.  He means the buying power for instance, to send our children to good schools so they in turn can climb the economic ladder.  That certainly was true in the past. The problem again, this time perhaps from a sociological perspective rather than a purely economic one, is that it’s stagnant wages and a declining pool of benefits that have kept most of us from reaching our (personal and rather reasonable) economic aspirations.

Read the book. It’s good. I don’t think we can understand how to get out of the mess we are in without some thought as to how we got here.  Frameworks matter.