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US jobless recovery benefits top earners, not job seekers
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AMERICA’S economy grew much more rapidly than expected in 2013 and appears poised to strengthen further this year. But there is still considerable slack in the labor market, and, as long as it persists, the gains from faster growth will continue to be concentrated at the top of the income distribution, as they have been throughout the recovery.
According to recent estimates, real (inflation-adjusted) GDP grew at a 2.7 percent average annual rate in 2013, compared to only 2 percent in 2012. Most forecasters predict that annual real growth will reach at least 2.8 percent in 2014.
Despite two recent lackluster employment reports, there are many reasons to expect that growth will accelerate in 2014.
The headwinds buffeting the US recovery — impaired household balance sheets, a depressed housing market, and government spending and employment cuts — are dissipating. Household debt has fallen to levels last seen in the early 1990s, real household net worth has returned to its pre-recession peak, and residential investment as a share of GDP is rising.
Promising outlook
Meanwhile, state and local-government budgets are improving, and the federal budget is on track to subtract only about 0.5 percent from GDP in 2014, compared to 1.75 percent in 2013.
In a Congressional election year, another destabilizing showdown over the federal debt limit is unlikely.
Moreover, monetary policy is likely to remain accommodative, and inflation remains lower than expected. US Federal Reserve Chair Janet Yellen was a vocal co-architect of the Fed’s accommodative policy stance under the leadership of her predecessor, Ben Bernanke, so policy continuity is expected.
Indeed, the Fed has reiterated its intention to hold the federal funds rate near zero well past the time that the unemployment rate falls below 6.5 percent, while gradually trimming its purchases of long-term assets — so-called quantitative easing — by US$10 billion a month.
Meanwhile, private spending grew 3.9 percent year on year in 2013, the strongest rate in a decade, and the outlook for 2014 is promising.
Stronger consumer spending, along with record-high corporate profits, should boost investment spending further this year, as will re-shoring of economic activity and an improving trade balance, owing to a decline in energy and labor costs in the US.
Essential steps
Nonetheless, the outlook for US workers is less sanguine and more uncertain. Despite stronger growth in 2013, net monthly job creation, at about 193,000, was only slightly above its 2012 level (186,000) and still below its pre-recession average of 200,000.
When the recession hit, unemployment rates for workers at all education levels jumped, and they have yet to fall back to pre-recession levels. While the short-term unemployment rate (those unemployed for 26 weeks or less) has fallen back to its 2001-2007 pre-crisis average, the long-term unemployment rate remains higher than at any time since the measure was introduced in 1948.
The long-term unemployed tend to be older — the number of unemployed workers aged 50-65 has doubled — and laid off from previous jobs.
Faster economic growth and more job openings are less likely to benefit these workers.
As has been painfully obvious during the last several years, prolonged labor-market slack means falling real wages for most workers, with the negative effect intensifying as one moves down the wage distribution.
Extending unemployment benefits for the long-term jobless, combating the stigma against hiring them, creating more on-the-job training opportunities and apprenticeships, and raising the minimum wage are all essential steps toward a more equitable distribution of the recovery’s benefits.
Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley. Copyright: Project Syndicate, 2014. www.project-syndicate.org
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