Low unemployment is not economic well being

Three New York Times articles lay out the new reality that having a low unemployment rate does not mean that American households are doing well economically. In fact today’s reality is that increasingly the two are disconnected. Lots of people working and struggling to make ends meet. As we wrote in our state economic policy agenda:

A prosperous Michigan is different from the most often-used measure for economic success, low unemployment. It is being a place with a broad middle class where wages and benefits allows one to pay the bills, save for retirement and the kids’ education and pass on a better opportunity to the next generation. Places with low unemployment rates, but also low personal income, aren’t successful to us. The same is true for other commonly cited measures of economic success such as gross state product and doing well on business friendly rankings. States and regions to us are not successful unless they are a place with a broad middle class.

In an article entitled The Recovery Threw the Middle- Class Dream Under a Benz the Times makes the case that the economy since the end of the Great Recession has overwhelmingly benefited those at the top. Largely because investments, not work, has been how people are becoming prosperous. They write:

Wealth, real wealth, now comes from investment portfolios, not salaries. Fortunes are made through an initial public offering, a grant of stock options, a buyout or another form of what high-net-worth individuals call a liquidity event. Data from the Federal Reserve show that over the last decade and a half, the proportion of family income from wages has dropped from nearly 70 percent to just under 61 percent. It’s an extraordinary shift, driven largely by the investment profits of the very wealthy. In short, the people who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see. Ten years after the financial crisis, getting ahead by going to work every day seems quaint, akin to using the phone book to find a number or renting a video at Blockbuster.

For the first time ever Michigan is a low-prosperity state with a strong domestic auto industry. Forty percent of households across the state unable to pay for basic necessities. This despite the headline grabbing statistic that the state’s unemployment rate is as low as it has been since the tech boom/bubble in 2000.

Why the disconnect? Primarily because too jobs are low paid and/or part time. As David Leonhardt writes in a New York Times column:

Only a few decades ago, the middle class and the poor weren’t just receiving healthy raises. Their take-home pay was rising even more rapidly, in percentage terms, than the pay of the rich. The post-inflation, after-tax raises that were typical for the middle class during the pre-1980 period — about 2 percent a year — translate into rapid gains in living standards. At that rate, a household’s income almost doubles every 34 years.

In recent decades, by contrast, only very affluent families — those in roughly the top 1/40th of the income distribution — have received such large raises. … The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.

In another column––subtitled The official statistics say that the financial crisis is behind us. It’s not.––Leonhardt makes the case that how we measure the state of the economy masks the realities that  the economy is not working for many American families. He writes:

Ten years after the collapse of Lehman Brothers, the official economic statistics — the ones that fill news stories, television shows and presidential tweets — say that the American economy is fully recovered. The unemployment rate is lower than it was before the financial crisis began. The stock market has soared. The total combined output of the American economy, also known as gross domestic product, has risen 20 percent since Lehman collapsed. The crisis is over. But, of course, it isn’t over. … statistics that sound as if they describe the broad American economy — like G.D.P. and the Dow Jones industrial average — end up mostly describing the experiences of the affluent.”

To meet this challenge requires the transformation of state economic policy. Starting with a new mission. It should now be clear that having a growing economy, or a low unemployment rate, or being business friendly––all of which have been the goals of state policymakers now and in the past––does not lead to an economy that benefits all.

The first essential step on the path to recreating an economy where all benefit from economic growth is explicitly establishing as the mission of state economic policy a rising household income for all. Which requires moving away from using the unemployment rate as the basic measure of the economy. We need income-based measures that define economic success. Measures that tell us whether or not Michigan households can pay the bills, save for retirement and the kids’ education and pass on a better opportunity to the next generation.

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