Whither the Middle Class? Jared Bernstein Economic Policy Institute [email protected].

Whither the Middle Class?

Jared Bernstein

Economic Policy Institute

[email protected]

Real Economy

• It’s official—recession, that is.• Consumer: retrenching, big time.• Investment: squeezed on credit and profit

sides• Exports/Imports: Maybe, maybe not…• Government: most reliable source of short

term growth?

-600

-500

-400

-300

-200

-100

0

100

200Ja

n-0

7

Fe

b-0

7

Ma

r-0

7

Ap

r-0

7

Ma

y-0

7

Jun

-07

Jul-

07

Au

g-0

7

Se

p-0

7

Oct

-07

No

v-0

7

De

c-0

7

Jan

-08

Fe

b-0

8

Ma

r-0

8

Ap

r-0

8

Ma

y-0

8

Jun

-08

Jul-

08

Au

g-0

8

Se

p-0

8

Oct

-08

No

v-0

8

Mo

nth

ly c

ha

ng

e in

em

plo

ym

en

t (t

ho

us

an

ds

)

Total

Private

Total and Private Payroll Employment, Jan. 07 - Nov. 08

Source: Bureau of Labor Statistics, EPI Employment Projections

Employment Declines Across Sectors

Source: Bureau of Labor Statistics

Housing Employment, Jan. 07 - Nov. 08

6600

6800

7000

7200

7400

7600

7800

8000

Mo

nth

ly e

mp

loym

ent

(th

ou

san

ds)

Source: EPI calculated housing index, including residential building, real estate, and credit intermediation

774,000 Jobs Lost (9.6%)

Manufacturing Employment, Jan. 07 - Nov. 08

12600

12800

13000

13200

13400

13600

13800

14000

14200

Mo

nth

ly e

mp

loym

ent

(th

ou

san

ds)

847,000 Jobs Lost (6.0%)

Retail Employment, Jan. 07 - Nov. 08

14800

14900

15000

15100

15200

15300

15400

15500

15600

Mo

nth

ly e

mp

loym

ent

(th

ou

san

ds)

402,000 Jobs Lost (2.6%)

Automotive Manufacturing Employment, Jan. 07 - Nov. 08

800

850

900

950

1000

1050

Mo

nth

ly e

mp

loym

ent

(th

ou

san

ds)

194,000 Jobs Lost (19.0%)

Source: Bureau of Labor Statistics

0%

2%

4%

6%

8%

10%

12%

Jan

-07

Fe

b-0

7

Ma

r-0

7

Ap

r-0

7

Ma

y-0

7

Jun

-07

Jul-

07

Au

g-0

7

Se

p-0

7

Oct

-07

No

v-0

7

De

c-0

7

Jan

-08

Fe

b-0

8

Ma

r-0

8

Ap

r-0

8

Ma

y-0

8

Jun

-08

Jul-

08

Au

g-0

8

Se

p-0

8

Oct

-08

No

v-0

8

Unemployment

Underemployment

Feb. 08: 4.8%

Feb. 08: 8.9%

Oct. 08: 6.7%

Nov. 08: 12.5%

Unemployment and Underemployment, Jan. 07 - Nov. 08

-3%

-2%

-1%

0%

1%

2%

3%Ja

n-0

7

Fe

b-0

7

Ma

r-0

7

Ap

r-0

7

Ma

y-0

7

Jun

-07

Jul-

07

Au

g-0

7

Se

p-0

7

Oct

-07

No

v-0

7

De

c-0

7

Jan

-08

Fe

b-0

8

Ma

r-0

8

Ap

r-0

8

Ma

y-0

8

Jun

-08

Jul-

08

Au

g-0

8

Se

p-0

8

Oct

-08

Re

al c

ha

ng

e f

rom

pre

vio

us

ye

ar

Average Hourly Earnings

Average Weekly Earnings

Yearly Changes in Average Weekly and Hourly Earnings, Jan. 07 - Oct. 08

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Job Seekers Per Opening, Jan. 07 - Oct. 08

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Job

See

kers

Per

Op

enin

g

October 2008:3.3 job seekers per opening

January 2007:1.6 job seekers per opening

$50,000

$52,000

$54,000

$56,000

$58,000

$60,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Me

dia

n I

nc

om

e,

20

07

Do

lla

rsReal Median Income, Working-Age Households,

1989-2007

2000: $58,555

1993: $50,806

2007: $56,545

Source: Bureau of Labor Statistics

Consumer Confidence (Conference Board)

0

20

40

60

80

100

120

140

160

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Co

ns

um

er

Co

nfi

de

nc

e In

de

x (

198

5 =

10

0)

Source: The Conference Board

88

90

92

94

96

98

100

102

Peak year 1 2 3 4

Years following peak year

Pea

k ye

ar =

100

1989 Lowest fifth

2000 Lowest fifth

1989 Middle fifth

2000 Middle fifth

-3%

-5%

-8%

-10%

Change in Average Real Family Income Following Peak Years,by Selected Income Quintiles

Source: EPI analysis of Census Bureau data

$13,500

$14,000

$14,500

$15,000

$15,500

$16,000

$16,500

$17,000

$17,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ave

rag

e In

com

e o

f B

ott

om

Fif

th (

2007

Do

llars

)

$56,000

$57,000

$58,000

$59,000

$60,000

$61,000

$62,000

Ave

rag

e In

com

e o

f M

idd

le F

ifth

(20

07 D

olla

rs)

Bottom Fifth

Bottom Fifth (Forecast)

Middle Fifth

Middle Fifth (Forecast)

Source: EPI Analysis of BLS data and Goldman-Sachs unemployment rate forecasts

2007 - 2009:Middle Fifth: $3,355 lost (-5.5%)Bottom Fifth: $1,128 lost (-7.0%)

Average Income of Bottom and Middle Fifths, 2000-2009 (Forecast)

Poverty Rate, 2000-2009 (Forecast)

0%

2%

4%

6%

8%

10%

12%

14%

16%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Po

ve

rty

Ra

te

Historical

Forecast

Source: EPI Analysis of BLS data and Goldman-Sachs unemployment rate forecasts

Real GDP and Unemployment: 2008q1-2009q4

Source: Goldman Sachs Forecasts

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4

GDP Growth (Forecast)

Unemployment (Forecast)

GDP Growth

Unemployment

125

130

135

140

145

2005 2006 2007 2008 2009 2010 2011 2012

Pa

yro

ll E

mp

loy

me

nt

(Mill

ion

s)

With Stimulus

No Stimulus

Employment Projections, With and Without Stimulus Package

2012 Q4: 144 million

2012 Q4: 140 million

Stimulus creates 4 million jobs by Q4 2012

Source: Mark Zandi, Moody’s economy.com

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 2012

Un

em

plo

ym

en

t R

ate

With Stimulus

No Stimulus

Unemployment Projections, With and Without Stimulus Package

2012 Q4: 7.6%

2012 Q4: 5.5%

Stimulus lowers unemployment by 2.1% in Q4 2012

Source: Mark Zandi, Moody’s economy.com

Un-Real Economy

• Financial Markets: Dow, Nasdaq, S&P 500, Russell 2000…all down about 40% ytd.

• But: good news…Ted Spread responding (4.6 10/10; 2 11/7)?

• Housing: some signs bottom in sight, but no signs re uptick…prices still falling…inventory overhang;

• TARP: Certainly not a confidence builder yet.

• Fed: pushing on string but not giving up.

Pres/VP Elect• Fiscal constraints?

• Deficit could go as high as 6% of GDP, but debt around 40% (avg 46% in 1990s).

• Must he alter his long-term plans--hth care/energy?

• There is a time for budget austerity; this ain’t it.

• Middle-class, poor, labor agenda (EFCA, min wg, UI reform, OSHA, etc…)

Their Agenda• Morph his recovery package with House

D’s (Making Work Pay tax cuts; new jobs tax credit; mortgage relief; small biz, UI)

• Manage TARP

• Tax agenda

• Energy/Health Care

• Infrastructure (who gets the jobs?)

• Regulation (Cooper Union speech)