Falling Wages: It’s Not Just the “Millennials” and It’s Not Just the Business Cycle

A recent article in The Atlantic chronicled the diminished economic circumstances of young Americans in the wake of the Great Recession.

http://www.theatlantic.com/business/archive/2014/12/the-incredible-shrinking-incomes-of-young-americans/383338/articleText

American families are grappling with stagnant wage growth, as the costs of health care, education, and housing continue to climb. But for many of America’s younger workers, “stagnant” wages shouldn’t sound so bad. In fact, they might sound like a massive raise. Since the Great Recession struck in 2007, the median wage for people between the ages of 25 and 34, adjusted for inflation, has fallen in every major industry except for health care.

What this analysis fails to account for is the difference between a cyclical trend – many people became worse off as the result of the recession – and a long term structural trend. One would expect incomes to fall behind inflation in a recession as severe as the one we just had – and then rise after a few years of recovery. In reality, however, the trend of later generations earning less than those who came before had earned when they themselves were young – indeed at every age – goes beyond the recession. In fact is has been going on for decades, starting with the second half of the baby boom. Each low is lower, each peak not as high.

One can get a hint of this by examining a similar analysis by the U.S. Census Bureau of the economic status of young Americans over the decades, in 1980 (1979 income), 1990 (1989 income), 2000 (1999 income), and 2009 to 2013.

http://www.census.gov/newsroom/press-releases/2014/cb14-219.html

This analysis suffers from three deficiencies. First, it includes those age 18 to 24, who are often still in school, and those age 25 to 34 in the same group. I wish the Bureau had analyzed those groups, and other age groups at ten-year intervals, separately. Second, I wish more data elements had been included – including enrollment in school.

Finally, because decennial Census of Population data was used for the decades before the American Community Survey, the Bureau was limited to census years. That means the strong economy of some years, such as 2000 (1999), was compared with the weak economy of other years, such as the average of 2009 to 2013. The average earnings in the latter period were lower, but that is not unexpected based on the business cycle. When possible one needs to compare years that, from the point of view of the business cycle, are roughly comparable.

What is useful, however, is the comparison between 1980 and 2009-2013. Between my generation and my children’s generation. These years, unlike 1990 and 2000, were both weak economic years. I’ve done a quick reorganization of that data into this spreadsheet.

Young Adults Census 1980 and 2010

The data shows the average full time worker ages 18 to 34 earned an average of $33,883 in 2009-13, 5.5% less than the $35,845 in 1980 (adjusted for inflation). The percentage of those in that age group living in poverty increased to 19.7% in 2009-13 from must 14.1% in 1980. This shows that the long-term trend of higher poverty among children, due to changes in families and public policy, has extended into early adulthood. Lower wages and higher poverty, I expect, will extend throughout younger generation’s lifespans, hitting particularly hard in old age. Younger generations were less well off in young adulthood, on average, than the young adults of 30 years before despite higher educational attainment, with 22.3% having a college degree or more compared with 15.7% three decades earlier.

Those ages 18 to 34 over the 2009 to 2014 period, moreover, were less likely to be employed that those who were the same age in 1980, by 65.0% to 69.3%. Though that might be a choice – to go to graduate school or stay at home with young children. Today’s young are also more likely to still be living with their parents – by 30.4% to 22.9%. Though that might also be a choice – to save money, given that they get along with their parents better. Today’s young are less likely to live alone, by 7.1% compared with 7.5%, implying they are less likely to be able to afford their own place without roommates. And they are less likely to be married, at 65.9% never married today compared 41.5% never married in 1980, perhaps because they have had to postpone forming families.

Some may look at the data and point to explanations and offsetting factors, to draw contrary conclusions. The percent of U.S. residents ages 18 to 34 who are non-Hispanic whites fell from 78.4% in 1980 to 57.2% in 2009-13. The percent who are immigrants increased from 6.3% to 15.4%, and the percent who speak a language other than English at home increased from 10.9% to 24.6%. One might look at this data and conclude that native born, non-Hispanic Whites might be better off than before, with the overall averages pulled down by immigrants who, though worse off than many Americans were 30 years ago, are better off than those who remained where they came from are.

Some might also point to the lower share of today’s young Americans that are military veterans as a cause of the problem. The military has a long history of turning less scholarly, more rambunctious, less reliable young men into responsible adults.

We don’t have comparable data from the last wave off mass immigration, by the Jews, Italians, and others from 1880 to 1920. But based on accounts at the time it may be possible to assume that the average Americans became poorer in those years too, before the immigrants assimilated, benefitted from U.S. opportunities, and moved ahead. In theory someone with Public Use Microdata sample data and a program to manipulate it could produce separate data for immigrants and the native born, and native-born Whites and minorities, over the long term.

What we do know, however, is that median income has been falling across much of the country for some time, including large areas of the Midwest and the suburbs that have remained primarily native born White, according to the Washington Post.

http://www.washingtonpost.com/wp-srv/special/business/peak-income/

http://www.washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost/

“Make no mistake: The American middle class is in trouble. That trouble started decades ago, well before the 2008 financial crisis, and it is rooted in shifts far more complicated than the simple tax-and-spend debates that dominate economic policymaking in Washington.

It’s amazing the way most of those in older generations don’t want to face the fact that younger generations have been left worse off. Consider the first comment on the above article: “The data on median household income is misleading because median household size has decreased. A household of two or three people does not need as high an income as a household of five or six people. Show us per-person data, not per household data.”

Of course the Census Bureau data cited above does just that – it shows a decrease in average earnings per worker. Then there are references to the “millions of Third World people.” This ignores the fact that immigration tends to be selective, with harder working, more talented people more likely to have the get up and go to make such a drastic move. Always has been, to the benefit of the U.S. According to the Post:

The great mystery is: What happened? Why did the economy stop boosting ordinary Americans in the way it once did? The answer is complicated, and it’s the reason why tax cuts, stimulus spending and rock-bottom interest rates haven’t jolted the middle class back to its postwar prosperity.

My view is that the answer is simple – the American standard of living, and corporate profits and executive pay, soared to a level that could only be achieved by soaring debts, people selling off their personal future, their firm’s future, and through public debts, the common future. When the debts reached a level that became unsupportable the rot at the bottom of the economy, and the contradiction between paying U.S. workers less and selling them more and more, was revealed, as I showed here.

http://larrylittlefield.wordpress.com/2014/03/09/debt-and-inequality-go-together-rising-debt-is-the-cause-of-rising-inequality/

Basically, parts of the future have been sold off for decades, and then the future arrived. And the only solution the older generations in Washington have come up with is to find a way to get debt levels rising again.

You may have heard that economic growth has accelerated recently, because U.S. consumers are spending more. Are they spending more because they are being paid more at work, finally? Or because they are borrowing more again, or have reduced their already inadequate saving for old age even more? At some point the economy will have to rest on a firm foundation. How much of people’s earnings will be going to pay for past debts, most run up by older generations, at that point remains to be seen. So I’ll look to the release of the debt data next year before celebrating what has happened recently.

The way to see what is actually going on isn’t to just examine the circumstances of those ages 18 to 34 since the recession, but also to examine the trends for all age groups over the long term, as the Federal Reserve Bank of St. Louis did in an analysis I cited in this post:

http://larrylittlefield.wordpress.com/2013/11/10/donald-trump-the-man-of-his-generation/

The average decline in the standard of living, at every stage of live, for those born since the mid-1950s or so relative to those who have come before, is 20 to 30 percent. Which would not be a disaster, because the standard of living would be coming down from a very high level. Except that so much is being borrowed to defer that decrease, and younger generations will have to pay that back out of their lower incomes. So much of it is public debts and deficiencies, that will be loaded onto their backs regardless of the personal choices. And the meter is still running. Those running up the tab don’t like to think much about what this means for those who will be paying it. The tab will keep running until actual circumstances become common knowledge. The tab will keep running until actual circumstances become common knowledge. If you are reading this, you can start by following the links and reading those too.

 

Meanwhile in the common sphere, the last? MTA capital plan expires in a few days.