This long, slow but sure recovery is real, and it’s finally reaching down into the middle class and the poor. Seattle was America’s No. 1 city for income growth last year, but the trend is evident elsewhere too.
Strong growth in household income last year was one of the best indicators that this long, slow but sure recovery is real, and more people are experiencing it. Seattle was America’s No. 1 city for income growth.
As a reminder, the Census Bureau reported a leap of 5.2 percent to an inflation-adjusted, median household-income level of $56,516. It was the strongest single-year performance with data going back to 1967 and growth included rural areas, not just metros. Poverty also declined the most in nearly a half-century, with 3.5 million Americans climbing above the poverty line.
It’s easy for some to brush this off as a headline number skewed by extraordinary gains among the wealthiest. But that’s not the case.
When the census reported the numbers last month, economist Jared Bernstein pointed out that real income went up 8 percent among the top one-tenth of households and 6 percent in the next one-tenth. By contrast, for the fabled One Percent and their neighbors at the peak of our income ladder, the increase was between 2 and 4 percent.
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Translation: The economic expansion is finally reaching down into the middle class. The data also show improved gains for low-wage workers.
The biggest reason is a healthier job market. The unemployment rate was 5.0 percent in September, and has been at 5 percent or below since last fall.
It may not feel like “full employment” but it’s close, at least from an economist’s standpoint.
The economy added 3 million net new jobs last year alone. From the end of the recession through 2015, the number was 12.5 million jobs.
With a tighter labor market comes pressure to increase wages. Two snapshots: According to the federal Bureau of Labor Statistics, real compensation per hour has been growing since the second quarter of 2014.
Also, average weekly wages for employees in private establishments in the Seattle-Tacoma-Bellevue area rose to a seasonally adjusted $1,317 in the first quarter of this year. That was a 4.7 percent increase over the same period in 2015.
As in the past, the longer the expansion continues, the deeper it will penetrate. To improve a quote attributed to Ronald Reagan, the best social program is a good job — and a good education, and we still need effective social programs.
But the 2015 good news comes with a big, fat caveat, and not merely because it was a single year’s performance.
While the numbers point to a broad-based recovery finally taking root, they only mark households climbing out of the severe damage of the Great Recession. Median household income was still below 2007 and the historic peak of 1999.
Nationally, hourly wages grew 3.3 percent in August, according to the Federal Reserve Bank of Atlanta’s Wage Tracker. But this is well below recent pre-recession years (a peak 5.4 percent in December 2000).
The recession was so extreme that it left a “jobs gap” that still hasn’t been filled — in other words, the jobs that should have been created to recover those lost in the downturn and serve the growth of the potential labor force since. As I wrote last summer, a host of measures show the labor market still hasn’t healed.
While it’s true that some of the weakness comes from automation and slimmed-down companies, the biggest problem remains the hole in demand left by the detonation of the Great Recession. And Congress has been opposed to aggressive investments in infrastructure that would fix it and more than repay their costs.
Other remedies worth trying are breaking up monopolies and cartels, while reining in giants with outsized market power (sorry, Amazon), to improve competition and employment. Also, how about creating incentives for Wall Street and the big banks to assemble capital for job-creating enterprises, rather than gambling with derivatives?
It’s true that productivity is down. In an economic morality play, that means “no hard work, no raises.”
In recent years, many companies have invested more in stock buybacks than in making their employees more productive (and automation can cost some jobs, too). Government support for basic research, essential to productivity breakthroughs, is at a 50-year low, according to University of Oregon economics professor Mark Thoma.
Also, it may be that many firms in advanced nations aren’t keeping up with the productivity levels of leading companies. Boeing, Amazon, Microsoft and other touchstone companies are likely very productive, but most startups aren’t and have trouble catching up.
Another challenge in maintaining 2015’s momentum is educational attainment. As my colleague Katherine Long reported last week, only around 31 percent of the high-school class of 2006 in Washington had earned a postsecondary credential, including a college degree, by 2013. That’s bad news for young Washingtonians hoping to find good jobs in an advanced-industries state.
So it’s neither the best of times nor the worst of times. The nation’s comeback from the recession is undeniable — and reaches beyond superstar cities such as Seattle.
But we have miles to go and must hope, with inflation very low and jobs a priority, that the Federal Reserve doesn’t make a misstep and raises rates.