Troublesome economic signs

By Gary Maydew

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Recently we have seen a modest amount of good news about the economy. Some jobs are being created (236,000 in February), the unemployment rate has ticked down to 7.7 percent, and the construction industry is on the mend. The stock market hitting all-time highs is another good omen.

Yet there are some troublesome signs.

l The jobs being added are part-time: An article in the New American pointed out that 446,000 part-time jobs were added in February, meaning that for the net jobs to add up to 236,000, 276,000 full-time jobs had to be lost. Part-time jobs pay less per hour, almost always lack health insurance and are often temporary jobs.

As the author pointed out, this increase in part-time jobs may be an unintended consequence of the Obamacare rule that employees who work at least 30 hours a week must be covered by health insurance.

l Wages as a share of GDP are shrinking: Corporate profits were at a record high in the third quarter of 2012, almost $1.75 trillion. Good news, right? Yes, but some of that growth came at the expense of wage earners. A government report shows that wages have fallen to a record low of only 43.5 percent of GDP. Until 1975, wages were at least 50 percent of GDP. If the share of GDP from wages returned to 50 percent, wages would increase by an average of more than $7,000 per worker per year.

l The white-black wealth gap: The growing inequality in income and wealth that has occurred over the last 25 or so years has been well-documented. This increase in inequality makes our society less cohesive and creates social ills.

However, an even greater inequality exists between whites and blacks. A recent study by the Institute on Assets and Social Policy found that the difference between wealth of white and black families grew from $85,000 in 1984 to $236,500 in 2009. Blacks are less likely to be employed, have less education, are less likely to own a home and are less likely to inherit wealth. The reasons for the discrepancy aren't necessarily rooted in racism. But the result is that blacks are less likely to be able to afford to educate their children, obtain decent housing and provide for their retirement.

In addition, the growth in inequality in general is likely a cause of:

l The life expectancy gap: A recent article in the Washington Post noted that in 1980 the life expectancy at birth was only 2.8 years longer for the highest socioeconomic group than for the lowest. However, by 2000, the difference had grown to 4.5 years. Smoking, obesity, and a lack of access to health care are given as reasons. Regardless of the reasons, the trend is troubling. Our society appears to be trending toward the inequality in life expectancy that existed in Victorian England when the upper classes lived relatively healthy lives while the working classes were stunted because of lack of adequate diet and long working hours.

These problems have developed over many years and will not be easy to remedy. Two possible partial remedies:

l Expand the Earned Income Credit: Rather than increase the minimum wage (which costs jobs), why not expand this credit? The effect is to reduce income inequality and to encourage low-skilled individuals to find jobs.

l Reduce the gargantuan trade deficit: The Economic Policy Institute estimates that between 2001 and 2011, the trade deficit with China alone eliminated or displaced more than 2.7 million U.S. jobs. More than 2 million of those lost were high-wage manufacturing jobs.

The growing gap between rich and poor, white and black, educated and uneducated, employed and unemployed must be reduced. Social cohesiveness and egalitarianism go hand in hand.

l Gary L. Maydew of Ames is a retired accounting professor, Henry B. Tippie College of Business, Iowa State University. Comments: glmaydew@hotmail.com