Saturday, July 02, 2011

US Economic Crisis Lingers On While Benefits Continue for the Rich

Recession seems to linger on

Meager gains going mostly to wealthiest

Jul 2, 2011

WASHINGTON -- This is one anniversary few feel like celebrating.

Two years after economists say the Great Recession ended, the recovery has been the weakest and most lopsided of any since the 1930s.

After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven't kept up with prices at the grocery store and gas station. The economy's meager gains are going mostly to the wealthiest.

Workers' wages and benefits make up 57.5% of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable -- about 64% through boom and bust alike.

Executive pay is included in this figure, but rank-and-file workers are far more dependent on regular wages and benefits. A big chunk of the economy's gains has gone to investors in the form of higher corporate profits.

"The spoils have really gone to capital, to the shareholders," says David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto.

Corporate profits are up by almost half since the recession ended in June 2009. In the first two years after the recessions of 1991 and 2001, profits rose 11% and 28%, respectively.

And an Associated Press analysis found that the typical CEO of a major company earned $9 million last year, up a fourth from 2009.

Driven by higher profits, the Dow Jones Industrial Average has staged a breathtaking 90% rally since bottoming at 6,547 on March 9, 2009. Those stock market gains go disproportionately to the wealthiest 10% of Americans, who own more than 80% of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.

But if the Great Recession is long gone from Wall Street and corporate boardrooms, it lingers on Main Street:

• Unemployment has never been so high -- 9.1% -- this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8%.

The average worker's hourly wages, after accounting for inflation, were 1.6% lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40% of the jobs lost from January 2008 to February 2010 but only 27% of the jobs created since then.

Kathleen Terry is one of those who had to settle for less. Before the recession, she spent 16 years as a mortgage processor in southern California, earning as much as $6,500 in a good month, a pace of about $78,000 a year.

But her employer was buried in the housing crash. She found herself out of work for 2 1/2 years. As her savings dwindled, the single mother had to move into a motel with her three daughters.

They got by on welfare and help from their church and friends. Terry started taking a 90-minute bus ride to job-training courses.

Eventually, she found work as a secretary in the Riverside County, Calif., employment office. She likes the job, but earns just $27,000 a year. "It's a humbling experience," she says.

Hard times have made Americans more dependent than ever on social programs, which accounted for a record 18% of personal income in the last three months of 2010 before coming down a bit this year. Almost 45 million Americans are on food stamps, another record.

Federal Reserve numbers crunched by Haver Analytics suggest that Americans have a long way to go before their finances will be strong enough to support robust spending: Despite cutting what they owe the past three years, the average household's debts equal 119% of annual after-tax income.

At the same point after the 1981-82 recession, debts were at 66%; after the 1990-91 recession, 85%, and after the 2001 recession, 114%.

Most workers can't demand raises or look for better jobs.

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