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Reflections On The Wage Recession

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    March 3, 2013

    Jed Graham at Investor’s Business Daily has an interesting chart showing Wage Recession Hits 5 Years; Worse Than Jobs Drought. I can show it’s even worse, but first let’s consider a chart and commentary by Graham.

     As bad as the current job recovery has been — and it’s by far the weakest since World War II — the recovery in wages has been far worse.

    Five years after the recession began in December 2007, total wages in the economy have yet to fully recover in real terms, Commerce Department data show. In other words, the wage recession continues.

    click on chart for sharper image

    By comparison, the longest previous post-war wage recession, which began with the 2001 downturn, was over in 2-1/2 years, even though that jobs recession lasted four years.

    In recoveries past, wage recessions have ended long before payrolls hit new highs. But in the current expansion, wages and employment are on the same slow track to recovery. Both remain about 2% below their old peaks.

    Real Disposable Income

    Instead of looking at wages, let’s consider real disposable income as a measure of the “wage recession”. Here is a chart from Doug Short at Advisor Perspectives on Nominal vs. Real Income.

    Real Disposal Personal Income Per Capita

    click on any chart for sharper image

    That chart shows an income recession for six years. I suggest the wage and income recession is even longer if one looks a breakdown of median income.

    I commented on this previously in Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions.

    Also consider my followup post Reader Asks Me to Prove “Inflation Benefits the Wealthy” (At the Expense of Everyone Else).

    Real US Household Incomes

    In “real” (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let’s dig a litter deeper.

    Growth in Real Household Income by Quintile

    The above chart shows percentage income growth by quintile since 1967. Since 1988, the bottom, 4th and middle quintiles (a combined 60% of households) have negative real income growth.  The next chart shows the same thing in a different way.

    Real Household Income by Quintile

    No matter what your timeframe, only the top quintile did well. And from 1980 until 2000 the top 5% got the lion’s share of income gains.

    How Long a Recession?

    Those in the top quintile have arguably had an “income recession” for 13 years! Only those in the top 5% have had real gains.

    Those in the bottom three quintiles have not seen any improvement in real income since 1988 or longer (25 Years)!

    To be fair, some people have moved up from quintile to quintile (or up within a quintile). However, unless someone moved up to the top quintile (if not the top 5%), inflation adjusted income growth has been a real struggle for a long time.
    Mike “Mish” Shedlock
    Read more at http://globaleconomicanalysis.blogspot.com/2013/03/reflections-on-wage-recession.html#cXr4UBgLEUEUhjEj.99

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.