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Economic Decline Brings Rising Poverty Rates and Growing Income Inequality

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The latest numbers from the Census Bureau show growing poverty and third-world-style income inequality as the middle class disintegrates under the economic pressures of globalization and technological change.

The nation’s poverty rate rose in 2010 to 15.1 percent, up from 14.3 percent in 2009. “There were 46.2 million people in poverty in 2010, up from 43.6 million in 2009, the fourth consecutive annual increase and the largest number in the 52 years for which poverty estimates have been published.” The Census Bureau reported. Median household income has declined by $3,800 (in 2010 dollars) since 1999, a drop of 7.1 percent. Among households headed by someone under 65, the decline in median income was even more dramatic, having plummeted to the 1980s levels, a drop of $6,300.

The census report also shows that federal programs for the poor have played a key role in preventing many more Americans from slipping into poverty. According to the Center on Budget and Policy Priorities,

The Census figures show, for example, that unemployment benefits — including federal benefits scheduled to expire at the end of this year and state unemployment benefits that a number of states have recently chosen to pare back — kept 3.2 million people above the poverty line in 2010. In addition, while the official poverty measure does not count SNAP (food stamps) or EITC benefits as income, the Census Bureau reported that if they were counted, SNAP benefits would lift 3.9 million people out of poverty while the EITC would lift 5.4 million people out of poverty.  

Poverty may climb even higher if such programs are cut in order to reduce the deficit and balance the budget while the economy remains weak.

Structural Changes Behind Job Losses

These numbers reveal a more serious problem with the economy: jobs have not been there since well before 2007, the beginning of the great recession, a sign that the labor needs of the economy have shrunk.

Scott Winship, a fellow at the Brookings Institution, wrote: “We have had a slack labor market for a decade.” (In the graph below, the blue line starting at point A approximates the job openings and new jobs created; it has been comparatively low and flat in the last ten years). The 2007 recession “just dumped a lot more people into an already weak labor market.” The result was levels of unemployment unprecedented in the lifetime of anyone alive today. “Competition for jobs among the unemployed remains greater than any time before the financial crisis, stretching back to the Great Depression.”

 

 

 

 

 

 

 

 

 

 

(Image from Scott Winship.)

At the same time, corporate profits and economic growth in terms of GDP have been rising. So has productivity. These signs in the face of a stagnant labor market show that the economy no longer needs as many workers to generate the same output as it did a decade ago .

The root causes of these phenomena of falling labor demand with rising corporate profits and productivity are two-fold: globalization and technological change, both of which act to shrink the demand for workers in the U.S. economy. In a sense, the economy’s labor needs are shrinking as offshoring, technological change and the automation of routine work reduce labor needs, according to MIT economist David Autor.

These processes suggest that the job losses are structural and that job creation programs will not work because they can’t change the fundamental economic incentives that are driving employers to invest abroad and to invest in better technology which allows fewer workers to be more productive. Job training programs are also bound to fail because such initiatives do not address the fundamental problem: the lack of demand for more labor. And labor demand will fall even further in the coming years as neither globalization nor technological change can be legislated away.

Income Inequality Now Rivals That of Third World Nations

In The Wall Street Journal, Ellen Byron writes on the phenomenon of U.S. companies splitting their product lines to accommodate this growing income divide, “We now have a Gini index similar to the Philippines and Mexico — you’d never have imagined that,” says Phyllis Jackson, P&G’s vice president of consumer market knowledge for North America. “I don’t think we’ve typically thought about America as a country with big income gaps to this extent.”

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • http://takeitorleaveit.typepad.com/ roger nowosielski

    On target, Mr. Jurek. It’s the analysis of the fundamentals that reveals the present unemployment figures to be chronic and structural. And there’s nothing in the offing to suggest the situation is apt to improve. To speak therefore of economic recovery (in the traditional sense of the term) under the circumstances is to engage in wishful thinking. Interestingly, even the conservative economists agree. True, government programs which aim at providing the safety net help alleviate the situation, but those programs only add to the mountain of indebtedness; and in light of a productive economy (again, in the traditional sense, utilizing, that is, the labor market to the fullest extent possible), they can’t go on indefinitely and represent, at best, a band-aid, only masking the systemic weakness.

    One might point as well to the correlative effects of what you call “the lack of demand for[more] labor,” namely, reduced demand for goods and services (due to loss of income) and a rapidly shrinking taxpayers’ base — equally foreboding telltale of the pickle we’re in.

    Once again, penetrating analysis, Mr. Jurek.

  • Cannonshop

    Might also point out:

    Bad Economy=fewer rich people, fewer people in-between, and more people without money.

    Which in turn expands your income inequality even MORE.

  • Igor

    Working people should have insisted on reaping some of the benefits of productivity increases in the form of reduced work hours, but they didn´t. Another adverse effect of not unionizing.

    As it is, they took their share of increased productivity in junk consumption and didn´t see that the gravy train of trash and cheap burgers would end and leave them high and dry.

    Of course, the bosses and rulers were happy to take their share, so we have runups in corp profits and CEO bonuses while formerly middleclass families go broke.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    There was an opportune moment, Igor, in the sixties. With the advent of “office automation,” even prior to the advent of PC, the hopes were of significantly reduced work hours and greater emphasis on leisure. Of course, in those days American corporations were still regarded a “good citizens,” plus, there was no competition to speak of from would-be industrial powers devastated by World War II. There was hopefulness in the air, and there was no reason to doubt anything would change. There was even talk of unionizing the white collar workers, but the general feeling was, there wasn’t a dire need because things would work out of their own accord.

    Come mid-seventies, and it’s a different world. It’s hand having been forced, Big Business realized it’s dog-eat-dog out there and that only the strong survive — which soon lead to mergers & acquisitions and the birth of multinationals.

    The rest is history.

  • jamminsue

    What amazes me is that no one is taking to the streets complaining about their jobs going overseas, managers of retail companies qualifying for food stamps, and the number of people living under bridges in their aging SUV’s. There is an article in the Merced paper this weekend on how it isn’t OK for government workers to pool their resources, but other national groups can. More news agencies are talking about the huge divide, how people’s perception doesn’t match the reality. It seems to me that the middle-class is soon to be extinct group. Why aren’t people complaining about losing their 401K values, that Social Security retirement age keeps creeping up; maybe people my age will never be old enough. Supposedly, there is no inflation, but it takes over $50 to fill my gas tank, a decent loaf of bread is $5, cheap meat around $3/pound, milk, even with price supports is $2.50/gallon.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    @ 1 – apologize for the presumption as regard gender.

    “It seems to me that the middle-class is soon to be extinct group.”

    Exactly, jamminsue. There was, however, a movement afoot in Madison, Wisconsin, and I was hoping it’d spread nationwide. Lack of coverage in the MSM didn’t help either.

    Perhaps things haven’t reached the bottom yet in most people’s perception to eventuate in the kind of national push you’re talking about (something like what we’ve seen in Greece, for example).

  • A

    The middle class values don’t include protest. Barbara Ehrenreich’s Bait and Switch discusses this in depth.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    I tend to agree, but the middle class is disappearing.

    Can you provide a link?

  • A
  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Thank you.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Here are some of the book’s excerpts from Google books.

  • John Lake

    As noted, technology and globalization are at the heart of the reduced number of jobs for Americans, and the consequential crisis in the American economy.
    While the issues with technology don’t appear to be susceptible to change, the globalization provides near-unlimited potential for adjustment.
    While philosophic economists see the value of a unified world economy, we have to first protect our interests, until we reach a point where we can concern ourselves with others.
    Water seeks its level. In a unified global economy, the poorest grow stronger and more affluent, while the wealthier trend downward.
    All this being true, the current problem is exacerbated by partite politics, and interference from corporate lobbies.
    In China, the lawmakers and decision makers are inspired and high-minded, working for a common good. We could learn from them.
    The corporate superstructure has sought to control our government, and is moving toward control of our media, our news outlets. If they can control the media, it will be lights out in America. We will be lashing out blindly, and crying in the night.
    Roger, so true. The 60’s promised more leisure and easy day’s of work. In some ways it’s true. We see CEOs in wrinkly blue jeans, and cozy shirts. But there is room for improvement.

  • Clavos

    In China, the lawmakers and decision makers are inspired and high-minded, working for a common good.

    Really? Did they change their philosophy and form of government recently?

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Aren’t you making a Faustian pact with the devil, John?

  • John Lake

    To illustrate that the Chinese of today are indeed visionary, here are the words of Billionaire entrepreneur Jack Ma, in addressing (rhetorically, not in fact) the current crop of American legislators. “In America, if they try to build a road, the decision process may take two or three years. In China, the decision is made, then, let’s make it happen!” “People love to debate,” he says; does he suggest that America’s politicians are unduly concerned about all the wrong things? Jack Ma says “Being number one is the mission, not the goal. Always think about the mission. It’s the mission that drives you. It’s not the number one that drives you.”
    I’m not real clear on the “Faustian Pact” (with the devil). While I’m aware that global economy is a way of life, it frustrates me to consider that, because of our good will, a lot of money goes to overseas investors. One example is in Obama’s plan to put contractors, real estate brokers, and property managers to work on the vacant mortgage defaulted properties. Unfortunately (as I see it) foreign investors will have an equal chance to invest in the program, and a high share of the money will be lost. We should begin looking at an “America first!” program, to allow American investors the primary opportunity to invest.
    Also on the matter of the sixties, it is ironic. We hoped for more prosperity and leisure time, instead, because of technological breakthroughs, we have national unemployment. Maybe we should bring back the handwritten legers and cardboard files of yesterday.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    I like the mission idea, John. That is something.

    By “Faustian pact” I didn’t refer to globalization, that’s inevitable. I meant, rather, than the Chinese are yet to put their money where their mouths are. Granted, the Chinese upper, “capitalist” class is protected but at what expense? Their list of human rights violations is a mile long.

    There are some virtues to a socialist-run economy, like making on the spot decisions, especially as regards public works or projects. It’s still an authoritarian system through and through where any kind of dissent is punishable by years of imprisonment. They have yet to prove they value the lives of their own ordinary citizens.