Notes from ADA Economic Policy Committee Chair Woody Ginsburg
Several economic issues that deserve wider circulation they have been getting.
1) Employment - Despite the Administration's boasts of the March low unemployment rate of 4.7%, the lowest rate during this recovery period, a look behind the figures shows serious weaknesses in the job picture. March marked the fifth year since the last peak in the economic cycle and employment was only 1.9% higher at the end of that cycle. This is significantly smaller than the gains seen in five year cycles over the past few decades which averaged 9.7% job growth ranging from a low of 6.8% growth in the cycle from July 1990-July 1995 to a high of 13.5% in the November 1973-November 1978 cycle. Equally significant was the 16% decline in factory employment during the cycle, the largest decline by far compared to earlier five year periods.
Note also that the 3.4% increase in hourly wages during the past year yielded no improved living standards as the wage advance was wiped out by a rise in prices of 3.6%. For the longer term, as Economic Policy Institute experts have pointed out, the nation has suffered severely inadequate job growth, leaving a major job deficit - a deficit that calls for continued sustained employment increases.
2) Gross Domestic Product- Another measure the Bush Administration continues to tout is the relatively strong steady expansion in the Gross Domestic Product as proof that its economic policies have been sound and responsible for a healthy growing economy. At the same time the Administration ignores the key aspect of the data on GDP, that covering how the income generated by the production of the goods and services which make up the GDP is shared between capital, wages, and salaries. Analysis of the sharing of that income shows that the portion going to the corporate sector has been getting larger and the part going to wages and salaries has been shrinking. After all, the standard of living of Americans depend on is how much income they receive, not on the size of the total production of goods and services.
Moreover recent research indicates that the very techniques of ascribing income to capital and wages sharply understate the share going to capital. The resulting shift to capital is considerably greater than the official statistics now show. Technically, the explanation rests on the method of handling research and development outlays which, up to now, were not include in the capital share. This no insubstantial figure. It amounts to about $300 billion each year and has been considered an expense thereby reducing profits. Government plans call for classifying these outlays as capital investments starting in September, which would increase the capital share, or profits, of GDP income. Such a change in calculations would reduce employee compensation by more than one percent--the equivalent of $120 billion!!
An excellent review by the Economic Policy Institute shows that in the fourth quarter of 2005, corporate profits alone accounted for close to 10% of total income generated by the income from GDP. Over the longer period from the beginning of the recovery in March 2001, corporate income rose a sharp 7.8%. In contrast, in the earlier cycles it rose just under 1%! In contrast labor income's share shrank 5.6%. Against only a 0.5% decline in previous cycles. Had labor's share remained constant labor income as an aggregate would be $346 billion higher today.
