The Slow Road Down

Heather Boushey

August 27, 2004

What a president is and is not responsible for economically is a fair question. Center For Economic And Policy Research  economist Boushey says Bush inherited a lagging economy—but as new numbers illustrate, his oversight took things from bad to worse.

Heather Boushey is an economist at the Center For Economic And Policy Research .

Today’s Wall Street Journal would like us to believe that rising poverty in 2003 was unsurprising, as it mirrored what happened in the previous two recessions and is, therefore, not a scorecard on President Bush’s economic policies. What they neglect to mention is that, even though unemployment peaked at 6.3 percent in the most recent recession—1.5 percentage points lower than during the recession of the early 1990s—the economy hemorrhaged jobs for nearly three years. The lack of an effective policy response from Washington certainly contributed to the poor labor market performance over the past few years. To make matters worse, the refusal to extend unemployment insurance to the long-term unemployed undoubtedly lowered incomes for families with an unemployed worker.

Thursday's release of new 2003 data on income, poverty and health insurance coverage confirms that when the labor market shows lackluster performance, the economic well-being of America’s families does as well. After the strides in income made in the boom-boom '90s by women, African Americans and other minority groups, the news this week makes one wonder if we’re turning back the clock.

In 2003, income was stagnant, poverty was up and health insurance coverage— especially health insurance from an employer—was down. Further, while low-income households saw falling incomes, high-income households saw their income rise.

For most of us, income growth depends on job security and rising wages. Unlike the wealthiest 20 percent who get their total income from diverse sources like investments, most American families derive their total income from wages and salaries. Although the most recent recession had been officially over for more than a year at the beginning of 2003, the labor market had not yet recovered: millions remained out of work and wage growth slowed to a crawl, turning negative in the second half of 2003.

Slow Job Growth

This economic recovery has seen a low level of job creation. In 2003—a full two years after the recovery began—61,000 jobs were lost. Although these job losses were lower than in 2002 or 2001 and the economy started to add jobs by the second half of the year, fewer Americans were at work at the end of 2003 than at the beginning. Had the share of Americans working remained at its 2000 level, 5.6 million more people would have had jobs in 2003.

Tepid job growth is tough on the wallets of America’s families. After adjusting for inflation, weekly earnings were flat in 2003, as was median household income. Median household income is now less than it was in 1999 (in inflation-adjusted dollars) by $1,604.

Rich Got Richer

Not everyone was hurting in 2003. The households in the top income brackets rose—by 1.1 percent, up to $86,867. Families whose total income places them the bottom fifth of household lost ground—as their incomes fell by 1.9 percent, to $17, 984. Thus, the gap between the top and the bottom grew, and is in fact higher that any other time since the U.S. Census began surveying annual income in 1967.

And it’s not just that the rich are getting richer while the poor are getting poorer. Wealthy households are pulling away from the middle as well. For the first time, households at the 80th percentile have twice the income of those in the middle.

Minority and non-native households continue to see their incomes fall relative to white households. African-American households had the lowest median income at $29,689—62 percent of the median for non-Hispanic white households ($47,777). Among Hispanic households, median income was $32,997 in 2003, down by 2.6 percent from 2002. Households with a foreign-born householder saw their income fall by 3.5 percent, to $37,499, with households headed by a non-citizen see a drop of 5.6 percent to $32,806.

The gender gap increased in 2003. In 2003, full-time women workers earned only 76 cents for every dollar earned by full-time men, down from 77 cents in 2002. The gap increased because women’s median earnings fell by 0.6 percent, down to $30,724, while men’s median earnings remained unchanged at $40,668.

More Poor Americans
 
Falling income among households in the low end of the income distribution has led to rising poverty. There were 1.3 million more people in poverty in 2003 and the poverty rate, which rose by 0.4 percentage points in 2003, now stands at 12.5 percent—increasing for the third year in a row. Poverty rose more even for children, increasing from 16.7 percent in 2002 to 17.6 percent in 2003.

The gender gap is reflected in the poverty numbers as well. Poverty rose by 1.4 percentage points among female-headed households, up to 28.0 percent. This is the highest rate since 1998.

Tying health insurance coverage to employment means coverage falls when employment is low. An estimated 45.0 million people—84.8 percent of all Americans—were without health insurance for the entire year in 2003, an increase of 1.4 million from 2002. In most years, another 20 percent of Americans go without health insurance at some point during the year, but are not without coverage the entire year.

Even those who had jobs saw their uninsurance rate rise from 19.5 percent in 2002 up to 20.2 percent in 2003, a 0.7 percentage point increase. Health insurance coverage fell mostly because the share of Americans who had employer-based coverage at some point during the year declined between 2002 and 2003, falling from 61.3 percent down to 60.4 percent.

The drop in employer-provided health insurance was even sharper among children, falling by 1.8 percentage points, from 63.0 percent down to 61.2 percent. Medicaid coverage for children rose by 2.4 percentage points, however, from 24.0 to 26.4, offsetting declines in employer-based coverage. The share of children without any health insurance remained steady at 11.4 percent.

The clear conclusion from today’s release is that many of the gains seen during the low unemployment years of the late 1990s are being undone; years of falling employment and recent flat earnings growth are taking their toll on the well-being of America’s families. While low unemployment led to strong wage and income growth, lackluster job growth has meant stagnant incomes, rising inequality and declining health insurance coverage from employers.