Americans fared better after Great Depression than today

The economy is improving — or so headlines tell us almost every day. But is that true?

The answer to that question depends on the time frame used for comparison, whether inflation is taken into account and how you measure improvement.

News reports tend to focus on the short term — on yesterday, on last year compared with the year before. But look back farther in time and an overwhelming case can be made that the vast majority of Americans are worse off. Indeed, coming out of the Great Depression eight decades ago, the vast majority fared vastly better than most people have coming out of the Great Recession, which officially ended on June 30 six years ago.

It may be jarring to hear that the vast majority of Americans, the 90 percent, enjoyed bigger income gains in the 1930s than in recent years, but that is what the data show.

The data also indicate tandem increases in both want and wealth, with the vast majority worse off in 2013 than in 2009, while those at the apex of the economy are enjoying a much larger — and growing — share of national income.

Let’s take a critical look at some of the key economic indicators.

If we assume the projections of business economists are accurate, when the May jobs report comes out on Friday, the news will be filled with stories about a record high number of jobs, breaking the old record of 138.4 million civilian jobs set in January 2008.

But such stories will be misleading because in the last six years America’s population grew by about 14 million people. With population growth taken into account, America needs more than 145 million jobs to surpass 2008’s employment percentage.

Furthermore, the share of working-age people who have work or are looking for a job —the civilian labor force participation rate — has declined. In January 2008 it stood at 66.2 percent but was down to 62.8 percent this April. Bringing the participation rate back up would require a few million more jobs.

What about the average hourly wage for private sector workers? The 2014 Economic Report of the President shows (see table B-15) that it rose in 2013. But the increase, after inflation, was just 12 cents an hour — a blip of about six-tenths of 1 percent.

More revealing, the average hourly pay of $20.13 last year was smaller than in 1972 and 1973. Back then, the inflation-adjusted hourly average was about 6 percent higher. In other words, people in 2013 worked 52 weeks to make what they would have made in 49 weeks back in 1972 and 1973.

Wait, it gets worse.

The presidential report shows that in 1972 and 1973 the average private sector worker was paid for 36.9 hours of work per week, but in 2013 this was down to 33.7 hours because a growing share of people can find only part-time jobs.

Combine lower pay with fewer hours, and the average weekly gross pay in the private sector dropped by 14 percent in four decades. That’s the equivalent of working 52 weeks in 2013 to earn 45 weeks’ worth of wages in 1972 and 1973. 

Part of the reason wages and salaries are smaller on average today than more than 40 years ago is the rising cost of health care. In 1972 health care spending came to 7.2 percent of the economy; last year it was 17.7 percent, the federal Centers for Medicare and Medicaid Services report.

While total compensation has risen because of health care costs, that does not mean well-being has improved. In fact, U.S. health indicators lag relative to those of other industrialized nations. It just means that our inefficient, paperwork-creating health insurance system is forcing the diversion of more compensation away from wages and into propping up health insurance companies.

There is one group of workers, however, who are doing better overall — significantly better, in fact: union members.

The federal Bureau of Labor Statistics prepares quarterly employment cost index studies to help employers calculate the pay they need to attract and retain workers.

The latest report (PDF) shows (see pages 99 and 100) that from 2001 to 2013 the all-in cost of nonunion workers rose 9 percent, but union workers were up 25 percent. All-in cost counts everything – cash pay, fringe benefits, paid time off and payroll taxes paid by the employer.

That wide disparity shows the value to workers of being able to negotiate as a group for their pay and benefits rather than individually — an idea that Congress disdains these days but supported as early as 1792 when it enacted a subsidy for the cod fishing industry. Qualifying for the subsidy required that ship owners and fishermen negotiate their share in the profits, as Rutgers business school professor Joseph R. Blasi and his colleagues show in their book “The Citizen’s Share.” 

But perhaps the most eye-opening measure of how poorly the vast majority are faring these days comes from comparing the periods after the Great Recession and the Great Depression.

The 90 percent, the vast majority, saw their income decline in 2012 compared with 2009, the year the Great Recession officially ended. Average annual income was down $556, or almost 2 percent, adjusted for inflation, to $30,997.

But in 1936, three years after the Great Depression ended, the vast majority enjoyed 31 percent more income than in 1933. The average increase, in today’s dollars, was $2,146 per household.

So while absolute incomes are much higher today, even adjusted for inflation, relatively the vast majority are becoming worse off instead of enjoying rapidly rising incomes, as happened eight decades ago.

Here is one more way to think about the economic data: the national income pie and how it is sliced.

In 2012, for the first time since data became available in 1917, the 90 percent enjoyed less than half of all reported income, an analysis of IRS data by economists Thomas Piketty and Emmanuel Saez shows.

From 1934 to 1980 the vast majority averaged more than 64 percent of all reported income. Since then, their slice of income pie has gotten steadily thinner. In 2012 they slipped to just under 50 percent.

At the same time, the top one-tenth of 1 percent enjoyed on average 4.5 percent of the national income pie from 1934 to 1980. Since then, their slice has more than doubled. In 2012 they got 11.5 percent of the pie.

Most telling: 95 percent of reported income gains between 2009 and 2012 went to the top 1 percent and a third of the gains went to the top 1 percent of the top 1 percent — a mere 16,000 households.

To sum up, there are some tiny improvements in the job and income numbers, but only if you limit the analysis to the last few years. Look back a decade or four decades or even eight decades, and the story changes from an America of growing prosperity to one of falling incomes, not enough jobs and ever fatter slices of the income pie for the elite.