Reversing the Middle Class Jobs Deficit

Alan B. KruegerChairman

Council of Economic Advisers

April 26, 2012

Figure 1: The 2000s Saw Far Weaker Job Creation Than Each of the Previous Five Decades

2Source: Bureau of Labor Statistics; CEA calculations.

0

20

40

60

80

100

120

140

160

180

1950 1960 1970 1980 1990 2000 2010

1950s+24%

1960s+31%

1970s+27%

1980s+20%

1990s+20%

2000s

Nonfarm Payroll Employment Millions

Jan. 2000-Dec. 2007

+5.7%

Figure 2: Real Earnings for the Median Year-Round Worker Stagnated

3Note: Earnings adjusted for inflation using the Consumer Price Index for all urban consumers. Source: CEA calculations based on Current Population Survey March Supplement.

32,000

34,000

36,000

38,000

40,000

42,000

44,000

46,000

1981 1986 1991 1996 2001 2006

Real Median Earnings for Full-Time Year Round Workers, 1981-2010

2010 Dollars

2010

Figure 3: The Share of Workers Earning a Middle-Class Income Has Been in Decline Over the Past Three Decades

4Source: CEA calculations based on Current Population Survey March Supplement.

66.1

64.8

60.259.5

56

58

60

62

64

66

68

1980 1990 2000 2010

Share of Full-Time Year Round Workers With Annual Earnings Within 50 Percent of the Median

Percent

0

Figure 4: Economic Growth Turned Positive in 2009:Q3 and Has Continued for 10 Straight Quarters

5Source: Bureau of Economic Analysis. Shading denotes NBER recession.

0.5

3.63.0

1.7

-1.8

1.3

-3.7

-8.9

-6.7

-0.7

1.7

3.8 3.9 3.8

2.5 2.3

0.41.3

1.8

3.0

-10

-8

-6

-4

-2

0

2

4

6

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Real GDP GrowthAnnualized Quarterly Percent Change

2011:Q4

Figure 5: Jobs Have Been Growing Since February 2010

6Source: Bureau of Labor Statistics. Shading denotes NBER recession.

-900

-750

-600

-450

-300

-150

0

150

300

-900

-750

-600

-450

-300

-150

0

150

300

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Change in Private Nonfarm PayrollsThousands, Seasonally Adjusted

Feb-10

Figure 6: Job Growth in the Current Recovery is Closely Tracking the Early 1990s Recovery

7Source: Bureau of Labor Statistics; CEA calculations.

96

98

100

102

104

106

108

-36 -30 -24 -18 -12 -6 Trough 6 12 18 24 30 36

Private Payroll Employment During RecoveriesNBER-Defined Cycle Trough = 100

Current (June 2009

Trough)

Months from Trough

1991

2001

Figure 7: Strong Economic Growth in the 1990s Helped Lift Incomes for All Quintiles

8Source: Census Bureau; CEA calculations.

-0.4% 0.1%0.3%

0.6%

1.2%

Lowest fifth 2nd fifth Mid fifth 4th fifth Top fifth-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Percent

Annual Growth Rate of Real Income Across the Family Income Distribution,1979 to 2010

2.2% 2.1% 2.2% 2.3%

3.2%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Lowest fifth 2nd fifth Mid fifth 4th fifth Top fifth

Annual Growth Rate of Real Income Across the Family Income Distribution,1995-2000

Percent

Figure 8: The Manufacturing Sector Provides a Path to the Middle Class, Especially for Workers with an Associate’s Degree or Less

9Note: The median annual earnings is based on full-time year-round workers.Source: CEA calculations based on Current Population Survey 2011 Annual Social and Economic Supplement.

Manufacturing 56%

Manufacturing63%

Non-Manufacturing

47%

Non-Manufacturing

49%

0

10

20

30

40

50

60

70

80

90

100

All Workers

Associate's Degree or Less

Percent of Workers With Annual Earnings Within 50 Percent of the Median, 2010

Percent

Figure 9: Manufacturing Employment Fell Beneath Its Normal Bounds Early in the 2000s

10Source: Bureau of Labor Statistics, CEA calculations.

10

12

14

16

18

20

22

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Manufacturing Employment Millions

Dec. 2000-Dec. 2007

-3.4 million

Dec. 2007-Jun. 2009

-2.0 million

Jan. 2010-Mar. 2012+470,000

Figure 10: Domestic U.S. Manufacturers Are Increasingly Competitive

11Source: Bureau of Labor Statistics, International Labor Comparisons; CEA Calculations.

-23.0 -10.8 2.1 2.9

14.1 17.120.8

40.8 44.1

67.6

79.0

-40

-20

0

20

40

60

80

100

Singapore Japan U.K. Korea SwedenGermany France Canada Italy

Change in Manufacturing Unit Labor Costs, 2002-2010Percent

Taiwan

UnitedStates

Figure 11: Share of Population with a Post-Secondary Degree in 2009 by Birth Cohort

12Source: Organization for Economic Cooperation and Development, Education at a Glance 2011.

0

10

20

30

40

50

60

70

Port

ugal

Mex

ico

Turk

ey

Italy

Cze

ch R

ep.

Slov

ak R

ep.

Pola

nd

Kore

a

Gre

ece

Aust

ria

Hun

gary

Spai

n

Chi

le

Slov

enia

Fran

ce

Irela

nd

Icel

and

Belg

ium

Luxe

mbo

urg

Ger

man

y

Den

mar

k

Swed

en

Nor

way

Japa

n

Net

herla

nds

Switz

erla

nd

U.K

.

Finl

and

Aust

ralia

Esto

nia

New

Zea

land

Can

ada

Uni

ted

Stat

es

Share of 55-64 Year Olds With a Post-Secondary DegreePercent

0

10

20

30

40

50

60

70

Turk

ey

Italy

Mex

ico

Cze

ch R

ep.

Slov

ak R

ep.

Aust

ria

Port

ugal

Hun

gary

Ger

man

y

Gre

ece

Slov

enia

Chi

le

Pola

nd

Icel

and

Esto

nia

Spai

n

Finl

and

Switz

erla

nd

Net

herla

nds

Uni

ted

Sta

tes

Swed

en

Belg

ium

Isra

el

Fra

nce

Den

mar

k

Aust

ralia

U.K

.

Luxe

mbo

urg

New

Zea

land

Nor

way

Irela

nd

Japa

n

Can

ada

Kor

ea

Share of 25-34 Year Olds With a Post-Secondary DegreePercent

Figure 12: College Completion Rate by Income Quartile

13Source: Bailey and Dynarski (2011) based on National Longitudinal Survey of Youth, 1979 and 1997. College completion is measured by age 25.

0.09

0.21

0.32

0.54

0.050.14

0.17

0.36

0

0.25

0.5

0.75

Lowest Quartile 2nd Quartile 3rd Quartile Top Quartile

1979 to 1982 birth cohorts

1961 to 1964 birth cohorts

Fraction of Students Completing a Bachelor's Degree, by Income Quartile and Birth Year