Friday, February 22, 2013

Low Incomes and a Dearth of Good Jobs Have Led to Unsustainable Dependence

During the last election cycle, the American public was subjected to a contentious debate about 'makers' versus 'takers.' Posited on one side of the argument were the industrious, entrepreneurial Americans who produce things (including jobs) and on the other side were the Americans who allegedly mooch off the government.

Republican vice presidential candidate Paul Ryan initiated the dispute when he had previously argued that 60 percent of Americans receive more financial benefits from the government than they pay in taxes.

Quite obviously, the framework for this debate was bound to be controversial. It implied that the majority of Americans are idly sitting around, just waiting for a check from the government so they don't actually have to work. Under this argument, an enormous segment of the American public is deemed as lazy, unmotivated and lacking ambition.

The proper context would be to question why the middle class has been entirely shredded and why so many millions of Americans cannot find work, leaving them to simply exit the labor force as a result. Chronic unemployment has become the new normal.

The U.S. labor market started 2012 with fewer jobs than it had 11 years earlier, in January 2001. The only reason the unemployment rate continues to drop is because people keep dropping out of the labor force.

The percentage of the civilian labor force that is employed fell every single year from 2006 to 2011, according to the Bureau of Labor Statistics. In other words, this ugly trend was already underway a full two years before the financial crisis even began.

Yet, those fortunate enough to have jobs are confronted by the fact that, adjusted for inflation, wages have been stagnant since the 1970s. And the prevalence of low-wage jobs is further hampering the U.S. economy.

The U.S. had the highest share of employees toiling away at low-wage work among all developed/industrialized countries in 2009, according to OECD data. One in four U.S. employees were low-wage workers that year. That is 20 percent higher than in the number-two country, the United Kingdom.

Low-wage work is defined as earning less than two-thirds of the country's median hourly wage.

The number of employees working in low-wage jobs has been rising since 1979, according to to John Schmitt, senior economist at the Center for Economic and Policy Research.

Given these troubling developments, it should come as no surprise that government dependence has reached an all-time high.

Charles Hugh Smith spells out the stark reality quite clearly:

There are roughly 127 million people who receive government transfers or benefits. Sixty-one million recipients of Social Security and Medicare and 66 million people receiving welfare (SNAP food stamps, housing credits, Medicaid, etc.) Since there are about 115 million full-time jobs in the U.S., this means there are 1.1 government dependents for every full-time worker in the U.S. (For context, there are 315 million Americans and roughly 142 million jobs. About 38 million of these jobs are part-time that pay less than $10,000 annually. Fifty million wage earners earn less than $15,000 a year, and 61 million earn less than $20,000 annually.)

The Federal government counts a person who is self-employed and earns $100 a year as "employed" and a person who works one hour a week as "employed." As a result, the only meaningful metric is full-time employment.

A new research paper by Patrick Tyrrell and William W. Beach says the number of Americans receiving money directly from the federal government each month has grown from 94 million in the year 2000 to more than 128 million today.

Whether the number of Americans receiving government benefits each month is 127 million or 128 million amounts to quibbling. It is a serious problem when there are just 115 million full-time workers subsidizing that many of their fellow citizens.

It's not even a matter of morality, or charity, or fairness; it's a matter of practicality and sustainability.

It's reasonable to ask how long the federal government can afford to support 128 million Americans every month. There will always be poor people in any society, including ours. But how can the U.S. maintain first world status with such a rapidly growing portion of poor and low-income citizens?

I wrote about the shocking upswell of low-come Americans in a recent article, Stagnant Incomes Leading to Economic Decline.

According to Census Bureau data, a record number of Americans – nearly 1 in 2 – are now classified as either poor or low income. About 97.3 million Americans fall into a low-income category, and 49.1 million fall below the poverty line and are counted as poor. This means that 146.4 million, or 48 percent of the U.S. population, is now considered to be either poor or low-income.

This is why so many millions of our fellow citizens rely on government transfer payments.

According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government. Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

Here's the breakdown of the households receiving government benefits: Social Security - 31.6 percent; Medicare - 29 percent (obviously there is a lot of overlap between the two, since those programs mainly benefit retirees); Medicaid - 19.5 percent; food stamps - 12.7 percent; subsidized lunches - 11.2 percent; public housing - 5 percent (again, there is some overlap here); unemployment - 4 percent; and veterans’ compensation - 2.6 percent.

The growth in these various programs has resulted in significant increase in the amount of income that Americans now derive from the associated government payments.

In 1980, government transfer payments accounted for just 11.7 percent of all income. Today, government transfer payments account for more than 18 percent of all income.

Low and stagnant wages, plus an insufficient number of well-paying jobs, have left far too many Americans dependent on government benefits. This is plainly unsustainable. Low wages and chronic unemployment are crippling the economy and leaving the U.S. continually vulnerable to recession. That, in turn, will increase the number of Americans in need the government safety net and continual transfer payments.

Without an abundance of middle-class jobs — millions of new ones each and every year — the U.S. economy will continue to decline. Our economic health relies on quality jobs that allow millions of low-income Americans to participate in the middle class. This would also increase the tax base and lessen the dependance on government.

At the end of 2012, just 58.6 percent of all working age Americans had a job. According to the Bureau of Labor Statistics, the percentage of the U.S. labor force that is employed has been steadily falling since 2006.

Take a look at the percentage of the civilian labor force that has been employed over the past several years. These numbers come directly from the Bureau of Labor Statistics:

2006: 63.1

2007: 63.0

2008: 62.2

2009: 59.3

2010: 58.5

2011: 58.4

2012: 58.6

As you can see, the percentage of the civilian labor force that is employed fell every single year from 2006 to 2011.

In January, only 57.9 percent of the civilian labor force was employed. So the number is trending downward once again.

As a result, the number of Americans "not in the labor force" has absolutely skyrocketed in recent years. There has been an alarming and steady rise every year since 2006:

2006: 77,387,000

2007: 78,743,000

2008: 79,501,000

2009: 81,659,000

2010: 83,941,000

2011: 86,001,000

2012: 88,310,000

In January, there were reportedly 89,868,000 Americans at least 16 years of age not in the labor force.

Despite mainstream media reports, it's obvious that unemployment is "improving" only if you pretend that millions of American workers no longer want jobs.

As long as the percentage of the civilian labor force with a job remains this low — much less continues to increase — the reliance on government benefits will persist and even grow. As it stands, the 75 million Baby Boomers will progressively become eligible for Social Security and Medicare benefits each and every year for the next two decades. That will pose a tremendous burden to this nation.

By 2033, there will be almost twice as many older Americans as today — from 43.4 million at present to 75.7 million — according to the Social Security Administration. Meanwhile, the number of workers for each Social Security beneficiary will decline from 2.8 to 2.1.

The vast number of seniors, alone, will create a tremendous fiscal burden. The additional weight of so many poor and low-income Americans also in need of support could strangle the economy. The current state of affairs cannot continue indefinitely. At some point, it will collapse.

There is certainly enough money in the U.S. economy. The problem is that it is too restricted at the top.

According to a recent study by University of California economist Emmanuel Saez, based on an analysis of American tax returns, in 2010, 93 percent of all new income growth went to the top 1 percent of American households. Everyone else, the bottom 99 percent, divided up the remaining 7 percent.

As long as that persists, the current level of government dependance will also persist — until it can be sustained no longer. At that point, it's game over. Our days as a first-world nation will be nothing more than a memory and a tale for the history books.

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