June 2014

The State of Working America

by John R. Hendrickson

Senator Jeff Sessions (R-AL), who serves as the ranking Republican on the Senate Budget Committee, recently released an economic outlook on the state of working America since 2009.[1] In this report further evidence is given that the economy is still suffering from slow growth in the aftermath of the Great Recession. “The recession officially ended in June 2009, but by nearly every measure, the period since has seen the slowest economic recovery since the end of World War II.”[2] The report titled, “The Economy Since 2009: A Chart Book on Economic Life in Working America,” states that:

Job creation is historically low for this point in a recovery, investment is poor despite record low interest rates, and labor supply is sluggish. Every day that passes in this ‘snail economy’ sees working Americans slip further away from income gains that could have been theirs in a normal recovery.[3]

Although the media is reporting that the official unemployment rate at 6.3 percent is declining, the fact remains that many Americans have fallen out of the labor market or are reduced to working part-time or multiple part-time jobs. Unemployment is still a serious problem and the job market has “still not recovered to 2007 levels.”[4] As the report states:

February 2014 marked the 74th consecutive month when total employment failed to exceed the number employed in December 2007 when the recession began:

  • December 2007 we had 146,273,000 people working;
  • February 2014 we had 145,266,000 people working;
  • Difference is a shortfall of 1,007,000.[5]

The serious nature of the unemployment problem is explained by Senator Sessions’ report:

The inability of the economy to create jobs following the end of the 2007 recession explains much of the decline in the labor force participation. By February of 2014, the participation rate had fallen to 63 percent of the civilian population, which is the lowest level since April 1978, 36 years ago. It stood at 65.7 percent when President Obama took office in January 2009. Nearly all of the improvement in the unemployment rate is attributable to people dropping out of the labor force altogether. Since the end of the recession in 2009, an estimated 4.5 million workers have simply stopped working and looking for work. More worrying is the number that has disappeared since the recession started: 9.7 million people have dropped out over the past six years. Over two-thirds of these dropouts are under the age of 55.[6]

Incomes for working Americans have also remained stagnant or even declined. More Americans are on food stamps or receiving some form of government assistance. “Household incomes adjusted for inflation have steadily declined since 2009, wages plus benefits for most workers are lower today than three years ago, and the fastest growing segment of the population is households with incomes below $35,000.”[7] Overall “median household income has fallen an average of $2,268 per household…”[8]

In response to this, Democrats are calling for additional spending, as demonstrated by President Barack Obama’s recent budget proposal, and by increasing the federal minimum wage from $7.25 to $10.10 per hour. Many Governors and State Legislatures are also being pressured to implement a similar increase in the minimum wage.

Unfortunately increasing the minimum wage is not the solution to restore income and economic health to the middle-class. In Iowa it is estimated that if the minimum wage is increased to $10.10 per hour as many as “20,100 fewer jobs” would be created.[9]  The solution also does not reside in more stimulus or “investment” spending, because not only has this failed as a policy, but the federal government is confronted with a massive debt over $17 trillion.

Former Senator Rick Santorum (R-PA), who recently released his book Blue Collar Conservatives, recommended a few policy ideas that would cause the economy to strengthen. Some of Santorum’s ideas included:

  • Cut the corporate tax rate for domestic manufacturers from 35 percent to zero;
  • Repatriate foreign income at a 5 percent tax rate rather than the current 35 percent to bring those revenues home to be invested in America;
  • Increase the R&D Tax Credit from 14 percent to 20 percent and make it permanent;
  • Reduce the regulatory burden that stifles innovation, starting with the complete repeal of ObamaCare, Sarbanes-Oxley, and Dodd-Frank;
  • Expand domestic energy exploration to lower costs for manufacturers and create high-paying manufacturing jobs.[10]

These policies along with cutting spending and reducing the national debt, which must be a priority, would do more to reverse the current economic decline and restore both the national economy and improve the quality of life of many working Americans who are struggling from paycheck to paycheck.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Senator Jeff Sessions, “The economy since 2009: A chart book on economic life in working America,” United States Senate Budget Committee, April 24, 2014, <http://www.budget.senate.gov/republican/public/index.cfm/budget-background?ID=feb2c3f4-d4d0-4216-9772-7711ee01741f> accessed on May 16, 2014.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Senate Budget Committee, “Iowa: Impact of Minimum Wage Increase,” February 20, 2014, <http://www.budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=ce759bc2-200e-44c0-b330-7af9a51a6dd2> accessed on May 16, 2014.

[10] Rick Santorum, “Recommitting to an America that works,” Townhall.com, April 28, 2014, <http://townhall.com/columnists/ricksantorum/2014/04/28/bemidji-woolen-mills-n1829458/page/full> accessed on May 16, 2014.