Reversing the Middle Class Jobs Deficit

Alan B. Krueger Chairman Council of Economic Advisers

April 26, 2012

Figure 1: The 2000s Saw Far Weaker Job Creation Than Each of the Previous Five Decades
Nonfarm Payroll Employment
Millions 180 160
2000s 1990s +20% 1980s +20% 1960s +31% 1970s +27%
Jan. 2000Dec. 2007 +5.7%

140
120 100

80
60 40

1950s +24%

20
0 1950 1960 1970 1980 1990 2000 2010
1

Source: Bureau of Labor Statistics; CEA calculations.

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

Real Median Earnings for Full-Time Year Round Workers, 1981-2010
2010 Dollars 46,000 44,000 42,000 40,000 38,000 36,000

2010

34,000
32,000 1981

1986

1991

1996

2001

2006
2

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

Figure 3: The Share of Workers Earning a Middle-Class Income Has Been in Decline Over the Past Three Decades
Share of Full-Time Year Round Workers With Annual Earnings Within 50 Percent of the Median
Percent 68 66.1 66 64

64.8

62
60.2 60 58 59.5

56 0
1980 1990 2000 2010
3
Source: CEA calculations based on Current Population Survey March Supplement.

Figure 4: Economic Growth Turned Positive in 2009:Q3 and Has Continued for 10 Straight Quarters
Real GDP Growth
Annualized Quarterly Percent Change 6

4
2
0.5

3.6 3.0 1.7 1.3 1.7

3.8 3.9 3.8 2.5 2.3 1.3 0.4

3.0
1.8

0
2011:Q4

-2

-0.7 -1.8 -3.7

-4
-6 -8 -10 2007:Q1

-6.7 -8.9

2008:Q1

2009:Q1

2010:Q1

2011:Q1
4

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

Figure 5: Jobs Have Been Growing Since February 2010

Change in Private Nonfarm Payrolls
Thousands, Seasonally Adjusted 300 150
0 -150 -300 -450 -600 -750
Feb-10

300

150
0 -150 -300 -450 -600 -750

-900 Jan-07

-900
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
5

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

Figure 6: Job Growth in the Current Recovery is Closely Tracking the Early 1990s Recovery
Private Payroll Employment During Recoveries
NBER-Defined Cycle Trough = 100 108
106 104

1991

102
100
2001

98

Current (June 2009 Trough)

96

-36

-30

-24

-18

-12

-6

Trough

12

18

24

30

36

Months from Trough

Source: Bureau of Labor Statistics; CEA calculations.

Figure 7: Strong Economic Growth in the 1990s Helped Lift Incomes for All Quintiles
Percent 3.5 3.0

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

2.5 2.0
1.5 1.0 0.5 0.0 -0.4% 1.2%

0.6% 0.3%
0.1%

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

Percent 4.0

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

3.5
3.0 2.5 2.0 1.5 2.2% 2.1% 2.2% 2.3%

3.2%

1.0
0.5 0.0

Lowest fifth

2nd fifth

Mid fifth

4th fifth

Top fifth

Source: Census Bureau; CEA calculations.

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

Percent of Workers With Annual Earnings Within 50 Percent of the Median, 2010
Percent 100
90 80 70 60 50 40 30 20 10 0
Note: 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.

Associate's Degree or Less All Workers

Manufacturing Non56% Manufacturing 47% Manufacturing 63% NonManufacturing 49%

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

Manufacturing Employment

22
20 18 16 14 12
Dec. 2007Jun. 2009 -2.0 million

Dec. 2000Dec. 2007 -3.4 million

Jan. 2010Mar. 2012 +470,000

10 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Bureau of Labor Statistics, CEA calculations.

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

Change in Manufacturing Unit Labor Costs, 2002-2010
Percent 100

80
67.6

79.0

60 40
20.8
40.8

44.1

20 0 -20
Taiwan -23.0 -10.8 2.1 2.9

14.1

17.1

Singapore Japan United States

U.K.

Korea SwedenGermany France Canada

Italy

-40
Source: Bureau of Labor Statistics, International Labor Comparisons; CEA Calculations.

10

10 0
Portugal

30

40

60

10

30

40

60

20

50

20

50

0
Turkey

Percent 70

Percent 70

Italy Mexico Turkey

Italy Mexico Czech Rep.

Slovak Rep. Czech Rep. Slovak Rep.

Poland Austria Portugal

Hungary Korea Greece

Austria Germany Greece

Slovenia
Chile Poland

Hungary Spain
Chile

Iceland
Estonia Spain

Slovenia France
Ireland

Finland
Switzerland

Iceland Belgium
Luxembourg

Netherlands United States

Sweden

Germany Denmark
Sweden

Belgium
Israel France

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

Source: Organization for Economic Cooperation and Development, Education at a Glance 2011.
Norway Japan
Netherlands Australia U.K.

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

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

Denmark

Switzerland Luxembourg
New Zealand Norway

U.K.
Finland Australia

Ireland
Japan Canada

Estonia
New Zealand Canada

Korea

United States

11

Figure 12: College Completion Rate by Income Quartile

Fraction of Students Completing a Bachelor's Degree, by Income Quartile and Birth Year
0.75 1979 to 1982 birth cohorts
1961 to 1964 birth cohorts 0.54

0.5 0.32 0.25 0.09 0.14 0

0.05 Lowest Quartile 2nd Quartile 3rd Quartile Top Quartile
12

0.21

0.36

0.17

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