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‘A tale of 2 recessions’: As rich Americans get richer, the bottom half struggles

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The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.

The result is a splintered economic picture characterized by high highs — the stock market has hit record levels — and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.

The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.

The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.

Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.

“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership — leadership we didn’t have, and still don’t have.”

Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didn’t have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to a new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.

A historic House vote on marijuana legalization will take place later this month. We break down why Democrats are voting on the bill despite the fact that it’ll be dead upon arrival in the Senate.

And while the employment rate for high-wage workers has almost entirely recovered — by mid-July it was down just 1 percent from January — it remains down 15.4 percent for low-wage workers, according to Harvard’s Opportunity Insights economic tracker.

“What that’s created is this tale of two recessions,” said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. “There are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.”

Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.

But economists say that argument fails to see the larger picture, one where roughly a million laid-off workers are filing for unemployment benefits each week, millions more have seen their pay and hours cut, and permanent job losses are rising. The economy gained 1.4 million jobs in August, the Labor Department reported Friday, but the pace of job growth has slowed at a time when less than half of the jobs lost earlier this year have been recovered.

Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle — or even seeing their situation deteriorate further.

“If you just look at the top of the K, it’s a V — but you can’t just look at what’s above water,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “There could be a whole iceberg underneath it that you’re going to plow into.”

The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.

Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.

The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.

“The haves and the have-nots, there’s always been a distinction,” Sahm said. But now, she added, “we are widening this in a way I don’t think people have really wrapped their head around.”

A store going out of business
A customer leaves a retail store, which is going out of business, during the coronavirus pandemic. | Lynne Sladky/AP Photo

Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.

Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker — even as middle- and high-income consumers are still spending less.

But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed — and since Congress appears unlikely to extend it any time soon, if at all — “we’re likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,” Akers said.

The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.

In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.

At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.

Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.

“This is a case where the averages tell a different story than the underlying data itself,” said Peter Atwater, an adjunct economics professor at William & Mary.

While Republicans appear to be embracing the idea of further “targeted” aid, they are also touting what Trump has called a “rocket-ship” economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.

“There’s no question the recovery has beat expectations,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.

Talks between the White House and Democratic leaders, meanwhile, have been stalled for weeks. The Senate is set to return from its summer recess next week with no clear path forward on a relief package.

“People are in these bubbles,” Atwater said. “And if people aren’t leaving their homes, are not really getting out, it’s unlikely that they’re seeing the magnitude of the downside of this K-shaped recovery.”

This article originally appeared at Politico on September 7, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.


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As New Jobs Return, Employers Slash Wages

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New data has shown that while a majority of jobs eliminated during the downturn were in what we describe as the middle range of wages, the great majority of jobs added as the economy improves were low paying jobs, reported Katherine Rampell in the business section of the New York Times on Friday, August 31, 2012. This was documented in a study done by the National Employment Law Project.
 The study by Annette Bernhardt examined 366 occupations followed by the Labor Department. Bernhardt separated them into three equal groups by wages, with each representing a third of American employment in 2008.
     The middle third consisted of jobs like construction, manufacturing, and information. These jobs paid median hourly wages of $13.84 to $21.13. Over 60% of these jobs were lost during the recession. When the middle third jobs returned, they represented only 22% of total employment growth.
      In the category of higher wage occupations, those that had a median wage of $21.14 to $54.55 reflected only 19% of job losses. However, when growth in the economy began, only 20% of new jobs were the result of the upturn. This was only a 1% increase which doesn’t even cover new entrants into the labor force.
     Low wage jobs with median hourly wages of $7.69 to $13.83 accounted for 21% of job losses during the downturn. The startling fact is that low wage jobs now constitute 58% of all job growth. The jobs with the fastest growth were retail sales at a median wage of $10.97 per hour. At this salary, workers would be eligible for food stamps.
      Each category has grown by more than 300,000 workers since June 2009. Many of these new paying jobs were taken by recent high school and college graduates who were previously unemployed. Others were taken by older workers who formerly had jobs that paid much more, who were desperate.
     Mid-wage and middle class jobs have been disappearing at a rapid rate. Some of this is due to automation, but the bulk of the job loss is the result of employers taking millions of jobs overseas to low wage paying countries.
     At the same time, corporations and their Republican robots are passing so called “Right to Work” legislation which further erodes the wage structure. The labor movement, the trade unions, and their progressive allies are the only institutions that can bring back middle class livable wages.
This post was originally posted on Union Review on December 19, 2012. Reprinted with Permission.
 
About the Author: Seymour Slavin is an Independent Nonprofit Organization Management Professional at Union Review.

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America Holding Walmart’s Feet to the Fire

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Finally, someone is holding Walmart directly accountable for the abuse of workers in its contracted warehouses. “Recent discovery has established that Walmart bears ultimate responsibility for the violations of state and federal law committed against plaintiff warehouse workers,” said a court document filed in Los Angeles.  

Walmart Targeted In Warehouse Worker Lawsuit – Huffington Post  

“Wal-Mart employs a network of contractors and subcontractors who have habitually broken the law to keep their labor costs low and profit margins high. We believe Wal-Mart knows exactly what is happening and is ultimately responsible for stealing millions of dollars from the low-wage warehouse workers who move Wal-Mart merchandise.”

Warehouse Workers Sue Wal-Mart for Back pay and Damages – ABC News/Univision 

Corporate Welfare: instead of taking a small partition of their record profits, or slightly cutting CEO pay to help out their workers, Walmart wants YOU, the taxpayer, to pay for its workers’ healthcare. Just one more reason Walmart workers, and the population at large, are standing up to Walmart. 

Walmart Wants Taxpayers to Pick Up Health Care Costs – Truth Dig

Walmart wants you to think its workers love the store and love their jobs. If that’s the case, why are there unprecedented protests against the mega retailer spanning the country? Why is the store facing a lawsuit from contracted warehouse workers? Since Walmart has given us no real evidence that its workers love the store, maybe we are just supposed to take Walmart’s word for it? 

Walmart Wants You To Know That Their Workers ‘Love Their Jobs’ – Huffington Post

This post was originally posted on Change to Win on Monday, December 3, 2012. Reprinted with Permission.

About the Author: J Lefkowitz: Change to Win is a Strategic Organizing Center which focuses on using its “strength in numbers to reclaim the American Dream.” It’s target is middle class and working class Americans to hold corporations  and other large entities in our modern society accountable. You can learn more about Change to Win here.


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Corporate Profits Hit Record High While Worker Wages Hit Record Low

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A constant conservative charge against President Obama is that he is inherently anti-business. However, businesses keep defying the storyline by making larger and larger profits, rebounding nicely out of the Great Recession.

In the third quarter of this year, “corporate earnings were $1.75 trillion, up 18.6% from a year ago.” Corporations are currently making more as a percentage of the economy than they ever have since such records were kept. But at the same time, wages as a percentage of the economy are at an all-time low, as this chart shows. (The red line is corporate profits; the blue line is private sector wages.):

 

Corporations made a record $824 billion in profits last year as well, while the stock market has had one of its best performances since 1900 while Obama has been in office.

Meanwhile, workers are getting the short end of the stick. As CNN Money explained, “a separate government reading shows that total wages have now fallen to a record low of 43.5% of GDP. Until 1975, wages almost always accounted for at least half of GDP, and had been as high as 49% as recently as early 2001.”

This post was originally posted on Think Progress on December 3, 2012. Reprinted with Permission.

About the Author: Pat Garofalo is the Economic Policy Editor for ThinkProgress.org at the Center for American Progress Action Fund. Pat’s work has also appeared in The Nation, U.S. News & World Report, The Guardian, the Washington Examiner, and In These Times. He has been a guest on MSNBC and Al-Jazeera television, as well as many radio shows. Pat graduated from Brandeis University, where he was the editor-in-chief of The Brandeis Hoot, Brandeis’ community newspaper, and worked for the International Center for Ethics, Justice, and Public Life.


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The Filthy Rich Shout “Greed Is Good” and Party With The Politicians

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jonathan-tasiniWhen I wrote the “The Audacity of Greed” in 2008, I had a chapter called “Vodka and Penises” which detailed a rather unique birthday party thrown in Sardinia, Italy, in 2000 by Tyko CEO Dennis Kozlowski in honor of his wife–it featured vodka spraying from the penis of a replica of Michelangelo’s David. Kozlowski, who eventually went to jail for stealing lots of company money including the funds to pay for this little soiree, flew seventy-five guests to the Hotel Cala di Volpe where the privileged invitees played golf and tennis, ate fine food, listened to a performance by the singer Jimmy Buffett (who was paid a fee of $250,000 to appear) and enjoyed a birthday cake in the shape of a woman’s breasts festooned with sparklers on top.

It was a symbol of the greed and avarice coursing through American business.

And it ain’t over–as Leon Black is happy to demonstrate.

Let’s set the backdrop first: millions of Americans are without work, millions more can’t find decent paying work, we still are trying to dig out of a financial crisis caused largely by greed and avarice on Wall Street, we have the greatest divide between rich and poor in 100 years, and we are enduring a longer-term attack against the people by a bankrupt “free market” system that values a few CEOs over the rest of us.

No matter. The party must continue:

Last Saturday night, the financier Leon D. Black celebrated his 60th with a blowout at his oceanfront estate in Southampton, on Long Island. After a buffet dinner featuring a seared foie gras station, some 200 guests took in a show by Elton John. The pop music legend, who closed with “Crocodile Rock,” was paid at least $1 million for the hour-and-a-half performance.

And:

Mr. Black had his backyard transformed into a faux nightclub setting, constructing a wooden deck over his swimming pool and building a tent for Mr. John’s concert. After a buffet of crab cakes and steak, partygoers sat on couches with big puffy pillows.

Who was there?

The stars of music and fashion collided with a who’s who of Wall Street. Revelers included Michael R. Milken, the junk-bond pioneer and Mr. Black’s boss at Drexel Burnham Lambert in the 1980s; Julian H. Robertson Jr. , the hedge fund investor; Lloyd C. Blankfein, the chief executive of Goldman Sachs; and Mr. Schwarzman, head of Blackstone Group.Rounding out the guest list were politicians including Mayor Michael R. Bloomberg and Senator Charles E. Schumer of New York, who rubbed elbows with the media celebrities Martha Stewart and Howard Stern.[emphasis added]

And:

On Saturday night, to be sure, there was little talk of carried interest at the Blacks’ home on Meadow Lane, one of the Hamptons most desirable addresses for its panoramic views of the Atlantic Ocean and Shinnecock Bay. He counts among his neighbors Calvin Klein and David H. Koch, the billionaire industrialist.[emphasis added]

So, here is what is important to glean from this obscene affair, which underscores how we have been robbed–and how we will continue to be robbed in the future.

In my most recent book, “It’s Not Raining, We’re Being Peed On,” I wrote about “carried interest”. Private equity firms get a special tax break—it’s called “carried interest”, Rather than being taxed at the top rate of 35 percent, the private equity fund managers like Black only pay 15 percent through a loophole called “carried interest.” To understand carried interest, you have to first understand how money managers get paid in the yacht-sailing, mansion-buying world of private equity.

First, they receive a fee, which is a percentage of the funds they invest. This fee is usually in the range of two percent, and is taxed like your run-of-the-mill wage income.

Second, and far more lucratively, money managers get a fee based on the performance of their fund—a fee in the range of 20 percent. It’s the second fee that is the so-called “carried interest”—and it’s how the money managers of private equity really rake in the big bucks that pay for their Picassos, yachts and mansions.

In the normal world of taxable income (and let me say that nothing in the tax code is simple when it comes to schemes that allow people like Black to shelter their money), carried interest is taxed as investment income—at the capital gains level of 15 percent (much lower than the top wage income rate), even though most of these managers invest very little, if any, of their own money.

So, a private equity big shot honcho hauling down millions of dollars in “incentive” is taxed at a 15 percent rate, while the receptionist who works in his office, or the police officer who guards the equity baron’s property, probably earn $50,000 or so if they’re lucky—and those average working people pay a 25 percent tax rate on that income (not to mention payroll taxes), a far larger share of their income than the fellow who banks “carried interest.”

Which is how Black can afford to throw obscene birthday parties.

How “carried interest” continue to remain in place can be summed up, in large part, with two words: Chuck Schumer. Schumer has been one of Wall Street’s greatest defenders. And, while there have been calls to eliminate the “carried interest” bonanza, Schumer has blocked that effort time and again, and has also, most recently, flip-flopped on the absurd proposal to give corporate American a tax holiday on the profits companies have stashed over seas.

I understand the movtivation: Wall Street is a huge honeypot for campaign contributions. That is Schumer’s obsession.

But, keeping “carried interest” costs billions of dollars in money lost to our government’s treasury–money for schools, health care for seniors, research, and jobs.

One final point on the private equity world. Even if the “carried interest” is eliminated, we need to keep another point in mind: private equity firms make their huge profits by buying up companies and stripping them of hundreds of thousands of workers in the name of “efficiency”. The longer-term economic crisis is, at heart, a hammering down of wages–which has led to deep despair among the people who can’t make ends meet. Private equity firms have been at the leading edge of feeding that disastrous economic system.

Which is why we should care–and take notice–of the people who party and rub shoulders at these kinds of obscene events.

They just do not care.

Ultimately, for all the rhetoric, this is about the power and wealth of the business and political elite.

It is not about us. Until we torch this system.

*This blog originally appeared in Working Life on August 19, 2011.

About the Author: Jonathan Tasini is the executive director of Labor Research Association. Tasini ran for the Democratic nomination for the U.S. Senate in New York. For the past 25 years, Jonathan has been a union leader and organizer, a social activist, and a commentator and writer on work, labor and the economy. From 1990 to April 2003, he served as president of the National Writers Union (United Auto Workers Local 1981).He was the lead plaintiff in Tasini vs. The New York Times, the landmark electronic rights case that took on the corporate media’s assault on the rights of thousands of freelance authors.

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