Report: Income growth missed workers
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If your boat did not rise when the financial tide was in, you aren't alone.
And now that the tide is out, most Pennsylvanians are sinking even deeper.
The Keystone Research Center released its annual economic report, "The State of Working Pennsylvania," today that details how, in the seven years leading up to the "Great Recession," real wages for all but the top 5 percent of Pennsylvania workers dropped.
Only those earning more than $87,000 a year did not see inflation-adjusted wages decline from 2001 to 2008. And even the earners in the top 1 percent had huge disparities in income growth with the top .01 percent seeing their incomes increase by 50 percent between 2001 and 2006 while the entire top 1 percent saw their incomes increase by 37 percent.
The report noted that the top 1 percent of Pennsylvania earners pocketed 68 percent of the growth of the state's personal income between 2001 and 2006, while the average income of the bottom 90 percent dropped by 4.5 percent in that time.
So, while much wealth was being created and some went to pay for rising health-care costs, Mark Price, an author of the report, said most of the wealth created between recessions was not distributed to the people who created it. Instead it was kept by the upper echelons, such as the upper management of companies and the financial sector, which the current economic crisis has shown has made up a much bigger share of the economy than economists previously understood.
The current recession, however, is not nearly as bad in Pennsylvania as the 1981 recession. In the early 1980s, when the steel mills were closing, working Pennsylvanians were living at the center of the economic storm. This time the state is more removed from the economic troubles.
"This recession, at the national level, has been the worst ever since the Great Depression, but here, this recession still isn't as bad as 1981 for us," Mr. Price said.
While California, Florida and Arizona were pounded by the bursting of the housing bubble that made up so much of the economy there, Pennsylvania has been spared much of that pain.
Mr. Price predicted: "For the next five or six years they are going to be much worse off than we are. It's going to take a long time for them to work off the problems they have."
Wages aren't just stagnant in Pennsylvania, Mr. Price said, but have been declining across the country while the boom was driven by debt financing, particularly mortgages.
He said many people borrowed based on their true ability to pay, but that when they lost jobs, they could not pay those mortgages. He said a similar thing happened a quarter-century ago in Pennsylvania when people with solid jobs in 1975 took out 30-year mortgages that were too much of a burden in the 1980s when they lost those good steel mill jobs.
The study said that while the immediate reactions of the federal government to rescue banks and pass a stimulus spending bill were effective, other steps need to be taken to shore up the middle class, such as strengthening unions, which have traditionally taken the role of protecting wages.
And wages at the bottom of the scale need to be increased.
"Even though we did have a minimum wage increase, it hasn't compensated for the ground that that group of workers lost from the 1970s on," he said.
Mr. Price said the state government has to be careful not to cut spending, because every $1 billion cut means that 20,000 people will lose their jobs. Instead, he said, the state should increase taxes on interest and dividends, the type of money earned by those in the top economic tiers.
First Published September 6, 2009 12:00 am
