- If you break down the data about the US economy two things become clear: the country is growing slower than decades past and less of the growth is going to average workers.
- GDP has grown much slower in the past two decades than the decades before.
- And what growth there is, more and more is going to the wealthy and less and less is going to workers.
- Dan Alpert is an adjunct professor at Cornell Law School and a founding managing partner of the New York investment bank Westwood Capital LLC.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider’s homepage for more stories.
The “booming” US economy often touted by certain politicians, and in some corners of the media, is clearly not-so great relative to history.
Economists are well aware that average year-over-year US real GDP growth in this century was a paltry 2.10% from 2000-2019, compared to an average of 3.67% during the second half of the 20th Century and 3.22% on average in the 1990s.
Yes, this century was beset by the effects of the Great Recession. But even if you exclude the two years of 2008 and 2009, in which the economy contracted, the average growth for the other 18 years was only 2.48%. The past five years delivered 2.43% growth and last year came in at an unsatisfying 2.33%.
While the growth is steady, booming it is not. And for most people, the story is even worse.
We are beginning to understand a lot more about how national income and production is shared within our society. The outcome of this broader understanding is an illustration of the degree to which current economic output is not only growing slower than in past generations, but is also contributing less to average American workers.
I will highlight two ways of examining this deteriorating situation for the average worker, using Gross Domestic Income (GDI) – instead of GDP. GDI and GDP should generally be the same, but sometimes aren’t perfectly so. And since this piece is about tracking the income side, GDI seems more appropriate.
Workers are getting less and less
More importantly, the BLS has teased out from the data the so-called “proprietors’ share” of income to labor. Individual proprietors of businesses receive their share of national income (generally about 10% to 12%) via a combination of their labor and a return capital they have invested in their enterprises.
So to truly understand the situation of ordinary employees of firms in the economy, BLS researchers have calculated away proprietors’ share and come up with a reasonable estimation of employees’ share of income.
(Quick note to wonks, the BLS uses a slightly different measure of national income (output) than I have used here, but the variances do not material impact the conclusion drawn here. I have also done some estimations for 2017 through 2019, as detailed BLS analysis of employees’ share is not yet available.).
Now, keep in mind, national income, however it is calculated, must go either to labor or to returns on capital. And not surprisingly, for those familiar with the rising level of income and wealth polarization in favor of the well-to-do in the US, the share flowing to labor has been falling for many years.
In fact, on a per capita basis, employees’ share of income fell so much during the first years of this century, that it resulted in an 11-year period during which employees’ share did not rise at all (2000 to 2011).
Accordingly, when you compare the entire stretch from 2000 through 2019 with the periods of 1960 to 1979, and 1980 to 1999, the most recent 20 years of “growth” increased employees’ per capita real dollar share of national income by only 18.32% compared with 62.11% and 52.07% during the prior two-decade periods, respectively.
So what does this all mean to the one number that many Americans use to track the health of the economy – changes in GDP?
Well, as with many other “top-line” measures of economic performance, GDP has come to be a barometer that is severely lacking in relevance to the standard of living of most people in the US.
In the case of the above analysis, this means that the portion of growth national income (GDP’s mirror image) that actually flows to employees in our economy is not only less than it once was because growth itself has slowed – but a rough approximation indicates that over the five years ending in 2019 growth in real GDI experienced by employees likely averaged a paltry 1.11% per annum, relative to the already lackluster 2.08% average rate of income growth for the economy at large.
As awful as these statistics are, it leaves one issue out of the analysis – who is receiving the employee’s share of national income? Is it flowing to the likes of CEOs, or to those further down the ladder? Moreover, when capital’s share is considered, how much of that is going to, say, the 1%, and how much represents returns on investments made by everyday families?
Currently, it is hard to answer these questions, but there is some good news coming on this front. Under bipartisan congressional pressure, and with support from the Commerce Department, the US Bureau of Economic Analysis has been instructed to draw up a prototype release of a distributional measure of growth to be presented alongside the headline GDP growth number.
This presentation, referred to as GDP 2.0 by it’s principal advocate the Washington Center for Equitable Growth, promises to provide a government-generated look at who is really benefiting from the changes in GDP announced by the BEA after the end of every quarter. And the BEA should have a beta version of its analysis available this spring.
The above chart indicates something like what Equitable Growth believes the data will tell us: that most of growth is going to wealthier people I participated in a panel on the subject with Equitable Growth’s co-founder Heather Boushey and those interested in this subject would do well to take some time to watch the video of the same. This is promising stuff.
But what is far less promising is the future for most American workers – who continue to receive a shorter end of the slowly growing stick that is the US economy.
Dan Alpert is an adjunct professor at Cornell Law School, a senior fellow in macroeconomics and finance at the school’s Jack C. Clarke Business Law Institute, and a founding managing partner of the New York investment bank Westwood Capital LLC. He has been active in investment banking and finance since 1982.