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Whither the Middle Class?
Jared Bernstein
Economic Policy Institute
Real Economy
• It’s official—recession, that is.• Consumer: retrenching, big time.• Investment: squeezed on credit and profit
sides• Exports/Imports: Maybe, maybe not…• Government: most reliable source of short
term growth?
-600
-500
-400
-300
-200
-100
0
100
200Ja
n-0
7
Fe
b-0
7
Ma
r-0
7
Ap
r-0
7
Ma
y-0
7
Jun
-07
Jul-
07
Au
g-0
7
Se
p-0
7
Oct
-07
No
v-0
7
De
c-0
7
Jan
-08
Fe
b-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Jun
-08
Jul-
08
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
Mo
nth
ly c
ha
ng
e in
em
plo
ym
en
t (t
ho
us
an
ds
)
Total
Private
Total and Private Payroll Employment, Jan. 07 - Nov. 08
Source: Bureau of Labor Statistics, EPI Employment Projections
Employment Declines Across Sectors
Source: Bureau of Labor Statistics
Housing Employment, Jan. 07 - Nov. 08
6600
6800
7000
7200
7400
7600
7800
8000
Mo
nth
ly e
mp
loym
ent
(th
ou
san
ds)
Source: EPI calculated housing index, including residential building, real estate, and credit intermediation
774,000 Jobs Lost (9.6%)
Manufacturing Employment, Jan. 07 - Nov. 08
12600
12800
13000
13200
13400
13600
13800
14000
14200
Mo
nth
ly e
mp
loym
ent
(th
ou
san
ds)
847,000 Jobs Lost (6.0%)
Retail Employment, Jan. 07 - Nov. 08
14800
14900
15000
15100
15200
15300
15400
15500
15600
Mo
nth
ly e
mp
loym
ent
(th
ou
san
ds)
402,000 Jobs Lost (2.6%)
Automotive Manufacturing Employment, Jan. 07 - Nov. 08
800
850
900
950
1000
1050
Mo
nth
ly e
mp
loym
ent
(th
ou
san
ds)
194,000 Jobs Lost (19.0%)
Source: Bureau of Labor Statistics
0%
2%
4%
6%
8%
10%
12%
Jan
-07
Fe
b-0
7
Ma
r-0
7
Ap
r-0
7
Ma
y-0
7
Jun
-07
Jul-
07
Au
g-0
7
Se
p-0
7
Oct
-07
No
v-0
7
De
c-0
7
Jan
-08
Fe
b-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Jun
-08
Jul-
08
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
Unemployment
Underemployment
Feb. 08: 4.8%
Feb. 08: 8.9%
Oct. 08: 6.7%
Nov. 08: 12.5%
Unemployment and Underemployment, Jan. 07 - Nov. 08
-3%
-2%
-1%
0%
1%
2%
3%Ja
n-0
7
Fe
b-0
7
Ma
r-0
7
Ap
r-0
7
Ma
y-0
7
Jun
-07
Jul-
07
Au
g-0
7
Se
p-0
7
Oct
-07
No
v-0
7
De
c-0
7
Jan
-08
Fe
b-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Jun
-08
Jul-
08
Au
g-0
8
Se
p-0
8
Oct
-08
Re
al c
ha
ng
e f
rom
pre
vio
us
ye
ar
Average Hourly Earnings
Average Weekly Earnings
Yearly Changes in Average Weekly and Hourly Earnings, Jan. 07 - Oct. 08
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics
Job Seekers Per Opening, Jan. 07 - Oct. 08
1.0
1.5
2.0
2.5
3.0
3.5
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Job
See
kers
Per
Op
enin
g
October 2008:3.3 job seekers per opening
January 2007:1.6 job seekers per opening
$50,000
$52,000
$54,000
$56,000
$58,000
$60,000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Me
dia
n I
nc
om
e,
20
07
Do
lla
rsReal Median Income, Working-Age Households,
1989-2007
2000: $58,555
1993: $50,806
2007: $56,545
Source: Bureau of Labor Statistics
Consumer Confidence (Conference Board)
0
20
40
60
80
100
120
140
160
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Co
ns
um
er
Co
nfi
de
nc
e In
de
x (
198
5 =
10
0)
Source: The Conference Board
88
90
92
94
96
98
100
102
Peak year 1 2 3 4
Years following peak year
Pea
k ye
ar =
100
1989 Lowest fifth
2000 Lowest fifth
1989 Middle fifth
2000 Middle fifth
-3%
-5%
-8%
-10%
Change in Average Real Family Income Following Peak Years,by Selected Income Quintiles
Source: EPI analysis of Census Bureau data
$13,500
$14,000
$14,500
$15,000
$15,500
$16,000
$16,500
$17,000
$17,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ave
rag
e In
com
e o
f B
ott
om
Fif
th (
2007
Do
llars
)
$56,000
$57,000
$58,000
$59,000
$60,000
$61,000
$62,000
Ave
rag
e In
com
e o
f M
idd
le F
ifth
(20
07 D
olla
rs)
Bottom Fifth
Bottom Fifth (Forecast)
Middle Fifth
Middle Fifth (Forecast)
Source: EPI Analysis of BLS data and Goldman-Sachs unemployment rate forecasts
2007 - 2009:Middle Fifth: $3,355 lost (-5.5%)Bottom Fifth: $1,128 lost (-7.0%)
Average Income of Bottom and Middle Fifths, 2000-2009 (Forecast)
Poverty Rate, 2000-2009 (Forecast)
0%
2%
4%
6%
8%
10%
12%
14%
16%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Po
ve
rty
Ra
te
Historical
Forecast
Source: EPI Analysis of BLS data and Goldman-Sachs unemployment rate forecasts
Real GDP and Unemployment: 2008q1-2009q4
Source: Goldman Sachs Forecasts
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4
GDP Growth (Forecast)
Unemployment (Forecast)
GDP Growth
Unemployment
125
130
135
140
145
2005 2006 2007 2008 2009 2010 2011 2012
Pa
yro
ll E
mp
loy
me
nt
(Mill
ion
s)
With Stimulus
No Stimulus
Employment Projections, With and Without Stimulus Package
2012 Q4: 144 million
2012 Q4: 140 million
Stimulus creates 4 million jobs by Q4 2012
Source: Mark Zandi, Moody’s economy.com
0
2
4
6
8
10
12
2005 2006 2007 2008 2009 2010 2011 2012
Un
em
plo
ym
en
t R
ate
With Stimulus
No Stimulus
Unemployment Projections, With and Without Stimulus Package
2012 Q4: 7.6%
2012 Q4: 5.5%
Stimulus lowers unemployment by 2.1% in Q4 2012
Source: Mark Zandi, Moody’s economy.com
Un-Real Economy
• Financial Markets: Dow, Nasdaq, S&P 500, Russell 2000…all down about 40% ytd.
• But: good news…Ted Spread responding (4.6 10/10; 2 11/7)?
• Housing: some signs bottom in sight, but no signs re uptick…prices still falling…inventory overhang;
• TARP: Certainly not a confidence builder yet.
• Fed: pushing on string but not giving up.
Pres/VP Elect• Fiscal constraints?
• Deficit could go as high as 6% of GDP, but debt around 40% (avg 46% in 1990s).
• Must he alter his long-term plans--hth care/energy?
• There is a time for budget austerity; this ain’t it.
• Middle-class, poor, labor agenda (EFCA, min wg, UI reform, OSHA, etc…)
Their Agenda• Morph his recovery package with House
D’s (Making Work Pay tax cuts; new jobs tax credit; mortgage relief; small biz, UI)
• Manage TARP
• Tax agenda
• Energy/Health Care
• Infrastructure (who gets the jobs?)
• Regulation (Cooper Union speech)
