Voters identified the economy as their top concern in last week’s mid-term elections, suggesting that despite improving job numbers, many Americans do not believe that all is well.
Sen. Joe Manchin III (D-W. Va.) did not hold back when asked to describe the historic losses by congressional Democrats: “This is a real ass-whuppin.”
Three days after last week’s election, the U.S. Labor Department reported that we added 214,000 jobs in October and the unemployment rate dropped unexpectedly to 5.8 percent — its lowest level since July 2008. Private employers added 209,000 jobs, with the number of unemployed in the nation now at just under 9 million.
October was the 56th straight month of private-sector job gains in the U.S., and monthly gains have averaged about 227,000 so far this year. Analysts say the economic expansion remains strong enough to support the current pace of hiring. Over the past six months, the economy has grown at a 4.1 percent annual rate.
So why did the Dems get taken to the woodshed? They erroneously blamed the Koch brothers for all the nation’s problems, a message that obviously fell flat with voters. By the same token, the Republicans didn’t have a lot of depth or detail to their message either – We’re against Obama.
I’m no political analyst, but I have to believe that most people consciously or unconsciously vote their paychecks.
No Bargaining Power
Coming off the Great Recession, people by and large appreciate, even cherish the fact of having a job. But they are frustrated by not having seen their paychecks grow in years. I believe it is the primary reason why one in three Americans still categorizes the economy as “poor,” according to the Pew Research Center.
Average hourly pay rose 3 cents in October. That’s just 2 percent higher than the average wage was 12 months earlier and is barely ahead of the 1.7 percent inflation rate.
The fact is that job seekers well outnumber actual jobs, and employers don’t need to offer wage increases to get and keep employees. And if they don’t, they won’t.
“While the labor market is improving and in many respects has already healed, employee bargaining power remains virtually nonexistent,” Dan Greenhaus, an analyst at the brokerage firm BTIG LLC, said in a research note.
Adding fuel to the fire, we’ve seen a wave of part-time workers as companies, post-recession, cut down on full-time jobs with benefits. Some 27.1 million Americans now hold part-time jobs, compared with 24.8 million a decade ago. Nearly all of that increase has come from workers who say they’re looking for full-time work but can’t find it.
These folks are the underemployed, and their plight may give us a truer picture of what’s happening with the labor market. In October, the underemployment rate fell to 11.5 percent, compared with 11.8 percent in September and 13.7 percent a year ago.
In short, many of the new jobs pay less than the ones destroyed in the recession.
Bring It on Home
So I find it most interesting that in even in states like Arkansas and Nebraska, where voters are generally pretty conservative, that ballot measures were passed last week to boost the minimum wage. That should tell you something.
And that something is this — the great missing link to this recovery is the fact that people are not getting raises. The recovery might feel like a recovery were it not for that fact.
The challenge then is how do we go about sharing the prosperity pie with the vast majority who work hard but see a system rigged against them. This subject matter makes me feel somewhat uncomfortable, as I realize that it might smack of socialism. That is not a road we want to take as it is not in our national psyche to go there.
I think it is clear that most Americans truly believe in a market economy and do not begrudge wealth. This American Dream of ours, which has been historically attainable to those willing to work hard, is based largely on wealth accumulation so that we could lead the good life, whatever that is. (And, of course, it differs from person to person.)
And the good part was that you didn’t actually have to be rich get to the promised land. Being middle class was perfectly fine, and being rich was, well, all the better.
Approaching an Extreme Threshold
But moods have been darkening around kitchen tables across this land, when people read about how America’s top 1 percent controls 35 to 37 percent of the country’s total wealth. Even for those who don’t begrudge the rich, that sounds, well, too extreme.
The actual income gap in the U.S. has been worsening and now is approaching an “extreme” threshold that threatens to hamper long-term economic growth. Now that’s not just some wild-eyed Occupy Wall Street protesters saying that, but rather the stalwart rating agency Standard & Poor’s.
According to an S&P report released in August, the huge gap between the haves and have-nots is crimping the U.S. economy, with the agency cutting its 10-year U.S. growth forecast to 2.5 percent, down from its forecast of 2.8 percent five years ago.
The wealth gap undermines economic growth by dampening social mobility and creating a less-educated workforce unable to compete in the global economy.
“Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring,” the report said. “The current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.”
Bottom line: this is not good for the business climate of our country, which is why even Wall Street is starting to worry about the common man.
“Without a real acceleration in wages it is hard to get a meaningful pickup in consumer spending,” said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch, in an interview with The Wall Street Journal.
An Unsustainable Divergence
A Harvard Business School study released in September said that while U.S. companies were recovering their competitive edge on the world stage since the financial crisis, workers would likely keep struggling to get better pay and benefits.
“We argue that such a divergence is unsustainable,” according to the report, which was based on a survey of 1,947 of Harvard Business School alumni around the globe.
Some 47 percent of the survey respondents said they expected U.S. companies to be both less competitive internationally and less able to pay higher wages and benefits over the next three years, versus 33 percent who thought the opposite.
My Favorite Governors Win
I was pleased to see that my favorite economic development governors were re-elected. Rick Snyder in Michigan; Nikki Haley in South Carolina, Dennis Daugaard in South Dakota, and Rick Scott in Florida, all prevailed over their challengers.
It just so happens that all are Republican governors, although I don’t put too much stock in that. I have seen governors from both parties show both great interest and great indifference toward economic development, despite their campaign rhetoric.
But these governors have actually walked the walk with economic development. They have revived the competitive business climates in their respective states, improving the economies and thereby the lives of the people living there.
Snyder’s efforts in particular have been noteworthy. Had it not been for him, certain prohibitive business taxes would not have been repealed and Michigan would not be a right to work state. That in itself is revolutionary.
But Snyder was also the impetus in forcing Detroit to file for bankruptcy in order to face the realities of a financial meltdown that had been kicked down the road too long.
Detroit, where there is very much an economic vitality happening in the downtown, is by no means out of the woods yet, but it is poised to exit bankruptcy within weeks. I am reminded of Winston Churchill’s famous quote:
“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. http://www.barberadvisors.com
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