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Kerry's Dubious Economics

He says new jobs are paying $9,000 less than the old ones. That's not a fact.

August 3, 2004

Modified: September 1, 2004

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Summary

 

In his acceptance speech at the Democratic National Convention July 29 Kerry repeated a claim that the economy is creating jobs that pay $9,000 a year less than those they replace. He bases that on disputed analysis from a liberal think tank.

In fact, economists disagree about whether jobs are getting worse or better. As we said before, there's evidence both ways. Even some Democratic economists say the economic numbers are simply too rough and contradictory to allow any conclusion about the direction of change, let alone about how much less or more the new jobs pay.

Kerry also said "wages are falling" when in fact they are increasing. It's true wages haven't kept up with inflation for the past several months. But even after adjusting for inflation they're still higher than when Bush took office.

And when Kerry said the "middle class is shrinking," he was referring to what happened in the recession of 2001 and the initially slow recovery of 2002. But the economy has picked up considerably in the 19 months since, so what was true then may be untrue when phrased in present tense.

Notice: See our article posted Sept. 1 citing Census figures released after this article was posted, and showing a continued slide in middle-income households in 2003

Analysis

 

Kerry continued to talk down the economy using dubious statistics. When he formally announced his candidacy in September 2003 he claimed the nation was suffering the "greatest job loss since the Great Depression," which we pointed out was not true. Now he's saying that the jobs the economy is adding are paying $9,000 less than the jobs they replace. That's not a fact, either.

The Economy

According to Kerry

(from acceptance speech 7/29/2004)

Kerry: And here at home, wages are falling, health-care costs are rising, and our great middle class is shrinking. People are working weekends -- two jobs, three jobs -- and they're still not getting ahead.

We're told that outsourcing jobs is good for America. We're told that jobs that pay $9,000 less than the jobs that have been lost is the best that we can do. They say this is the best economy that we've ever had. And they say anyone who thinks otherwise is a pessimist. 

Well, here is our answer: There is nothing more pessimistic than saying that America can't do better. 

$9,000 less?

Kerry bases his claim on an analysis of Bureau of Labor Statistics data by the Economic Policy Institute. But the EPI figures don't support what Kerry said, because they don't actually compare new jobs and old jobs -- only broad averages for entire industries. And as we reported July 9, other BLS numbers that compare occupation groups within industries tell a completely different story -- showing higher-paying groups growing faster than lower-paying groups.

We also said then that there's evidence on both sides of the good-jobs, bad-jobs debate, that there's no economic data detailed enough to settle the matter, and that economists disagree about whether job quality is improving or not. All that continues to be true.

Brookings Institution economist Barry Bosworth, a former Carter administration official, says Kerry's approach is "very misleading:"

Bosworth: We shouldn't be in the business of trying to compare the rates of jobs lost to those gained because we just don't have the information right now to do it.  Trying to measure the gross flow of jobs is really futile.

Economist Laurence H. Meyer -- who was a Clinton appointee to the Federal Reserve Board --  calls Kerry's characterization an exaggeration. Meyer told FactCheck.org:

Meyer: It's overhyped. . . . There is an element of truth to people feeling hard-pressed and less secure in their jobs. But while this is happening, the U.S. is rapidly seeing increasing productivity rates which will effect an increase in the standard of living.

On the other hand,Kerry gets some support from Stephen Roach, chief economist for Morgan Stanley. Roach calls the hiring of the past four months "decidedly subpar" and "a decidedly low-quality improvement in the US labor market." But Roach stops well short of proclaiming a $9,000 gap between new and old jobs.

Opposite Conclusions

Partisans all use the same data from the BLS, but arrive at opposite conclusions. The Republican staff of the Joint Economic Committee of Congress issued a news release July 7, comparing occupations (such as managers) rather than industries (such as the restaurant business) The GOP economists found BLS data showing 71% of the job growth in the past year was among three higher-paid groups: managers, constructions trades and repair/maintenance occupations. Economist Bosworth said those figures are just as misleading as Kerry's, since no BLS figures can match each job lost against each new job.

Greg Valliere, chief political strategist at Schwab Soundview Capital Markets in Washington, was quoted by Bloomberg News as saying both sides are looking at the economy through a political prism.

``On the right, people are saying that these are wonderful new jobs, on the left they are not very good jobs,'' Valliere said. ``In truth, most economists would tell you they're not sure.''

What we said in our July 9 article bears repeating:

FactCheck.org: No survey we know of even attempts to compare the specific jobs lost with the specific jobs added throughout the whole economy. Statistics solid enough to settle the question definitively just don't exist.

Displaced Workers

Whatever the statistics may eventually show about the overall quality of current hiring, Kerry's remarks will still ring true for millions who haven't found jobs as well-paid as those they lost. The day after Kerry spoke, the Bureau of Labor Statistics released results of a "displaced worker" survey  conducted every two years.

It found that during the three years ending last January, 5.3 million workers were displaced from jobs they had held for at least 3 years. Of those so-called "long-term displaced workers," 20 percent were still out of work and 15 percent had left the workforce entirely at the time the survey was conducted in January. Only 65% were re-employed.

Most who found new jobs weren't making as much as they did before. Of those who had been in full-time jobs and who were also re-employed in full-time work, 57% were earning less.

That doesn't do much to support Kerry's dubious $9,000 figure. For one thing, 30% of those who lost fulltime work and who were re-employed found jobs that paid at least as well or better than the ones they had before. Furthermore, the survey isn't representative of the whole workforce.

Earlier surveys of displaced workers also show that even in boom times they've had trouble finding jobs as well-paid as the ones they lost. But e economist Bosworth says it's worse this time. "What we are seeing now is that the wage difference has gotten larger," he says.

"Wages Are Falling"

Kerry also said in his acceptance speech that "wages are falling." In fact, wages have increased steadily. Kerry would be correct to say that in recent months, wages haven't kept up with inflation -- mostly due to surging food and oil prices, not falling pay rates. But even after adjusting for the recent spike in inflation, average hourly earnings have increased since Bush took office.

Average Hourly Earnings

Since Bush Took Office

Change

Before Inflation

After Inflation

Jan-01

$14.27

Jun-04

$15.65

9.7%

2.1%

Since July 2003

Jul-03

$15.40

Jun-04

$15.65

1.6%

-1.4%

Source: BLS Average Hourly Earnings & Average Hourly Earnings in 1982 Dollars

 

 

 

This table tells the story. BLS figures show that average hourly earnings for fulltime production workers went from $14.27 when Bush took office to $15.65 in June. That's an increase of 2.1% even after adjusting for inflation.

Hourly earnings have been rising steadily in the past year as well, gaining 1.6%. That would have kept just even with inflation except for a spike in volatile food and energy prices over that period. After adjusting for all prices, however, hourly earnings fell 1.4% since July 2003.

So Kerry would have been accurate to say that wages haven't kept pace with inflation recently. But Bush would be equally accurate to say wages are higher during his time in office.

"Our great middle class is shrinking?"

(Notice: The figures cited here were the most recent available at the time Kerry spoke, but see our article posted Sept. 1 for more recent figures that support Kerry's description of a shrinking middle class.)  

Kerry's claim that "our great middle class is shrinking" is based on some pretty stale numbers. Phrased in the present tense it may well be untrue.

Shrinking Middle Class?

(Income in 2002 dollars, adjusted for inflation)

 

Under $25,000

$25,000-$75,000

Over $75,000

Change,

2000-2002

+1.4%

-0.8%

-0.4%

Distribution in 2002

29.3%

45.7%

25.1%

Source: Table A-1, Income in the US: 2002

(Note: Doesn't add to 100% due to rounding)

Kerry's aides say he's referring to what happened in 2001 and 2002, as reflected in the most recent annual income figures from the Census Bureau. Those figures do show a decline in median household income, which went down by 3.3% in the two years ending in 2002.

Update: Kerry's Economic Policy Director Jason Furman said Aug. 5 that the "shrinking middle class" remark also is based on unemployment figures and statistics on weekly average wages. (See below).

If the "middle class" is defined as those households with income between $25,000 and $75,000 (in dollars adjusted for inflation to 2002 levels) then that group did indeed shrink slightly during those two years. That shouldn't be surprising. There was an eight-month economic recession that started in March, 2001, and the unemployment rate climbed from 3.9% at the end of 2000 to 6.0% at the end of 2002.

During those two years, the share of households with less than $25,000 in income rose by 1.4 percentage points, while those in the middle declined by just under one percent. The middle did shrink. It's also true that the share of households in the top group also shrank. Those with income over $75,000 a year declined by 0.4%.

But Kerry naturally said nothing about the "declining upper class."

In any case, those numbers are nearly two years out of date.

Update: Furman, the Kerry aide, said Aug. 5 that he sees “no evidence that this decline (in middle-income households) has been reversed, and even some that it may have gotten  worse.”

Furman noted, correctly, that the unemployment rate for 2003 rose slightly to 6 percent (annual average) from 5.8% in 2002. He also noted, correctly, that inflation-adjusted average weekly earnings of rank-and-file production workers during 2004 have averaged slightly less – nearly two-tenths of one percent – than the average for 2002.

More recently, unemployment has declined to 5.6% in June, lower than the annual average for 2002 or 2003. Also, a different set of income figures collected quarterly by the Department of Commerce show income per capita (from all sources, not just wages) rose significantly faster than inflation in 2003.  What remains to be seen is how that rising income has been distributed among different households. That question should be answered when the Census Bureau releases its annual household income survey at a news conference scheduled for Aug 26. Depending on what those figures show, the "middle class" could well be growing , as it did during the last economic expansion.

 

Sources

 

Text of John Kerry's Acceptance Speech  at the Democratic National Convention, FDCH E-Media, Inc as posted by WashingtonPost.com, 29 July 2004.

Art Pine, "Kerry's `Quality of Jobs' Argument Gains Wall Street Support," Bloomberg News, 19 July 2004.

Stephen Roach, "America's Job Quality Trap," US Investment Perspectives, Morgan, Stanley & Co., 14 July 2004.

Republican House Staff, "Recent Job Growth is Mostly in Well-Paid Occupations," Joint Economic Committee, 7 July 2004.

"Displaced Workers Survey 2001-2003," Bureau of Labor Statistics, 30 July 2004.

DeNavas-Walt, Carmen, Robert Cleveland and Bruce H. Webster, Jr., U.S. Census Bureau, Current Population Reports, P60-221, "Income in the United States: 2002," U.S. Government Printing Office, Washington, DC, 2003.

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