Look beyond labour market figures to understand US economic health

High inequality masks weaknesses in the US

On 7 April, the US released a much-anticipated jobs report, which promised a look into the status of an American economy under pressure from the dual combination of inflation and contractionary monetary policy. What the report showed was a slight cooling of the labour market: new jobs fell to 230,000 as the labour force size increased. The Wall Street Journal commented that these results are ‘not comforting to workers since they are falling behind inflation, but it’s good news for the Fed.’

Despite signs of weakness emerging, the US economy remained robust, and fears about recession were, at least in the immediate term, overblown. The cautious optimism that has defined much of the mainstream reporting on the US economy is perhaps best summed up by Jamie Dimon, chief executive officer of JP Morgan, who remarked that ‘looking ahead, the positives are huge,’ and consumer balance sheets are in ‘great shape.’

Such pronouncements are, however, very difficult to reconcile with the lived experience of millions of middle- and lower-income households. Covid-19 stimulus provisions (including the bolstered Supplementary Nutrition Assistance Program benefits) have been mostly eliminated. The over 7% growth in food prices has coincided with a decline in spending on food by families, and today one-quarter of American adults struggle with food security. Child poverty has increased, in part because of the end of Covid-19 SNAP benefits. Americans continue to struggle with underemployment and extremely low savings, and 40% of low-income households have trouble paying for medical care.

Of particular concern to the economy as a whole is the growth in household debt figures. Despite the seemingly robust job market, household debt has been growing significantly. There are 20.5m Americans behind on utility payments, and 25m Americans are behind on credit card, auto or personal loan payments. Such debt is concentrated in economically disadvantaged groups, and over the last year, millennials have been taking on debt at historically high rates. In total, we are currently seeing the fastest pace of debt accumulation over a three-year period since the 2008 crash.

The dissonance between commonplace proclamations about US economic health and the experiences of millions of Americans can effectively be explained through three dynamics. First, the role of outsourcing, technological change and anti-worker policies and practices in hollowing out the American middle class.

Second, the rise of monopsony dynamics in local labour markets, which has meant that the low-income share of the labour force behaves very similarly to a loose labour market, with truncated worker power, even when it appears otherwise tight. The result is suppressed real wages.

And third, the US has ‘paved over’ vast socioeconomic inequalities through access to cheap credit, allowing Americans to shoulder financial burdens through debt reliance.

It is well established that such ‘financialisation’ of the US economy led to a self-reinforcing cycle of inequality and household debt growth. And it explains why the bottom 90% of Americans are net ‘dissavers’, while virtually all net savings and capital are concentrated in the top 10% of households by wealth.

These three dynamics explain the reasons why labour markets can appear robust, all while Americans’ lived experiences suggest more dire economic conditions. And it provides an effective example of how high inequality poisons an economy. Worse than unsustainable, such inequality is damaging to the US economy as a whole and ultimately hurts everyone.

Research – from the International Monetary Fund and the Organisation for Economic Co-operation and Development, for instance – makes it clear that inequality makes recessions deeper, growth harder to sustain and can kindle the rise of financial speculation, in part through the decline in equilibrium interest rates. This is to say nothing of the sociopolitical and cultural damage brought on through decades of growing economic concentration.

In the coming weeks, we are likely to hear more pronouncements on the US economy and its economic health, as indicated by labour markets. We should look beyond such analysis and instead consider what matters most: whether people have the capacity to live mobile, decent and dignified lives.

To read more, a longer version of this article was published in Jacobin here.

Julian Jacobs is Senior Economist at OMFIF.

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