Our Bifurcated Recovery

Getting Ahead in This Recovery
This is a two-speed recovery, with those who have financial assets doing well, while those without fall behind.
Bloomberg, August 27, 2014



The Standard & Poor’s 500 Index closed yesterday at a record high of more than 2,000. Yet many people feel that the economy is weak. There are numerous reasons for this, but the one I want to focus on has to do with employment and wages.

The economy feels weak because, depending on your education, employment and skill set, it very well may be weak to you. Unlike the typical post-credit-crisis recovery, this one features disappointing gross domestic product gains, subpar job creation, stagnant wages and weak retail sales. However, those represent the average. Different employment sectors have done considerably better or worse, depending on demand and scarcity of workers in that field.

The recovery is here, it just isn’t evenly distributed.

If you are a minimum-wage worker, jobs have become fairly easy to get — just don’t expect to support a family on them. In restaurants and hotels, servers and bartenders also can find work, but you live and die on gratuities, which is never any fun. If you are a low- or medium-skill health-care worker, you too can find work. However, it probably pays less than the job you lost a few years ago.

At the other end of the socioeconomic scale, the unemployment rate for those with a graduate degree is less than 3 percent. Unemployment in STEM fields, or science, technology, engineering and math, not only is very low, the pay scales average about 50 percent more than the median for U.S. workers.

The unemployment rate in North Dakota, where there is a shale-oil boom, is 2.8 percent, the lowest in the U.S. Unofficially, unemployment doesn’t exist — anyone who wants a job there can get one.

There are many other examples of the bifurcated economy. General Motors and Ford have to sell cars financed with a version of securitized subprime loans in much the same way as housing was in the 2000s. Meanwhile Audi, BMW and Mercedes are setting sales records. And as we noted in June, if you don’t have the new $1.4 million Ferrari LaFerrari or Lamborghini Aventador Roadster, well too bad — they’re sold out for the next 12 months.

We see evidence of the bifurcated recovery in how various retailers have been performing. It is much better to be Coach or LVMH or Tiffany than Wal-Mart, Target or the various Dollar stores.

As thePew Research Center noted last year, all of the wealth accumulation in this recovery has gone to the top 7 percent of wage earners, with an increase of 28 percent, mainly because of gains in financial markets. As for the other 93 percent, its wealth has declined 4 percent.

About half of all Americans own stocks, regardless of portfolio size. Therefore a surge in the S&P 500 from 666 to 2000 is a meaningless abstraction for the other half. Say what you will about the Federal Reserve’s quantitative easing and zero interest rate policy, but unless you own stocks or can buy a house or have access to other credit, it isn’t putting much jingle in your pocket. The upper strata, on the other hand, has been benefiting mightily from these policies.

There are signs that the economy is continuing to improve, for even those who earn lower wages. However, these have been slower and more modest gains than the upper end of the income scales are enjoying.

The reason so many economists have been focusing on the inequality in wage and employment gains is how it affects the broader recovery. A virtuous cycle typically accompanies a recovery: Increased hiring leads to increased spending, leads to wage gains, leads to more robust economic growth.


I originally published this at Bloomberg on August 27, 2014


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