Are we Better off than 50 Years Ago?

As in any election year, it’s time to assess our financial wellbeing and ask ourselves: Are we better off? While we usually look back four years ago, it’s also insightful to consider a longer period. A better measure for unemployment than the usual monthly report from the Bureau of Labor Statistics is the labor participation rate. It not only registers the level of unemployment but also takes into account the population growth. As we all know, the net job creation in the private sector is so tepid that it not enough to keep up with the growth in population. Labor participation in the workforce has been on the decline since April 2001. This trend is likely to continue due to several factors:

  1. Technology is eliminating millions of jobs through increase in productivity or total automation.
  2. Outsourcing to cheap labor market.
  3. GDP growth has been steadily slowing down during the last three decades.
  4. Markets are saturated.
  5. Industries are getting more concentrated, thus taking advantage of economies of scale.
  6. Labor productivity is ever increasing, consequently reducing the need for more employees.

Graph 1: Labor Participation Rate 1962-2012

The labor participation rate was just 58.8% in January 1962. With 63.5% as of August 2012, our economy still employed 4.7% more people in the workforce than in 1962. So, is the US economy that worse off than 50 years ago? Well, yes and no. There are more people employed today than 50 years ago.

Comparatively, the estimated US median household income was at $6,000 in 1962 (Census Bureau). Using the CPI Inflation Calculator from the Bureau of Labor Statistics, we find that $6,000 in 1962 has the same purchase power than $43,322 in 2010. According to the Census Bureau, the estimated median household income was at $49,449 in 2010. Again, we are better off than in 1962. So, what is the general pessimism about the economy? Well, there are several obvious factors:

  1. Wages have been essentially stagnating during the last 12 years.
  2. Companies have been steadily cutting on their employee’s benefits.
  3. Competition among job seeker is keener than ever.
  4. The medium household income has decreased by $3,719 between 2000 and 2010.
  5. The Consumer Price Index went up by 27% during the same period.
  6. The job market is mainly creating low paying jobs.
  7. The net worth of the median household has plummeted since 1983, from $73,000 to $57,000 in 2010 (Source: Economic Policy Institute).

Graph 2: Great Recession Jobs Losses and Recovery Gains by Wage-brackets


(Median hourly wages for lower: $7.67-$13.83; mid: $13.84-$21.13; and higher: $21.14-$54.55)

The chart above illustrates the job’s losses and gains since the beginning of the Great Recession. The mid-wage jobs have not recovered.

There is no doubt that the economy is on the decline for the average American household. While we still enjoy a better standard of living than 50 years ago, economic trends and indicators are not in the favor of the middle-class. We have entered an era of slow economic growth, high global competitiveness, and market’s saturation in developed countries.