I’ve been a professional economist for almost 40 years, but it doesn’t take someone in my profession to know people disagree about the economy. Indeed, a recent poll showed people split almost 50-50 between satisfaction or dissatisfaction with the economy and whether the economy is improving or declining.
Some say the economy is good and getting better, with a bright outlook. Others say the economy is in trouble and needs a dramatic overhaul.
How can these divergent views be explained? Let’s start by looking at the evidence from perhaps the most-followed element of the economy: jobs. North Carolina lost more than 335,000 payroll jobs during the Great Recession. The state’s job market hit bottom in early 2010, but since then, North Carolina has added almost 380,000 payroll jobs. But that means the state is only 44,000 jobs ahead of where it was before the recession in early 2008.
At the end of last year, 250,000 individuals were officially classified as unemployed, representing 5.4 percent of the labor force. Both the number and rate are less than half of what they were at the height of the recession.
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However, this measure of unemployment has well-known problems. First, to be officially counted as unemployed, an individual must have actively looked for a job in the last month. A second issue is that “underemployed” individuals – those working less than they want – are not included in the measure.
If individuals who want a job but who have given up looking for work are included, the state’s jobless rate in 2014 was 7.6 percent. Further, if those individuals working part-time only because they can’t find full-time work are also included, then the state’s jobless rate rises to 12.1 percent for 2014. Both these rates are well below their recessionary highs, but they do suggest a more serious problem in the job market than indicated by the official unemployment rate.
What about the quality of jobs added in the last five years? Job quality is a broad concept, but a starting point is pay. The average hourly wage for private sector jobs in North Carolina is $22. So let’s call jobs paying more than $22 an hour high-paying jobs; jobs paying around $22 per hour will be termed middle-paying jobs; and jobs paying less than $22 an hour will be labelled low-paying jobs.
During the last five years of job recovery in the state, 40 percent of jobs added have been high-paying jobs, 19 percent have been middle-paying jobs, and 41 percent have been low-paying jobs. This pattern of large gains in both high-paying and low-paying jobs with much smaller gains in the middle has been the norm in both North Carolina and the nation in the 21st century. Interestingly, the almost equal split between high-paying and low-paying jobs mirrors the 50-50 split seen in polls between optimism and pessimism over the economy.
Moving beyond jobs also reveals some divisions in our economic condition. Total household wealth (the value of investments minus the value of debt) has rebounded from the big hit it took during the recession. But surveys of household finances show the gains have been much stronger for higher-income households than for lower-income households. Studies also show that young households that have taken their first job at lower pay because of the recession will have significantly lower lifetime incomes than their counterparts in previous generations.
Another measure of economic well-being is the percentage of household income spent on necessities – items like food, shelter, utilities, clothing, transportation and health care. For all households, the latest data show spending on these items takes 68 percent of income, slightly higher than the 67 percent in 2008.
But again, there is a difference in the trends for high-income and low-income households. High-income households have seen the share of their income devoted to necessities decline since before the recession, whereas low-income households have experienced the opposite – an increase in their income share going to necessities.
Here’s one last economic observation. Although consumer debt is now rising – it’s up 4 percent in the last five years – household monthly payments for borrowing are at a 30-year low. Of course, this is compliments of the tremendous drop in interest rates that occurred during the recession and continued even as the economy improved. But many economists think the super-low interest rates won’t last forever; so when they rise, households (and governments) might be in for a shock.
For me, this review of recent economic changes goes a long way toward explaining the divide we feel about the economy. More people in North Carolina have jobs, but many still don’t, or they are working less than they want. The economy is creating just as many low-paying jobs as high-paying jobs, and middle-paying jobs are adding the least. While debt burdens – in aggregate – have eased, lower-income households are paying more of their income for necessities, whereas it’s just the opposite for higher-income households.
So you decide: Is this why we have such different views for the outlook of the economy?
Dr. Mike Walden is a professor and N.C. Cooperative Extension economist in the Department of Agricultural and Resource Economics at N.C. State University.