America Gets a Raise, Finally. Thank Lower Participation

Workers can thank tightening labor markets, there are more job openings relative to workers, employers must compete harder for labor, pushing wages higher.

The U.S. economy is a remarkably resilient engine of prosperity, as the Census Bureau’s annual snapshot of incomes and poverty showed on Tuesday. Despite year after year of new tax and regulatory burdens, Americans got an impressive raise for the first time under President Obama.

The top-line news is that real median household income—the halfway point of the earnings distribution—jumped 5.2% in 2015, rising $2,798 to $56,516. This is the first increase in income seven years after the recession officially ended in June 2009 and the fastest single-year boost on record since the Census started taking this survey in 1967. As notable, the gains were shared across most income and demographic groups, with the greatest improvements concentrated among less affluent workers.

Workers can thank tightening labor markets in most regions of the U.S., which were slack for too long. When there are more job openings relative to workers, employers must compete harder for labor, pushing wages higher. Too many workers have left the labor force altogether since 2009, but the jobless rate for those who remain has fallen to 4.9% and skilled positions can be hard to fill.

Then again, the tragedy is that notwithstanding the 2015 gains, the median worker is still worse off than he was in 2007, when real median household income was 1.6% higher, or in the peak year of 1999, when income was 2.6% higher. Median income tends to fall during recessions. The striking fact of the Obama economy is that it continued to fall even during the recovery, including from 2013 to 2014.

The progress last year starts to catch up and reflects the pent-up energies of a dynamic economy. But the post-2009 period still hasn’t posted the 3%-4% growth spurt that is typical for expansions, especially after a deep recession. Imagine how much better off the average worker would be had Washington opted for more constructive fiscal, monetary and regulatory policies over the late 2000s and 2010s.

Liberal economists have labored to explain away the record of the Obama slow-growth era by citing “secular stagnation” since 2000 or so, which is a claim that no one really knows what produces faster expansions. The much-maligned George W. Bush expansion is always conscripted into this narrative, but growth averaged more than 3% from 2003-2006 and by 2007 median income had recovered from the shallow 2001 recession.

The best growth rate during the Obama years has been 2.5% in 2010. This under performance is the result of misguided policy choices that have produced the worst expansion since World War II.

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