The 3% Economy

by Rana Foroohar,

Yes, 3% growth is better than 2%. But, for most Americans, it’s actually more worrisome.

A little over three years ago, I wrote a column titled “The 2% Economy,” explaining how a recovery with only 2% GDP growth, no new middle-class jobs and stagnant wages wasn’t really a recovery after all. Like everyone, I hoped that once growth kicked up to about 3%, middle-class jobs and wages would finally revive.

But we’re now in a 3% economy, and I’m writing the same column. Only this time, the message is more disturbing. Growth is back. Unemployment is down. But only a fraction of the jobs lost during the Great Recession that pay more than $15 per hour have been found. And wage growth is still hovering near zero, where it’s been for the past decade. Something is very, very broken in our economy.

It’s a change that’s been coming for 20 years. From World War II to the 1980s, according to data from the McKinsey Global Institute, it took roughly six months after GDP rebounded from a recession for employment to recovery fully. But in the 1990–91 recession and recovery, it took 15 months, and in 2001 it took 39 months. This time around, it’s taken 41 months–more than three years–to replace the jobs lost in the Great Recession. And while the quantity has come back, the quality hasn’t. The job market, as everyone knows, is extremely bifurcated: there are jobs for Ph.D.s and burger flippers but not enough in between. That’s a problem in an economy that’s made up chiefly of consumer spending.

If this trend is left unchecked, we are looking at a generation that will be permanently less well off than their parents.

It’s easy to understand why. Much of the population is desperately trying to educate its way out of a terrifying cycle of downward mobility. But students are fighting strong structural shifts in the economy. While technology-driven productivity used to be what economists said would save us from jobless recoveries, technology these days removes jobs from the economy. Just think of companies like Facebook and Twitter, which create a fraction of the jobs the last generation of big tech firms like Apple or Microsoft did, not to mention the multitude of middle-class positions created by the industrial giants of old.

And we’re just getting started: consider the outcry in certain cities over companies like Zillow, Uber and Airbnb, which are fostering “creative destruction” in new sectors like real estate, transportation and hotels. McKinsey estimates that new technologies will put up to 140 million service jobs at risk in the next decade.

What I do see is growing discontent with the economic status quo. In my 2011 column I wrote, “It’s clear that the 2% economy heralds an era of even more divisive, populist politics–at home and abroad.” Ditto the 3% economy.

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