Political pundits following the presidential campaigns of the candidates have agreed on one conclusion – many people appear to be angry. Experts offer this as the reason voters are backing non-traditional candidates – or outsiders.
If the analysts are correct, then the follow-up question is, why? Why are so many people angry?
Of course there can be many reasons, such as fears over foreign threats, worries about personal safety, or concerns on specific costs like health care or education.
While all of these reasons could be part of the explanation, I think another answer lies at the bottom of the frustration. Very simply, most people have seen their annual income – when adjusted for inflation – drop in the last decade. Stated another way, based on what they earn, most people are poorer today than they were ten years ago. In short, the standard of living has fallen.
Let me focus on North Carolina and provide numbers to back up this claim. But first, a little background on comparing income trends is required. Our economy goes through a pattern termed the “business cycle.” When times are good and businesses are expanding (the “up” part of the cycle), workers generally see their incomes rise. But when times are bad with unemployment rising (the “down” part of the cycle – also known as a “recession”), worker pay is cut. Thus, in comparing incomes at different years, it is important to know where the years are in the business cycle.
So let’s first compare incomes in 2006 – which was an “up” year in the business cycle and just prior to the Great Recession – to incomes in the most recent year for which data are available – 2014 – which was also an “up” year. Let’s also adjust the incomes to account for the general rise in prices – also known as inflation. We now have an apples-to-apples comparison.
On average, all North Carolina workers experienced a 7 percent drop in their annual earnings between 2006 and 2014. But there is a distinct difference by educational level of the worker.
Those with advanced college degrees (master’s, Ph.D., or professional degree) did the best – losing only 3 percent of their inflation-adjusted income. Those with an associate’s degrees lost 12 percent, high school dropouts were down 10 percent, and high school grads and workers with a bachelor’s degrees had a cut of nearly 8 percent.
Perhaps even more disconcerting are the trends in incomes between the bottom of the Great Recession for workers in 2010 and 2014. This would normally be a time when incomes rise as the economy is recovering. But only one educational group of workers – high school dropouts – had an increase in their inflation-adjusted income. All other workers saw a drop. And the modest (3 percent) gain for high dropouts was largely because this group experienced the largest (13 percent) fall in their income during the Great Recession among all the educational groups.
It should be pointed out these numbers only include what people earn from working. They don’t include public resources or programs (food stamps, Medicaid) people may use to help meet day-to-day expenses.
Still the numbers paint a disturbing picture of most people in North Carolina not getting ahead based on their own work efforts. Also, it should be stressed the same picture emerges from looking at national data. Most people in the country seem to be in the same economic boat!
Three big reasons are causing these trends for worker income – international competition, a slow-growing economy, and an ability of technology to do more of the jobs performed by humans.
More so than in the past, companies today have the ability to perform work virtually anywhere in the world. This means domestic workers are no longer only in competition with their counterparts in the country, but they also are often interchangeable with similar workers in other countries. In economics, more supply – in this case, of workers – means lower payments to workers.
The Great Recession was the deepest downturn in over 60 years, but the subsequent recovery has also been one of the slowest. Translation – the economy of the last decade has been underperforming. For businesses, this means weaker revenue projections and relatively fewer funds to pay workers.
Maybe the greatest threat to worker pay in the future is technology. As emphasized in the recent Emerging Issues Forum at North Carolina State University, technology is rapidly becoming more sophisticated and expanding its capacity to perform work tasks. Plus, the work technology is increasingly able to do includes not just routine jobs (putting the right front fender on a vehicle moving down an assembly line), but also cognitive jobs in research, teaching, retailing and medicine. One estimate forecasts technology ultimately will replace humans in almost half of today’s occupations.
So many individuals are angry and upset, and a simple reason is declining incomes. Can this situation be reversed, and how? These are questions the political candidates are addressing and that we – through our vote – may help decide!
Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.