American Workers Worse Off During Recovery

Between the last quarter of the U.S. recession, Q2 2009 and Q3 2011 nominal national income has increased 11.6%. Given the 4.7% increase in the domestic purchases price deflator that translates into a 6.6% gain, which is 2.9% at an annualized rate. A very weak recovery compared to those after the 1973-75 and particularly the 1981-82 recessions, but still clearly a recovery.

However, as the population has increased by 1.9%, per capita national income is up only 4.6%. And for the vast majority of Americans who rely primarily on income from their jobs, it gets worse. Because while real corporate profits rose as much as 49.6%, real labor income ("compensation of employees) rose only 0.9%. Given the 1.9% population increase, this means that real per capita labor income has fallen by 1% during the recovery.

It is normal for corporate profits to increase more than labor income during recoveries, just as it is normal for them to drop more than labor income during slumps. However, the divergence has been larger than normal this time, and more importantly economic growth has been much lower, creating the unusual situation where workers are worse off during a recovery. And since most Americans depend almost entirely on labor income, this means that most Americans are worse off during the recovery.