Private Pay Shrinks to Lowest Level
Private pays share of personal income has shrunk to its lowest historical level.
Private wages. A record-low 41.9% of the nation’s personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.
The article also points out that the trend is not sustainable.
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.
And the trend is not something we can lay at either party’s feet. The trend has been declining for private industry’s share of personal income since at least the 1970s and has gone on during while Democrats and Republicans have been in either the White House or in control of one or more chambers of Congress.
The comment by Paul van de Water is a bit misleading,
The shift in income shows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.
“It’s the system working as it should,” Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.
While it is true that after a recession the ratio of private industry does tend to go up, it never goes back up to the level prior to the recession. Take for example when Reagan came into the White House. At that time the ratio stood at 47.8% for private industry. In 1989 first quarter when he left the ratio was at 46.3%, even looking at the last quarter of 1988 it was only 47%. The highest it ever got was 47.9% in the second quarter of 1981 just before a recession. During what many Republicans point to as a long and strong economic expansion private industry’s share of personal income never again regained its historic high under Reagan.
When Clinton entered office in the first quarter of 1993 private industry’s share was 43.9% most likely due to the recent recession and that the employment situation took longer than expected to turn around. Despite starting at this low water mark, when Clinton left office in the first quarter of 2001 private industry’s share was 47.2% or about 0.4% below the high during Clinton’s tenure of 47.6% which was still below the 47.9% high point back in the second quarter of 1981. Once Bush got into office things only got worse as private industries share went from 47.2% down to 43%. Even as the economy grew from late 2001 through 2008 private industry’s share shrank with it typically being in the high 44.5% to 45.5% range.