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Two years after Great Recession ended, average Americans are still hurting

Job seekers line up last month at a job fair in Southfield, Mich. Two years after the end of the Great Recession, the rebound is the weakest since the 1930s.

Associated Press

Job seekers line up last month at a job fair in Southfield, Mich. Two years after the end of the Great Recession, the rebound is the weakest since the 1930s.

WASHINGTON

This is one anniversary few feel like celebrating.

Two years after economists say the Great Recession ended, the recovery has been the weakest and most lopsided of any since the 1930s.

After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven't kept up with prices at the grocery store and gas station. The economy's meager gains are going mostly to the wealthiest.

Workers' wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid 2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.

Executive pay is included in this figure, but rank-and-file workers are far more dependent on regular wages and benefits. A big chunk of the economy's gains has gone to investors in the form of higher corporate profits.

"The spoils have really gone to capital, to the shareholders," said David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto.

Corporate profits are up by almost 50 percent since the recession ended in June 2009. In the first two years after the recessions of 1991 and 2001, profits rose 11 percent and 28 percent, respectively.

Driven by higher profits, the Dow Jones industrial average has staged a breathtaking 90 percent rally since bottoming at 6,547 on March 9, 2009. Those stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.

But if the Great Recession is long gone from Wall Street and corporate boardrooms, it lingers on Main Street:

• Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

• The average worker's hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

• The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.

Hard times have made Americans more dependent than ever on social programs, which accounted for a record 18 percent of personal income in the last three months of 2010 before coming down a bit this year. Almost 45 million Americans are on food stamps, another record.

Ordinary Americans are suffering because of the way the economy ran into trouble and how companies responded.

Soaring housing prices in the mid 2000s made millions feel wealthier than they were. They borrowed against the inflated equity in their homes or traded up to more expensive houses. Their debts as a percentage of their annual after-tax income rose to a record 135 percent in 2007.

Then housing prices started tumbling, helping cause a financial crisis in fall 2008. A recession that had begun in December 2007 turned into the deepest downturn since the Great Depression.

Economists Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson Institute for International Economics analyzed eight centuries of financial disasters around the world for their 2009 book This Time Is Different. They found that severe financial crises create deep recessions and stunt the recoveries that follow.

This recovery "is absolutely following the script," Rogoff said.

Two years after Great Recession ended, average Americans are still hurting 07/01/11 [Last modified: Friday, July 1, 2011 10:12pm]
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