News From Terre Haute, Indiana


August 7, 2011

Fewer people are working and working for less

The recession is over. The recession is not over. The recession is so close to being over that it might as well be over.

Just a few weeks ago, we were able to say the recession is over. Then the data were revised so that the latest information indicates the recession is very nearly over. Yes, Gross Domestic Product (GDP), that fickle measure of the value of goods and services produced in our country, is currently estimated to be just 0.4 percent below the pre-recession high in the fourth quarter of 2007. Indeed, just give us another $56 billion in output and we’ll be over the hump.

Yet, as we know too well, the nation’s employment is lagging. In June this year, there were 6.6 million fewer jobs than four years earlier. Indiana has 195,000 fewer jobs, a deficit of 7.5 percent compared with the national shortcoming of 5.6 percent.

What happens when the demand for labor decreases?

You’re correct. The wages of workers fall. However, how far they have fallen depends on where you live. In June 2007, the average hourly wage in the United States was $20.82. To buy the same basket of goods in June 2011, you would need 8.3 percent more, another $1.73 per hour or $22.55, just to keep pace with inflation. Fortunately, the average hourly rate this past June was $22.80, 25 cents above the inflation-adjusted wage.

Clearly, the American worker is prospering, now able to buy 25 cents more in goods and services than four years ago for each hour worked. Work a full 8-hour day, and you get $2 more in goodies when the whistle blows. It might not buy a beer in a bar, but you might get a 12 oz. bottle to take home. And you should be at home, not in a bar drinking.

How about the Hoosier worker? S/he is now earning $20.30 per hour, or $1.05 less than the inflation-adjusted hourly wage for Indiana. Our current level of pay is 4.9 percent below what we would have enjoyed if we kept pace with inflation. We find ourselves with the 8th worst pay shortage among workers in the 50 states.

These data do not matter to the true Hoosier. Remember the state motto, “Ask not what goes on here, but ask what is happening in Kentucky, Illinois, Ohio, or Michigan.” As long as our performance is better than one of those four states, we are doing just fine.

Luckily, Illinois workers are behind us; they rank 3rd in the nation in falling short of meeting the inflation-adjusted wage for June 2011. Michigan and Ohio are both doing better than Indiana. Kentucky, that spoil-sport, is among the top ten states with wages in excess of the inflation-adjusted wage.

There you have it. For all practical purposes we are out of the recession in terms of output. However, we are producing about the same output as at our peak in 2007 with far fewer workers. In 31 of the 50 states, average hourly wages remain below the inflation-adjusted hourly wage. Workers in those states, as in Indiana, are not yet able to buy with an hour’s wage what they could buy 4 years ago.

Morton Marcus is an independent economist, speaker, and writer formerly with IU’s Kelley School of Business.

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