And so less Investing, saving, and spending
Washington, D.C., September 26, 2016 – Income inequality continues to be a growing issue for the American public and legislators.
Last week, the Small Business and Entrepreneurship Council (SBE Council), a nonpartisan, nonprofit advocacy, research and education organization working to protect small businesses and promote entrepreneurship, released its “Gap Analysis #5: Americans’ Lost Income”, the fifth report in a series that shows a striking shortfall for the average American’s disposable income.
“The bottom-line is Americans have less disposable income than they should,” said Raymond Keating, SBE Council’s Chief Economist. “This is personal income less personal taxes, adjusted for population and inflation. This is the income from which people make purchases, and generate savings and investment – the part of Americans’ income they spend on consumer goods and help fuel the overall economy.
Over the past near-decade, including the current period of recovery and expansion, real per capita income growth has been a mere fraction of the long-term norm.”
A snapshot of the findings of the new report include:
- Average annual growth in nonfarm business sector real compensation per hour, which includes wages, salaries and benefits paid to workers, registered 1.4 percent from 1956 to 2016, and 1.5 percent from 1956 to 2006. However, from 2007 to 2016 – covering the recession and subsequent recovery-expansion period – real compensation per hour growth averaged only 0.6 percent. And since the start of the recovery in mid-2009, again, growth has averaged a woeful 0.6 percent.
- Real per hour compensation growth during this recovery has registered a mere 43 percent of what the average annual growth rate has been over the past six decades.
- While the median household income has increased by 5.2 percent in 2015, over the last decade, there not only has been no growth in real median household income, it actually has decreased slightly, with the 2015 level coming in below the 2006 and 2007 levels.
- Key number to consider: per capita real disposable personal income, which is personal income less personal taxes, adjusted for population and inflation. This is the income from which people make purchases, and generate savings and investment.
- Consider that growth in per capita real personal disposable income during these recent years of recovery/expansion has registered as a fraction of the long-term average growth rate. The 0.9 percent rate of growth from 2009 to 2015 compared to the 1956-to-2015 average growth rate of 2.09 percent, and 2.3 percent for 1956 to 2006. That is, growth from 2009 to 2015 ran, again, at 43 percent of the long-run rate.
- If per capita real personal disposable income grew at the average historic rate since 2009, real per capita personal disposable income would have registered $40,322 in 2015 versus the actual amount of $38,368 (both in real 2009 dollars). So, real average disposable personal income would have been $2,000 higher (2009 dollars) on average for individuals, and $8,000 higher for an average family of four.
“That lost income means lost money to purchase goods and services from small businesses, to save, and to invest, thereby further feeding into slower economic growth and job creation,” said Keating.
Keating also addressed recent news on the increase in real median household income in 2015 by arguing, “While it certainly was good news to see real median household income increase by 5.2 percent in 2015, this needs to be put in perspective. Over the last decade, there not only has been no growth in real median household income, but it actually has decreased slightly, with the 2015 level coming in below the 2006 and 2007 levels.”
The results in this fifth SBE Council “Gap Analysis” line up with the findings in the earlier reports:
- The first analysis – Gap Analysis #1: The GDP Shortfall – estimated a GDP shortfall of $2.7 trillion (in 2009 dollars) in 2016 thanks to real GDP growth running at less than half the rate it should during a recovery/expansion period.
- The second report – Gap Analysis #2: Lost Decade of Private Investment – reported a historic gap or shortfall in private-sector investment over the most recent decade, for example, with real fixed nonresidential investment (or business investment) coming up $1.1 trillion (in 2009 dollars) short of where it should be in 2016.
- Gap Analysis #3 – Entrepreneurship in Decline: Millions of Missing Businesses – points to an estimated gap or shortfall of between 867,000 and 4.8 million businesses in the U.S. economy.
- “Gap Analysis #4 – The Productivity Shortfall: Causes and Results” – it was noted that dramatic slowdown in productivity growth in recent years, with annual labor productivity growth averaging a woeful 0.4 percent from 2011 to 2016, compared to average annual growth of 2.0 percent from 1956 to 2016.
This fifth SBE Council “Gap Analysis” is scheduled to be followed by reports on jobs and trade, with a final report highlighting the basic policy changes needed to close these gaps.
About the Small Business & Entrepreneurship Council
SBE Council is a nonpartisan, nonprofit advocacy, research and education organization that works to protect small business and promote entrepreneurship. For nearly 25 years, SBE Council has advanced key policies and initiatives to strengthen the ecosystem for startups and small business success. To learn more, visit SBE Council’s website. Follow on Twitter: @SBECouncil.