NPR logo Income From Private-Sector Pay Sinks To Record Low


Income From Private-Sector Pay Sinks To Record Low

Earlier this year, paychecks from private companies provided the lowest percentage ever of overall personal incomes in U.S. history according to a troubling analysis by USA Today.

Looked at another way, government payments related to the economic stimulus or entitlement payments counterbalanced the retreat by private businesses.

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

The Drudge Report folks decided to put a very partisan gloss on this report, blaming President Barack Obama for this, running a big headline — "Obama Redistribution Victory: Private Pay Plummets. Govt Handouts Soar."

What the Drudge people didn't focus on was the information in the following paragraph in USA Today's report:

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

That "substitution" has occurred in significant part due to fast rising health-care costs. Economists have long said that those costs have contributed to a stagnation in wage levels as employers spend more to cover their workers, for years eating into the size of workers's paychecks.

And that the government share of the personal income pie would go up also isn't surprising. Ever since the 1930s, economic slowdowns have meant the percentage the government supplies to personal incomes has risen compared with private companies since as workers are laid off and pay raises become less frequent.

Adding to the rise in the part of income provided by government are the automatic stabilizers like unemployment insurance payments that kick in to provide people the income necessary to pay bills and feed themselves.

The retirement of Baby Boomers only adds to the boost in the government's share of personal incomes.

So none of this is really shocking though it does underscore the difficulty of the fiscal situation created by the Great Recession.

Another excerpt:

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.