Recent media stories have touted the strength of the U.S. economy over the past two years. Some highly visible numbers – gross domestic product (GDP) growth, job creation, unemployment rates, and productivity growth – appear to tell a story of robust economic health in 2004 and 2005. However, the current recovery has been weak by historical standards and has had deleterious consequences for income growth and distribution.
The recovery has been the weakest since World War Two in terms of job creation and has not benefited median earners, whose wages have fallen below 1999 levels. Moreover, it has not benefited typical midlife and older Americans, whose real incomes have also fallen below their 1999 levels. Real incomes for age 50+ Americans are lower today than they were in 1998, and the bottom 90 percent of the 50+ population had lower income shares in 2004 than they had a decade earlier, whereas the top 10 percent had a larger income share than a decade ago.
These income disparities have been exacerbated by recent tax policies, including the extension of the preference for dividends and capital gains, that have sharply increased the after-tax incomes of those at the very top of the income distribution. Meanwhile, those at the very bottom have done worse in recent years. The overall poverty rate, which declined steadily during the last economic expansion, from 15.1 percent in 1993 to 11.3 percent in 2000, has increased during the current expansion to 12.6 percent overall in 2005. (7 pages)