A Recovery for the 1%

By Jheanelle Chambers, Intern, Third and State

Even in a Down Year, Top 1% Have More Total Income Than Bottom 50 Percent CombinedWhile many middle-class Americans are still struggling in a down economy, the 1% is doing quite well.

The Center on Budget and Policy Priorities has an eye-popping chart (right) showing that in 2009, despite the weak economy, the top 1% of households captured $1.32 trillion in gross income while the bottom 50% earned $1.06 trillion.

Economist Chuck Marr explains further at Off the Charts:

The long-term trend in the United States has been towards much greater income concentration at the top. But the trend isn’t perfectly smooth: high-income people tend to benefit more from economic expansions than other income groups but tend to get hit harder by recessions. The swings are particularly pronounced in financial booms and busts…

At the height of the previous expansion, in 2007, the top 1 percent had 87 percent more total [adjusted gross income] than the bottom 50 percent. But even the 2009 gap of “only” 25 percent — the difference between the $1.32 trillion earned by the top 1 percent and the $1.06 trillion earned by the bottom 50 percent — is pretty staggering.

Income Concentration at the Top Rose in 2010The news gets even better for the 1% in 2010, as the Center on Budget and Policy Priorities’ Chad Stone explains in another Off the Charts post. After seeing a dip in income in 2009, the 1% was well on the road to recovery a year later, Stone writes, citing new data compiled by economists Thomas Piketty and Emmanuel Saez:

The Piketty-Saez data paint a clear picture of faster income growth and rising income concentration at the top over the past few decades. The dot-com collapse proved to be nothing more than a speed bump, and the financial crisis and Great Recession may turn out to have had similarly transitory effects.

With Tax Day approaching next week, maybe it’s time to call on lawmakers to take a page from the 1930s and 1940s and enact tax policies to slow down the growing income gap between the 1% and the rest of us that is so common today even in the worst of economic conditions.

End of Mortgage Assistance Could Undermine Economic Recovery

A blog post by Mark Price, originally published at Third and State.

Economic forecasters predicting strong economic growth in the next several years rest those hopes on a robust recovery in residential construction. In light of that, The Philadelphia Inquirer has some troubling news this morning in a story about a surge in foreclosure filings over the last 12 months.

The rise in foreclosure filings may be the result of lenders moving forward with long planned foreclosures rather than a worsening of economic conditions. More troubling is the rise in 90-day delinquencies, which could be the result of the end of Pennsylvania’s Homeowners Emergency Mortgage Assistance Program (HEMAP). The permanent end to HEMAP also means rising costs for future taxpayers.

The rise in 90-day delinquencies in Pennsylvania during 2011 coincided with the end of the state’s highly touted Homeowners Emergency Mortgage Assistance Program (HEMAP), which provided loans to borrowers behind on their mortgages that were repaid either when their financial crises ended or within 24 months.

In 2010, 13,654 homeowners applied for the assistance, and 2,798 were approved, said John Dodds, director of the Philadelphia Unemployment Project.

“All of those who applied were informed of housing counseling, and many probably had their mortgage modified or were otherwise able to save their homes,” Dodds said Wednesday.

Funding for HEMAP, which began in 1983, ended in August, as did the Act 91 requirement that defaulting borrowers be sent notices by lenders informing them of the program and available counseling assistance, Dodds said.

For part of 2011, he said, the federal Emergency Homeowner Loan Program, which was modeled on HEMAP, funded these emergency loans. That Housing and Urban Development-funded program, which the Pennsylvania Housing Finance Agency administered, ended Sept. 30, after approving 3,056 homeowners for emergency help.

“Without these programs, the increase in foreclosures would have been greater, and since Sept. 30 no direct-aid program has been available in Pennsylvania,” Dodds said.

Last week, Gov. Corbett included no funding for HEMAP in his proposed 2012-13 budget.

The Inquirer goes on to note that a research brief published by the Reinvestment Fund found that HEMAP kept more than 6,100 homeowners out of foreclosure from 2008 to 2010. Without the program, the report said, “Pennsylvania’s foreclosure rate would have been higher and its rank among states several rungs worse.”

Again, The Inquirer:

Government estimates show that the costs of foreclosures are shared among lenders (64.6 percent), local government (24.7 percent), homeowners (9.2 percent), and neighbors, whose homes also lose value because of proximity to a bank repossession (1.9 percent).

By reducing Pennsylvania’s foreclosure rate by 6,100 homes, the report estimates, $480 million was saved – $170 million of that in Philadelphia and its four suburban counties.

Using Temporary Workers to Forecast the PA Economy

A blog post by Sean Brandon, originally published at Third and State.

The employment services industry provides a variety of human resources services, including most notably supplying temporary workers to other businesses. Because of the unique characteristics of this industry, economists often use its job market trends as an economic forecasting tool. The reason is simple: When the economy starts to slide, the first workers to go are usually the temporary employees, but when the economy begins to pick up, businesses will hire temporary workers first.

Historically, the employment services industry has proved a reliable indicator of broader job market trends. Let’s consider the Great Recession as an example. In the past five years, the height of employment (a 12-month moving average of not-seasonally-adjusted employment data) in the employment services industry in Pennsylvania was in January 2008, just after the recession began. The employment services industry then shed 23,517 jobs before it reached its low point in December 2009.

On the other hand, total nonfarm employment in Pennsylvania did not reach its peak until September 2008, eight months after employment services peaked. Furthermore, total nonfarm employment did not begin to recover until April 2010, after employment services had seen steady growth for four months.

In the case of both the recession and the recovery, the employment pattern in the employment services industry foreshadowed what was going to happen to Pennsylvania’s job market as a whole.

So what are the statistics in Pennsylvania’s employment services industry suggesting now?

From September 2009 to September 2010, employment in the employment services industry grew by 9%. In the subsequent year, employment only grew by 7%. The trend has been job growth, but employment is increasing at a slower rate.

As of October, Pennsylvania’s job deficit, the number of jobs lost during the recession plus the number of jobs needed in order to keep pace with the state’s population growth, was over 240,000. In this hole, Pennsylvania needs to add 8,000 jobs each month in order to get back to full employment in three years.

Recently, the Pennsylvania Department of Labor and Industry reported that the number of jobs in the commonwealth grew by 13,800 in October. Relatively, October was a very good month for Pennsylvania. Previous months have seen weak private-sector job growth and continued public-sector job losses, resulting in net job losses. With the recent employment stagnation of the employment services industry, it is likely that October is an exception and that the coming months will yield more moderate job growth.

State Cuts to Education, Health Care Will Slow Recovery

( – promoted by John Morgan)

A blog post from Christopher Lilienthal, originally published on Third and State.

We have written about the negative impact that deep cuts to state funding will have for Pennsylvania children, seniors and our economy. Now a new report from the Center on Budget and Policy Priorities shows that we aren’t alone.

At least 38 of the 47 states with new 2011-12 budgets are cutting K-12 education, higher education, health care, or other key public services, according to the report. As Policy Analyst Erica Williams writes at the Center’s Off the Charts Blog:

While states continue to face rising numbers of children enrolled in public schools, students enrolled in universities, and seniors eligible for health and long-term care services, most states (37 of 44 states for which data are available) plan to spend less on services in 2012 than they spent in 2008, adjusted for inflation – in some cases, much less.

State lawmakers no doubt faced tough decisions this year, with revenues still far below pre-recession levels and emergency federal aid all but expired. Still, our review shows that the cuts are unnecessarily harmful, unbalanced, and counterproductive.

Pennsylvania is among that group spending less in 2012 than in 2008 (adjusted for inflation):

Most States' FY12 Spending Below Pre-Recession Levels

Few states took a balanced approach to budget shortfalls. Only five states – Connecticut, Hawaii, Maryland, Nevada, and Illinois – raised new revenues in addition to making spending cuts, the report finds.

The impact goes well beyond the families, children and seniors who will be directly affected by service losses. As Erica Williams writes:

The cuts-only approach that most states have taken will slow the recovery and weaken the nation’s economy over the long term. State and local governments already have shed 577,000 jobs since August 2008; another round of cuts will lead to further job loss in the months ahead. The cuts will also lead states to cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals – all steps that remove demand from the economy. And, by diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care, states threaten to make the U.S. economy less competitive in coming decades.

More Analysis of Pa.’s June Jobs Report

A blog post from Mark Price, originally published on Third and State.

As I said last week, Pennsylvania’s June jobs report raises several concerns about the fragile economic recovery. It was the second month in a row of job losses, with total nonfarm employment dropping by 2,600 jobs.

Taking into account June’s poor performance, the Commonwealth has added an average of just over 2,600 jobs a month in the second quarter. That’s  down from the 9,700 jobs per month the Commonwealth added in the first quarter of this year. The Keystone Research Center has a full analysis here.

State level payroll and unemployment numbers should always be viewed with some caution as monthly volatility can obscure trends. But it is clear that weakness in the national economy in the second quarter slowed job growth in Pennsylvania.

While the economy is still growing and adding jobs, the slower pace of job growth is quite troubling given that the labor market in Pennsylvania remains more than 240,000 jobs short of full employment.

Employment in Pennsylvania remains more than 240,000 jobs below full employment

The Middle Class ‘Under Attack’

A blog post from Mark Price, originally published on Third and State.

At the Keystone Research Center, we have been chronicling for years the forces that are putting a tighter and tighter squeeze on middle-class Pennsylvanians.

Last week, we released a new report in partnership with the national policy center Demos that takes the temperature of the state’s middle class in the wake of the Great Recession. I’m sorry to say, once again, the patient is not well.

The state’s annual unemployment rate is the highest it has been in nearly three decades and the cost of going to college is on the rise.

According to the report, times are particularly tough for Pennsylvania’s young people, with state budget cuts to 18% of public university funding and a 7.5% tuition hike in Pennsylvania’s State System of Higher Education. Pennsylvania’s young people already bear the seventh highest rate of student debt in the nation – at approximately $28,000 on average.<!–break–>

A few more quick facts from the report:

  • Pennsylvania’s unemployment rate in 2010 (8.7%) was the highest rate in the state in 30 years.
  • At $10,761 for 2009-10, in-state tuition at Pennsylvania’s colleges and universities is well above the national average of $6,829.
  • Nearly three out of four of college graduates in Pennsylvania entered the labor force with student debt in 2009, and their average debt-$27,066-was the 7th highest in the nation.

Since the 1980s, the middle class has been under attack in Pennsylvania, and now we’re seeing the next generation being forced onto the downward economic escalator. That’s troubling for a number of reasons, but not least of all because it comes at the expense of our single greatest invention. As Bob Herbert, a former New York Times columnist and now a senior fellow at Demos, put it:

The middle class is more than an income bracket – it’s a promise, that if you work hard and play by the rules, you’ll earn enough to achieve a reasonable level of comfort and security, enough at the very least to support yourself, raise a family and enjoy the fruits of truly free society. That was a real 20th century invention – a novel possibility for regular people to enjoy that degree of freedom.

The middle class didn’t create itself, and its unraveling didn’t happen by accident. It reflects public policies that have squeezed the middle class and sent inequality soaring. Again, Herbert notes:

In some cases, we just failed to act – we let the minimum wage continue to lose its earning power, we let jobs be shipped overseas and did nothing to invest in new industries. We let the right to form a union be relentlessly attacked to the point where it’s now a real David and Goliath battle to unionize a company.

In other cases, we took action, but in the wrong direction, such as irresponsibly cutting taxes, which made it all but impossible to continue to invest in the types of public structures – our roads, schools, libraries, for example – that help all of us reach our full potential. In the four recessions since 1980, we’ve seen cuts to education, health care, infrastructure, and on and on. Tuition at public universities has tripled since 1980.

In the years leading up to the Great Recession, the middle class and the aspiring middle class had already lost tremendous ground. Now the ongoing jobs crisis – with nearly 5 workers for every 1 job that is currently available – and the cuts in vital state services have only deepened the pain and increased the emotional distress.

Before you get too depressed, there is good reason to have hope for the state’s long-term prospects. Pennsylvania has weathered the recession better than many other states, and we continue to have higher union membership rates than the national average, which provides a strong basis for improving worker rights and employer responsibilities for all workers.

The key will be whether our state and federal policymakers have the good sense to enact effective policies that allow Pennsylvania workers to regain a permanent place in the middle class.