By most economic measures, 2006 was a great year. Despite rising interest rates, high oil prices and the sharpest housing downturn in 15 years, inflation was low, productivity rose steadily, corporate profits reached a 40-year high, the stock market soared and the unemployment rate dropped to 4.6 percent — the lowest level in more than five years. Strong hiring in service businesses like education, health care, finance, travel and entertainment more than offset big job losses in the auto and housing sectors.
But in the midst of this booming economy, more than two-thirds of Americans told pollsters that they don’t believe life for their children’s generation will be better than it has been for them. Only 27 percent of those surveyed last year thought the nation was headed in the right direction; and this year, 71 percent of respondents said the country was on the wrong track. Would you agree to these statistics?
A major reason for the widespread pessimism is that most Americans haven’t seen the nation’s economic boom reflected in their paychecks. Last year’s 1.1 percent average raise was their first real pay increase in a long time. Workers’ productivity grew an impressive 18 percent between 2000 and 2006 — but most people’s inflation-adjusted weekly wages rose only 1 percent during that time. This was the first economic expansion since World War II without a sustained pay increase for rank-and-file workers. The growth of pay raises will not be as high in 2007. They predict slower economic growth and higher unemployment this year.
It appears that the raises are going to the people at the top. These are the high paid CEO’s and other professionals. Average income has risen, but the average is being skewed by higher earners. These folks only represent a small portion of the population. Earning 1% among the rank and file is nothing to get excited about. Wall street is reporting great earnings for public companies, but that usually does not translate into income, unless we are tabulating investment gains. This lis one reason why investing to share in the bounty makes such a great idea when debt freedom has been achieved.
Many Americans are troubled by the income gap between the nation’s highest earners and everyone else — a gap that has grown dramatically in recent decades. In the last five years, inflation-adjusted wages rose less than 1 percent a year for the vast majority of households. But for the top 5 percent of earners, they jumped 2.5 percent a year. And for the top 1 percent of earners, the gains were much bigger: In 2005, the average CEO made 369 times as much as the average worker, compared with 131 times as much in 1993.
This information should not incline you to go out and look for the highest paying job you can find. If anything, it re-enforces the idea of increasing income through entrepreneurship as well as getting out of debt.
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