The Benefits of the Economic Recovery yet to Reach the Average Citizen

The American economy is looking a little brighter nowadays. The first quarter was marked by a shrinking GDP, but the next three quarters revealed a modest recovery. About 260,000 jobs were added each month between April and November. Though many of them were part time and low paying jobs, they were jobs nonetheless.

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2014 Unemployment Rate

The rate of unemployment was below six percent in September, and has consistently declined. Consumer spending has rebounded, the real estate market is looking up, and the American people on the whole are beginning to feel more affirmative about their economic future.

Benefits Yet to Reach the Masses

While the positive signs of economic recovery are very encouraging, the key challenges still remain. The average American citizen has yet to taste the benefits of the recovery. Through 2013, the average household income had remained flat, and the extremely weak growth in wage rates indicates that 2014 could not have fared much better on this front.

Reasons for a Slow Impact

The failure of the benefits of economic recovery to reach the middle and working classes could possibly have two explanations. The first and more obvious explanation is that the recovery has yet to gather strength and speed, and the impact will reach the larger population as growth picks up.

However, a second explanation could be that the fundamentals of the US economy continue to be marred by certain serious flaws. These flaws, which are not visible on the surface, may require structural changes, and may not be resolved by an improved growth rate alone.

The Optimistic Side

Cautious optimism must accompany the encouraging signs of economic recovery. Clear positives, albeit short-term, include the falling prices of oil that should support the disposable income of the consumers for a while. However, a more sustainable optimistic sign is that the reduction in the rate of unemployment has left fewer job seekers vying for more job opportunities.

This effectively means that after years of suppression in wage rates, the employers might finally be compelled to raise wages in order to attract and retain talent. Wage growth improved in November, and if the trend continues, the wage rates are nearly certain to move upward.

Skepticism Still Prevails

While there is little doubt that the current job market is in more solid condition than it was a year ago, there are sharp differences of opinion among economists about the precise health of the job market. It is 12important to take into account the fact that millions of people had exited the labor market during the days of the recession as well as the period of early recovery. In other words, those millions are not accounted for in the official unemployment rate.

If just a small fraction of these millions chooses to return to the job market, it would translate into hundreds of thousands of new job seekers fighting for the same job openings and pushing down the wage rates. It is difficult to determine exactly how many of such workers will return to the job market. Many of those were close to retirement, and some others have been jobless for so long that they may not find it easy to return and compete in this new economy.

Article by: Benjamin Roussey, dbfchicago.com Writer