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The Globe and Mail

For U.S. workers, the lost decade of opportunity

Hundreds of people wait in line at a job fair presented by Jobs & Careers Newspaper and Job Fairs in San Mateo, Calif.

Paul Sakuma/AP

Life was good for Janine Smith. She had a great job and a nice home in the suburbs.

Then, Ms. Smith, 45, of Oakwood, Ohio, lost her position as a bank loan officer in the mortgage meltdown. Her husband, who works in construction, hasn't had a steady job since.

Now she's disillusioned.

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"I don't believe in the American dream," said Ms. Smith, who has a new job, in sales, but is earning half what she did five years ago. The couple is struggling to pay the bills and hang on to their Cleveland-area home.

"I'll never be better off than my parents."

For many Americans, the recession began well before 2007, and it's far from over. It's become a lost decade of fading opportunity for workers, longer and more frequent bouts of joblessness and declining family incomes.

Obscured by the housing bubble and cheap credit, the well-being of working Americans was already threatened by powerful structural forces when the Great Recession hit. Technology supplanted routine work of all kinds, leaving millions with skills that employers no longer need. Offshoring of work to China and India destroyed millions of labour-intensive factory jobs. Low interest rates artificially pumped up wealth and consumption, but didn't steer enough investment into the roots of the economy.

Now, more than eight million jobs are gone, and the country is looking at the stark prospect of several more years of unusually high unemployment. Roughly half of the 14 million unemployed Americans have now been out of work for more than six months.

And for the first time on record, family incomes are actually falling. New figures this week from the U.S. Census Bureau show that the median income for working-age households fell 10 per cent between 2000 and 2010, even as women worked more hours.

"We are denying this generation, and certainly the next generation, the essence of what we've called the American Dream," lamented Thomas Kochan, a professor at the Massachusetts Institute of Technology's Sloan School of Management and co-director of the Institute for Work and Employment Research.

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"Every generation should do a little bit better than the previous one in terms of living standards, if they work hard, play by the rules and get a good education. That's just not happening."

Corporate profits and productivity have soared, but not incomes. The impact has been devastating for middle-class families, particularly young families, Prof. Kochan said.

Now, the consequences of a jobless recovery and falling wages are ricocheting throughout the economy. Less income and fewer jobs mean a lot less purchasing power, which in turn drags on the economy.

Experts say the seeds of this lost decade were planted long before the recession. Wages fell out of step with rapidly rising productivity and soaring corporate profits in the 1980s, and the gap has been growing wider ever since. The average real wage for working men is now lower than it was in 1973.

The low interest-rate-fuelled housing boom of the early 2000s masked the problem for a while. Families leveraged soaring house prices to buy a piece of the American dream, until the roof fell in. The housing crash and the mortgage meltdown wiped out trillions of dollars worth of wealth and millions of construction jobs.

But the labour market was already sick in late 2007, when the U.S. recession got started. Scott Winship, an economic fellow at the Brookings Institution in Washington, said the job market never fully recovered from the relatively mild recession that followed the Sept. 11, 2001, terrorist attacks.

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Tracking job openings and job losses, Mr. Winship discovered that as the economy tumbled into recession in late 2007, there were already far more job seekers than available jobs. Since then, the gap has become a crater, peaking at a ratio of seven to one in mid-2009. Even now, there are three to five workers for every available job – more than at any time since the Dirty Thirties.

"The recession did not reduce hiring. It just dumped a lot more people into an already weak job market," Mr. Winship explained. "The result is a shortfall in demand for workers that is unprecedented in the lifetimes of essentially everyone working today."

Economists have pointed to several possible causes of the current jobs calamity, including the outsourcing of work to other countries, technological change, deregulation, a mismatch of skills to jobs and the destructive effect of the burst housing bubble on financial markets. More likely, it's a combination of several of these factors.

Officially, the recession ended and the recovery began in mid-2009.

But it's been uneven to say the least, and workers and savers aren't feeling any return to good times. The recovery is evident in soaring corporate profits, pay for top executives and stock market returns since the lows of 2009.

Corporate investment in equipment and software is essentially back to where it was pre-recession. But companies are just not investing in their workers yet, creating what labour economist Andrew Sum at Boston's Northeastern University has characterized as the largest ever "disparities in economic rewards" in a post-World War Two recovery.

Tony McNary, a 52-year-old welder from Cleveland, has been laid off from construction jobs at least 10 times since 2005 – five times already this year. Like so many other Americans, he and his wife are fighting to stave off foreclosure, and to bring in more than they owe.

"I feel cheated," Mr. McNary said. "I've worked for years to get where I'm at. But where I should be, I'm not even close."

Americans are accustomed to larger gaps between haves and have-nots than other wealthy countries, where more generous social programs and more progressive tax systems help even out economic equality.

"Americans are comfortable with inequality of outcomes, but they're not okay with inequality of opportunity," argued economist Heidi Shierholz of the Economic Policy Institute (EPI) in Washington.

The problem is that the U.S. has a lot less equality of opportunity and upward mobility than Americans would like to believe, she added.

The promise of a consistently upwardly mobile society is fading. Ms. Shierholz said parental income is now the greatest predictor of what income kids will generate as adults, more than education or hard work.

"There's a lot less economic mobility than Americans are ethically comfortable with," she said.

The EPI estimates that the richest 5 per cent of households grabbed roughly 82 percent of all the nation's gains in wealth in the past three decades. Sixty per cent of households were actually poorer in 2009 than in 1983.

Particularly sobering for workers is that it could take years for the economy to get back to the weakened state it was in before the recession.

The U.S. economy must create 12.4 million new jobs just to get back to break-even, according to Brookings Institution estimates. That's made up of roughly eight million lost jobs and another four million jobs for all the new workers that have come into the labour market since.

"I'd be feeling better if I thought the lost decade was over," Ms. Shierholz said. "But we're facing years of high unemployment. There's no relief in sight."

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