EDITORIAL: The income problem

OPINION:

A majority of Americans disapprove of what President Obama has done in office. He promised hope and change but delivered disappointment and stagnation. The unemployment rate is stuck at 9.1 percent. The poverty rate is at 15.1 percent, tied for the worst performance since the Census started tracking numbers in 1959. White House policies of class warfare and redistribution are impoverishing America, and the public is starting to feel worked over.

While economic scorekeepers say the recession officially ended in June 2009, few Americans would say they’ve felt much relief. A new study by Gordon Green and John Coder of Sentier Research explains this phenomenon. They found inflation-adjusted median household income fell 6.7 percent from $53,518 in June 2009 to $49,909 in June 2011. That’s on top of the 3.2 percent drop that took place during the official recession period from December 2007 and June 2009. Altogether, the average household lost $5,400 in spending ability - a near 10 percent drop in the standard of living.

One reason for this is that people who have found jobs have had to settle for a pay cut. Princeton University’s Henry Faber found that, on average, when an employee lost a job and then got rehired during the recession, the new position paid 17.5 percent less than the old one. It’s no wonder that confidence levels are low, and Americans, even those with jobs, are being careful with spending.

Not surprisingly, the biggest decline was found in households where the head is unemployed. Their income fell more than 18 percent. During the recession, the average duration of unemployment increased from 16.6 weeks in December 2007 to a shade over 24 weeks by June 2009. That figure is now 40.5 weeks, the longest it has been in more than six decades. The longer a person is unemployed, the harder it is for him to find a job, as job skills erode and potential employers question whether it might be more prudent to hire someone else without big gaps in their work history.

Mr. Obama’s solution involves having the federal government declare the long-term unemployed a legally protected class. His American Jobs Act would subject businesses to frivolous lawsuits if they decide against hiring someone who has been jobless for an extended time. Doing so would serve as one more disincentive for companies to hire or hold interviews for open positions, making it even harder for the jobless to find work.

By passing the long-pending free-trade agreements with South Korea, Colombia and Panama this week, Congress took the first small steps toward improving the U.S. economic predicament. American agricultural exports are likely to be the largest beneficiaries, but various service sectors would also see a boost. The South Korea deal alone is expected to generate an increase in U.S. gross domestic product of $10-12 billion. That means more job creation.

Ultimately, Americans will not find their pocketbooks thickening so long as Uncle Sam strangles entrepreneurs with regulatory red tape. Companies need to have certainty that they will be able to keep the proceeds of their investments in the future before they will start hiring again and pay their employees more.