‘State of Working Ohio’ Finds High Productivity, Profits; Little Job, Wage Growth

Hannah Report - September 2, 2006

The Hannah Report

As national talk turns to predictions of a potential downturn in the economy, Policy Matters Ohio’s “The State of Working Ohio 2006” shows that, for Ohio workers, the period since 2001 was “the recovery that

“The state has fewer jobs and lower real median wages than it had in 2000, before the most recent recession.”

At the same time, “U.S. corporate profits, Ohio gross state product, average worker productivity and incomes of the very richest Ohio earners have all grown steeply ….”

Report author and Policy Matters Executive Director Amy Hanauer said key findings include:

• American productivity rose sharply in recent years. After growing 1.4 percent a year from the mid-1970s to the mid-1990s, hourly output per worker grew 2.5 percent a year from 1995 to 2000, then leapt to 3.3 percent a year from 2000 to 2005.

• Inflation-adjusted corporate profits rose by 50 percent in just the five years between 2001 and 2005, to $931.4 billion. “Ohio’s inflation-adjusted gross state product (GSP) grew sharply in recent years to$394.9 trillion (in the year 2000 dollars) in 2005, ranking Ohio seventh among states … Ohio’s GSP grew 22.3 percent from 1990 to 1997, and an additional 12.7 percent between 1997 and 2005.

• Real GSP per U.S. worker grew 10.0 percent from 1990-97 and 6.4 percent from 2001-04, to end at $62,685 in 2004 (in the year 2000 dollars). In Ohio, GSP per worker grew 10.4 percent (1990-97) and 7.3 percent (2001-04) to end at $58,053 in 2004. (This equals $65,840 in 2005.) Ohio ranked 26th among states in 2004 GSP per worker.

• National job growth since the start of the 2001 recession has been weaker than job growth in any postwar recovery period. Sixty-five months after the start of the 1990s recession, the country had more than 7.6 percent more jobs than had existed at the recession’s start but this time the nation has added just 2.1 percent to its job base.

• In November 1995, 65 months after the start of the 1990s recession, Ohio had added 7.2 percent to its job levels. As of July, 2006, the same point in the cycle, Ohio remains more than 2.6 percent below the pre-recession job levels. If the economy slows, Ohio might have fewer jobs at the height of an expansion than it had before the previous recession.

• Ohio’s median wage rose last year after several poor years, to $14.08 per hour in 2005. This was lower than in 2000 or 1979, but higher than in many intervening years. The U.S. median wage was $14.28 in 2005, a decline from the previous year.

• Ohio’s unemployment rate declined slightly between 2004 and 2005 for an annual rate of 6.0 percent in 2005. Many men have left the labor market; if they were looking for work, the unemployment rate would be higher. Women over age 16 have substantially increased their labor force participation to more than 61 percent by 2005. Men’s labor force participation declined by 7.2 percentage points since 1979, from nearly 80 percent to 72.4 percent in 2005.

• The top one percent of income tax returns in Ohio in 2006 (for 2005 earnings) had an average value of more than $760,000. This was 75 times what a household in the bottom 20 percent earned and 20 times what a filer in the middle 20 percent earned on average in 2005. This inequality has grown since 1988.

• Wage inequality seems modest compared to income inequality, but is still extreme. Earners at the 90th percentile earned $29.03 per hour in 2005, more than four times what earners at the 10th percentile earned ($7.17). This disparity has increased since 1979.

• Median female and black workers saw modest wage gains in 2005, slightly reducing the gender and racial wage gaps that have plagued Ohio. Median men earned $15.68, compared to $12.52 for women, a 25 percent difference, down from a 65 percent gap in 1979. Median black workers earned $12.45, compared to $14.62 for white workers in 2005, a 17.4 percent wage gap, which is smaller than in recent years but larger than in the 1980s and early 1990s.

Hanauer closes the report with seven policy changes “that would make 2007 the year we begin creating an economy that works in Ohio.” These suggestions include:

1) Raise the minimum wage. “Research shows that the proposal to raise Ohio’s minimum wage to $6.85 would increase the wages of more than 700,000 workers, many of whom are the sole earner in their household.”

2) Enact a state Earned Income Tax Credit. “The Earned Income Tax Credit (EITC) provides refunds to working families earning less than about $38,000 a year.”

3) Solve the health care crisis. “Eighty percent of uninsured Americans live in working families. Our economy is profitable enough to make sure that families have health insurance. One creative idea is to provide a ‘pay or play’ option for employers, which requires businesses to provide workers with health insurance coverage or pay into a government fund that will do it for them. We could also expand the scope of coverage of Medicaid and SCHIP (State Children’s Health Insurance Program) so that more working people could access them.”

4) Educate or stagnate. “Studies of outcomes from investments in early childhood education find that it more than pays for itself, particularly for lower-income children.”

5) Invest in infrastructure. “Reinvesting in our core areas, fixing existing roads before building new ones, prioritizing core areas for water and sewer maintenance and doing more to plan will result in a better Ohio — more efficient, more, equal, and more prepared for the future.”

6) Energy. “Investing in renewable energy and retrofitting public buildings to be more energy efficient would reduce oil and gas usage, keep money in our local economy, create Ohio jobs and make us all

7) Target development spending. “Economic development subsidies should be reserved for companies that pay high wages, maintain high standards, pledge not to oppose unions and are committed to their
workforce and their community. Local governments should join together to create ‘no-poaching’ agreements, to reduce the likelihood that companies can force municipalities to compete to lower their taxes.”

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