Initial Claims for Unemployment Insurance Are at Record Lows

Weekly Initial Claims for Unemployment Insurance, January 7, 2006, to November 21, 2015

Weekly Initial Claims for Unemployment Insurance as a Ratio to Employment, January 1967 to October 2015


Initial claims for unemployment insurance are now at their lowest level, in terms of absolute numbers, in forty years, and the lowest ever when measured relative to employment (although the series goes back only to 1967).  There has been a steady improvement in the job market since soon after Barack Obama took office in January 2009, with (as discussed in a recent post on this blog) a steady increase in private sector jobs and an unemployment rate now at just 5.0%.  Yet the general discussion still fails to recognize this.  I will discuss some of the possible reasons for this perception later in this post.

Initial claims for unemployment insurance provides a good measure of the strength of the labor market, as it shows how many workers have been involuntarily laid off from a job and who are then thus eligible for unemployment insurance.  The US Department of Labor reports the figure weekly, where the numbers in the chart above are those updated through the release of November 25, 2015 (with data through November 21).  While there is a good deal of noise in the weekly figures due to various special factors (and hence most of the focus is on the four week moving average), it does provide a high frequency “yardstick” of the state of the labor market.  The charts above are for the four week moving averages.

The measure has been falling steadily (abstracting from the noise) since soon after President Obama took office.  News reports have noted that the weekly figures have been below 300,000 for some time now (close to a year).  This is a good number.  Even in the best year of the Bush administration (2006, at the height of the housing bubble), weekly initial claims for unemployment insurance averaged 312,000.  So far in 2015 (through November 21) it has averaged 279,000, and the lowest figure was just 259,250 for the week of October 24.  Initial claims for unemployment have not been so low in absolute numbers since December 1973.

But the population and labor force have grown over time.  When measured as a ratio to the number of those employed, initial claims for unemployment insurance have never been so low, although the series only begins in January 1967.  It is now well below the lowest points ever reached in the George W. Bush administration, in the Reagan administration, and even in the Clinton administration, under which the economy enjoyed the longest period of economic expansion ever recorded in the US (back to at least 1854, when the recession dating of the NBER begins).

Why then has the job market been seen by many as being especially weak under Obama? It should not be because of the unemployment rate, which has fallen steadily to 5.0% and is now well below where it was at a similar point during the Reagan administration.  Private job creation has also been steady and strong (although government jobs have been cut, for the first time in an economic downturn in at least a half century).  There has also been no increase in the share of part time employment, despite assertions from Republican politicians that Obamacare would have led to this.  And growth in GDP, while it would have been faster without the fiscal drag of government spending cuts seen 2010, has at least been steady.

What has hurt?  While no one can say for sure as the issue is some sense of the general perception of the economy, the steady criticism by Republican officials and pundits has probably been a factor.  The Obama administration has not been good at answering this.

But also important, and substantive, is that wages have remained stagnant.  While this stagnation in wages has been underway since about 1980, increased attention is being paid to it now (which is certainly a good thing).  In part due to this stagnation, the recovery that we have seen in the economy since the trough in mid-2009 has mostly been for the benefit of the very rich.  Professor Emmanuel Saez of UC Berkeley has calculated, based on US tax return data, that the top 1% have captured 58% of US income growth over the period 2009 to 2014.  The top 1% have seen their real incomes rise over this period by a total of 27% in real terms, while the bottom 99% have seen income growth over the period of only 4.3%.  Furthermore, most of this income growth for the bottom 99% only started in 2013.  For the period from 2009 through 2012, the top 1% captured 91% of the growth in national income.  The bottom 99% saw their real incomes rise by only 0.8% total over that period.

The issue then is not really one of jobs or overall growth.  Rather it is primarily a distribution problem.  The recovery has not felt like a recovery not because jobs or growth have been poor (although they would have been better without the fiscal drag), but rather because most of the gains of the growth have accrued to the top 1%.  It has not felt like a recovery for the other 99%, and for an understandable reason.

An Update on the Impact of the Austerity Programs in Europe and a Higher Tax on Consumption in Japan: Still No Growth


GDP Growth in Eurozone, Japan, and US, 2008Q1 to 2014Q3

A.  Introduction

With the release last Friday by Eurostat of the initial GDP growth estimates for most of Europe for the third quarter of 2014, and the release on Monday of the initial estimate for Japan, it is a good time to provide an update on how successful austerity strategies have been.

B.  Europe

As was discussed in earlier posts in this blog on Europe (here and here), Europe moved from expansionary fiscal policies in its initial response to the 2008 downturn, to austerity programs with fiscal cutbacks starting in 2010/11.  The initial expansionary policies did succeed in stopping the sharp downturn in output that followed the financial collapse of 2008/2009.  European economies began to grow again in mid-2009, and by late 2010 had recovered approximately two-thirds of the output that had been lost in the downturn.

But then a number of European leaders, and in particular the leaders of Germany (Chancellor Angela Merkel and others) plus the then-leader of the European Central Bank (Jean-Claude Trichet), called for fiscal cuts.  They expressed alarm over the fiscal deficits that had developed in the downturn, and argued that financial instability would result if they were not quickly addressed.  And they asserted that austerity policies would not be contractionary under those circumstances but rather expansionary.  Trichet, for example, said in a June 2010 interview with La Repubblica (the largest circulation newspaper in Italy):

Trichet:  … As regards the economy, the idea that austerity measures could trigger stagnation is incorrect.

La Republicca:  Incorrect?

Trichet:  Yes. In fact, in these circumstances, everything that helps to increase the confidence of households, firms and investors in the sustainability of public finances is good for the consolidation of growth and job creation.  I firmly believe that in the current circumstances confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.

So what has actually happened since the austerity programs were imposed in Europe?  The chart at the top of this post shows the path of real GDP for the larger Eurozone economies as well as for the Eurozone as a whole, plus Japan and the US for comparison.  The data for Europe (as well as the US) comes from Eurostat, with figures for 2014Q3 from the November 14 Eurostat press release, while the data for Japan came most conveniently from the OECD.  Real GDP is shown relative to where it was in the first quarter of 2008, which was the peak for most of Europe before the 2008/09 collapse.

In a word, the results in Europe have been terrible.  Real GDP in the Eurozone as a whole is basically the same as (in fact slightly less than) what it was in early 2011, three and a half years ago.  To be more precise, real GDP in the Eurozone fell by a bit more than 1% between early 2011 and early 2013, and since then rose by a bit over 1%, but it has basically been dead.  There has been no growth in the three and a half years since austerity programs took over.  And Eurozone output is still more than 2% below where it had been in early 2008, six and a half years ago.

Since early 2011, in contrast, the US economy grew by 8.6% in real terms.  Annualized, this comes to 2.4% a year.  While not great (fiscal drag has been a problem in the US as well), and not sufficient for a recovery from a downturn, the US result was at least far better than the zero growth in the Eurozone.

There was, not surprisingly, a good deal of variation across the European economies.  The chart shows the growth results for several of the larger economies in the Eurozone.  Germany has done best, but its growth flattened out as well since early 2011.  As was discussed in an earlier post, Germany (despite its rhetoric) in fact followed fairly expansionary fiscal policies in 2009, with further increases in 2010 and 2011 (when others, including the US, started to cut back).  And as the chart above shows, the recovery in Germany was fairly solid in 2009 and 2010, with this continuing into 2011.  But it then slowed.  Growth since early 2011 has averaged only 0.9% a year.

Other countries have done worse.  There has been very little growth in France since early 2011, and declines in the Netherlands, Spain, and Italy.  Spain was forced (as a condition of European aid) to implement a very tight austerity program following the collapse of its banking system in 2008/09 as a consequence of its own housing bubble, but has loosened this in the last year.  Only in France is real GDP higher now than where it was in early 2008, and only by 1.4% total over those six and a half years.  But France has also seen almost no growth (just 0.4% a year) since early 2011.

C.  Japan

The new figures for Japan were also bad, and many would say horrible.  After falling at a 7.3% annualized rate in the second quarter of this year, real GDP is estimated to have fallen by a further 1.6% rate in the third quarter.  The primary cause for these falls was the decision to go ahead with a planned increase in the consumption tax rate on April 1 (the start of the second quarter) from the previous 5% to a new 8% rate, an increase of 60%.

The Japanese consumption tax is often referred to in the US as a sales tax, but it is actually more like a value added tax (such as is common in Europe).  It is a tax on sales of goods and services to final consumers such as households, with offsets being provided for such taxes paid at earlier stages in production (which makes it more like a value-added tax).  As a tax on consumption, it is the worst possible tax Japan could have chosen to increase at this time, when the economy remains weak.  There is insufficient demand, and this is a straight tax on consumption demand.  It is also regressive, as poor and middle class households will pay a higher share of their incomes on such a tax, than will a richer household.  With its still weak economy, Japan should not now be increasing any such taxes, and increasing the tax on consumption is the worst one they could have chosen.

With recessions conventionally defined as declines in real GDP in two consecutive quarters, Japan is now suffering its fourth recessionary contraction (a “quadruple-dip” recession) since 2008.  This may be unprecedented.  Japan’s output is still a bit better, relative to early 2008, than it is for the Eurozone as a whole, but it has been much more volatile.

Prime Minister Shinzo Abe was elected in December 2012 and almost immediately announced a bold program to end deflation and get the economy growing again.  It was quickly dubbed “Abenomics”, and was built on three pillars (or “arrows” as Abe described it).  The first was a much more aggressive monetary policy by the Central Bank, with use of “quantitative easing” (such as the US had followed) where central bank funds are used to purchase long term bonds, and hence increase liquidity in the market.  The second arrow was further short-term fiscal stimulus.  And the third arrow was structural reforms.

In practice, however, the impacts have been mixed.  Expansionary monetary policy has been perhaps most seriously implemented, and it has succeeded in devaluing the exchange rate from what had been extremely appreciated levels.  This helped exporters, and the stock market also boomed for a period.  The Nikkei stock market average is now almost double where it was in early November 2012 (when it was already clear to most that Abe would win in a landslide, which he then did).  But the impact of such monetary policy on output can only be limited when interest rates are already close to zero, as they have been in Japan for some time.

The second “arrow” of fiscal stimulus centered on a package of measures announced and then approved by the Japanese Diet in January 2013.  But when looked at more closely, it was more limited than the headline figures suggest.  In gross terms, the headline expenditure figure amounted to a bit less than 2% of one year’s GDP, but the spending would be spread over more than one year.  It also included expenditures which were already planned.  It therefore needs to be looked at in the context of overall fiscal measures, including the then planned and ultimately implemented decision to raise the consumption tax rate on April 1, 2014.  The IMF, in its October 2013 World Economic Outlook, estimated that the net impact of all the fiscal measures (including not only the announced stimulus programs, but also the tax hike and all other fiscal measures) would be a neutral fiscal stance in 2013 (neither tightening nor loosening) and a tightening in the fiscal stance of 2.5% of GDP in 2014.  The fall in GDP this year should therefore not be a surprise.

Finally, very little has been done on Abe’s third “arrow” of structural reforms.

On balance, Abe’s program supported reasonably good growth of 2.4% for real GDP in 2013 (see the chart above).  There was then a spike up in the first quarter of 2014.  However, this was largely due to consumers pulling forward into the first quarter significant purchases (such as of cars) from the second quarter, due to the planned April 1 consumption tax hike.  Some fall in the second quarter was then not seen as a surprise, but the fall turned out to be a good deal sharper than anticipated.  And the further fall in the third quarter was a shock.

As a result of these developments, Abe has announced that he will dissolve the Diet, hold new elections in mid-December with the aim of renewing his mandate (he is expected to win easily, due to disorder in the opposition), and will postpone the planned next increase in the consumption tax (from its current 8% to a 10% rate) from the scheduled October 2015 date to April 2017.  Whether the economy will be strong enough to take this further increase in a tax on consumption by that date remains to be seen.  The government has no announced plans to reverse the increase of 5% to 8% last April.

Japan’s public debt is high, at 243% of GDP in gross terms as of the end of 2013.  Net debt is a good deal lower at 134% (debt figures from IMF WEO, October 2014), but still high.  The comparable net debt figure for the US was 80% at the end of 2013 (using the IMF definitions for comparability; note this covers all levels of government, not just federal).  Japan will eventually need to raise taxes.  But when it does, with an economy just then emerging from a recession due to inadequate demand, one should not raise a tax on consumption.  A hike in income tax rates, particularly on those of higher income, would be far less of a drag on the economy.

The Government Debt to GDP Ratio is Falling

Fed Govt Debt as Share of GDP, 2006Q1 to 2014Q3

The US federal government debt to GDP ratio is falling.  A few years ago, conservative critics (such as Congressman Paul Ryan) argued that if drastic action were not taken immediately to slash government expenditures, consequent rapidly rising federal government debt would stifle growth and spiral ever upwards.  Liberals (such as Paul Krugman) argued that the federal deficit and debt were far less of a concern than these critics asserted:  With the recovery of the economy, both would soon start to fall.  And the detailed projections from the Congressional Budget Office backed this up, with projected falls in the debt to GDP ratio for at least a few years.  There would be a rise later if nothing further is done, in particular on medical costs, but the question at issue here is whether the debt to GDP ratio could fall in the near term without drastic cuts in government expenditures.  Conservatives asserted it would not be possible.

But these were projections and assertions.  The chart above shows the actual data.  With the release this morning by the Bureau of Economic Analysis of its first estimate of 2014 third quarter GDP (growth at a fairly solid 3.5% real rate), one can now see that there has been a downward turn in the debt to GDP ratio.  The ratio peaked at 72.8% of GDP in the first quarter of 2014, and dropped to 72.2% as of the third quarter.

The federal government debt figure used here is the debt held by the public.  There are also various trust funds (most notably the Social Security Trust Fund) that formally hold government debt in trust, but this reflects internal accounting within government.  The figures come from the US Treasury, with quarterly averages taken based on an average of the amounts outstanding each day of the quarter.  This average is then taken as a share of nominal GDP for the quarter (nominal GDP since debt is also a nominal concept).  And since nominal GDP reflects the flow of production over the course of the quarter, taking the daily average debt outstanding over the course of the quarter will better reflect the debt burden than simply taking debt as of the end of the quarter and dividing this by GDP (although this is commonly done by many).

There was an earlier downward dip in the public debt to GDP ratio in the third quarter of 2013, but this was due to special circumstances surrounding the delay by Congress to approve a rise in the statutory government debt ceiling.  Various accounting tricks were used to delay recognition of items that would add to the formally defined government debt in order to keep under the ceiling, which artificially suppressed the debt to GDP ratio in that quarter.  This carried over into the fourth quarter, with the Republicans forcing a shutdown of the federal government from October 1 by not approving a new budget.  The dispute was not resolved until October 16, when deals were reached to raise the debt ceiling and to approve a budget.  The debt ratio then returned to its previous path.

The fall in the debt ratio in 2014 is more significant.  Accounting tricks are not now being used due to debt ceiling disputes, and the fall reflects the continued fall in the fiscal deficit coupled with reasonably sound growth.  The deficit is estimated to have totaled $483 billion in fiscal 2014 (which just ended on September 30), or 2.8% of GDP.  This is sharply down from the $1.4 trillion (or 9.8% of GDP) of fiscal 2009, in the first year of the downturn.  The fiscal deficit has fallen primarily due to the recovery, but also due to cuts in federal government expenditures under Obama since 2010.  While not nearly as drastic as Congressman Ryan and other conservatives had insisted would be necessary, government spending has still fallen under Obama, in contrast to the increases allowed in previous downturns.

Note that the government expenditure cuts that were done do not represent what would have been the desirable path in deficit reduction:  As discussed in an earlier post on this blog, it would have been far better to follow a fiscal path similar to that followed by Reagan and others in earlier downturns, with government spending allowed to grow so that the economy could have more quickly returned to full employment.  Once full employment was reached, one would then consider fiscal cuts, if warranted, to address any debt concerns.

The path followed has thus been far from optimal.  But it has shown that the alarms raised by the conservative critics, that the debt to GDP ratio could not fall without drastic government cutbacks (far more severe than that seen under Obama), were simply wrong.

Red States vs. Blue States: Lower Incomes and Less Growth in Texas

State-Level Real GDP per Capita as Ratio to US, 1997-2012

A.  Introduction

Texas Governor Rick Perry’s speech on March 7 to the annual CPAC (Conservative Political Action Conference) meetings was described by various news web sites as “a barn burner address” that wowed the conservatives, as “a rousing speech that was one of the best-received of the conference so far”, as a “fiery speech that ignites CPAC”, as a speech that brought “the audience to its feet and eliciting loud cheers”, and that “received huge applause throughout his rousing speech”.

Rick Perry has been Governor of Texas for more years than any other governor in Texas history.  He was elected Lieutenant Governor in 1998, and became governor in December 2000 when George W. Bush resigned to become President of the US.  Perry was then elected governor in his own right three times (in 2002, 2006, and 2010), the first Texas governor to be elected to three four-year terms.  He is not now running for a further term, and thus will step down following the election later this year.  It is widely assumed he will once again seek the Republican nomination for the Presidency in 2016, and many interpret his CPAC address as confirming this.  He is well known for the failure of his 2012 campaign seeking the Republican nomination, when he quickly went from front-runner to quitting following a series of goofs.  The best known was in one of the debates with the other Republican contenders, when he said he would close three cabinet level departments in the federal government but could only remember two, in his famous “oops” moment.

Perry’s speech at CPAC set forth what will likely be a major theme of his upcoming presidential campaign:  the contrast between the great performance (in his view) of red states (conservative states that generally vote Republican) and the terrible performance of blue states (liberal states that generally vote Democratic).  As the longest-serving governor of the premier red state of Texas, it is not surprising that Perry would say this.  But what has the performance actually been?

B.  Real GDP per Capita

The graph at the top of this post presents one key measure:  real GDP per capita, presented as a ratio to the US average.  Texas is shown (in red), along with two of the top blue states:  Massachusetts (in blue) and New York (in green).  The figures are calculated from data issued as part of the GDP accounts by the Bureau of Economic Analysis (BEA), which provides such data at the state level GDP on an annual basis (with 2012 the most recent available).  The current series goes back only to 1997, before which the state-level figures were calculated on a different basis, and thus are not directly comparable to the later figures.  But 1997 is also the year before Perry was elected Lieutenant Governor, so it provides a suitable starting point.

As the graph shows, real per capita GDP was substantially higher in Massachusetts and New York than in Texas in all of these years.  Indeed, per capita GDP in Texas actually fell relative to that for the US as a whole from 1998 to 2005 (meaning growth in Texas was slower than in all of the US over this period), after which it started to recover.  The oil boom resulting from the sharp escalation in oil prices from the middle of the last decade was certainly a factor helping Texas in recent years.

And it is not only in terms of real income levels where Texas has lagged.  Texas has also lagged Massachusetts and New York in terms of overall growth since 1997.  Real per capita GDP rose by 30.4% in Massachusetts over 1997 to 2012 and by 28.9% in New York, but only by 21.7% in Texas:

State-Level Growth of GDP per Capita, 1997 - 2012

C.  Personal Income per Capita

GDP per capita is the broadest measure of income generating activities in a state, but not all of GDP goes to households.  Part will go to corporations (and not distributed to households via dividends).  It therefore is also of interest to look at per capita personal income by state, again relative to that for the US  as a whole:

State-Level Personal Income as Ratio to US, 1997-2012

Once again one finds this measure of income to be far higher in the blue states Massachusetts and New York than in the red state of Texas.  But what is different and interesting is that personal income per capita in Texas is seen to be also below personal income per capita for the US as a whole.  A higher share of GDP generated in Texas goes to corporations than is the case for the US as a whole.  GDP per capita in Texas is somewhat above the US average (although not as much above as in Massachusetts or New York), but personal income per capita, once one subtracts the share going to corporations, is lower in Texas than for the US as a whole.

D.  Conclusion, and Re-Nationalizing the Postal Service

Conservatives, including not surprisingly Governor Perry, hold up Texas as the ideal which they want the nation to emulate.  But GDP per capita is lower in Texas than in the blue states of Massachusetts and New York, and has grown by less in Texas than in Massachusetts or New York over at least the last fifteen years.  In addition, personal income per capita is not only lower in Texas than in Massachusetts or New York (and very much lower), it is even lower than the US average.  Corporations account for a disproportionate share of incomes earned in Texas.

Perry closed his speech to CPAC, to cheers and loud rounds of applause, by declaring that the federal government should “Get out of the health care business, get out of the education business”.  Presumably this means Perry wishes to end Medicare, and that federal government assistance to students and schools up to and including universities should also end.  It is not clear, however, he has thought this far ahead on the implications of what he is calling for.  Calling for the end of Medicare, as conservatives have in the past, is not currently a popular position.

But while Perry said the federal government should “get out” of health and education, one area where he appeared to call for expanded federal responsibility was in the running of the postal system.  The proper federal focus, as established in his reading of the constitution, should be on defense, foreign policy, and to “deliver the mail, preferably on time and on Saturdays”.

The constitution does indeed call on the federal government to ensure postal services are made available.  But while this was done through a cabinet level department under the US President for many years, since 1971 the postal service has been run as a government-owned but independent establishment, run like a private corporation with its own board.  It is not fully clear what Perry means by arguing the federal government should return to its original mission vis-a-vis postal services, but the implication appears to a be reversal of its 1971 conversion from a cabinet level department to an independent agency run along private lines.  That would be an odd position for a conservative.  But I suspect he has not really thought this through.

Growth in France and the US: The Bottom 90% Have Done Better in France

France vs US, 1980-2012, GDP per capita overall and of bottom 90%

A.  Introduction

Conservative media and conservative politicians in the US have looked down on France over the last decade (particularly after France refused to join the US in the Iraq war, and then turned out to be right), arguing that France is a stagnant, socialist state, with an economy being left behind by a dynamic US.  They have pointed to faster overall growth in the US over the last several decades, and average incomes that were higher in the US to start and then became proportionately even higher as time went on.

GDP per capita has indeed grown faster in the US than it has in France over the last several decades.  Over the period of 1980 to 2007 (the most recent cyclical peak, before the economic collapse in the last year of the Bush administration from which neither the US nor France has as yet fully recovered), GDP per capita grew at an annual average rate of 2.0% in the US and only 1.5% in France.

But GDP per capita reflects an average covering everyone.  As has been discussed in this blog (see here and here), the distribution of income became markedly worse in the US since around 1980, when Reagan was elected and began to implement the “Reagan Revolution”.  The rich in the US have done extremely well since 1980, while the not-so-rich have not.  Thus while overall GDP per capita has grown by more in the US than in France, one does not know from just this whether that has also been the case for the bulk of the population.

In fact it turns out not to be the case.  The bottom 90%, which includes everyone from the poor up through the middle classes to at least the bottom end of the upper middle classes, have done better in France than in the US.

B.  Growth in GDP per Capita in France vs. the US:  Overall and the Bottom 90%

The graph at the top of this post shows GDP per capita from 1980 to 2012 for both the US and France.  The figures come from the Total Economy Database (TED database) of the Conference Board, and are expressed in terms of 2012 constant prices, in dollars, with the conversion from French currency to US dollars done in terms of Purchasing Power Parity (PPP) of 2005.  PPP exchange rates provide conversions based on the prices in two respective countries of some basket of goods.  They provide a measure of real living standards.  Conversions based on market exchange rates can be misleading as those rates will vary moment to moment based on financial market conditions, and also do not take into account the prices of goods which are not traded internationally.

Real GDP per capita (for the entire population) rose for both the US and France over this period, and by proportionately somewhat more in the US than in France.  These incomes are shown in the top two lines in the graph above, with the US in black and France in blue.  GDP per capita in France was 83% of the US value in 1980, and fell to 72% of the US by 2012.

But the story is quite different if one instead focuses on the bottom 90%.  The GDP per person of those in the bottom 90% of the US and in France are presented in the lower two lines of the graph above.  The figures were calculated using the distribution data provided in the World Top Incomes Database, assembled by Thomas Piketty, Emmanuel Saez, and others, applied to the GDP and population figures from the TED database.  The US distribution data extends to 2012, but the French data only reaches 2009 in what is available currently.

The Piketty – Saez distribution data is drawn from information provided in national income tax returns, and hence is based on incomes as defined for tax purposes in the respective countries.  Thus they are not strictly comparable across countries.  Nor is taxable income the same as GDP, even though GDP (sometimes referred to as National Income) reflects a broad concept of what constitutes income at a national level.  But for the moment (the direction of some adjustments will be discussed below), distributing GDP according to income shares of taxable income is a good starting point.

Based on this, incomes (as measured as a share of GDP, and then per person in the group) of the bottom 90% in France were 88% of the US level in 1980.  But this then grew to 98% of the US level by 2007, before backing off some in the downturn.  That is, the real income of the bottom 90%, expressed purely in GDP per person, rose in France over this period from substantially less than that for the US in 1980, to very close to the average US income of that group by 2007.  And since one is talking about 90% of the population, that is all those other than the well-off and rich, this is not an insignificant group.

C.  Most of the US Income Growth Went to the Top 10%

Figures on the growth of the different groups, and their distributional shares, show what happened:

France US
GDP per Capita, Rate of Growth, 1980-2007
  Overall 1.5% 2.0%
  Bottom 90% 1.4% 1.0%
Share of GDP, 1980
  Top 10% 31% 35%
  Bottom 90% 69% 65%
Share of GDP, 2007
  Top 10% 33% 50%
  Bottom 90% 67% 50%
Share of Increment of GDP Growth, 1980-2007
  Top 10% 36% 62%
  Bottom 90% 64% 38%

As noted before, overall GDP per capita grew at a faster average rate in the US than in France over this period:  2.0% annually in the US vs. 1.5% in France.  But for the bottom 90%, GDP per capita (for the group) grew at a rate of only 1.0% in the US while in France it grew at a rate of 1.4% per year.  The French rate for the bottom 90% was almost the same as the overall average rate for everyone there, while in the US the rate of income growth for the bottom 90% was only half as much as for the overall average.

Following from this, income shares did not vary much over the 1980 to 2007 period in France.  That is, all groups shared similarly in growth in France.  In contrast, the top 10% in the US enjoyed a disproportionate share of the income growth, leaving the bottom 90% behind.

In 1980 in France, the top 10% received 31% of the income generated in the economy and the bottom 90% received 69%.  With perfect equality, the top 10% would have had 10% and the bottom 90% would have had 90%, but there is no perfect equality.  The US distribution in 1980 was somewhat more unequal than in France, but not by much.  In 1980, the top 10% received 35% of national income, while the bottom 90% received 65%.

This then changed markedly after 1980.  Of the increment in GDP from growth over the 1980 to 2007 period, the top 10% received 36% in France (somewhat above their initial 31% share, but not by that much), while the bottom 90% received 64%.  The pattern in the US was almost exactly the reverse:  The top 10% in the US received fully 62% of the increment in GDP, while the bottom 90% received only 38%.  As a result of this disproportionate share of income growth, the top 10% in the US increased their overall share of national income from 35% in 1980 to 50% in 2007.  Distribution became far more unequal in the US over this period, while in France it did not.

The data continue to 2012 for the US, but the results are the same within roundoff.  That is, the top 10% received 62% again of the increment of GDP between 1980 and 2012 while the bottom 90% only received 38%.  For France the data continue to 2009, but again the results are the same as for 1980 to 2007, within roundoff.

With this deterioration in distribution, the bottom 90% in the US saw their income grow at only half the rate for the economy as a whole.  The top 10% received most (62%) of the growth in GDP over this period.  In France, in contrast, the bottom 90% received close to a proportionate share of the income growth.  For those who make up the first 90%, economic performance and improvement in outcomes were better in France than in the US.  Only the top 10% fared better in the US.

D.  Other Factors Affecting Living Standards:  Social Services and Leisure Time

In absolute terms, even with the faster growth of real incomes of the bottom 90% in France relative to the US over this period, the bottom 90% in France came close to but were still a bit below US income levels in 2007.  They reached 98% of US income levels in that year, and then fell back some (in relative terms) with the start of the 2008 downturn.

But the calculations discussed above were based on applying distributional shares from tax return data to GDP figures.  For income earning comparisons, this is reasonable.  But living standards includes more than cash earnings.  In particular, one should take into account the impact on living standards of social services and leisure time.

Social services include services provided by or through the government, which are distributed to the population either equally or with a higher share going to the poorer elements in society.  An example of a service distributed equally would be health care services.  In France government supported health care services (largely provided via private providers such as doctors and hospitals) are made available to the entire population.  Since individual health care needs are largely similar for all, one would expect that the bottom 90% would receive approximately 90% of the benefit from such services, while the top 10% would receive about 10%.  If anything, the poor might receive a higher share, as their health conditions will on average likely be worse (and might account for why they are poor).  For other social services, such as housing allowances or unemployment compensation, more than 90% will likely accrue to the bottom 90%.

Taking such services into account, the bottom 90% in France will be receiving more than the 67% share of income (in 2007) seen in tax return data.  How much more I cannot calculate as I do not have the data.  The direction of change would be the same in the US.  However, one would expect a much lower impact in the US than in France because social services provided by or through the government are much more limited in the US than in France.  While Medicare provides similar health care as one finds in France, Medicare in the US is limited to those over 65, while government supported health care in France goes to the entire population.  And the social safety net, focussed on the poor and middle classes, is much more limited in the US than in France.

In addition, economists recognize that GDP per capita is a only crude measure of living standards as it does not take into account how many hours each individual must work to obtain that income.  Your living standard is higher if you can earn the same income but work fewer hours as someone else to receive that income, as the remaining time can be spent on leisure.  And there is nothing irrational to choose to work 10% fewer hours a year, say, even though your annual income would then be 10% less.  The work / leisure tradeoff is a choice to be made.

GDP per capita may often be the best measure available due to lack of data on working hours, but for the US and France such data are available (and are provided in the TED database referred to previously).  One can then calculate GDP per hour of work instead of GDP per capita, both overall and (using the same distributional data as above) for the bottom 90%.  The resulting graph for 1980 to 2012 is as follows:

France vs US, 1980-2012, GDP per hour overall and of bottom 90% (Autosaved)

By this measure, overall GDP per hour of work in France was similar to that of the US in the 1990s, but somewhat less before and after.  Overall GDP per capita was always higher in the US over this full period (the top graph in this post), and by a substantial 20% (in 1980) to 38% (in 2012).  Yet GDP per hour worked never varied by so much, and indeed in some years was slightly higher in France than in the US.

But for the bottom 90%, income received per hour of work has been far better in France than in the US since 1983.  By 2007, GDP per hour worked was 30% higher in France than in the US for the bottom 90%.  This is not a small difference.  French workers are productive, and take part of their higher productivity per hour in more annual leisure time than their US counterparts do.

E.  Summary and Conclusions

The French economic record has been much criticized by conservative media and politicians in the US, with France seen as a stagnant, socialist, state.  Overall GDP per capita has indeed grown faster in recent decades in the US than in France, averaging 2.0% per annum in the US vs. a rate of 1.5% in France.  While such a difference in rates might appear to be small, it compounds over time.

But the picture is quite different if one focusses on the bottom 90%.  This is not a small segment of the population, but rather everyone from the poor up to all but the quite well off.  Growth in average real income of this group was substantially faster in France than in the US since 1980.  While overall growth was faster in the US than in France, most of this income growth went to the top 10% in the US, while the gains were shared more equally in France.

Furthermore, when one takes into account social services, which are more equally distributed than taxable income and which are much more important in France than in the US, as well as leisure time, the real living standards of the bottom 90% have not only grown faster in France, but have substantially surpassed that of the US.

For those other than those fortunate enough to be in the top 10%, living standards are now higher, and have improved by more in recent decades, in France than in the US.