A Recovery, But for Whom?

August 28, 2007

Heather Boushey

August 28, 2007 (Poverty Byte)

Global markets have been volatile over the past month and mainstream economists are now talking about whether recession may be just around the corner. A recession would certainly not be good news for families, especially since most have not yet recovered from the last recession. The current economic recovery has been relatively weak, generating fewer jobs and less income growth than the prior recoveries. And, employers have not been offsetting lower wages with better benefits: employment-based health insurance coverage has fallen sharply in recent years.

Today’s report from the U.S. Census Bureau shows that from 2005 to 2006, the median household saw their income grow by 0.7 percent, but household income remained 2.0 percent below where it had been in 2000, at the last economic peak. So far, this recovery has generated less income growth than prior ones: at this point in the recovery of the 1990s, household income was only 1.3 percent below its pre-recession peak and at the comparable point in 1980s, household income was only 0.9 percent below its pre-recession peak. And, what growth we have seen in family income has accrued mostly to those at the very top of the income distribution. Since 2000, families in the top quintile have seen their income rise by 1.0 percent, while those in the bottom quintile have seen their income fall by 4.5 percent.

It has been more work, not rising earnings that have pushed incomes up at all. From 2005 to 2006, median full-time earnings fell for both male and female workers by over a percent (1.1 percent for men and 1.2 percent for women). This is the third year in a row that median earnings have fallen. Employment rates are higher for both men and women, indicating that families are coping with lower earnings by simply working more.

This is not very good news. By these measures, the current recovery has been inadequate for millions of families. It also indicates that the data for 2007 may not be that much better. In 2006, hourly wages increased sharply in the last half of the year and, as a result, 2006 was the first year in three years to show growth in inflation-adjusted weekly earnings. While inflation-adjusted hourly wages fell in early 2007, they are now growing, but at a slower pace than in late 2006.

But, wages and incomes are not the whole story. As we’ve moved through this economic recovery, access to health insurance has become increasingly a tale of the haves and the have-nots. Between 2000 and 2006, the share of people with employment-based health insurance has fallen from 64.2 to 59.7 percent and the share without health insurance is now at 15.8 percent, an all-time high.

There would be more uninsured among us except that in the late 1990s, Congress extended Medicaid to the children of workers under the State Child Health Insurance Program (SCHIP). This program must be reauthorized by the end of September or it will expire. While both houses of Congress have passed a reauthorization bill, the President has threatened a veto because the bill will further increase children’s access to government health insurance. According to the President’s spokesperson, Mr. Fatto, “This will have the effect of encouraging many to drop private coverage, to go on the government-subsidized program.”

It appears that this logic is backwards. Between 2000 and 2006, the share of children with employment-based health insurance fell by 6.2 percent. If this was a clear story of families swapping their employment-based coverage for Medicaid, there would not have been similar declines in employment-based coverage for adults. But, in fact, employment-based coverage fell for adults by just as much as for children. Since most adults are ineligible for Medicaid, they are now swelling the ranks of the uninsured, while mostly because of the SCHIP expansion, the share of children with government health insurance rose by 6.8 percent between 2000 and 2006. Yet, even with the SCHIP expansion, there are more children without health insurance: from 2005 to 2006, the number of uninsured children increased from 8 million (10.9 percent) to 8.7 million (11.7 percent).

We need an economy that works for all. When the economy grows, we should expect—even demand—that earnings rise. When earnings do not grow, asking families to shoulder the burden of the increased costs of health insurance and the declines in employment-based coverage is only adding to our problems, not solving them. It’s not the government health insurance is crowding out private coverage, but that employment-based health insurance has fallen and Medicaid and SCHIP have helped to close the gap so that many in the very poorest families can access health care.

Health care should be a right for all families, not just the very poor and those lucky enough to have a good job with benefits. Expanding SCHIP to cover all children, or, better yet, expanding Medicare to all of us, young and old alike, would help families weather the vicissitudes of the economic cycle without having to worry about their health.

Heather Boushey is senior economist at the Center for Economic and Policy Research in Washington, DC.
CEPR’s Poverty Byte is published each year upon release of the Census income report. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102 or [email protected]

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