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Economic Growth Leaves Families Behind

CAP Economic Policy Academic Review member testifies to Senate HELP Committee on economic security and opportunity for working families.

Center for American Progress Economic Policy Academic Review Board Member Eileen Appelbaum testified yesterday before the Senate Health, Education, Labor, and Pensions Committee on economic security and opportunity for working families.

Appelbaum argues that the majority of middle class families have not shared fairly in the benefits that the tremendous economic growth during the past 30 years has provided many upper class Americans.

Appelbaum outlines five key strains on American families today:

1. Seventy percent of families are headed by dual earner couples or by a single parent, which means that workers are less able to take care of their children, aging parents, and spouses while meeting their responsibilities as employees. Families can’t manage this alone. We need policies to create a workable balance for employers and employees.

2. The gap between productivity growth and wage growth is wider today than ever. Even with the increase in the number of mothers who are working, real median family income has risen slowly. Workers need a floor under wages in the labor market, and they need the right to form unions to represent their interests in negotiations over employment standards and the distribution of the rewards from productivity and GDP growth.

3. Health care costs are rising rapidly, putting downward pressure on workers’ wages and burdening employers. Employer health insurance costs are a much larger fraction of compensation for low and middle income earners than for high earners. Increasing numbers of workers find themselves shouldering the rising health care costs or denied employee-sponsored health insurance entirely.

4. The deflating housing bubble is likely to reduce consumption and increase economic insecurity among middle and lower income households. This is especially worrisome for workers in the pre-retirement years who may have been counting on the equity in their homes to provide retirement income security. The entire country faces slower economic growth, the threat of rising unemployment, and a possible working families. recession.

5. The country faces an accelerating run-up in the trade (and current account) deficits, on pace in 2006 to exceed the record $717 billion trade deficit of 2005 for a fifth record year and to surpass six percent of GDP. This is simply unsustainable. A reduction in the U.S. trade deficit will require a decline in the exchange value of the dollar against China and a host of low wage countries. While this is a necessary precondition for U.S. exports to increase rapidly, it has the unwanted side effect that it raises the price of imported goods, bringing inflation with it. This rise in prices reduces the real wages of workers, especially those in the middle and low end of the wage distribution. The larger danger is that the Fed will respond by raising interest rates in a misguided effort to control inflation, putting the jobs as well as the wages of less-educated workers at risk. Such a policy carries the risk of turning a necessary adjustment in America’s trade position into a serious threat of recession and stagnation.

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