THE PENNSYLVANIA STATE UNIVERSITY ECONOMICS ASSOCIATION PRESENTS:

EDITOR: JOE KEARNS PRINT EDUCATION COORDINATOR

CONTRIBUTORS: MIKE BARNES, WAHHAJ IQBAL, JOE
KEARNS, COLE LENNON, CAMILLE MENDOZA
FALL SEMESTER 2014: VOLUME FIVE
OCTOBER 14, 2014
THE OPTIMAL BUNDLE

1 in 5 workers laid off the
past 5 years are still unem-
ployed.
Is the Unemployment Rate Misleading?
The unemployment rate fell below 6%, so, mission accomplished, right? The reality is
less clear because it overstates the health of the labor market. Meanwhile, the under-
employment rate includes workers who want to work full-time, but work in part-time
jobs. The reports show a jump in the underemployment rate, as it rose from 13.8% in
May to 14.3% in June. This 0.5% increase is evidence that many workers view low-
skilled jobs as undesirable. The fall of the labor force participation also suggests the
same. Unemployment rate is important, but its decline does not always mean that the
labor market is doing great. The fall in the unemployment rate does not capture the
wider difficulties in the labor market. To gain a better idea of economic health, policy-
makers must look through the lens of underemployment. - WI
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Sticky Wages: The Bane of the Labor Forces Existence
Minimum wage workers might have seen their paychecks rise in nominal terms, but in terms
of real value, they are getting less than they did 40 years ago. Because inflation has increased
faster than the minimum wage, the latter has decreased by 6.11% since 1968. An increase in
capital production means less unskilled workers were needed, which lowered their wages,
while the demand for skilled workers increased. While an economic recovery should signify
rising wages, the reality is that overall wage increase has been minimal due to sticky wage
phenomenon. When wages fall during a recession, workers tend to seek other jobs and pro-
test, which negatively affects the economy and consumer confidence. To make up for the loss-
es from keeping wages stable, companies have not increased wages during the recovery. The
result is an economy where workers have less incentive to participate in the labor force, bring-
ing it to its lowest point since 1978. Workers are waiting for unemployment to continue drop-
ping, but until then, they remain on the sidelines. MB
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The consequences of not
keeping workers mo-
rale high can be quite
steep.
Wealth Inequality: The Price of Financial Ignorance
Does a rising tide lift all boats? This question is crucial for America, where the
top 1% of earners has 40% of the wealth and the lower 80% have only 7%.
Wealth inequality is getting worse because there is a disparity in the way rich
and poor families manage their assets. According to FiveThirtyEight.com, top
earners hold more than half of their assets in stocks, compared to less than a
third for the poorest families. State governments should require a stand-alone
personal finance course in high schools to address this disparity. As economist
Noah Smith argues, The most potent way to get more wealth to the poor and
middle-class is to get these people to save more of their income, and to invest
in assets with higher rates of return. The boat is sinking, and it is time to help
the 99% avoid shortchanging itself. - CM
Occupy Wall Street was
arguably the most visible
public demonstration
against wealth inequality.
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bit.ly/1tU9zME
Special Report on the Economic Recovery


Pessimists who bemoan the fact that the recovery of
the Great Recession was the longest for any recession
since the Great Depression conveniently ignore one
thing: it was the most severe economic downturn since
the Great Depression. Rather, the fact that the unem-
ployment rate, the declining deficit, and a downward-
trending poverty rate are returning to normal historical
levels illustrates that the general publicof which 72%
believes the U.S. is still in a recessionis overstating
the magnitude of current economic problems.

Three patterns confirm that a falling unemployment
rate marks the U.S. economys return to normalcy.
First, Septembers unemployment rate of 5.9% is the
lowest the unemployment rate has been since 2008.
Federal Reserve economic data reveals that it is in line
with the long-run average since 1948, which is 5.8%.
Second, the federal budget deficit has shrunk to histor-
ically ordinary levels after swelling in the reces-
sion. The CBOs recent report mentioned that the cur-
rent deficit stands at 2.9% of GDP; researchers from
the Federal Reserve again show that this is in line with
our average since 1948: 3.0% of GDP. Third, the pov-
erty rate of 14.5% is close to the average since 1959 of
14.1%. Numbers never lie and the message they speak
is clear: the U.S. economy is in a state of normalcy that
is unfamiliar to the recession-scarred public.

Traveling down the path of economic recovery has
been onerous for many Americans. This is particularly
true, as most of them have not lived through an eco-
nomic downturn this bad. Still, the U.S. economy is
humming along normally in many ways. The unem-
ployment rate of 5.9%, for example, links up with the
average of these past several decades. The deficit is al-
so right in line with the average; an average of 3.0% of
GDP is remarkably close to our current rate of 2.9%.
Whats more is that the poverty rate is also trending in
line with the past six decades. The road to recovery is
long, but today it bends toward normalcy. CL
If the recent U.S. unemployment data signifies the arrival
of normalcy, this proposition can only be defended by ar-
guing that the meaning of normal has changed. While un-
employment is below 6%, the labor force participation rate
has fallen to its lowest level since 1978. This pattern has no
precedent in the history of employment statistics dating
back to 1948. It is no coincidence that this pattern has oc-
curred amidst the slowest recovery from a recession in 70
years. The five year span between the economys pre-
recession peak and its return to that level caused the pro-
portion of the unemployed who gave up looking for work
to rise to 47%, according to a poll conducted by Express
Employment Professionals. This data illustrates that the
low unemployment rate of 5.9% overstates the perfor-
mance of the U.S. economy, which misleadingly suggests
the U.S. economy is back to normal.

A decline in the unemployment rate has failed to reverse
disturbing socioeconomic patterns over the last dec-
ade. The earnings gap between the richest 10% and the
bottom 90% widened during the Great Recession. The
richest 10% of earners made 4.5 times as much as the me-
dian family in 2010, but 5 times as much in 2013. The
booming stock market allowed the top 3% of earners, who
hold a greater proportion of their assets in stocks, to in-
crease their combined net worth to 54.4% of U.S. wealth in
2013, compared to 51.8% in 2007. Meanwhile, wages con-
tinue to stagnate with hourly earnings at $24.53, particu-
larly affecting middle class and poor Americans. There is
also significant disparity by race regarding underemploy-
ment, which is now 11.8% for the general population, but
is significantly higher for Black Americans at 25%. In this
case, a rising tide lifted only a few boats.

The picture of the present illustrates that the U.S. econo-
my has not returned to normal, and demographics suggest
it will not do so in the future. As baby boomers retire,
there should be more job openings which need to be filled
to provide the government with sufficient revenue to fund
entitlement programs like Social Security and Medicare.
U.S. policymakers must expand the labor force before a
socioeconomic time bomb explodes. If not, the new nor-
mal will be short-lived. JK
Numbers Never Lie
Lies, Damned Lies, and Statistics
Psuea.org EA Homepage
Psuea.org/blog Education Blog
Upcoming
Events:
Oct. 15 Retail Sales
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http://bit.ly/1ysqFrY
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Is the U.S. Economy Back to Normal?
Oct. 17 Housing Starts