EPI President Lawrence Mishel, EPI EARN director Michael Ettlinger, and EPI economist Elise Gould examined the income slump among four types of families in the report: families married with children; single mothers; elderly couples 65 and older; and young singles age 25-34.
After-tax incomes for most middle-income families of every type were lower in 2003 than in 2000.
"Less Cash in Their Pockets: Trends in Incomes, Wages, Taxes, and Health Spending of Middle-Income Families, 2000-2003," shows that even for families with health insurance, the rapid rise in their share of the premium and out-of-pocket costs has combined with lower wages to produce income drops from 1.3 percent (for two-parent families) to 2 percent (for single-mother families).
Young singles showed income losses of 1.8 percent after taxes and health care costs, while elderly couples lost 3.8 percent. For married couples with children, health spending rose three times faster than income between 2000 and 2003.
Even with the federal tax cuts enacted in 2001 and 2003, all family types except single mothers experienced a drop in after-tax income: a decline of 0.2 percent for two-parent families, and a drop of 1.4 percent for young singles and elderly couples.
Discussing these trends, Mishel, EPI's president, said: "The perfect storm that hit middle-income families since 2000 had three parts. First, their wages were weakened by a recession and a long jobless recovery, then poorly targeted tax cuts largely passed them by in favor of high-income families, and finally, health care costs rose a punishing 34 to 45 percent."
A report released this week by Berkeley's Institute of Industrial Relations also shows that wages and jobs for the middle class have fallen. The Berkeley report showed that overall wages are lower than what they were during fourth-quarter 2001, when the recession ended and the recovery began. Since then, those earning the lowest 10 percent of wages saw their wage fall by an annual average of 1.4 percent; the median wage remained completely static; and those earning the top 10 percent of wages saw wages rise by an annual average of 0.1 percent. Also, there has been an increase in jobs that pay in the lowest third of the salary range since 2001, the Berkeley report said. In fact, job growth in the lowest third of the salary range outpaced growth of jobs paying in the middle third of the salary range by 2-to-1.
Lowered family income has been caused by three factors: the unusually long period of job loss that followed the March 2001 recession, the 2001 and 2003 federal income tax reductions, and surging health care costs.
A March 2001 recession and weak recovery led to persistent job losses that left the labor market as weak as it was when the recovery began in late 2001.
The higher health-care costs stemmed from higher out-of-pocket health spending and higher premium payments for health insurance, the EPI report said. Another study, released late last month by consumer group Families USA, shows that since 2000, U.S. workers' health insurance premium costs rose, on average, by 35.9 percent, while their average earnings over the same period rose by only 12.4 percent. Those spending more than 25 percent of their income on health-care costs rose from 11.6 million in 2000 to 14.3 million in 2004, the study shows.
The good news is that productivity growth, which leads to improved living standards, has grown faster than it has in three decades, the report said. Unfortunately, productivity growth has not created higher pre-tax earnings for middle-income families.
"Middle-income families now have less income available -- less 'cash in their pockets' -- to meet their needs," the report concluded.
Democrats and Republicans have interpreted the September employment report quite differently. Democrats have charged the Bush administration with the loss of 821,000 jobs. Republicans responded by saying that 1.8 million jobs have been added in the past 13 months. The Democrats countered that these new jobs are not as good as the ones in place before Bush took office in 2001.
"The economy is not going into another recession ... soon, but I think we may be in for a period of sluggish job growth," said Lawrence Mishel, co-author of the EPI paper.
Mishel said he believes that if Kerry is elected, there would be "better employment growth and he would be better at addressing healthcare problems," while "Bush has already shown that his response to a job problem was very ineffectual, without a well-suited tax package."
Additionally, "Kerry will address the exchange rate in Asian countries which will help manufacturing job growth," Mishel said.