Urbanization and Demographics Could Skew China's Economic Rebalancing



 



Summary

China's urban population may grow by as many as 230 million people in the next 15 years. But most growth will take place not in metropolises like Beijing, Shanghai and Chongqing but in the myriad small- and medium-sized satellite cities around them. And as residents flock to these cities, China's working-age population will begin to decline, and its elderly population will grow dramatically.

Together, these processes will underpin major changes not only in China's overall economic structure, but also in the financial, fiscal and political relationship between central and local government. The added burdens facing small- and medium-sized cities, especially those located deep inside China that are sequestered from mainstream global trade, will be substantial and perhaps socially and politically destabilizing. 

Analysis


In July, the Chinese government announced that a revision to the one-child policy had been implemented throughout the country's provinces and regions. The announcement of the revision, which allows couples in which either partner is an only child to have up to two children, heralded the end of the controversial policy. More relaxed family planning measures have long been in place for rural and ethnic minority communities, and most urban Chinese of childbearing age now were the only children in their families, so the revision dramatically narrows the portion of China's population to which the original one-child policy still applies.

The purpose of the one-child policy -- limiting the population shaping demographic trends -- was superseded many years ago by the far more fundamental forces of industrialization and urbanization. Two decades ago, China's fertility rate fell below 2.1, the generally accepted population replacement rate. Since then, it has dropped to roughly 1.5 or, by some measures, as low as 1.4. These are comparable to fertility rates in Russia and Italy but well below those of the United States, Australia, the Netherlands and many other more advanced economies.

It is a coincidence, but a symbolically loaded one, that China's fertility rate fell below the population replacement rate in the same year that the Chinese government enacted new fiscal policies and other measures that would necessitate and drive the housing construction booms of the 1990s, early 2000s and post-global financial crisis era. The almost continuous two-decade property boom cycle underpinned rapid growth in the portion of China's population living in cities -- from less than 30 percent in the early 1990s to the current 54 percent. In doing so, it introduced hundreds of millions more Chinese to urban life, with all its associated costs. Far more than the one-child policy, these costs have shaped family planning practices in China in recent years, as have rising education levels and the transition from an agriculture-based economy to one based on manufacturing and construction.

The urbanization of the past two decades has altered the country's demographic balance rapidly and profoundly. The change has hastened the decline in fertility and population growth rates, particularly those of China's working-age population, as the size of the country's elderly population has risen.


In the next two decades, these trends will only grow as the Chinese government attempts to push the country's urbanization rate above 70 percent, thus bringing the proportion of China's rural and urban populations more in line with those of advanced industrial economies with robust domestic consumer bases. If the government achieves its target, China's urban population will grow by more than 230 million between now and 2030, reaching approximately 975 million.


One-Way Street

For China's leaders, further urbanization on a significant scale is not optional: It is imperative. China is in the early stages of an effort to rebalance toward an economic model grounded in robust domestic consumption and characterized by greater economic integration between, and equality across, its diverse regions. Because of its large population, China has one of the world's largest domestic consumer markets, but relative to the country's economy as a whole, private consumption remains weak. In 2013, China's household consumption was equivalent to only 34 percent of its gross domestic product, compared with 70 percent in the United States, 61 percent in Japan, 57 percent in Germany and 52 percent in South Korea. Even if private consumption is somewhat stronger than official statistics show, it is nonetheless far from enough to support China's current rates of growth. As a result, too rapid a drop-off in housing construction activity before domestic consumption has had time to grow would likely cause a dramatic decline in China's overall economic activity and employment.

Moreover, private consumption is highly concentrated geographically and socially in more heavily urbanized coastal provinces and in a handful of major inland urban centers. Much of China's population, not only in rural regions but also in the hundreds of small cities that dot China's interior, does not participate meaningfully in the country's consumer economy.

The Chinese government wants to change this. It is experimenting with several reforms and tools to boost domestic consumption, including financial liberalization, expansion and modernization of the country's logistics industry (to more efficiently transport goods from the coast to the interior and back), and expansion of social security and health insurance programs. These measures are intimately tied to urbanization: Their success will depend on the progress Beijing makes with efforts to urbanize and integrate the country's interior, along with less developed parts of coastal provinces, into its more developed and largely coastal urban industrial economy.

Whatever form it takes, continued urbanization will have important implications for China's overall demographic balance and its political and economic structure for the next two decades. But how it affects Chinese demography, and how this in turn plays into major underlying issues in Chinese political economy, will depend very much on how China urbanizes.

After three decades of focusing on coastal urban development to suit the needs of China's heavily export-oriented economy, Beijing has redirected its attention to the interior in the past five to seven years. Now, with major inland metropolises like Chengdu, Chongqing and Wuhan approaching levels of development and population comparable with top-tier coastal cities, the government's attention appears to be shifting once again, this time to smaller cities in the interior and, to a lesser extent, along the coast. These cities are satellites of larger metropolises, once-forgotten river towns along the Yangtze and its tributaries, and other minor outposts on the rail and highway trunk lines that connect China's north and south and its coastal and interior regions.

It is these smaller cities that Beijing expects to drive future urbanization in China -- to house, employ, care for and educate most of the new urbanites China hopes to create by 2030. In the government's vision, these cities will serve not only as manufacturing bases and lower-end service providers for consumers in China's wealthier top-tier cities, but also as sources of marginal but rising consumer demand.

The government has made clear its intent to limit immigration into top-tier coastal cities, and it will continue to use tools like the household registration (hukou) system to make it harder for all but the most established non-resident workers to live and raise families in these cities. Meanwhile, it will use those same tools -- relaxed hukou restrictions, programs to bring rural laborers into small- and medium-sized inland cities, greater job availability and other social and economic incentives -- to encourage laborers from the interior to migrate or re-migrate to these cities.

Sal-Town Demographics

In under a decade more than a quarter of China's population will be over the age of 60, compared with slightly less than 15 percent today. In that time, the portion of China's population too young or too old to work will rise from approximately 38 percent to 46 percent, with the balance of China's dependent population shifting substantially from young to old.

decade more than a quarter of China's population will be over the age of 60, compared with slightly less than 15 percent today. In that time, the portion of China's population too young or too old to work will rise from approximately 38 percent to 46 percent, with the balance of China's dependent population shifting substantially from young to old.



At the same time, with China's working-age population (defined here as ages 20-59) set to decline by as much as 80 million people between 2015 and 2030, China will need to increase worker productivity significantly to sustain growth rates even remotely close to present levels. For example, for China to sustain 5 percent average annual growth between now and 2020 and then 2 percent between 2020 and 2030, worker productivity must almost double. Given China's low productivity levels, some gains will come naturally as Chinese industry gradually moves up the value chain and incorporates more advanced machinery. But those gains will also require less tangible improvements in education levels and skills, increased market competition, greater freedom of movement for labor and increased financial support to small businesses, which account for most of the employment and manufacturing output in China.

As China's workforce shrinks and its elderly population grows, pressure will mount to raise wages and expand the social services necessary to help that workforce manage the social and financial pressures of caring for the elderly while continuing to spend more. This pressure will translate to significantly higher fiscal expenditures for local governments, which are responsible for almost 90 percent of total government spending, and in turn will necessitate significant expansion of local governments' ability to raise capital by means other than land sales.

All of this will take place against a backdrop of massive and, except for the past two decades in China, unprecedented urbanization. Urban growth will not be primarily in the major cities with the greatest concentrations of wealth and greatest capacity to raise capital through municipal bonds or hefty taxes on high value-added manufacturing and high-end services industries. Rather, it will be borne by the small- and medium-sized satellite cities or even very small rural townships. Most of these cities and towns are in the interior and separated by distance and often unforgiving geography from overseas markets. Their prospects as manufacturing hubs are questionable at best, and their avenues for raising capital, whether through taxes or bond sales, are more limited.

Known Unknowns

A number of variables will further shape this process. Some, such as the progress and direction of agricultural modernization, could aggravate the challenges and constraints facing China's plan to urbanize small- and medium-sized cities. For example, if the Chinese government's vision for agricultural modernization involves clearing large tracts of land for use in industrial-scale agriculture in existing agricultural basins, the local governments that absorb the farming populations could find themselves caring for the parents and children of migrant laborers previously left behind to tend the now-defunct family farm. (With the exception of Jiangsu, the provinces with the top five dependent-to-working population ratios are inland.) Urbanization that results in the transfer of unproductive demographic groups to small- and medium-sized cities will only add to those local governments' financial, fiscal and social burdens.

Other factors could mitigate the financial and fiscal constraints on local governments in small- and medium-sized cities. A notable example is rural land reform, which aims to strengthen rural land ownership rights, thus giving rural landholders means to generate capital while giving local governments a new market with which to trade and generate revenues. However, rural land reform faces numerous complications, not least of which is the potential tension between expanding rural land markets and the government's imperative to maintain a base level of arable land. How exactly rural land reform plays out in context of broader urbanization and agricultural modernization efforts without infringing on Beijing's goals for either is unclear.

There is the more distant problem that rapid urbanization over the next 15 years will most likely exacerbate current demographic trends. As more people move from the countryside to cities, China's fertility rate will likely decline further, leaving future generations of Chinese urbanites even more constrained in their efforts to care for elderly and child populations and remain active consumers than those coming of age in the 2020s.

Finally, there is the question of how the Chinese government will manage the social stresses created by decades of uneven demographic growth between male and female populations driven at least in part by the one-child policy in its early years. In the next decade, this imbalance will come to a head as tens of millions of Chinese men, especially from rural regions where male children have traditionally been prized above female, come of age with little to no prospect for finding partners and forming families. This demographic will be of particular concern for Beijing as the low value-added manufacturing and construction industries best suited to absorb it decline further.



Centripetal and Centrifugal Forces at Work in the Nation-State

TUESDAY, SEPTEMBER 23, 2014 - 03:00

By Zhixing Zhang

"Here begins our tale: The empire, long divided, must unite; long united, must divide. Thus it has ever been." This opening adage of Romance of the Three Kingdoms, China's classic novel of war and strategy, best captures the essential dynamism of Chinese geopolitics. At its heart is the millennia-long struggle by China's would-be rulers to unite and govern the all-but-ungovernable geographic mass of China. It is a story of centrifugal forces and of insurmountable divisions rooted in geography and history -- but also, and perhaps more fundamentally, of centripetal forces toward eventual unity.

This dynamism is not limited to China. The Scottish referendum and waves of secession movements -- from Spain's Catalonia to Turkey and Iraq's ethnic Kurds -- are working in different directions. More than half a century after World War II triggered a wave of post-colonial nationalism that changed the map of the world, buried nationalism and ethnic identity movements of various forms are challenging the modern idea of the inviolable unity of the nation-state.

Yet even as these sentiments pull on the loose threads of nations, in China, one of the most intractable issues in the struggle for unity -- the status of Tibet -- is poised for a possible reversal, or at least a major adjustment. The long-running but frequently unnoticed negotiations have raised the possibility that the Dalai Lama, Tibet's spiritual leader, may be nearing a deal that would enable him to return to his Tibetan homeland. If it happens, it would end the Dalai Lama's exile in Dharamsala, India -- an exile that began after the Tibetan uprising in 1959, nine years after the People's Republic of China annexed Tibet. More important, a settlement between Beijing and the Dalai Lama could be a major step in lessening the physical and psychological estrangement between the Chinese heartland and the Tibetan Plateau.


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Tibet, the Dalai Lama and Self-Determination

The very existence of the Tibetan issue bespeaks several overlapping themes of Chinese geopolitics. Most fundamentally, it must be understood in the context of China's struggle to integrate and extend control over the often impassable but strategically significant borderlands militarily and demographically. These borderlands, stretching from northeast to the southwest -- Manchuria, Mongolian Plateau, Xinjiang, Tibet and the Yunnan Plateau -- form a shield, both containing and protecting a unified Han core from overland invasion. In attempting to integrate these regions, however, China confronts the very nature of geographic disintegration and the ethnic identities in these restive borderlands, which have sought to resist, separate or drift away from China at times when weak central power has diminished the coherence of China's interior.


Tibet in many ways represents the extreme edge of this pattern. Indeed, while the formidable geography of the Tibetan Plateau (its altitude averages 4.5 kilometers, or almost 2.8 miles, above sea level) largely inured it from most frontier threats to the Han core compared with the more accessible Manchuria, Mongolian Plateau or Xinjiang. Perhaps no borderland is as fraught with as much consequence as Tibet under China's contemporary geopolitical circumstances. The Tibetan Plateau and its environs constitute roughly one-quarter of the Chinese landmass and are a major source of freshwater for China, the Indian subcontinent and mainland Southeast Asia. The high mountains of the Himalayas make a natural buffer for the Chinese heartland and shape the complex geopolitical relationship between China and India.


Historically, China's engagement with the Tibetan Plateau has been lacking and not characterized by national unity. Starting in the 7th century, China made sporadic attempts to extend its reach into the Tibetan Plateau, but it wasn't until the Qing dynasty that the empire made a substantial effort to gain authority over Tibetan cultural and social structures through control of Tibetan Buddhist institutions. The weakening of China after the Qing dynasty led peripheral states, including Tibet, to slip from Chinese central rule.



Since the People's Republic of China began ruling over Tibet in 1950, the perennial struggle manifested as political, religious and psychological estrangement between political power in Beijing and the Dalai Lama, the charismatic political and spiritual symbol of the Tibetan self-determination movement, who consistently has resisted China's full domination over Tibet. Here, the nominally impersonal process of geopolitics confronts the rare individual who has a lasting impact. The Dalai Lama has concentrated the Tibetan cause into himself and his image. It is the Dalai Lama who represents the Tibetan identity in foreign capitals and holds a fractious Tibetan movement together, holding sway over both indigenous Tibetans in the homeland and the old and new generations of Tibetan exiles.

Perennial Struggle and Contemporary Moves


Under the People's Republic, China has some of the clearest physical control and central authority over one of the largest and most secure states in China's dynastic history. However, the ancient compulsion to secure the Chinese periphery did not go unaddressed by China's Communist leadership.

Over the years, the central government has pushed aggressively to bolster Han Chinese economic and demographic dominance over the borderland while attempting to overcome the physical barriers of distance through grandiose infrastructure projects, including road and rail links. And yet, the estrangement with the Dalai Lama has left Beijing dealing with the perception that its control over the Tibetan Plateau is partial and of questionable legitimacy. Meanwhile, the Dalai Lama's international prestige exposed the central power in Beijing to numerous international critics. Moreover, it offered New Delhi an opportunity to exploit Beijing's concerns by hosting the Dalai Lama and the Tibetan government-in-exile.

Beijing sees no space to allow the autonomy demanded by the Tibetan exile movement; it is a short path from robust autonomy to direct challenge. Beijing's strategy has been to try to undermine the Dalai Lama's international prestige, constrain interaction between the exile community and Tibetans at home and hope that when the spiritual leader dies, the absence of his strong personality will leave the Tibetan movement without a center and without someone who can draw the international attention the Dalai Lama does. Central to Beijing's calculation is interference in the succession process whereby Beijing claims the right to designate the Dalai Lama's religious successor and, in doing so, exploit sectarian and factional divisions within Tibetan Buddhism. Beijing insists the reincarnation process must follow the Tibetan religious tradition since the Qing dynasty, meaning that it must occur within Tibetan territory and with the central government's endorsement, a process that highlights Tibet's position as a part of China, not an independent entity.


Beijing's plan could work, but the cost would be high. Without recognition from the Dalai Lama, Beijing's appointed successor -- and by extension, Beijing's authority in Tibet -- can hardly be accepted by the wider Tibetan community. To resist Beijing's attempt at interference, the Dalai Lama has in recent years made various statements signaling that the ancient traditions of the succession process could break. In particular, the Dalai Lama has discussed the potential for succession through emanation rather than reincarnation. This would place his knowledge and authority in several individuals, each with a part of his spiritual legacy, but none as the single heir. Emanation can occur while the Dalai Lama is alive, thus giving him the ability to manage a transition. He has also mentioned the possibility that no successor will be named -- that the reincarnation of the Dalai Lama will end, leaving his legacy as the lasting focus for Tibetans.


More concretely, the Dalai Lama has split the role of spiritual and political leadership of the Tibetan movement, nominally giving up the latter while retaining the former. In doing so, he is attempting to create a sense of continuity to the Tibetan movement even though his spiritual successor has not been identified. However, it also separates the Dalai Lama from any Tibetan political movement, theoretically making it easier for the spiritual leader and Beijing to come to an accord about his possible return as a spiritual -- but not political -- leader. But the maneuvering by the Dalai Lama reflects a deeper reality. The Tibetan movement is not homogenous. Tibetan Buddhism has several schools that remain in fragile coordination out of respect for the Dalai Lama. The Tibetan political movement is also fragmented, with the younger foreign-born Tibetans often more strongly pressing for independence for Tibet, while the older exiles take a more moderate tone and call for more autonomy. The peaceful path promoted by the Dalai Lama is respected, but not guaranteed forever, by the younger and more radical elements of the Tibetan movement, which have only temporarily renounced the use of violence to achieve their political goals.


The future of the Tibetan movement after the Dalai Lama's death is uncertain. At a minimum, the spiritual leader's fame means no successor will be able to exercise the same degree of influence or maintain internal coherence as he has done. Just as the Dalai Lama was concerned that an extremist wing of the new Tibetan generation would undermine his moderate ideology and dilute the movement's legitimacy, Beijing fears that the post-Dalai Lama era would enable multiple radical, separatist or even militant movements to proliferate, leaving Beijing in a much more difficult position and potentially facing a greater security threat.


Beijing and the Dalai Lama have shown a willingness to reach a political settlement in the past, but their attempts failed. As uncertainties loom for both sides amid concerns about the spiritual leader's age and the changing domestic dynamics facing China's new president, Xi Jinping, both sides could see a departure from previous hostilities as a reasonable step toward a low-cost settlement. In other words, both Beijing and the Dalai Lama -- and by extension his mainstream followers -- understand how little time they have and how, without a resolution, the uncertainties surrounding the Tibet issue could become permanent after the spiritual leader's death.

Optimism Now, but Caution Ahead


The report of the Dalai Lama's possible return to Tibet comes as Beijing has resumed talks with representatives of the spiritual leader. This round of negotiations comes after nine rounds of failed talks over the past decade and four years after the last attempt. Nonetheless, the mood appears at least somewhat optimistic on both sides. In recent weeks, the Dalai Lama has offered conciliatory comments about Xi and intimated that he could be open to returning to Tibet, a longstanding desire of the 79-year-old spiritual leader. For its part, Beijing has released some Tibetan political prisoners and reportedly allowed the Dalai Lama's image and words to be used in certain Tibetan regions after years of prohibition.


Of course, many uncertainties surround the return of the Dalai Lama; it is even uncertain whether it could happen at all. Indeed, overcoming 55 years of hostile relations takes enormous effort, and even if the Dalai Lama is allowed to return to Tibet, it is only one of several steps in much broader negotiations between Beijing and the Tibetan exile community over how to reach a resolution, including the possible resettlement of 200,000 Tibetans in exile, the status of the government-in-exile, the authority of the Dalai Lama and, ultimately, the succession process for the spiritual leader.


Over the years, the Dalai Lama repeatedly has expressed a strong desire to return to the Tibetan homeland, seeing it as an end goal in his longstanding efforts to gain Tibetan autonomy. Although Beijing had always left the option open, it repeatedly emphasized that any dialogue with the Dalai Lama would be confined to the scope of an arrangement for the spiritual leader and would carry no political implications. In other words, any agreement will be based on the premise that expanded Tibetan autonomy is not an option and that Beijing's authority over Tibetan regions -- and by extension, the borderland in Xinjiang and Inner Mongolia -- will remain intact. Similarly, the Dalai Lama will not accept a weakening of his spiritual authority among the Tibetan community or of his role in choosing successors. Nonetheless, with Beijing's concern over the proliferation of radical wings of the Tibetan movement abroad, allowing the Dalai Lama to return to Tibet could mitigate some of the tension and give Beijing a way to divide and weaken the Tibetan movement.


In moving toward an agreement, both sides would have to prepare for some political risk. For Beijing, the foremost concern would be managing the enormous religious influence of the Dalai Lama at home, where he is seen as a challenger to the Communist Party's political leadership. For the Dalai Lama, the main concerns would be managing the role of the Tibetan political leadership overseas and the potential repercussions within the exile movement from the developing settlement's contrast with their goal for Tibetan autonomy.

Perhaps more important, even if there were signs of a resolution developing, the succession issue is likely to be a roadblock. Beijing is unlikely to give any concession in its authority to appoint a reincarnated spiritual leader, and the Dalai Lama shows little intention of allowing Beijing's unilateral move.

Confronting a Geopolitical Curse



Despite various uncertainties, questions and risks, the potential ramifications of even the slim possibility of rapprochement illustrate China's ancient geopolitical dynamism at work.


Again illustrating how an individual can play a role in geopolitics, the potential for reconciliation between Beijing and the Dalai Lama could affect the balance between China and India. China has long viewed India's decision to host the Tibetan government-in-exile as a hostile gesture. However, India's ability to exploit China's concerns about Tibet has diminished along with the government-in-exile's influence and claim to represent Tibet as a legitimate entity. Already, New Delhi has shown waning enthusiasm for accepting Tibetan refugees and greater concern that the internal fragmentation of the Tibetan community will make hosting the exile community more of a liability than a benefit. However, a settlement would not eliminate the underlying geopolitical rivalry between India and China on other fronts -- from their 4,000-kilometer land border to the maritime competitions in the Indian Ocean and South China Sea and their competition for energy and other resources.


Even if a settlement on the Tibet issue emerges in the distant future, it does not mean the end of the China-Tibet struggle. Indeed, since 2009 there have been many Tibetan self-immolations, and Beijing's economic developments in many parts of the ethnic borderlands widely are perceived as flawed or incomplete. Quite likely, a detente with the Dalai Lama will result in radicalized and more extremist elements emerging overseas, seeking self-determination and, like many of their counterparts around the world -- from Scotland to the Kurds in the Middle East -- challenging the centripetal forces of nation-states.


Historically, when Han China is strong, so is its control over these buffer regions. Control of the buffer regions, in turn, is a key precondition for a strong and secure Han China. This arrangement will become crucial as Beijing grapples with the potential challenges in the social, economic and political transformation in the Han core in the coming years. Therefore, despite the flux mentioned in the aphorism from Romance of the Three Kingdoms, for Beijing the ultimate goal is to confront an ancient geopolitical curse by cementing its control over its borderlands and uniting China permanently and irreversibly, however unrealistic this goal might be.


Editor's NoteWriting in George Friedman's stead this week is Stratfor Asia-Pacific Analyst Zhixing Zhang.


The Recovery That Left Out Almost Everybody

America's economy has not worked for average families since the Clinton administration ended.



If they were judging the economy by the monthly jobs report, working Americans would be popping champagne corks. Total employment has risen every month for more than four years. According to the Current Population Survey, more than eight million jobs have been created since the trough, while the number of unemployed has been cut by nearly six million. The unemployment rate has declined to 6.1% from 10%, and the number of Americans enduring long-term unemployment (27 weeks or more) has fallen to three million from 4.3 million in the past 12 months.

Yet average Americans remain gloomy about the current economy and anxious about its future. According to a Pew Research Center report released this month, only 21% rate current conditions as excellent or good, versus 79% fair or poor. Only 33% say that jobs are readily available in their communities; when asked about good jobs, that figure falls to 26%. Only 22% believe the economy will be better a year from now; 22% think it will be worse, while fully 54% think it will be the same.

More than five years after the official end of the recession, the Public Religion Research Institute finds, only 21% of Americans believe the recession has ended.

Two recent reports help explain the disconnect between the official jobs numbers and the economic experience of most Americans. Every fall, the U.S. Commerce Department issues a detailed analysis of trends in income, poverty and health insurance. Although economists have some technical quibbles with the Commerce data, the broad trends are unmistakable.

This year's report found that median household income was $51,939 in 2013, 8% lower than in 2007, the last year before the recession. Households in the middle of the income distribution earned about $4,500 less last year than they had six years earlier. No wonder 56% of Americans told the Pew Research Center that their incomes were falling behind the cost of living.

The Federal Reserve's triennial Survey of Consumer Finances confirms these findings. Between 2010 and 2013, the Fed reports, median family income fell by 5%, even though average family income rose by 4%. This is, note the authors, "consistent with increasing income concentration during this period." Only families in the top 10%, with annual incomes averaging nearly $400,000, saw gains during these three years. Families headed by college graduates eked out a gain of 1%, while those with a high-school diploma or less saw declines of about 7%. Those in the middle—with some postsecondary education—did the worst: From 2010 to 2013, their annual incomes declined to less than $41,000 from $46,000—an 11% plunge. Families headed by workers under age 35 have done especially badly—even when the heads of those young families have college degrees. The economic struggles of the millennials are more than anecdotal.

What's going on? The Census report offers a clue. The median earnings for Americans working full-time year round haven't changed much since 2007. But more than five years into the recovery, there are fewer such workers than before the recession. In 2007, 108.6 million Americans were working full time, year-round; in 2013 only 105.9 million were doing so. Although jobs are being created, too many of them are part-time to maintain growth in household incomes.

This is not by choice. About the same number of Americans were employed last month as in December 2007. But during that period, according to the Bureau of Labor Statistics, the number of Americans working part time who wanted a full-time job jumped to 7.2 million from 4.6 million. Not only are hourly wages stagnating; America's families want more hours of work than the economy is providing.

Although the Great Recession was the most severe since World War II, in many ways it underscored trends that have been under way for decades. Adjusted for inflation, median earnings of men working full time, year-round are no higher than they were in 1980. Median household income is almost $5,000 lower than it was in 1999, and no higher than it was it 1989.

The modest income increases of the past two generations have occurred because women have surged into the paid workforce—and because their real wages have grown at a compound annual rate of 0.8%. But both these trends peaked in 2000. Not surprisingly, the years after the 2001 recession witnessed the only postwar recovery in which median incomes failed to regain their previous peak.

The American economy hasn't worked for average families since the end of the Clinton administration. A recovery that leaves them out is no recovery at all, and they know it. This simple fact goes a long way toward explaining the tone of our current politics and the temper of our society. It will not change for the better unless we can recreate an economy in which work is rewarded and family incomes rise. That is the great task of the next decade—and must be the prime focus of the next presidential election.


Putin leaves Germany’s factories in a worse state than anyone imagined

Surveys of the German manufacturing sector have slumped to their weakest levels since June 2013, as tensions over Russia and Ukraine


Key gauges of Germany manufacturing slumped in September, falling to a 15-month low as ongoing tensions over Ukraine weighed on the sector.

Markit’s purchasing managers’ index (PMI) for the sector dropped to 50.3, from 51.4 a month earlier. The reading is barely above 50, implying that the sector is expanding, but slowly.

No analyst polled by Reuters expected a number this bad.

The most pessimistic expert forecast that the PMI figure would fall to 51, while the average analyst believed Germany’s PMI would drop to 51.2.

Germany’s factories are particularly exposed to any conflict between Russia and its neighbours, as well as the tit-for-tat sanctions exchanged between Russia and the EU.

Measures of new orders also slipped for a fourth consecutive month, pointing to a further slowdown ahead.
“Weak manufacturing data have become one of the most conspicuous features of the fragility of a broad-based recovery”, said Oliver Kolodseike, economist at Markit.

Germany’s dominant service sector will be increasingly relied upon to deliver growth. The sector’s PMI reading rose to 55.4 in September, a rise of 0.5 points on the previous month.

“September’s flash PMI results paint a mixed picture of the health of the German economy at the end of the third quarter”, said Mr Kolodseike. Markit expects German GDP to rise by just 0.4pc in the quarter.

Meanwhile, incoming minimum wage legislation, scheduled for January 2015 has “weighed on service sector sentiment, with business expectations the lowest in nearly two years”, Mr Kolodseike said.

Equivalent PMI numbers for France showed both its manufacturing and services sectors in contractionary territory - at 48.8 and 49.4 respectively.

The data suggest that the nation’s zero growth trend could continue. INSEE today confirmed that France’s economy managed no growth at all in the second quarter of the year.

“Anaemic demand continues to hold back the private sector”, said Jack Kennedy, senior economist at Markit, “with further price cutting insufficient to prevent new orders from falling”.

The continued weakness saw employment fall at its sharpest rate since February.

PMI for the euro area as a whole dropped to 52.3, down by 0.2 points since August.

The fall "adds to signs that the region's economy barely expanded in the third quarter after the second quarter's stagnation", said Jennifer McKeown, senior European economists at Capital Economics.

"This survey does nothing to alter the picture of a struggling eurozone economy, intensifying the pressure on governments and the European Central Bank to provide more policy support".