It's the income growth, not the jobs, stupid?

by: Chris Bowers

Mon Apr 12, 2010 at 15:45

While many political commentators, myself included, have seized upon employment numbers as the key economic indicator on political outcomes in 2010, some political science on the subject finds that unemployment has little to no effect on political outcomes.  Instead, a broader measure, income growth, is likely to have the biggest impact:

Even the high unemployment rate may be less important politically than you'd think. Seth Masket, a political scientist at the University of Denver, has found that, in midterm elections since 1950, there's been no correlation between the unemployment rate and election outcomes. The key economic variable for voters, other studies show, has been income growth, or, more specifically, how fast per-capita G.D.P. is rising. In other words, if income growth is brisk enough, Democrats should benefit at the polls even if unemployment stays high.

Even leaving aside the political science, this makes sense intuitively.  Unemployment directly affects about one in ten people right now.  While that number increases significantly when underemployment, and the impact on families is taken into account, real income affects pretty much everyone who isn't retired.  That accounts for three in four Americans--many more than unemployment alone can ever impact.

GDP growth has been pretty robust in the United States over the last two quarters, at 2.2% and 5.6% respectively.  Declining immigration during the recession has also slowed population growth.  These two trends should result in a significant, upward trending increase in per capita GDP during 2010.

Then again, while per capita GDP should be on the rise in 2010, it has yet to rise for most Americans.  Here is the BLS chart on average hourly earnings since early 2008:

Average hourly earnings have not improved much at all, and the situation is not improving.  Total hours worked is also stagnant.  This implies that the recent improvements in per capita GDP have not yet translated into wages, and thus an improved electoral environment for Democrats.

The stimulus was backloaded with 2010 spending, and Democrats might be able to enact additionally, smaller spending bills to further improve the job situation in 2010.  However, this will not help them politically if personal income does not start improving for most Americans.  It will likely be that broader measure of personal prosperity that has the most impact on the 2010 elections.

Chris Bowers :: It's the income growth, not the jobs, stupid?

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Just a note (4.00 / 2)
per-capita GDP != personal income growth

My guess is that the latter would be even more strongly correlated. In the 50s/60s/70s and even some of the 80s, the growth in GDP was spread across the population. With increasing financialization of the economy, that was less so in the later 80s and 90s and aughts.

But maybe people do just get pumped by a rising Dow.

Me | My Work | Future Majority

Two questions (0.00 / 0)
1) Are you better off than you were two years ago?

2) Do you think you will be better off two years from today than you are now?

If the answers are no, there would be little interest in voting for the status quo.

Back up that chart (4.00 / 1)
I bet if you backed that chart thru the years of the Bush administration, you wouldn't see much growth in personal income (in real dollars) either.  I bet it would be as bad or worse.  

This is a long-term mess.


Graph (0.00 / 0)
Yglesias used this graph today:

I don't know where we are today on that graph.

Low (0.00 / 0)
I would guess we are close to the lower-left corner right now.  

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