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Setting her own trend: Savvy young hairstylist is among young people confronting the new economy

Published: Tuesday, Oct. 1 2013 11:55 a.m. MDT

Jones might be allowed to enjoy a little schadenfreude if she noted a CNN story highlighting a jobless recent graduate in journalism and art history from the University of North Carolina, or the creative writing graduate profiled by AP who is now working in a bar and getting help with student loans from his parents.

But it's not just young people who are having a hard time cracking the job market. Unemployment and underemployment remains high, despite recent small drops in the traditional unemployment rate, currently hovering just over 7 percent.

Many experts reject the traditional unemployment measure because it leaves out some groups, including those who have become discouraged and quit looking for work, as well as those working part time because they can't find anything better. Both of these are captured in U6, an alternate unemployment measure (Figure 1), which remains mired at around 14 percent.

The employment-to-population ratio — which measures everyone working rather than trying to sort out the reasons some are not working — is an even more valuable measure, according to Keith Hall, former head of the president's Council of Economic Advisers and now a fellow at the Mercatus Institute in Fairfax, Va.

"I've argued for a quite awhile that we really should keep our eye on the employment ratio," Hall said, "because it gives you an idea of who is working to support the population."

That ratio dropped dramatically from 65 percent in the first years of the new century, stagnated during the boom years in between, collapsed again in the Great Recession and has shown no improvement during the recovery.

Modest expectations

Jones is employed, saving aggressively and living modestly. On the flip side, she's chosen a career with modest upward income potential.

She's developing her own studio, cultivating a higher-end clientele and hoping to earn $25 an hour once established. But even if she achieves that level, she will still barely brush against household median income. If Jones eventually shares household income with a spouse, as she intends to, her family's income may easily jump the median, of course.

Meanwhile, median household income, adjusted for inflation, collapsed in 2008 and has not recovered. That means people like Jones work just as long for less pay than they did 10 years ago.

Is stagnating or declining income the new normal?

"It's hard to say," said Gordon Green, a partner at Sentier Research, which compiles income data and adjusts it for various demographic factors. "We are on the fourth anniversary of this recovery, and we still have not gotten anywhere near where we were before, and for the past year and a half it's been pretty stagnant."

Sentier Research recently released a report showing that median income has fallen 4.4 percent since the official recovery began in 2009. Since 2000, income has fallen 7.2 percent. Breaking it down by demographics, Sentier finds some groups hit harder than others. Blacks' income has fallen 10.9 percent in the past four years, while households with three or more children under 18 years old lost 9.2 percent.

Jones finds herself in a number of hard-hit demographic groups. Those under 25 years old have lost 9.6 percent of their income since 2009, those living alone saw the figure decrease 8.4 percent and those with some college but no degree lost 9.8 percent.

For many on the lower rungs, this has been a dubious recovery at best.

Pump priming

"When income has flattened out at this lower level, people don't have as much money as they used to to make purchases," Green said. "It's a consumer-driven economy, so if they are not buying as much, then your growth rates in the economy are going to be slower."

For the moment, at least, consumers are spending. In fact, a key paradox of the new economy is that the flailing median income is now splitting apart from growing consumer spending, with spending shifting upward while income stagnates or falls (Figure 2).

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