The Bureau of Economic Analysis released its Local Area Personal Income data for 2020 last week.
https://www.bea.gov/data/income-saving/personal-income-county-metro-and-other-areas
Last year I produced a two-part analysis of the data, going back to its earliest availability in 1969 through the peak of the recent boom in 2019.
But thanks to the COVID-19 pandemic 2020 was an odd year that is not indicative of any long-term trend in our economy and society. Or so we hope. But since I had to download the data anyway for another purpose, I’m going to present a few notes on just how hard New York City was hit economically by pandemic, following up on the Current Employment Survey data at I wrote about earlier this year.
Then answer is pretty damn hard.
In addition, since it is in the national news, I’ve also downloaded, and made some charts from, data on who is and who is not in the labor force. For all the talk about the “great resignation,” “lying flat,” and people loafing on unemployment insurance, the decrease in people working or looking for work is actually an inevitable consequence of demographics. With more and more members of the relatively large Baby Boom generation hitting retirement, and no more members of the also relatively large Millennial generation hitting the workforce at the same time.
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Here is a spreadsheet of Local Area Personal Income data by metro area, with separate data for New York City and the rest of the New York metro area.
We’ll start with earnings by place of work.
The total earnings (including benefits) of people working (including the self-employed) in New York City (including those who lived elsewhere and commuted in) fell 1.8% from 2019 to 2020, even without adjusting for inflation. The U.S. metro area total increased 1.3% despite the pandemic, while the rest of the NY metro (the suburbs) edged up 0.1%. Other New York State metro areas did not fare well, but were not as bad off as New York City.
This chart actually underestimates how hard NYC was hit, since workers for companies located in Manhattan who worked remotely in 2020 were still counted, and in some cases taxed, at their employer’s location. Whether these workers will be in Manhattan, or New York City, or in New York State in the future remains to be seen. As discussed last year, Manhattan accounted for a huge share of New York State’s private sector earnings at work in 2019, if the substantially government -financed Education and Health Services sector is excluded. The risk to the New York City and New York State tax base is obvious.
Within New York City, earnings by place of work fell 1.8% overall and 1.7% in Manhattan, but Queens had a 4.4% decrease. Queens is where the airports and ancillary services are located, and 2020 was a bad year for tourism.
A few other metro areas were hit as hard, or harder, than NYC. These are metro associated with tourism (Las Vegas, Honolulu, Nashville), which was shut down, the oil and gas industry (Houston)– oil prices fell to less than zero at one point last year, or the auto industry (Detroit), shut down by a lack of spare parts.
The Bridgeport-Stamford-Norwalk MSA is part of Fairfield County, Connecticut, and the decrease in income there might be an artifact of hedge fund managers booking losses during the spring 2020 crash (followed by gains during another Fed-induced bubble), and thus not real. The Allentown-Bethlehem-Easton PA metro area is where much of New York’s stuff now comes from. If we have supply chain issues in 2021, perhaps its because transportation and logistics workers were laid off and had their income cut back in 2020, when we didn’t need them.
Most major metro areas, however, had smaller declines in work earnings than NYC just as (as shown in an earlier post) most had smaller decreases in employment.
The Bureau of Economic Analysis adds self-employment to the picture, based on the number of people filling out Schedule C on their income tax returns. Back in the day self-employment would rise in recessions, as laid off professionals salvaged their pride by describing themselves as “consultants” rather than unemployed. In recent decades, however, the later-born have been forced to become “gig economy” workers without benefits in ever-larger numbers, and self-employment soared as a percent of total private sector employment. Then in 2020…
The number of self-employed “proprietors” plunged 6.9% in New York City, far more than the decrease of 3.6% nationwide. The decrease for the rest of the metro area was also large at 5.2%. All boroughs suffered large percentage decreases in self-employed workers. In fact, new York City was hit harder by self-employment losses than any major metro area in the country, and the metro New York suburbs were hit harder than most.
Other areas where self-employment fell the most are either tourist-related: Las Vegas (-6.6%), Honolulu (-5.9%), New Orleans (-5.2%), Lakeland FL (-5.1%), and Orlando (-5.0%). Or in New York – Poughkeepsie (-6.2%), Buffalo (-6.2%), Albany-Schenectady-Troy (-6.1%), Syracuse (-6.0%), and Rochester (6.0%). Perhaps New York’s young Millennial serfs got tired of being exploited with perpetual freelance gigs, high taxes for entitled public employees and public contractors, and rising rents compared with their falling incomes, and left. And perhaps more independent businesses with self-employed proprietors closed here.
While the number of gig workers fell, the total income of those who remained actually increased 2.7% from 2019 to 2020 nationally, as Amazon and others paid more to those delivering to those stuck at home. Total self employment income also increased, by 2.2%, in the portion of metro New York outside New York City. But in NYC itself, self employment income fell 3.7%. All the other major metro areas with decreases are shown in the chart above. There aren’t many, and only four had bigger decreases than New York City – oil towns Tyler and Midland Texas, Birmingham Alabama, and Nashville. When I visited Nashville on a cross country road trip in June 2021, many musicians said it was the first time they had a paying gig in more than a year.
Reprising an analysis I’ve done in the past, this spreadsheet and chart shows the mean earnings (including benefits) per worker (including the self employed) for Downstate New York’s state and local government workers, Finance, Insurance and Real Estate industry workers, and other private sector workers.
While many workers, especially low-paid private sector workers, lost their incomes in 2020, the average earnings per worker per private sector worker still employed went up, since the zero income unemployed were no longer counted. This is a phenomenon seen all over the world, as COVID-19 increased income inequality.
In Downstate New York more than 700,000 private sector workers outside the Finance, Insurance and Real estate sectors were no longer employed. But the average pay of those still working went up as a result. The same was true of FIRE itself, to the point where the average earnings per worker in FIRE was no longer lower than the average for state and local government workers Downstate. In 2019, the average earnings (including benefits) of Downstate New York’s state and local government workers had exceeded the FIRE sectors.
While total work earnings by place of work fell in many areas, including New York City, household personal increased strongly just about everywhere from 2019 to 2020, also including New York City. The increases in total personal income were 6.4% for the United States, 5.4% for New York City, and 4.8% for the rest of the NY metro area. Many other metro areas posted even larger gains. And unlike in high inflation 2021, those increases were well in excess of 2020’s low inflation.
If people weren’t earning this increased amount of personal income, where was it coming from?
The drunken party that was Donald Trump’s re-election campaign. In stark contrast with the aftermath of the Great Recession, when federal assistance went almost exclusively to the rich and seniors (in the form of rock-bottom interest rates that inflated the value of their paper assets and houses), government transfer assistance payments soared in 2020. By 36.7% nationwide, 42.8% in New York City, 29.6% in the rest of the NY metro, and by at least 25.0% in metro areas around the country. This time the government created even more money, and handed it out more broadly.
Where did the United States get the money for all these transfer payments? The same place it has gotten the money to import more than it exports, and for workers who are paid less and less to buy more and more, over the past four decades. Borrowing from the rest of the world, selling off pieces of the future of the country to consume today. BEA data on the Net International Investment Position of the United States is in this spreadsheet.
Americans and their organizations purchase assets in other countries, and people and organizations in other countries purchase assets in the United States. And that’s fine as long as it is balanced. It is not. In 1980, net investments by the United States in the rest of the world equaled 10.4% of U.S. GDP. Some in developing countries felt this net investment position was neo-colonial exploitation, as the profits earned there would be paid out of the country back to the United States.
And today, after than four-decade party? Net investments by the rest of the world in the United States equaled 67.1% of U.S. GDP. That’s how much our children and grandchildren and great grandchildren owe them. They own our national debt, our houses and other real estate, our farms, our companies, our patents, and much of the income these will earn is due to be paid to them.
And what did we get in exchange for this massive perpetual mortgage? Most later-born Americans got very little, if anything. The super-rich, here and there, got many $billions, and the number of super-rich $billionaires soared. The generations now over 62 got the longest and richest retirements in human history. And what is left of the American middle class got bought off, and worked like donkeys, for this.
Absent imports paid for with debt, having the government create money that says people are entitled to goods and services, and hand it out, is different than actually having those goods and services. As we are finding out this year, when the price of housing, cars, food, and energy is soaring, and travel is either unavailable or unreliable and expensive.
Many of the countries that sent the Americans goods in exchange for IOUs for 40 years – Japan, South Korea, China, even Mexico and the Arab world – now have aging populations. To provide for those aging populations, they may want to keep more of what they produce for themselves. Or even have the United States pay them back by consuming less and producing more. Who is going to do that? Thus the political and economic concern about falling U.S. labor force participation.
The U.S. labor force participation rate, the share of those ages 16 or more who were either working or looking for work, stood at 66.9% in October 2000. This fell to just 61.7% in October 2020, before barely ticking back up to 61.8% in October 2021. The big decreases were during the Great Recession and during the COVID-19 pandemic.
The reason that the U.S. unemployment rate is so low right now is not that more people are working, but rather than fewer people who are not working are still part of the labor force. The U.S. unemployment rate was just 4.3% in October 2021.
The New York City unemployment rate is still almost 10.0%, far higher than elsewhere in the country. Now more than double. Is this data accurate? If so, what does it mean?
For the U.S. as a whole, the labor force participation rate was 5.1% lower as of October 2021 than it had been in October 2000.
Among those in the prime working age groups, the decrease was 1.6% for those ages 25 to 34, 2.6% for those ages 35 to 44, and 1.4% for those ages 45 to 54. All less than the overall decrease. For these age groups, the decrease occurred from October 2019 to October 2020, as parents lost child care, and some workers were stranded in declining rural areas and tourism and leisure-related occupations, and dropped out. Notably, however the decreases labor force participation decreases for all of these prime working age groups are far smaller than the overall decrease.
And the share of those ages 55 to 64, and 65 and over, that is in the labor force in October 2021 is actually higher than in October 2000, by 5.4% and 5.9% respectively. People were working longer prior to COVID-19, which seems to have caused some over age 65 to leave the workforce, and some ages 55 to 64 to be pushed out.
But if labor force participation is down only slightly, compared with 2000, for those under 55, and is up for those 55 and over, then how did the overall labor force participation rate fall so much?
While the share of people over age 55 who are in the labor force has gone up somewhat, it is still low compared with the share of people who are ages 54 and under. And there are more and more people ages 55 and over, and fewer young could-be workers taking their place. As more Baby Boomers retire, and fewer young high school and college graduates are around to enter the workforce, this trend isn’t going to change. Even if the trend of working later, interrupted by the COVID-19 pandemic, resumes.
It can only go so far. I feel an obligation to keep contributing and work another ten years until age 70 if I can, given the U.S. and global economic and demographic situation. Even if I do so, and then drop dead at age 80 (an age both my parents have now surpassed), however, my personal labor force participation rate for ages 65-plus would still only be 33.0% — five out of fifteen years. The overall labor force participation rate for those ages 65+ was 20.4% in October 2019, before the pandemic.
Meanwhile, the labor force participation rate of those ages 25 to 54 doesn’t have far to rise to get back to its peak rate. Perhaps businesses could hire more teens. Perhaps they could use more robots. But in a future with one in two adults age 55 and over, there aren’t going to be as many workers available as people had gotten used to — unless there is a big decrease in consumer spending power. Which consumers?
They are saying that the goods shortages and higher inflation we see today are “transitory,” caused by the pandemic. To an extent they are right. But there are other demographic forces at work – more and more people who expect the government to create money that says they deserve to get things, and fewer to produce what they feel entitled to buy with it, here and abroad. I haven’t seen those realities discussed in the business or financial press, let alone by the political press.
For years I’ve been anticipating an economy that has all the jobs you could ever want, but for crap pay that isn’t enough to buy what people used to have, based on demographic trends. As usual, I’m surprised at how long it has taken, but the inevitable happens eventually.
If you want another perspective on what is happening now, read what I wrote 20 months ago about the U.S. economy being unsustainable – and how demographics might cause things to play out.
Read to the end, where I talk about what might happen next. The question remains: Japan or Argentina?
Saying the Unsaid in New York 