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Obama Vs. Income Inequality – Who Will Win?

5 April 2013 in Trading Ideas

Welcome to more of the New Normal: The Wall Street Journal recently reported that the Labor Department said that 284,000 college graduates were working jobs across the US in 2012 that paid minimum wage.1

While that was actually down from a peak of 327,000 in 2010, it’s double the amount in 2007 – and up 70% from just a decade ago.

Here’s the “good” news: percentage-wise, the level is still hanging in around its 10-year average. About 8% of all minimum-wage workers held a bachelor’s degree in 2012, close to the same level as a decade ago.

The not-so-good news is that increasingly more college grads are still pulling an hourly wage – even if they’re surpassing the minimum. There are now 13.4 million college graduates earning an hourly wage, up 19% from the start of the last recession.

The least-educated, those with a high-school diploma or less, make up a smaller share of minimum-wage workers than they did in 2002. But that’s not progress, it’s displacement – many of them are likely unemployed or out of the workplace entirely.

Here we are with another anecdote to lay at the feet of the increasingly pressing income equality issue. As Edward Luce recently noted in the Financial Times, each year of the post-financial crisis recovery has brought slightly lower middle-class incomes than the last. According to Sentier Research, median household income in the US is 5.6% below where it was in June 2009 – and 8.9% below where it was at the start of this century.2

The Income Inequality motif, a portfolio of retail stocks weighted equally to each end of the economic spectrum, is up 8.5% in 2013, and has gained 2.9% in the past 12 months.

For President Obama, who has proclaimed the resuscitation of the middle class as his biggest goal, the danger is very real that the middle class could experience a double-digit income percentage drop during his eight-year tenure.

What’s a guy to do to escape that historical tag? Luce posits that the President’s budget address next week offers his best chance ahead of the 2014 midterms to offer any sort of assault on growing income disparity.

How far he can go, of course, is subject to other political realities. Without any attempt, however, it’s possible that for the foreseeable future, income inequality becomes increasingly like the weather: Everybody complains, but nobody does anything about it.

1Ben Casselman, “Number of the Week: College Grads in Minimum Wage Jobs,” WSJ.com, March 30, 2013.

2Edward Luce, “US inequality will define the Obama era,” ft.com, March 31, 2013.