A

REPORT: Economyin CrisisThe State of WorkingNew Jersey

BY NORMAN J. GLICKMAN

Economyin CrisisTHE STATE OF WORKING

NEW JERSEY

BY NORMAN J. GLICKMAN

For additional copies of this report contact:

New Jersey Policy Perspective137 W. Hanover St.Trenton, NJ 08618

Phone 609-393-1145 Fax 609-393-1146

Email njpp@njpp.org

Visit our web site at www.njpp.org

© 2009 NJPP

NEW JERSEY POLICY PERSPECTIVE

N ew Jersey Policy Perspective is a nonprofit, nonpartisan research and educational organization established in 1997 with themission of promoting broad, vigorous debate about important issues facing the people of New Jersey. Our goal is a statewhere everyone can achieve to his or her full potential in an economy that offers a widely shared, rising standard of living.

BOARD OF TRUSTEES

ADVISORY BOARDBenjamin A. BarberAlbert Burstein

Horace J. DePodwinRichard C. LeoneMartha Z. LewinRichard I. MaleJimmy TarlauBetty Wilson

INTERIM PRESIDENTMary E. Forsberg

SENIOR POLICY ANALYSTRaymond Castro

POLICY ANALYSTSSarah Stecker • Anastasia R. Mann • Naomi Mueller Bressler

OUTREACH DIRECTORKaren Lagerquist

OPERATIONS MANAGERJanice Conklin

Author’s NoteThis report is part of a national collaboration led by the Economic Policy Institute (EPI) and its Economic Analysis and ResearchNetwork. The goal of the State of Working New Jersey and parallel efforts around the country is to provide objective information onstate economies. EPI publishes The State of Working America every two years. See Lawrence Mishel, Jared Bernstein, and HeidiShierholz, The State of Working America, 2008-2009 (Washington, DC: The Economic Policy Institute, preliminary edition). For in-formation on the other state reports, see http://www.earncentral.org/swx.htm. I thank Jon Shure and Mary Forsberg of New Jersey Pol-icy Perspective for their support; Luis Palacios-Saiguero, Dane Devonseh, and Maryam Zarnani for research assistance; Peter Yerkesfor editorial assistance; and Will Irving for providing needed data.

Kate AtkinsJohn AtlasTim CardenHenry A. ColemanJ. Kelly ConklinDebby D’ArcangeloAmy GoldsmithHerbert Greenberg

Rona ParkerBruce S. Rosen, chairRichard V. SindingDeborah SpitalnikDiane SternerGerald R. Stockman, vice-chairIrwin S. StoolmacherSusieWilson

KEN THE REP (AND TWELVE AND A HALF MILLIONOTHER UNEMPLOYED AMERICANS) ........................................................................................4

THE VERY FRAGILE AMERICAN ECONOMY ..........................................................................6

HOW ECONOMIC DECLINE AFFECTS WORKING FAMILIES...............................................7Jobs are disappearing and unemployment is rising rapidly.....................................................7Part-time work increased dramatically and many left the labor force....................................7Assets and corporations disappeared ........................................................................................7Income and wealth gaps grew ..................................................................................................7Public services declined and state and local taxes increased ..................................................8Health care costs exploded........................................................................................................8In hock to the rest of the world................................................................................................8Globalization hurt many American workers ............................................................................8The social safety net has frayed ...............................................................................................8

WEALTH AND HARD TIMES IN NEW JERSEY........................................................................9New Jersey’s good news...........................................................................................................9New Jersey’s not so good news................................................................................................9

WORKLIFE IN NEW JERSEY: WEALTH ANDECONOMIC STRUGGLE SIDE-BY-SIDE....................................................................................11

Industrial change and jobs .....................................................................................................11Increasing inequality................................................................................................................12Wage inequality .......................................................................................................................13Poverty .....................................................................................................................................14Unemployment ........................................................................................................................15Housing and housing costs .....................................................................................................15Foreclosures .............................................................................................................................16Fiscal distress...........................................................................................................................16Social services .........................................................................................................................16

WHAT CAN WE DO TO IMPROVE THE ECONOMY?............................................................17

ABOUT THE AUTHOR ..................................................................................................................18

Contents

T he U.S. economy is badly broken:Americans have lost 4.4million jobssince the recession began inDecem-

ber 2007 (Figure 1). Unemployment reached8.1 percent in February 2009, the highest ina quarter century—and many economistsexpect it to keep rising at least into 2010.Welcome toTheGreat Recession.

New Jersey’s once-prosperous economy isalso in trouble. Good jobs are disappearing,often replaced by low-paying positionswithout much prospect for advancement.In 2008 and early 2009, New Jersey lost anastounding 99,400 jobs (Figure 2), and theunemployment rate vaulted to 7.3 percentfrom 4.7.1 Twenty-four of the state’s citieshad double-digit unemployment rates, ledby Trenton’s 17.5 percent.2 The state’sweakness did not begin with the current re-cession: job growth has flat-lined duringthis decade and, since 2003, wages adjust-ed for inflation have fallen. Thismeans thatworkers’ living standards have declined(Figure 3).

Even these dreadful numbers do not fullyportray the personal experiences ofNewJer-seyans and others across the country. KenStelma of South Plainfield was a customerrepresentative. However, he was laid offmore than a year ago and his unemploymentbenefits have run out. He has applied fordozens of jobs, to no avail. Mr. Stelma haslost half of his income and can no longer af-ford health insurance.

“Ken the Rep” is not a political prop, like“Joe the Plumber” in the 2008 presidentialcampaign. He is a real, middle-class guy,and he has suffered greatly in the very deeprecession that has engulfed theworld.

Ken The Rep (And Twelve And A HalfMillion Other Unemployed Americans)

FIGURE 1

FIGURE 2

The Great Recession Cost Americans4.4 Million Jobs

Jan 08

-72

-144-122

-160-137

-161-128

-175

-321

-380

-1.2 -3.4

-6.3

-9.9

-4.0

-7.9-7.2

-9.2

-22.8

-14.1

-8.9-4.5

-597 -577 -598

-651-700

-600

-500

-400

-300

-200

-100

0Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09

Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09

Feb 09

LOSS

OFJOBS,THO

USAN

DS

-25

-20

-15

-10

-5

0

LOSS

OFJOBS,THO

USAN

DS

UNITED STATES

The Great Recession Cost New JerseyNearly 100,000 Jobs

4 A NEW JERSEY POLICY PERSPECTIVE REPORT

Ken is not alone. Dana Stevens of WestDeptford, a human resources expert, alsolost her job. She has sent her resume to hun-dreds of firms. With her savings gone, shestruggles to pay her $2,400 monthly mort-gage.Although she made $60,000 a year ather last job, she has been told by other firmsthat she cannot expectmore than $40,000 inthe current job market, even if she werelucky enough to find a new position.3

The Great Recession has also brought hardtimes to olderworkers.TheWall Street Jour-nal reports on a “new class” of workers:people in their 70s and 80s competing forjobswith those in their grandchildren’s gen-eration, so that they can pay their rent anddoctors’bills.4 Many are in job training pro-grams and looking forminimumwage posi-tions. Lois Humphrey, age 80, who suffersfrom cancer, diabetes, and arthritis, says, “Istill need to work because of medications,”and to pay her rent.

Worse, unemployment also often meansloss of the family home, as foreclosuresloom for people like Dana Stevens. Layoffsusually also mean the end of health insur-ance and the rise of family stress.

More than 12.5 millionAmericans are nowunemployed and, like Ken and Dana, havelittle support from the social safety net thatonce protected Americans during reces-sions. The unemployed represent the entireeconomic landscape, fromBigMac flippersto investment bankers, to checkout clerks, tocar salesmen. They are our neighbors andrelatives.

This report analyzes the main issues facingboth the U.S. and New Jersey economies. Itfocuses mostly on the problems facingworking people, but also addresses other el-ements of the economy as the state and thenation limp through 2009. It will start withan explanation ofwhy the national economyhas tanked and seewhereNew Jersey standsbecause of these problems. It will give read-ers an understanding of the conditions fac-

ing workers and will set the stage for a sec-ond report that outlines solutions to thestate’s economic struggles.

The downturn is widespread. Besides jobcuts, trillions of dollars have been lost fromretirement accounts, putting Baby Boomersand others planning retirement in deep trou-ble. Blue-chip companies, like LehmanBrothers, have gone under orwere effective-ly nationalized by the federal government.Others, including theBigThree automakers,teeter on the brink of disaster. Even oncehigh-flying technology firms are laying offstaff. Banks are unwilling to make loans,even to people and companies with goodcredit; the breakdown of credit marketsmeans thatmoreworkerswill lose their jobs.

The Great Recession has taken a greater tollon men than women. People in manufactur-ing and construction—male-dominated in-dustries—have been hit harder and havedone worse than those in education andhealthcare, which hire many women; Lati-nos have suffereddisproportionately becauseof their concentration in the same industries.

In response to unprecedented financial prob-lems, the BushAdministration brought forthamassive$700billionbailout plan called theTroubled Assets Recovery Plan, or TARP,for financial institutions in the fall of 2008.The goal ofTARPwas to clean up “toxic as-sets” (highly leveraged, usually worthlesspaper assets, such asmortgage-backed secu-rities) on the books of the nation’s banks.When theBush administration ended, itwasclear that TARP was not working: creditmarkets remained frozen and unemploy-ment continued to climb. The “troubled as-sets” that were to be helped by TARP re-mained troubled.

PresidentBarackObama enacted a stronger,more targeted version in February 2009 toprovide what he called “a jolt” to the sag-ging economy.TheAmericanRecovery andReinvestmentAct (ARRA) is a $787 billionstimulus package, consisting of tax cuts,spending on infrastructure, health care tech-nology, education, Medicaid, children’shealth and other items. It is too soon to knowif ARRA will work. Some economists be-lieve it is too small to stem the economy’s

FIGURE 3

Real Wages in New Jersey Fell Between 2000 and2007, Steeply After the 2001-2003 Recession

$20.00

$19.50

$19.00

$18.50

$18.00

$17.50

$17.00

$16.50

$16.00

$15.50

$15.00

$14.502000 2001 2002 2003 2004 2005 2006 2007

Hourly Wages

$17.60

$17.71

$18.71

$19.61

$16.84

$16.86 $16.99

$16.51

ECONOMY IN CRISIS 5

decline; others hold that it is a mistake forthe government to make these investmentsat all.

Beyond the loss of jobs and economic secu-rity lurks an insidious set of problems facingthe country: the shared prosperity—a more

equal income distribution and expanded so-cial services—that we had as a nationthrough the mid-1970s is gone. In the pastthirty years, nearly all of the gains from theeconomy have gone to a very small propor-tion of theworkforce. For instance, between1989 and 2006, fully 90 percent of income

gains went to the top 10 percent of families.In this decade, the best-paid one percent ofearners took in 23 percent of all income.Theresult: too many people are falling too farbehind in trying to pay their bills and main-tain a decent lifestyle.5

The Very Fragile American Economy

A merica’s woes began on MainStreet with a consumer-led boomin the second half of the 1990s,

when people snatched up homes, cars, flat-screenTVs, and other goodies.Unfortunate-ly, too many people bought more than theycould afford using the cheap credit that waslavishly available. Consumers borrowedprodigiously, and the national savings ratefell to near zero.

Next, and related, came an unsustainable,speculative housing binge. Home purchaseswere greased by tempting mortgages thatencouraged buyers to believe theywere pay-ing relatively little for their homes becauseearly monthly mortgage payments were setartificially low. However, much higher pay-ments followed when mortgages reset athigher rates. Working families paying, say,$600 amonth at the beginning of theirmort-gages, suddenly found themselves scram-bling 18 months later to come up with$2,000 payments or face foreclosure. Thesecontracts included various high-risk sub-prime and exotic mortgages that did not re-quire income or job or asset documentation(known as “NINJA” loans).6 Many werepredatory loans made by unscrupulousmortgage brokers who sold loans that paidthem high fees, but were structured in waysthatmade them almost certain to fail.

In the early 2000s, housing prices roserapidly to unsustainable levels. Between

2000 and mid-2006 these more than dou-bled.Then the bubble burst and prices plum-meted. The housing “bubble” was furtheredby lax regulation and unwise, cheap-moneymonetary policy.When the housing marketcollapsed,millions ofAmericans found theirhouses were “under water” (worth less thantheirmortgages) and lost their homes. Someengaged in “jingle mail”—they put theirhouse keys in envelopes, mailed them totheir mortgage service firms, and movedaway. Sheriffs then foreclosed and pad-locked their front doors.Unfortunately, theirneighbors suffered property value declinesbecause empty houses cause problemsaround them—unkempt lawns, stolen cop-per andwire, and fires.Working people sawtheir primary assets lose value. In all, fore-closures rose by 81 percent in 2008 and bymore than 200 percent between 2006 andthe beginning of 2009.

Mortgage lenders thrived on these loans be-cause they could make a quick buck onthem.Brokers quickly sold themortgages toWall Street firms that created an array ofmortgage-backed securities in which goodand bad mortgages were commingled.Through these mechanisms, mortgage bro-kers and financial giants passed the risk ofbad mortgages on to unwitting investorsworldwide. Bank regulators were asleep atthewheel, paying little attention to the grow-ing financial storm: to them, “the market”would solve whatever problems were pre-

sent. They were wrong. When more andmore mortgages went into default, trillionsof dollars of these mortgage-backed securi-ties lost value, and the financial marketsswooned.

These financial problems bled throughoutthe U.S. and the international economy, inlarge part due to the mortgage instrumentsbought by investors who were entranced bythe prospect of high yields and ignorant ofthe high risk theywere taking. In September2008, the international financial systemcame unhinged: caught in a swirl of mort-gage foreclosures, investment house andbank failures, and stock market collapses,the world financial system froze up. Trustdied, as lenders throughout the world re-fused to lend to long-term customers, eventhose with pristine credit records. Unable tosecure short-term credit, firms acceleratedlayoffs and the recession deepened.

The U.S. quickly became Bailout Nation.The federal government issued a bewilder-ing set of bailouts (the various iterations ofTARP) aimed mostly at stopping the col-lapse of financial firms like Goldman Sachsand Morgan Stanley. The Treasury pumped$700 billion into the financial system. TheFederal Reserve began printingmoney in aneffort to recapitalize the banks.However, lit-tle attention was paid to helping families introublewith theirmortgages.

6 A NEW JERSEY POLICY PERSPECTIVE REPORT

T he effects on working familiesacross the country have been enor-mous. To understand what has gone

on in New Jersey, it is useful to look first atthe national collapse.

Jobs are disappearing andunemployment is rising rapidlyAmerica’s employment problems did notbegin with the current recession. The recov-ery from the 2001-2003 recessionwas large-ly one without new jobs.7 Productivity—theamount that workers produce each hour—has been relatively strong. But the growth ofproductivity was not accompanied, as inpast business cycles, by commensurate in-creases in jobs and wages. Since the 2001-2003 recession, there was remarkably littlejob growth—aminuscule 0.6 percent a year,only one-third of the growth rate during the1990s. It took until 2005 to return to pre-re-cession job levels, a very long time com-paredwith previous economic cycles.More-over, real wages (wages adjusted forinflation) fell after 2002, so most workerswereworse off. Unfortunately, this bad situ-ation occurred before the current recession,when things got very ugly andAmerica shedmore than fourmillion jobs.

Part-time work increased dramaticallyandmany left the labor forceIn addition to increasing unemployment,there has been a sharp increase in theamount of part-time work and of “hiddenunemployment”—people who want full-timework but cannot get it and are forced towork less than 35 hours aweek.This has oc-curred because employers face slack de-mand for their products or because they donot want to pay the benefits required by a40-hour week. In the past year, more than

four million workers were forced into part-time status, bringing the total to 8.6 million.The rate of hidden unemployment was 14.8percent in February 2009, up from 7.8 per-cent at the beginning of the recession.8 Thisis the largest number of part-time workerson the rolls since 1995. In addition, the dura-tion of unemployment skyrocketed by 31percent.

However, that tells only part of the labormarket story. In addition to the number ofunemployed and the hidden unemployedcomes another group that has dropped out ofthe labor force entirely.9 These people havelooked forwork in the last year, but gave up.InDecember 2008, therewere 1.9million ofthem.The federalBureau ofLabor Statisticsdoes not count them as unemployed, eventhough they certainly would like to work ifjobs were available. These details mean thatthe officially reported unemployment rate,which does not include part-time workers,severely understates the true unemploymentproblem.

Assets and corporations disappearedThe collapse onWall Street cost millions ofhard-working people at least $2.9 trillion oftheir savings and retirement funds.10 An ad-ditional $6.1 trillion disappeared in losthousing values. Hard-pressed familiesthinking of sending their children to collegeormellowing into retirement have had to re-vise their plans.

Corporate bankruptcies tripled over the pasttwo years.11 Financial giants like FannieMae, Freddie Mac, Lehman Brothers, andBear Stearns disappeared, were merged, orgot bailed out by the federal government. In-surance giantAIG, whose slogan was “The

StrengthToBeThere,” suddenlywas barelythere at all; the federal government bailedoutAIG to the tune of $180 billion.

The carnage was not limited to the financialsector: the sputtering engines of the BigThree automakers threatened millions ofworkers’ jobs. Cookie maker Mrs. Fieldscrumbled, Linen ‘nThings folded, and Pep-si canned at least 3,600 workers. Technolo-gy giants Microsoft and Intel each an-nounced layoffs of 5,000 workers; during2008, job cuts in technologywere up 74 per-cent from 2007. Given emptying bank ac-counts, Spam and Jell-O, at the bottom ofthe food chain, reported robust sales.12 TheConference Board’s well-regarded con-sumer confidence survey fell to its lowestlevel in history.13 As a result, retail spendingfell of the cliff and retailers suffered:Macy’sfired 7,000 employees andCircuit City spuninto bankruptcy.

At the beginning of 2009, the jobs situationdeteriorated further: On January 26, in whatbecame known as “BloodyMonday,” sever-al large corporations firedmore than 50,000people. This took place along a wide spec-trum of American industry: Caterpillar(20,000 jobs cut), SprintNextel (8,000), andHome Depot (7,000) led the way, but theJanuary list read from Alcoa to the WorldWrestling Federation.14 First-time claims forunemployment benefits reached historic lev-els later in that week.

Income and wealth gaps grewThe differences in income and wealth be-tween the rich and poor—and, indeed, be-tween the richest and everyone else—havewidened, and incomes have become moreunstable. Over the past 25 years, income

How Economic DeclineAffectsWorking Families

ECONOMY IN CRISIS 7

flowed uphill:Most of the rewards of the na-tion’s economic growth have gone to the topone percent of households, reflecting a“pulling apart” of the income distribution.15

The incomes of the country’s richest fami-lies have climbed substantially over the pasttwo decades, while middle- and lower-in-come families—the heart of the workingclass—have seenmodest or no increases.

In 1973, families in the top five percent ofthe nation had income 11 times greater onaverage than those in the bottom 20 percent.By 2006, the richer group’s income was 22times higher. Since 2000, those in the lower60 percent of all families (thosemaking lessthan $47,000) lost real income.Only the top40 percent had more real income in 2006than in 2000.16 Everyone else lost ground.The United States has reached a level of in-equality not seen since theGildedAgewhenJohn Rockefeller and Andrew Carnegieruled. This picture differs greatly from thebroadly shared prosperity the nation enjoyedbetween the end ofWorldWar II and the late1970s.

Not only have incomes grown more un-equal, but they also have become morevolatile and unstable. The share ofworking-age people experiencing the loss of half ormore of their household income in a yearrose to nearly 10 percent in the 2000s fromless than four percent in the early 1970s.17

This makes economic life insecure, espe-cially since for so many people the loss ofincomemeans losing health coverage too.

Differences in wealth are even more un-equal. The top one percent of theU.S. popu-lation holds 38 percent of all wealth; the topfive percent of the wealth holders have 59

percent of the wealth—in other words, theyhave more than the rest of the populationcombined.18MostAmericans have nomean-ingful assets besides their homes—which,of course, are losing value rapidly.

Public services declined and state andlocal taxes increasedBecause of the financial implosion, tax rev-enue to states and localities from incomeand sales taxes has declined,making it diffi-cult for public service providers to maintainneeded services and float bonds.As a result,taxpayers are getting fewer public servicesand facing the possibility of higher taxes asgovernments contract. According to theCenter on Budget and Policy Priorities(CBPP), 46 states and theDistrict ofColum-bia face budget shortfalls this year and next,amounting to a combined budget deficit ofmore than $48 billion.19

Health care costs explodedHealth insurance premiums have shot upmore than $370 billion since 2000. Higherprices drain family incomes, forcing con-sumers to cut spending on food and othernecessities or—as many do—jeopardizetheir well-being by forgoing medical care.Problems related to health-care costs aremade worse by the fact that fewer peoplehave health insurance: out of a population of305million, 46millionAmericans arewith-out health insurance—eight million of themchildren.This is due largely to the continueddecline in employer-sponsored insuranceand higher unemployment.

In hock to the rest of the worldAmerican families have spent more thanthey earn and are deep in debt.According tothe Federal Reserve Bank, consumer debt

alone (in addition to real estate debt) comesto $2.5 trillion, about $8,200 for every man,woman, and child. With financial institu-tions in trouble, families have been forced tocut spending. At the same time, because oftwo expensive foreign wars and tax cuts forthe wealthy under President George W.Bush, the federal budget deficit has growndramatically to $9.7 trillion, with much ofthis debt owned by foreign institutions.20

TARP and ARRA will increase that figureenormously in the near future. This publicdebt will have to be paid by the next twogenerations.

Globalization hurt many AmericanworkersMillions ofmanufacturing jobs havemigrat-ed overseas in part because of lower wagesthere. They are unlikely to return to ourshores in substantial numbers. Imports ofgoods from abroad cost working families inthese industries their livelihoods. Gains totheU.S. from tradeweremostly in the finan-cial and high-tech sectors. Wage pressurefromother countries reducedmanyworkers’wages in the U.S., especially those with lesseducation.21

The social safety net has frayedSince the early 1980s, funds for programsthat support the nation’s neediest people—for affordable housing, income support,health care, and other areas—have beendrastically cut.22 Private firms, which tradi-tionally provided health insurance and re-tirement benefits, cut back substantially,leaving people less able to cope in difficulttimes.The proportion of employer-providedhealth care—long the main source of suchinsurance—has fallen dramatically over thelast two decades.23

8 A NEW JERSEY POLICY PERSPECTIVE REPORT

W orking men and women in NewJersey are hurting because of thevery weak American economy.

When industries lay off workers or cut theirwages and benefits, employees everywherefeel the consequences.

New Jersey has never been a backwaterwhen it comes to people’s ability to make aliving.The state has a strong economic histo-ry going back to the nineteenth century. It hasusually had high-wage industries and reason-ably stable employment. However, as wewill see, the Garden State faces problems asit tries to move ahead.A few basic numberstell New Jersey’s economic story. Table 1presents a snapshot of the state in compari-son with the rest of the country. It shows themixture of good things and no so good things

going on in the economy. Let’s start with thegood.

New Jersey’s good newsThe first thing that pops out of Table 1 is thatNew Jersey is relativelywell off: it ranks sec-ond in the nation in median family income($67,035) and first in the percentage of mil-lionaire households (seven percent). Figure 4shows thatNew Jerseyans earn higherwagesthan the averageAmerican does, and that gaphas widened during this decade. New Jerseyis sixth in the nation in people with collegedegrees, so there is a lot of well-educated lo-cal talent.

The state is high in the concentration of doc-tors and correspondingly low in infant mor-tality. New Jersey is sixth in the nation in

unionmembership, which helps keep wagesstrong and growing. It has the nation’s fifthlowest percentage of people in poverty. Theunemployment rate was 7.1 percent in De-cember 2008, slightly below the national av-erage; child poverty was 11.3 percent, lessthan the average for the United States as awhole.

These numbers would seem to reflecthealthy economic conditions, at least forsome of the state’s population.

New Jersey’s not so good newsBut, there are less flattering numbers thatshow the contradictions of economic life in2009.

For instance, New Jersey is a very expensiveplace in which to live, so those high wagesdon’t go as far as in most other states. Dis-tressingly, employment growth is relativelyslow, both over the last year (New Jerseywas34th nationally) and from 1998 to 2008(29th). That last number is particularly wor-risome: during the 1990s, New Jersey addedmore than a half million jobs; by compari-son, employment has grown by a measly5,600 jobs since 2001 and New Jersey haslagged the nation in employment growthsince 1990 (Figure 5). The state seems tohave lost out to other parts of the nation andto high-growth areas elsewhere in the world.If the current recession continues, there willlikely be fewer jobs at the end of the decadethan in 2000.24 This has not happened sincethe 1930s.

Housing is the fourth most expensive in thecountry—median housing costs are $2,503per month, 52 percent higher than the na-tional average.25 Taxpayers also pay thehighest property taxes per capita in thecountry.

Wealth And Hard Times In New Jersey

The New Jersey Economy vs. theNation's at a Glance

TABLE 1

Variables Value U. S. Rank

Median Household Income (2007) $67,035 2

Millionaires as a Percent of Households (2007) 7.1% 1

Percent with Bachelor’s Degree (2006) 33.9% 6

Doctors per 100,000 (2006) 311 8

Infant Mortality Rate (2005) 5.2 47

Percent of Population Below Poverty Line (2007) 8.6% 47

Percent of Workers Represented by Unions (2007) 19.2% 6

Growth in Nonfarm Private Employment (11/07-11/08) -0.7% 34

Growth in Employment (12/1998-11/2008) 5.4% 29

Growth in Population (2000-2007) 3.2% 37

Median Monthly Housing Costs (2005) $2,503 1

Property Taxes Per Capita (2006) $2,372 1

State Tax Revenue as % of Personal Income 6.1% 9

Federal Spending Ratio (2008) 0.6% 50

Percent without Health Insurance (2005-2007) 15.2% 32

Source: New Jersey Policy Perspective, New Jersey Snapshots 2009 (Trenton, NJ: NJPP)

THEGO

ODTH

ENO

TSO

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ECONOMY IN CRISIS 9

The American Society of Civil EngineersgaveNew Jersey aC- grade (what theASCEdeemed “mediocre”) in evaluating the state’sinfrastructure.26 New Jersey’s bridges are rat-ed ninth worst in the country and roads arefourth worst, a serious problem for truckersand private car owners alike. Of most con-cern for the economy is the ASCE’s gradesof D for aviation. Newark Liberty Interna-tional Airport accommodates 96 percent ofthe state’s airport traffic but is a victim of itsown success. According to the ACSE, itranks third in the nation for themost delayedairport departures and, with the anticipatedprojections for air travel growth, the lack ofavailable land to expand the current facilitypresents a problem.Yet modern, easy-to-useairports are vital in today’s global economy.

Much of the state’s economic history ex-plains the current situation.NewJerseymadea transition from an old manufacturing base,built during the first half of the twentieth cen-tury, to one focusing on information, tech-nology, and finance—industries that requireintellectual capital and innovation. Pharma-ceuticals and telecommunications replacedautos and ceramics. The high incomes

earned by some residents come from indus-tries at the forefront of science and engineer-ing, as companies such asAT&T, Johnson&

Johnson, andMerck have becomedominantin the state and global economies.27

However, globalization, mergers, new tech-nologies, and decaying infrastructure havetaken a toll in recent years. Rising housingcosts, persistent race and class disparities,and uneven urban development patternsthreaten the state’s economic future. Em-ployment growth has slowed considerably,in large part because massive shifts of tech-nology investment made locations outsidethe Northeast more attractive to firms—shifts occurred to California and to technol-ogy centers in North Carolina, Maryland,Texas, and Florida.

Significantly, some of New Jersey’s formeremployment strength is being redeployedglobally, to places where costs are muchlower and where there is an increasing sup-ply of engineers and scientists. As BruceKatz and Robert Puentes of the BrookingsInstitution say, “New Jersey is beginning tolose its competitive edge.”28

FIGURE 4

FIGURE 5

$20

$18

$16

$14

$12

$10

$8

$6

$4

$2

$02002 2007

$15.62

$18.88 $19.05

$15.54

New Jersey Workers had Higher Wages thanthe Nation's and the Gap has Grown

New Jersey Employment Grew Quickly inthe 1990s, But Lost Jobs Since 2000

� United States � New Jersey

500,00

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

01991-2000 2001 - Jan 08

496,000

5,600

� Employment Growth

10 A NEW JERSEY POLICY PERSPECTIVE REPORT

S ome elements of the New Jerseyeconomy require special attentionin understanding the state of work

life: industrial change, housing and housingcosts, income distribution, poverty, and oth-ers. The gap between high incomes andpoverty-level wages is substantial.

Industrial change and jobsThe state is bleeding jobs. As noted, NewJersey lost 85,700 jobs and the unemploy-ment rate jumped in 2008; joblessness is atits highest since 1996 and is expected togrow further (Table 2). The main recent joblosses have been in manufacturing (30,100jobs), construction (20,700), business andprofessional services (22,700), and trade,transportation and utilities (41,600). Manyof these jobs were cut in relatively high-wage industries,while gainswere registeredin some lower-wage sectors (e.g., educationand health services), meaning that manypeople who are still working are being paidless than before. Job decline is spreading toprofessional occupations like law, engineer-ing, and pharmaceutical research.

Looking at the long term, manufacturing’sdecline is strikingly evident in Figure 6. Be-tween 1990 and 2007, the proportion ofworkers in manufacturing fell by nearlyhalf: from 14.6 percent of all workers to 7.5percent.

Finance is important to the state, in large partbecause of ties to Wall Street, where firmsare failing and employment is plummeting.The effects of the meltdown in this sector,wheremore than 70,000 high-paidNew Jer-seyans are employed, are only beginning tobe felt. NewYork City’s Independent Bud-getOffice projects that 82,300 people (near-

ly one in five in the industry) will lose theirjobs in the financial services industry be-tween 2008 and 2011. Other estimates ofemployment loss are considerably higher,ranging up to 240,000.29

The immense bonuses of past yearswill dis-appear as the collapse continues. In 2008,for instance, bonuses fell by 44 percent fromthe previous year.30 The impacts onNewJer-sey will surely be severe, if these forecastsprove correct.New Jerseyworkers representabout 20 percent ofWall Street employees,so between 20,000 and 60,000 relativelyhigh-paid finance industry employees inNew Jersey will likely lose their jobs. Al-though New Jersey residents who work in

New York pay their income taxes to NewYork State (not New Jersey), history showsthe state’s fortunes are linked to NewYork.After theWall Street bust in 2001, New Jer-sey’s state income tax revenues fell by 16percent over two years—or about $1.25 bil-lion. This spells trouble for the state’s fi-nances in fiscal years 2010 and 2011.

New Jersey’s recent employment problemsgo beyond the unemployment numbers. Asnoted above, many workers are underem-ployed—they are unable to work 40 hours aweek although theywant to.The true pictureof theNew Jersey labormarket is clear fromFigure 7, which shows that in 2007, beforethe recession began, 4.2 percent of the

Worklife In New Jersey: Wealth AndEconomic Struggle Side-By-Side

FIGURE 6

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0%

1990 2000 2007 Feb 09

14.57%

10.55%

7.68% 7.50%

Manufacturing's Dominance Continues to FadeManufacturing Employment as a Percent of Total Non-farm Employment

ECONOMY IN CRISIS 11

state’s workers were unemployed.31 Howev-er, another 3.2 percentwere underemployed,bringing the total amount of slack in the la-bor market to 7.4 percent. The numbers dif-fer markedly among groups within the laborforce: 6 percent ofwhiteworkerswere eitherunable to findwork orwere underemployed;for African-Americans (12.8 percent) andHispanics (10.6 percent) the problems weregreater.

Unemployment varied throughout the state.InDecember 2008, the state averagewas 6.8percent. However, CapeMay (12.4 percent),Cumberland (11.1 percent), and Passaic (8.4percent) had higher unemployment rates; atthe same time, Hunterdon (4.7 percent),Morris (5.0 percent) and Somerset (5.1 per-cent) fared better.32

The nature of job cuts has changed drastical-ly in recent months: many more layoff no-tices result from “mass layoffs,” where em-ployers fire 50 or more people at one time.

Between September andNovember of 2008,monthly mass layoffs tripled in the GardenState.Many blue-chip firms have announcedjob cuts: nearly all of Lehman Brothers’1,700 workers in the state have been let go.Merck, with 7,000 workers in the state, an-nounced cuts of some 7,200 worldwide inOctober; the firm has not confirmed thenumber of New Jersey jobs lost, but it is ex-pected to be substantial. The January 2009buyout ofWyeth, headquartered inMadison,by Pfizer will surely result in substantial lay-offs. Business analysts believe thatmany ad-ministrative jobs will be cut atWyeth’s mainoffice. Merck’s acquisition of Schering-Plough in February 2009meansmore lossesof headquarter and administrative jobs.Throughout the state, thousands of jobs,fromboat building to building supplies to re-tail, have been lost.

Increasing inequalityNot only is there a major economic slow-down in the state, but there is also growing

FIGURE 7

Led by Manufacturing, Most IndustriesHave Lost Jobs Since the End of 2007

TABLE 2

November January Percent JobIndustry ‘07 ‘09 Change Change*

Total Nonfarm 4,108.5 4,000.5 -2.63 -108.0

Construction 174.4 153.7 -11.87 -20.7

Manufacturing 311.4 281.3 -9.67 -30.1

Trade, Transportation, and Utilities 894.1 852.5 -4.65 -41.6

Information 98.6 90.4 -8.32 -8.2

Finance 270.6 256.0 -5.40 -14.6

Professional and Business Services 615.3 592.6 -3.69 -22.7

Educational and Health Services 588.3 602.6 2.43 14.3

Leisure and Hospitality 330.6 325.8 -1.45 -4.8

Other Services 163.0 164.1 0.67 1.1

Government 660.6 652.8 -1.18 -7.8

*Jobs in thousands

Slack Labor Markets in New Jersey:Unemployment and Underemployment Ratesin New Jersey by Race and Ethnicity in 2007

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0%All Workers White African-American Hispanic

� Underemployment Rate � Unemployment Rate

3.2%2.5%

7.4%

6.0%

5.2%

12.8%

10.6%

4.7%

4.2% 3.5%

7.6%5.9%

12 A NEW JERSEY POLICY PERSPECTIVE REPORT

inequality. New Jersey has among the mostunequal distributions of income in the na-tion. The Center on Budget and Policy Pri-orities (CBPP) and the Economic Policy In-stitute (EPI) report that New Jersey has theninth biggest gap between the richest andpoorest quintiles of the population of all thestates.

Moreover, income differences in New Jer-sey increased at the fifth fastest rate amongall states during the past 20 years. Whilethere is concentrated poverty in cities likeNewark and Camden, the state also has thelargest percentage of millionaires (Table 1),as noted earlier. Changes in the fortunes ofdifferent incomegroups are shown inFigure8. Between the late 1980s and the early2000s, the incomes of the lowest 20 percentof the families grew by 10.4 percent; thenext three-fifths of the income distributionincreased by percentages ranging from 6percent to nearly 20 percent. The big gainscame for the top quintile (which grew by44.8 percent) and the highest 5 percent (90.8percent). For every one percent of incomegrowth going to the state’s poorest people,the richest got nine percentmore income.

Why did inequality grow so dramatically inrecent decades? Several factors stand out.First, the manufacturing base that propelledthe state and nation throughout the twentiethcentury declined markedly. Heavy indus-try—autos, airplanes, steel, and the like—was the source of many high-wage, securejobs in the first 30 years afterWorldWar II.Technological change and globalizationhelped shrink this base, asmanufacturers re-duced employment and shifted much of itoverseas to low-cost locations. In New Jer-sey, this affectedmany economic leaders, infields such as pharmaceuticals, chemicals,telecommunications, printing and publish-ing, and electrical equipment.

Many of these good manufacturing jobswere replaced by service employment atlower wages. People who could earn a mid-dle-class living working at a plant in the

1960s and 1970s found themselves facinglower living standards asAmerica and NewJersey de-industrialized.

Other forces were at play: public policiesfrayed the social safety net—there werefewer protections during periods of unem-ployment, and labor laws protectingworkerswere discarded or undermined. The mini-mumwage, long a protector of the workingpoor, declined dramatically when adjustedfor inflation. At present, the federal mini-mum wage in real terms is less than what itwas during the Eisenhower administra-tion—true even in New Jersey, which has ahigher-than-averageminimumwage.

Wage inequalityDifferences in wages are themajor determi-nants of income inequality.There are severalways to look at this. First, there are differ-ences between genders, with males makingmore than females on average. New Jerseymales made $20.62 an hour in 2007 com-

pared to $16.56 for women, a nearly 25 per-cent premium. However, that is far less thanthe 32 percent premium held by men in1991 and 60 percent premium in 1981.Thus, women made relative progress overtime.

Wages also differ based on race and ethnici-ty. Whites are the best paid, averaging$21.24 an hour in 2007 compared with$14.36 for African-Americans, and $12.24for Hispanics. Unlike gender differences,racial and ethnic inequality has not been re-duced over time. Whites’ median wageshave grown faster than the others. In fact, be-tween 1990 and 2007, Hispanics sufferedwage reductions of 43 cents an hour after ac-counting for inflation. African-Americansgained only 24 cents an hour over those 17years.

Another way of looking at differences inwages is by education level. Not surprising-ly, those with college degrees had the high-

FIGURE 8

The Rich Got Richer and the PoorGot Left Behind

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Highest 5%

10.4%

5.9%

14.2%19.7%

44.8%

90.8%

� Growth of Income Groups, 1987-89 to 2000-04

ECONOMY IN CRISIS 13

est wages in 2007 ($29.86 per hour) com-pared with workers with some college($15.08), high school ($14.03), and less thanhigh school ($10.18). Importantly, the pre-mium going to people with more educationhas widened over time. Education pays offin higher wages, as scores of studies haveshown.

A final element explainingwage distributionin New Jersey is union membership. Al-though the number of unionized workershas declined over time, the benefits ofunionization to workers are clear. Unionworkers earned 23 percent more on averagein 2007, and the amount of additionalwagesaccruing to organized employees increasedby 1.1 percent a year since 2000 comparedwith 0.8 percent annually over that time fornon-union workers. Some of the differencebetween unionized and non-unionizedworkers can be accounted for by the indus-tries in which they work—for instance,wages are generally high in industries like

manufacturing, where there are many unionmembers. But union members’ ability tobargain collectively also helps non-unionworkers get higherwages.

PovertyManypoor people struggle inNew Jersey—despite the high overallwealth around them.One in five working families is classified aslow income.33 The state has relatively lowpoverty rates, as Table 1 showed. However,nearly three-quarters of a million New Jer-seyans remain poor.

The official definition of poverty has beenwidely and justifiably attacked as inade-quate: It is based on a living standard set inthe early 1960s and has been adjusted onlyfor inflation, not changes in living standardsthat are dramatically different today.34 As aresult, fewer people are categorized as poorthan would be under more modern and in-clusive definitions. In addition, the officialfederal poverty level does not reflect the dif-

ferent living costs across the country. Sinceit is more expensive to live in New Jerseythan inmost other states, the federal povertyline (the basis for eligibility in many publicassistance programs) disqualifiesmany peo-ple who are truly poor. A dollar earned inthis state does not go as far as a dollar earnedin, say,Mississippi.

A family of three is not considered to be inpoverty anywhere in the 48 contiguousstates if it mademore than $20,614 in 2008.Clearly, that is not nearly enough to live oninNewJersey, so the official standard under-counts those who work but earn too little tosupport themselves and toomuch to receivemany forms of assistance.

Even using the suspect federal standard,however, poverty rates in New Jersey in-creased during the past decade, to 8.6 per-cent in 2007 from7.9 in 2000.And, asmightbe expected given the differences in wagesdetailed above,minorities face higher pover-ty rates: In 2005-2006, 15 percent ofAfrican-American and 15.4 percent of His-panic families were in poverty comparedwith 5 percent of white households. Theplight of people trapped in low-wage jobs intoday’sweak labormarket is bleak. It is dur-ing times of rapid economic growth—suchas the 1990s—that poor people make theirgreatest strides. Indeed, during the secondhalf of the 1990s, national poverty fell bytwo and a half percentage points nationally.When labormarkets are buoyant, there is farmore bidding for labor;with that comehigh-er wages and less poverty. In a state withsuch high living costs, the problems stem-ming frompovertywill increase in the yearsto come.

It is interesting to look at the poverty statusof immigrant workers, an increasing shareof the state’s workforce. These men andwomen are amix ofmany low-skilledwork-ers in construction and other industries,withfewer numbers of high-end workers in in-dustries like engineering and business.Overall, immigrants are more likely to be

FIGURE 9

More Education Means LessUnemployment in New Jersey

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%Less than High School High School Some College Bachelor’s or Highter

9.0%

5.3%

4.6%

2.1%

14 A NEW JERSEY POLICY PERSPECTIVE REPORT

poor than the native-born. A recent surveyshowed that 15.5 percent of those speakingSpanish at home were living in poverty.35

While the native-born population in povertythat year was 8.4 percent, the poverty ratefor immigrantswas 9.9 percent.

UnemploymentSomeof the differences in poverty levels canbe explained by rates of unemployment.Figure 9 shows thatNew Jerseyanswith col-lege degrees have lower unemploymentrates (2.1 percent) than others in the work-force; for instance, those without a highschool degree were more than four times aslikely to be out of work (9.0 percent) in2007.Young people are farmore likely to beunemployed than older, more experiencedmembers of the work force. Figure 10shows this dramatically: those 16-24 yearsold have nearly three times the unemploy-ment rate of those who are 25-54 years old.Race and gender also help explain unem-ployment.AfricanAmericans andHispanicshave far higher unemployment rates thanwhites (Figure 11).

Housing and housing costsFor the poor, high living costs are particular-ly burdensome. While incomes have stag-nated (or declined) formany in the state, thecost of living continues to rise. Housing isparticularly burdensome for many, as arehealth care and commuting costs. Medianmonthly housing costs forNew Jerseyans in2005 were $2,503 (Table 1), 43 percenthigher than the nation’s average.36 Formanyrenters, New Jersey is truly out of reach. It isthe fourth most expensive state for rentersand themost expensive for low-income fam-ilieswith children.To afford a two-bedroomapartment, a family would have to earn$43,000 a year, well beyond what many arepaid.37 Significantly, 38 percent of familiespay more than 30 percent of their incomesfor housing—what the federal governmentdeems to be a reasonable limit. New Jerseyis third highest in the country in this dubiouscategory.

FIGURE 10

FIGURE 11

Younger Workers Had the HighestUnemployment Rates in New Jersey

African-Americans and Hispanics HadHigher Unemployment Rates Than Whites

13.0%

11.0%

9.0%

7.0%

5.0%

3.0%

1.0%16-24 yrs 25-54 yrs 55 yrs and older

9.9%

3.6%2.9%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0%White African-American Hispanic

3.5%

7.6%

5.9%

ECONOMY IN CRISIS 15

Homelessness is also a large problem: about12,000 New Jersey men, women, and chil-dren were homeless in January 2009. Thesenumbers are rising as people lose jobs andcannot afford decent housing. Increasingly,renters are forced from their homes; be-tween 2007 and 2008, there was a 70 per-cent jump in evictions of renters.38

ForeclosuresThe poor economy and the bursting of thehousing bubble have resulted in an increasein foreclosures. In September 2008, one inevery 453 homes in the state was in somestage of foreclosure,39 slightly higher thanthe national average and increasing rapidly.The state’s courts are clogged with foreclo-sure cases. Foreclosureswere up 91 percentin the third quarter of 2008.40 Between Sep-tember 2007 and September 2008, 46,130foreclosures were filed. February 2009alone saw 5,000 new cases. Sussex, Union,and Passaic counties had the highest rates offoreclosure per household.

Fiscal distressThe recession has taken a toll on the state’salready shaky government finances. Statetax revenues have fallen considerably belowexpectations, and the already immense pro-jected budget shortfall seems to have grownweekly. Part of the deficit results from therecession: the state has had to increasespending by $800 billion on unemploymentinsurance and related expenses.There is alsogrowing pressure on long-underfunded stateemployee pensions and on public-sector

jobs themselves. Public employment, once arare source of increasedwork, is not likely togrow in the future.

On March 10, Governor Jon Corzine intro-duced a budget he said would protect chil-dren, the elderly and the working poor. HisFY2010 $29.8 billion state budgetwas $7.2billion less than what would be expectedfrom current year spending trends. Just over50 percent of his budget balancing wouldcome fromprogramcuts; another 30 percentfrom federal fiscal stimulus funding and thefinal 15 percent from tax increases.

In January 2009, Corzine announced an 18-month suspension of pay increases for stateworkers (something that the unions oppose)and proposed cuts of $812 million for thecurrent fiscal year. In February, he an-nounced a two-day furlough for state work-ers to try to save more money—althoughthis too will be hotly debated with theunions. Towns and cities also face decliningrevenues as their ability to raise propertytaxes is limited by caps and their state aidappropriations are either flat or declining.

The state is hopingWashingtonwill providemuch needed assistance through theAmeri-can Recovery and Reinvestment Act(ARRA), which was signed by PresidentObama in February. Funds from this legisla-tion will be critical to help lift New Jerseyout of one of the worst recessions since theGreatDepression.New Jersey is expected toreceive about $17 billion over the next two

years, of which about $6 billion will flow tothe state with the remainder to local govern-ments, schools, businesses and individuals(including $7.5 billion in tax cuts).

Funding for programswill be distributed di-rectly to individuals already receiving bene-fits, to various entities by formula, or by ap-plication often in competition with otherstates or agencies. Individuals, businessesand governments will need to apply for themany tax and other benefits. Flexibility inhow the funds can be spent varies greatly,with most of the give in Medicaid and theState Fiscal Stabilization Fund. Since thesefunds can be used to replace state funding,how the state eventually uses them has ma-jor implications for the state budget.

Social servicesThe social safety net—the combination ofunemployment, health and other benefitsbuilt up since the New Deal and the GreatSociety eras—has been shredded over thelast two decades.With cuts by governments,manyNew Jersey families have become de-pendent on the support of non-profit organi-zations and charities.However, these groupsare running out of money. The demands onfood banks from hungry people have risendramatically, up by 250,000 in 2008—anincrease of some 30 percent. Donations,meanwhile, are down by 25 percent.41 Re-cently unemployed professionals are in-creasingly making use of the health-careprograms and clinics traditionally used bylow-income people.

16 A NEW JERSEY POLICY PERSPECTIVE REPORT

� More should be spent on training forworkers who could use it to moveinto middle-class jobs. Emphasisshould be on adult basic education(using community colleges and otherproviders) for low-wage workers.More education and training will re-sult in greater probability of self-suffi-ciency for these workers. State busi-ness subsidies should be aimed at en-couraging development in fiscallystruggling cities where many of thestate’s most at risk residents live.

� With jobs declining, businesses andpublic institutions in New Jerseymust attempt to find new sources ofemployment and revive existing jobs.Several options come to mind: NewJersey is well situated to develop“green industries,” with its currentarray of small alternative-energy com-panies and research strength at Rut-gers, Princeton, and other universities.The federal Green Jobs Act of 2007could provide $120 million for train-ing a new cadre of workers for a vari-ety of green industries. With someseed capital from the state and, per-haps, from ARRA funds, the potentialfor thousands of green industry jobsexists through subsidies and grants.These green jobs are important be-cause they could pay living wages,and cannot be outsourced to othercountries.44

These are but a few recommendations forthe state to consider in the next year. Ifadopted, they will lead to a fairer and morebuoyant economy and increases in the wel-fare ofworkingNew Jerseyans.

bility and by raising the amount afamily would receive. Another anti-poverty measure, the minimum wage,remains far below a living wage de-spite a small recent increase. It shouldbe increased to at least $8.50 an hourand automatically raised every year tokeep up with the cost of living.42 Atthe same time, the state can raisemore revenue and contribute to anequalization of incomes by increasingtaxes at the upper end of the incomerange.

� Target funding expected from theAmerican Recovery and ReinvestmentAct to invest in human and physicalcapital. Much of the ARRA moneywill be for prescribed categories ofspending. Within these categories, thestate will have some discretion overspecific projects. These expendituresmust be made with great care, sincethe ARRA money is a rare opportuni-ty for investments in New Jersey fromthe American taxpayer. Educationmoney should go to low-income,high-need school districts that areready to spend it on programs thatwill make important differences inlearning. Infrastructure funding meantfor the most “shovel ready” projectsshould be targeted to those that do themost good for the state’s economy inthe long term. Rebuilding the state’sinfrastructure—rebuilding schools,road repair and improving mass transitsystems—will produce long-term ben-efits in the future.43 All of these enduses will improve the state’s economicefficiency.

T his analysis shows that New Jersey,although relatively wealthy, facessome serious problems along with

the rest of the country. Employment growthwas slower than the nation’s before the re-cession; reviving the state’s past glory willnot occurwithout significant change in pub-lic policy.

When NJPP last published a State ofWork-ing New Jersey in 2002, the author foundthat a decade of boom times had in fact notproduced widespread prosperity. Instead,relatively few working men and womenshared most of the gains in income. Today,New Jersey confronts an economic situationas grimas any in the past 75 years.The stim-ulus package that emerged fromCongress inFebruary 2009 will provide nationwidenearly $800 billion in federal spending andtax cuts aimed at helping to stem the down-ward spiral of jobs and incomes. But even ifthe program works as hoped, New Jerseyand other stateswill have to domore to fighttheir way back toward shared prosperity.When this now-deepening recession ends,stepsmust be taken to ensure thatwork paysenough for working people to support theirfamilies and build a future.

Some basic principles should guide futurepolicies:

� Help restore shared prosperity. TheEarned Income Tax Credit (EITC) isone of the most successful programshelping low-wage workers escapepoverty and should be aggressivelyexpanded and indexed. It provides arefundable credit based on the amounta low-income worker receives fromthe federal EITC. In 2008, New Jer-sey took a step forward by acceptingthe federal definition of income eligi-

What CanWeDo To Improve The Economy?

ECONOMY IN CRISIS 17

business/economy/31jobs.html; accessed July 31, 2008.

9 According to the Bureau of Labor Statistics, the labor force participa-tion rate has fallen from 67.1 percent in 1998 to 65.7 percent in 2008.http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS11300000

10 “Market’s 7-day rout leaves U.S. reeling,” Wall Street Journal (online)http://online.wsj.com/article/SB122359593027021243.html (AccessedNovember 16, 2008).

11 Tony Pugh, “Commercial bankruptcies soar, reflecting wideningeconomic woes,” McClatchy Newspapers, July 18, 2008. AmericanBankruptcy Institute (August 27, 2008), “Total U.S. bankruptcies infirst half of 2008 up 29 percent from a year ago.”http://www.abiworld.org /AM/Template.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=54478(Accessed October 19, 2008.)The Economist, “Shutting up shop,”October 11,2008, pp. 83-84. American Bankruptcy Institute(August 27, 2008), “Total U.S. bankruptcies in first half of 2008up 29 percent from a year ago.”

12 Andrew Martin, “Spam turns serious and Hormel turns out more,”New York Times November 14, 2008, http://www.nytimes.com/2008/11/15/business/15spam.html?em (Accessed November 15, 2008).

13 Michael M. Grynbaum, “Consumer confidence falls to record low,”New York Times October 28, 2008; http://www.nytimes.com/2008/10/29/business/economy/29econ.html?partner=rssyahoo&emc=rss(Accessed October 28, 2008).

14 Julianne Pepitone, “Bloody Monday: over 71,400 jobs lost,”CNNMoney.com, January 27, 2009 http://money.cnn.com/2009/01/26/news/economy/job_cuts/index.htm (Accessed January 28, 2009).

15 Center for Budget and Policy Priorities and the Economic PolicyInstitute, “Income inequality grew across the country over the pasttwo decades,” January 2006.

16 Lawrence Mishel, Jared Bernstein, and Heidi Shierholz, The State ofWorking America 2008/2009 (Preliminary Edition). Washington, DC:Economic Policy Institute.

17 Andrew S. Hacker and Elisabeth Jacobs, “The Rising Instability ofAmerican Family Incomes, 1969-2004: Evidence from the Panel Studyof Income Dynamics,” Economic Policy Institute Briefing Paper #213,May 29, 2008.

18 Edward N. Wolff, “Recent Trends in Household Wealth in the UnitedStates: Rising Debt and the Middle-Class Squeeze,” Levy EconomicsInstitute Working Paper # 502 (June 2007).

1 Kelly Evans and Kris Maher, “Yearly job loss worst since 1945,”Wall Street Journal, January 10, 2009; Heidi Shierholz, “Job lossesballooned in final quarter of 2008,” EPI Jobs Picture, EconomicPolicy Institute, January 9, 2009; and Heidi Shierholz, “Labor markethas worst month since recession began,” EPI Jobs Picture, EconomicPolicy Institute, February 6, 2009. On March 4, 2009, the New JerseyLabor Department revised (or, wonkishly, “rebenchmarked”) itsemployment data for 2008. This change resulted in higher levels ofjob loss than previously reported under its old system. The data in thisreport reflect the new numbers to the extent possible.

2 AP, “N.J. has 24 cities with double-digit jobless rates,” March 20,2009

3 Mr. Stelma was profiled by Peter S. Goodman, “Jobless rate at 14-yearhigh after October losses,” New York Times, November 8, 2008. OnMs. Stevens, see Kelly Evans and Kris Maher, “Yearly job loss worstsince 1945,” Wall Street Journal, January 9, 2009.

4 Clare Ansberry, “Elderly emerge as a new class of workers—and thejobless,” Wall Street Journal, February 23, 2009.

5 Lawrence Mishel and Nancy Cleland, “Building shared prosperity,”Economic Policy Institute, September 16, 2008.

6 There were a dizzying number of subprime and exotic mortgagesproduced by lightly regulated banks and largely unregulated mortgagecompanies. They bore names like “no doc” (no documents provingassets or income), “liar’s loans” (borrowers could claim nearly anyamount of money for their incomes or job situation), “interest only”(the borrower could pay only interest and delay paying any of theprincipal, although under such loans, the principal would increase overtime), and others. These sorts of loans allowed marginally appropriateborrowers to get mortgages that started with low monthly paymentsthat increased substantially when the mortgage “reset” in two or threeyears. When that occurred, monthly payments skyrocketed and borrow-ers were less able to pay their loans and more likely to be foreclosed.

7 Lawrence Mishel, Jared Bernstein, and Heidi Shierholz, The State ofWorking America 2008/2009. Economic Policy Institute: Washington,DC, 2008 (preliminary edition).

8 Peter S. Goodman, “Jobless rate at 14-year high after October losses,”New York Times, November 7, 2008. Data from U.S. Bureau of LaborStatistics, “Economic News Release, Table A-12: Alternative measuresof labor utilization,” January 2009. http://www.bls.gov/news.release/empsit.t12.htm (Accessed January 24, 2009). Peter S.Goodman, “A hidden toll on employment: cut to part time,” NewYork Times, July 31, 2008. http://www.nytimes.com/2008/07/31/

About the AuthorNorman J. Glickman is a University Professor at Rutgers University and the Thomas Hartmann Policy Fellow at NewJersey Policy Perspective. Please direct questions and comments toMr. Glickman at glickman@rutgers.edu.

Endnotes

18 A NEW JERSEY POLICY PERSPECTIVE REPORT

32 David Leonhardt, “Job Losses Show Breadth of Recession,” New YorkTimes, New York Times, March 3, 2009.

33 Eileen Appelbaum, Mary E. Forsberg, et al., Climbing the Ladder:How to Invest in New Jersey’s Working Families (New Jersey PolicyPerspectives and Rutgers University, Center for Women and Work,March 2008).

34 In 2006, the official poverty threshold for New Jersey was $20,614for a family of three. Many alternative measures of poverty exist,including one from the National Academy of Sciences that is based onactual expenditures on food, clothing, and other necessities and reflectspoverty reductions that come through tax credits. Importantly, it takesaccount of regional costs of living, which are much higher in NewJersey than they are in most other states. For a discussion of povertydefinitions, see Chapter 6 of Lawrence Mishel, Jared Bernstein,and Heidi Shierholz, The State of Working America 2008/2009(Washington, DC: Economic Policy Institute, 2008, preliminary edition).

35 Migration Policy Institute, “Fact Sheet on the Foreign Born: Incomeand Poverty Characteristics,” October 2008.

36 U.S. Bureau of the Census, Median Monthly Housing Costs forSpecified Owner-occupied Housing Units with a Mortgage (In2003 Inflation-adjusted Dollars) as cited by Housing and CommunityDevelopment Network, NJ is Fourth Most Expensive State for RentalHousing, December 13, 2006.

37 Annie E. Casey Foundation and the Association for Children in NewJersey, Kids Count, 2006; National Low-Income Housing Coalition,Out of Reach, December, 2005.

38 Alexi Friedman, “N.J. homelessness rises drastically from evictions,report shows.” Star-Ledger, March 12, 2009.

39 These homes had received a default notice, had been scheduled fora sheriff’s sale, or had been repossessed by the lender. Jeff May,“NJ foreclosure filings outpace national rate,” Star-Ledger,October 23, 2008.

40 Susan Todd, “New Jersey foreclosure rate intensified in October,”Star-Ledger, November 14, 2008.

41 “Economy Leaves Americans with Empty Plates,”http://njrereport.com/ (Accessed December 18, 2008).

42 New Jersey’s Minimum Wage Advisory Commission recommendedthat the minimum wage be raised to $8.50 an hour and indexed tothe consumer price index in 2008.

43 For a good analysis of the role of training and the working poorin New Jersey, see Eileen Appelbaum, Mary E. Forsberg, et al.,Climbing the Ladder: How to Invest in New Jersey’s WorkingFamilies (New Jersey Policy Perspectives and Rutgers University,Center for Women and Work, March 2008).

44 The state should keep nonprofit organizations in mind in this regard.One such group—Isles, Inc. in Trenton—has developed a program toremove lead paint from older residences, seal those homes to save onenergy, and use trainees from its YouthBuild program to carry out theconstruction. This is but one of many examples of efforts that couldbe used to increase employment of low-income workers and protectthe environment and health. It is a low-tech, low-cost solution tosome important problems.

19 Elizabeth McNichol and Iris J. Lav, “State budget troubles worsen,”Center for Budget and Policy Priorities, December 10, 2008 (updatedJanuary 29, 2009; Elizabeth Hudgins and Iris J. Lay, State BudgetTroubles Worsen (Center for Budget and Policy Priorities, October 24,2008); Nicholas Johnson, Elizabeth Hudgins, and Jeremy Koulish, Fac-ing Deficits, Many States are Imposing Cuts that Hurt Vulnerable Resi-dents (Center for Budget and Policy Priorities, October 20, 2008).

20 National Debt Clock, http://www.brillig.com/debt_clock/, AccessedSeptember 10, 2008. M. W. Hodges, America’s Debt Report.http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm (AccessedJanuary 29, 2009).

21 Jeff Faux, Carlos Salas, and Robert E. Scott, “Revisiting NAFTA: stillnot working for North America’s workers,” EPI Briefing Paper #173,September 28, 2006.

22 On the deterioration of social and economic security, see Jacob Hacker,The Great Risk Shift (New Haven: Yale University Press, 2006).

23 Employee Benefit Research Institute Employee Benefit ResearchInstitute, March 2007. http://www.ebri.org/campaign/ (AccessedSeptember 10, 2008.)

24 James W. Hughes and Joseph J. Seneca, “The Lost EmploymentDecade,” Sitar-Rutgers Regional Report (New Brunswick, NJ:Rutgers University, November 2008).

25 U. S. Bureau of the Census, American Factfinder, “Median MonthlyHousing Costs for Owner-Occupied Housing Units With a Mortgage(Dollars): 2006” http://factfinder.census.gov/servlet/ GCT-Table?_bm=y&-geo_id=01000US&-_box_head_nbr=GCT2511&-ds_name=ACS_2006_EST_G00_&-_lang=en&-mt_name=ACS_2006_EST_G00_GCT2511_US9&-format=US-9

26 American Society of Civil Engineers, 2007 Report Card For New Jer-sey’s Infrastructure http://sections.asce.org/newjersey/nj-reportcard.html(Accessed January 23, 2009).

27 For an explanation of the state’s economic history and its mountingproblems, see James H. Hughes and Joseph J. Seneca, “New Jersey’sNew Economy Growth Challenges,” Rutgers Regional Report, IssuePaper #25 (New Brunswick, NJ: Rutgers University, July 2006).

28 Bruce Katz and Robert Puentes, “Prosperity at Risk: Toward aCompetitive New Jersey” (2006).

29 These forecasts are from the New York City Independent BudgetOffice, 2009 Fiscal Outlook. Accurate figures on Wall Streetemployment are hard to come by. Many people who have already beenlaid off are not counted as unemployed since they are still receivingseverance payments; these people are really unemployed and will becounted as out of work in the near future. Other estimates of job lossare considerably higher. See also, William J. Holstein, “Helping240,000 find a future after Wall Street,” New York Times, January 16,2009; Susan Todd, “N.J. job losses hit professional ranks,” Star-Ledger, December 18, 2008, Patrick McGeehan, “Layoffs sweep fromWall Street across New York area,” New York Times, October 20, 2008;and Associated Press, “Wall Street layoffs could surpass 200,000,” LosAngeles Times, October 24, 2008.

30 Andrew Ross Sorkin, “Wall Street bonuses fell 44% in 2008, reportsays,” New York Times, January 28, 2009.

31 No data are available after 2007. Certainly, the data shown in Figure 7are higher in 2009.

ECONOMY IN CRISIS 19

NJPP PUBLICATIONS

NJPP Action AgendaNJPP Action Agenda - The Invisible Budget Hides Spending Choices

What's the Rush?Costly Tax Changes Need More Deliberation

By Mary E. Forsberg

The Faces of Immigration in Mercer Countyby Anastasia R. Mann

A Step Backward:How Federal Rules Would Deny Health Insurance to New Jersey Children

by Raymond J. Castro

Look Out Below:Steep "Cliff" Means Many Working Poor Lose Tax Credit

by Sarah Stecker

If It Ain't Broke...New Jersey's Income Tax Makes Dollars and Sense

By Mary E. Forsberg

You're 40; Now Get To Work:Making the State Sales Tax Pull its Weight

By Mary E. Forsberg

Flunking Out:New Jersey's Support for Higher Education Falls Short

by Anastasia R. Mann and Mary E. Forsberg

Attention Shoppers:You Pay the Health Insurance Bills for Some of New Jersey's Largest Employers

By Mary E. Forsberg

Time, Lost Pay:New Jersey's Minimum Wage Keeps Falling Behind

by The Raise the Wage Campaign

Climbing the Ladder:How to Invest in New Jersey's Working Families

by NJPP and Center for Women and Work

The State of Working New Jersey (2002)by Leslie McCall

NEW JERSEY POLICY PERSPECTIVE137 W. Hanover St.Trenton, NJ 08618

Phone: 609-393-1145 Fax: 609-393-1146Email: njpp@njpp.org Web site: www.njpp.org