Private sector must fill in cracks of uneven economic recovery

For years now, Americans have been getting mixed messages about the state of the economy: Unemployment is down, but job insecurity is rising. Inflation is low, but so is wage growth.

Yet, while the economy has been expanding for nearly 100 months (approaching a record), many people are still living paycheck to paycheck. That’s because the recovery — and the overall economy — has been wildly uneven since 2008, meaning that many Americans are living on a financial precipice.

{mosads}The key to understanding how such different versions of the economy can exist simultaneously is recognizing that national averages smooth over the highs and lows.

Consider this: Nearly three-fourths of U.S. counties have yet to recover to pre-recession levels with respect to unemployment, job creation, economic output and home prices. That unevenness is characteristic of many facets of the current economy, including the job market, debt and savings levels. 

While unemployment has fully recovered since the Great Recession (from 10 percent in October 2009 to 4.4 percent today), it’s much higher for those who lack a high school education (7.4 percent).

Job distribution is not geographically even, either: Just 73 of the nation’s 3,100 counties are responsible for half of all new jobs created since the recovery began. Even more striking: Only 20 counties have been home to half of all new businesses launched in that window. It’s no wonder, then, that people outside boom areas are dissatisfied with the economic status quo. 

Even Americans who have jobs aren’t necessarily financially secure. Thirty percent of us are finding it difficult to get by or are reporting being able to “just get by,” according to a Federal Reserve survey published this year. Perhaps this is because average line wages have increased just 15 percent since 1979, while executive pay has shot up by 138 percent. 

But even a generic look at wage increases ignores the reality that many Americans have income that varies from one month to the next. This variability makes it particularly hard to save and make financial plans. People tend to put money aside during “feast” periods, and they’re often forced to dip into it to get through the “famines” — preventing the creation of a long-term emergency fund.

Expenses, too, are often variable, which is especially troublesome for the nearly half (47.7 percent) of renters who are “cost burdened,” meaning they spend more than 30 percent of their income on rent. With such tight margins, unexpected expenses can hit especially hard.

This leads many to rely on credit cards, which are also contributing to household debt. Fifty-five percent of cardholders carried a balance for at least part of 2016, according to the Fed. Overall, the report shows that less than half of adults made more than they spent in 2016. 

It is no wonder, then, that savings rates are so abysmal right now. With 69 percent of Americans having less than $1,000 in savings, it is clear that most of the country is not prepared to face a financial shock like unexpected job loss, serious illness or, yes, a natural disaster. 

With many living on the economic fringe in dire financial situations, there’s a strong need for the private sector and business leaders to make a substantial positive impact on working Americans’ lives. We can do so by taking a three-pronged approach.

First, we must provide our employees with financial wellness education that extends beyond recommendations of which health-care benefits to choose and how to allocate a retirement fund. It’s a win-win for employee and employer, as reports show financially stable workers are more productive and invested in their jobs.

Ideally, employers should highlight where benefits are likely to fall short and identify financial instruments that can help employees fill the gaps.

Second, we must increase wages. They’ve remained almost stagnant nearly the last 50 years, and unemployment insurance coverage has decreased while essential expenses, including housing and health-care costs, continue to rise. If we don’t spend the money on wages, we will lose it to turnover costs.

Third, we must acknowledge that the private sector is best positioned to quickly fill gaps in public benefits by leveraging technology, research and regulatory innovation to develop products that can support those in times of crisis.

At present, public-sector unemployment benefits are so unwieldy that less than 25 percent of displaced workers actually collect them. Already, startups including EarnUp, Shift Savings, Even, and SafetyNet are launching financial products designed to fill the gaps when other systems fail. These products have proven the concept; now is the time to iterate and innovate.

Mark Greene is chairman of Madison’s (Wisconsin) Economic Development Committee and director at insurance startup, SafetyNet, a division of CUNA Mutual Group. Mark is an experienced leader in the financial services industry for both large and early-stage companies and earned his Doctor of Law (J.D.) from University of Wisconsin Law School.