Feb 19, 10:16 AM EST

White House: Higher wages needed to make up for stagnation


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WASHINGTON (AP) -- President Barack Obama's top economists say that even as the U.S. has managed to kick start a lasting and growing recovery, modest wage gains are far from making up for decades of paycheck stagnation for middle-class workers.

The White House, in its annual report to Congress, also warns that despite the nation's relative economic strength, slowdowns abroad still pose dangers at home.

The 400-page "Economic Report of the President" is a largely bullish portrayal of the economy replete with appendices, charts and statistical tables designed to support Obama's policy initiatives

As a political document, the report is likely to find little favor in the Republican-controlled Congress. But as an assessment of the state of the economy, it broadly tracks with Republicans who say lack of significant wage growth is a critical flaw of the current recovery.

The post-recession economy has been growing at an annual rate of 2.8 percent over the last two years, an improvement from 2.1 percent growth during the first three-and-a-half years of recovery.

Middle class income already is emerging as a key economic issue for the 2016 presidential and congressional elections.

The report dates weaknesses in wages back to 1973 when productivity slowed and income inequality between the top 1 percent and the bottom 90 percent expanded. Starting in 1995, fewer Americans began to participate in the labor force, further compounding pressure on wages.

"This is the big-picture challenge that we're trying to overcome as an economy," said Jason Furman, the chairman of Obama's Council of Economic Advisers.

The report concludes that if the productivity, income gap and labor participation trend lines that were evident before 1973 had continued, a typical household would have nearly doubled its income by 2013, or an additional $51,000 a year.

The document uses the data to buttress Obama's domestic policy goals, including raising the minimum wage, increasing spending on education, overhauling the business tax system, and expanding international trade. As such, it underscores the difficulties facing Obama over the next 23 months of his presidency.

Republicans, who have majorities in the House and Senate, resist new spending initiatives and minimum wage increases. A majority of Democrats oppose trade deals. And changing the tax system is a heavy lift under any circumstance.

"The White House should focus less on trumpeting the slowest recovery in over 50 years, and more on finally cooperating with Congress to advance opportunity and jobs for the middle class," said Don Stewart, a top aide to Senate Majority Leader Mitch McConnell.

The White House report also contained cautionary signals.

"The available 2014 indicators suggest that the economies of Japan and our euro-area trading partners are sagging," the report states. "A slowdown abroad not only reduces our exports, but also raises risks of financial and other spillovers to the U.S. economy."

The report also says difficulties for consumers seeking low-interest loans are creating a headwind for the housing sector. It says that mortgage underwriting standards are tight, reducing access to home loans.

Despite efforts by the administration, the report concedes it may be some time before lenders improve access to credit, especially for borrowers with "less-than-pristine credit histories."

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