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Are We Doing Better Than We Thought? Median Family Income 1979-2010 Print
Written by Dean Baker   
Sunday, 21 December 2014 21:15

The Congressional Budget Office (CBO) recently updated its analysis of changes in before-tax and after-tax family income. In some ways the new analysis showed a brighter picture for middle income families than other work highlighting stagnation. Focusing on the middle quintile of households with children, the new CBO analysis showed a gain in before-tax income of 25.2 percent from 1979. The gain in after-tax, after-transfer income was 46.7 percent. This may not amount to huge gains over a 31-year period, but it is not zero. It is worth looking at these numbers more closely.

Focusing on the before-tax side, the CBO numbers show income for the middle quintile rising from $61,200 in 1979 to $76,600 in 2010 (in 2010 dollars). By far the biggest single chunk of this increase is wages. According to CBO, wage income for this group rose by 14.3 percent over this period, a 0.4 percent annual rate. This is bit better than what we would see looking at the standard wage data. For example, the Economic Policy Institute (EPI) shows the median hourly wage rising by just 5.6 percent over this period.

It turns out that the difference can be explained entirely by differences in price indices used to deflate earnings. (There are also issues about hours worked, the average work year increased somewhat over this period as more women worked full-time jobs, but it would take a more careful analysis to see how hours changed for families in the middle quintile.) CBO used the PCE deflator, the index used to deflate consumption expenditures by households and spending by non-profit organizations. This shows a rate of inflation that averages 0.24 percentage points less than the CPI-URS used by EPI.

There are differences in the expenditures covered by the two indices, and also some minor methodological differences, but the main reason for the gap is that the PCE deflator allows for substitution. If people change their consumption patterns in response to price changes (for example, buying more cell phones and fewer land lines due to a drop in cell phone prices), the PCE deflator will increase its weight on the item people are buying more frequently (cell phones) and reduce the weight on the item people are buying less frequently (land lines). By contrast, the CPI-URS, ignore the change in purchasing patterns over the course of a year and assumes that peoples' purchases of cell phones and land lines is unchanged.

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Labor Market Policy Research Reports, December 12 – December 18 Print
Written by Janine Duffy   
Friday, 19 December 2014 10:52

The following reports on labor market policy were recently released:

Demos

Stacked Deck: How the Racial Bias in Our Big Money Political System Undermines Our Democracy and Our Economy
Adam Lioz

Rulemaking as a Tool of Democracy: Reclaiming the Debate on Regulation
Michael Lipsky

National Employment Law Project

The Case for Reforming Federal Overtime Rules: Stories from America’s Middle Class
Judy Conti

Urban Institute

A Work Tax Credit That Supports Puerto Rico’s Working Families
María E. Enchautegui

 
CEPR's Greatest Hits, Volume Two Print
Written by Dawn Lobell   
Wednesday, 17 December 2014 15:27

CEPR turned 15 this year! Fifteen years of speaking the economic truth to power. To celebrate, we’ve compiled a list of some of our top accomplishments over the past 15 years - accomplishments that we couldn’t have achieved without your help. Here are just a few: 

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The Fed, Interest Rates, and High School Fashion Print
Written by Dean Baker   
Monday, 15 December 2014 20:49

There is growing pressure on the Fed to abandon its zero interest rate policy. The big question is why?

Just to remind people, the reason the Fed typically raises interest rates is to slow the economy to prevent problems with inflation. Higher interest rates will discourage people from buying cars and houses. Higher interest rates will discourage businesses from investing and state and local governments from borrowing for infrastructure and other needs. Through these and other channels, higher interest rates will reduce demand and slow growth. This will mean fewer jobs. That is turn means less upward pressure on wages, which will reduce inflationary pressures in the economy.

Given where the economy is today, and where we are likely to be in the near-term future, does anyone seriously believe that we have to worry about inflation rising too rapidly, too many people having jobs, and too much wage growth? It's hard to construct this story from the data.

Over the last year, the core personal consumption expenditure deflator (which excludes volatile food and energy prices) has risen at just a 1.5 percent annual rate, well below the Fed's 2.0 percent target. If we just look at the annual rate over the last quarter compared with the prior quarter, the rate of increase is just 1.4 percent. And, if people are troubled by pulling out food and energy prices, the overall deflator was also 1.5 percent over the last year and just 1.3 percent over the last quarter.With oil prices having fallen sharply in recent weeks, the direction for the inflation rate going forward is almost certainly likely to be lower rather than higher.

And, it is important to remember that the 2.0 percent target was supposed to be an average, not a ceiling. With several years of sub-2.0 percent inflation under our belts, the Fed can allow the inflation rate to rise to 2.5 percent or even 3.0 percent and still be in line with its target. So why exactly would the Fed be trying to avoid higher inflation right now or in the near-term future?

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CEPR's Greatest Hits, Volume One Print
Written by Dawn Lobell   
Friday, 12 December 2014 14:46

In 1999, two economists with a big vision and “a total budget smaller than some other thinktanks' entertainment funds” founded the Center for Economic and Policy Research. And for the past 15 years, CEPR has continued to serve as “a professional thorn in the side of orthodoxy”. That’s according to a 2008 editorial in the Guardiannewspaper titled “In praise of... the Center for Economic and Policy Research”, which also noted that “In a world of Goliaths, CEPR makes a rather effective David” (or Underdog, if you prefer).

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Labor Market Policy Research Reports, December 5 – December 11 Print
Written by Janine Duffy   
Thursday, 11 December 2014 16:54

The following reports on labor market policy were recently released:

Center for American Progress

We the People: Why Congress and U.S. States Must Pass Comprehensive LGBT Nondiscrimination Protections
Sarah McBride, Laura E. Durso, Hannah Hussey, Sharita Gruberg, and Bishop Gene Robinson

For Women to Lead, They Have to Stay in the Game: Why We Need Public Policy to Level the Playing Field
Judith Warner

Can Public Policy Break the Glass Ceiling? Lessons from Abroad
Dalia Ben-Galim and Amna Silim

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Hobson’s Choice Print
Written by Janine Duffy   
Monday, 08 December 2014 14:20

Last week, the Aspen Institute hosted a discussion on “the future of work in the sharing economy,” which focused on company platforms that facilitate the exchange of property, space, or labor. I consider myself fairly well acquainted with all three sides of this economy, especially when it comes to labor, so I wanted to weigh in here.

Over the years, I have worked a variety of odd jobs to help pay for school and living expenses, such as giving swimming lessons, babysitting, tutoring, and working as a family assistant, where my responsibilities have covered everything from dogwalking, buying groceries, paying bills, to researching preschool admissions processes. Most of these jobs were on-demand, made to accommodate both my schedule and those of my customers/clients. This does not even include my “regular” employment history of working as a university resident assistant, research fellow, lifeguard, security guard, and in various internships. I still laugh when I remember bonding with one of my roommates over always being “on the hustle” (the legal variety, of course). In the months since my graduation, I have also been an avid adopter of Craigslist, having found my apartment, bike, most of my furniture, and even kitchen supplies on the platform.

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Labor Market Policy Research Reports through December 5, 2014 Print
Written by Janine Duffy   
Friday, 05 December 2014 15:11

The following reports on labor market policy were recently released:

Center for American Progress

Economic Snapshot: November 2014
Christian E. Weller and Jackie Odum

One Strike and You’re Out: How We Can Eliminate Barriers to Economic Security and Mobility for People with Criminal Records
Rebecca Vallas and Sharon Dietrich

State Disinvestment in Higher Education Has Led to an Explosion of Student-Loan Debt
Elizabeth Baylor

Center on Budget and Policy Priorities

Boosting Disability Insurance Share of Social Security Tax Would Not Harm Retirees
Kathy A. Ruffing and Paul N. Van de Water

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Jobs Flash: November Shows Strongest Job Gains in Almost Three Years Print
Written by Dean Baker   
Friday, 05 December 2014 08:38

The economy added 321,000 jobs in November, the strongest gain since it added 360,000 in January of 2012. With upward revisions to the prior two months data, the average job gain over the last three months has been 275,000.

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Right to Rent Helping Families Move Back into Homeownership Print
Written by Nicole Woo   
Wednesday, 26 November 2014 10:41

The LA Times ran a nice story on Friday about the Coronel family of Azusa, California, and how they were able to buy back their foreclosed home "for $280,000, far less than the $400,000-plus debt that had gone into default." They had been able to stay in their home after their foreclosure because "Fannie Mae gave permission in 2010 for the Coronels to stay on in the Azusa house as renters."

The article asked if Fannie Mae's allowing this "indirect" principal reduction reflects a change in policy.  That's because before the Coronel's case, Fannie Mae and Freddie Mac required foreclosed homeowners to pay their entire outstanding mortgage balance before being able to repurchase their homes.  That's while other buyers were able to pay the lower market price for the same property.

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Sharing Is Caring Print
Written by Janine Duffy   
Monday, 24 November 2014 16:40

The recent passage of a work-sharing program by the Illinois state Senate signals an increasing willingness across the country to provide employers with alternatives to layoffs. The state is now in the company of the District of Columbia and 27 other state legislatures, all of whom have also passeed work-sharing programs, and will be the 13th state to have done so since 2009. Back in 2011, CEPR Co-Director Dean Baker penned a report on work-sharing, both in the OECD and the U.S. states that had already implemented such programs, and detailed its potential impacts on productivity and employment.

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Labor Market Policy Research Reports, November 14 – November 20 Print
Written by Janine Duffy   
Friday, 21 November 2014 15:35

The following reports on labor market policy were recently released:

Center for American Progress

How DACA Has Improved the Lives of Undocumented Young People
Zenen Jaimes Pérez

Center on Wisconsin Strategy

Turn Up the HEET! Reflections on Washington’s Six Years of Investment and Innovation in the Health Care Workforce
Laura Chenven and Laura Dresser

Oxfam America

From Paycheck to Pantry: Hunger in Working America
Mary Bebic, Theresa DelVecchio Dys, Monica Hake, Meghan O’Leary, Elaine Waxman, Andrew Yarrow

Urban Institute

Literature Review in Brief: Healthcare Occupational Training and Support Programs Under the Affordable Care Act
Randall R. Bovbjerg and Shayne Spaulding

The CCDF Policies Database Book of Tables: Key Cross-State Variations in CCDF Policies as of October 1, 2013
Sarah Minton, Christin Durham, and Linda Giannarelli

 
U.S. NEET Rates Not So Neat Print
Written by Janine Duffy   
Wednesday, 19 November 2014 09:35

UNICEF’s Office of Research-Innocenti recently released a report detailing the impact of the recession on children in rich countries in the EU and OECD. As might be expected, countries like Greece and Italy performed poorly across a variety of indicators, including child poverty, youth unemployment, and severe child material deprivation. One interesting comparison is that of France, which tends to be lumped among those whose workers are sometimes portrayed as lazy by outsiders. The French youth unemployment rates for those aged 15 to 24 in 2008 and 2013 were in fact higher than those of the U.S., though not as high as that of countries like Greece and Italy.

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Labor Market Policy Research Reports, October 31 – November 13 Print
Written by Janine Duffy   
Thursday, 13 November 2014 00:00

The following reports on labor market policy were recently released:

Center for American Progress

Reforms to Help Meet the Growing Demand for Long-Term Care Services
Daniel Bahr, Topher Spiro, and Maura Calsyn

The Economic Benefits of Closing Educational Achievement Gaps
Robert G. Lynch and Patrick Oakford

Promoting Entrepreneurship Among Millennials
Sarah Ayres Steinberg

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Private Equity at Work: PE Facing Up to Possibility of Lower Returns Going Forward Print
Written by Eileen Appelbaum   
Monday, 10 November 2014 10:08

Have private equity investors begun to experience buyer’s remorse? That’s the question Private Equity International ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it  to subscribe to newsletter) poses in its November 7 Friday Letter. Apparently, the answer is yes.

Limited partners have “voiced growing concerns over how GPs plan to make back the high multiples they paid for companies this year,” according to the Friday Letter. And endowments and foundations are increasingly concerned about prospective returns in light of the high current valuations for companies the PE funds are acquiring.

We identified the possibility of low returns for funds launched in the current environment back in May and again in July. In our May report, we noted that:

The cyclical nature of private equity returns does not bode well for pension funds and other investors who are currently piling into private equity funds. … PE buyout funds have lots of cash on hand … and they are competing for a limited number of attractive companies. … [T]his competition among PE funds for desirable acquisitions has led PE funds to pay prices that are close to historic highs. This year U.S. PE funds have paid an average price equivalent to 9.2 times ebitda – close to the 2007 peak of 9.7 times. ... Acquiring companies at these high prices will make it difficult to exit these investments at a profit.

We warned of this danger again in July:

Academic studies (see here, here, and especially here) have shown that private equity returns are also highly cyclical. Funds launched at or near stock market peaks tend to perform poorly. Those launched in the current environment are unlikely to achieve returns in subsequent years that beat the market and justify the added risk and illiquidity.

The Friday Letter notes that many LPs – notably wealthy individuals who invest via family offices – still believe private equity is an attractive investment. But noting the “frothy pricing environment,” PEI finds it reasonable to question “how current vintages are likely to be faring.” The big exits some investors have realized, in their view, have “more to do with competition than skill.”

Coming as it does from Private Equity International, this is a warning that LPs – especially pension funds, which are entrusted with the retirement savings or working men and women, should heed.

 
Jobs Flash: Employment-to-Population Ratio Jumps in October Print
Written by Dean Baker   
Friday, 07 November 2014 08:41

The employment-to-population ratio increased by 0.2 percentage points in October to 59.2 percent. This is above the ratio of a year ago, although it is still down by more than 4.0 percentage points from its pre-recession peak.

The other news is the report was overwhelmingly positive. The establishment survey showed a gain of 214,000 jobs, with restaurants (42,000 jobs) and retail (27,000 jobs) leading the way. With upward revisions of 31,000 to the prior two months data bringing average growth over the last three months to 224,000. In addition, average weekly hours edged up to 34.6, the highest level since May of 2008.

The household survey also showed a further decline in involuntary part-time employment, with the number dropping 67,000 from the September level. It is now almost 1 million below the year-ago level.

By contrast, voluntary part-time employment is continuing to rise. It increased by 152,000 and now stands 880,000 above its year-ago level. The rise in voluntary part-time employment is likely in part attributable to the Affordable Care Act as workers are now able to get insurance through Medicaid or the exchanges, whereas previously they needed to work a full-time job.

 
Fun With the “It’s Hard to Get Good Help” Crowd Print
Written by Dean Baker   
Saturday, 01 November 2014 16:40

For the last several years there has been a regular drumbeat of business people, economists, and pundits telling us that the economy’s real problem is that workers lack the skills necessary to fill the jobs that are available. From this perspective, the problem is not that the economy lacks demand; the problem is that our workers need more education and training. In other words, don’t blame the folks in Washington for mismanaging the economy; blame the workers for being dumb.

This crew got a little ammunition for this argument recently when the job opening rate rose back to its pre-recession level. The job opening rate is the number of job openings that firms are listing divided by the number of people employed. The rise of the job opening rate to its pre-recession level could be taken as meaning that companies are having a hard time finding qualified workers even though measures of employment, unemployment, and involuntary part-time employment all seem to imply substantial slack in the labor market.

Before we rush to retrain and re-educate the millions of unemployed and underemployed workers it is worth looking at the job opening data a bit more closely. In most sectors, the job opening rate is still somewhat below the pre-recession level. However, there are some exceptions as shown in the figure below.

Job openings 10357 image001

                                 Source: Bureau of Labor Statistics.

There are several items that are worth noting about the sectors of the economy in which employers appear to be having trouble finding workers by the job opening rate measure. First, these are not especially high skilled areas. In fact, the retail and accommodation and food service (i.e. hotels and restaurants) stand out as being among the lowest paying sectors in the economy, with the least educated workers.

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Labor Market Policy Research Reports, October 24 – October 30 Print
Written by Janine Duffy   
Friday, 31 October 2014 14:23

Labor Market Policy Research Reports, October 24 – October 30

The following reports on labor market policy were recently released:

Center for American Progress

Eds, Meds, and the Feds: How the Federal Government Can Foster the Role of Anchor Institutions in Community Revitalization
Tracey Ross

A Great Recession, a Great Retreat: A Call for a Public College Quality Compact
David Bergeron, Elizabeth Baylor, and Antoinette Flores

Economic Snapshot: October 2014
Christian E. Weller and Jackie Odum

Read more...

 

 
CEPR News - October 2014 Print
Written by Dawn Lobell   
Friday, 31 October 2014 14:04

The following newsletter highlights CEPR's latest research, publications, events and much more.

Read more...

 

 
GDP Flash: GDP Growth Higher than Expected in Third Quarter Print
Written by Dean Baker   
Thursday, 30 October 2014 07:48

GDP grew at a higher than expected 3.5 percent annual rate in the third quarter. The biggest factors in this growth were a 16.0 percent increase in defense spending, which added 0.66 percentage points to growth; an 11.0 percent increase in the export of goods, which added 0.99 percentage points to growth; and a 2.4 percent decrease in the import of goods, which added 0.34 percentage points to growth. In other categories, consumption grew at a modest 1.8 percent annual rate, while non-residential investment grew at a 5.5 percent rate.

The jump in defense spending is likely an anomaly which will be reversed in future quarters. Defense spending is always erratic and big movements are usually reversed in later quarters. The trade data are encouraging, but may be reversed as the dollar has strengthened in recent weeks, making U.S. goods less competitive.

One piece of good news in the report is that the slowdown in health care spending is continuing. Nominal spending in the third quarter is just 3.5 percent above the year-ago level. It is difficult to determine the extent to which this slowdown can be attributed to the ACA, but clearly the predictions that costs would explode due to the extension of coverage have proven wrong.

 
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