Jeremy, a member of the Writers Guild, is a cancer survivor, and he gives credit to his union for negotiating his health care plan in a new video by the American Worker Project at the Center for American Progress Action Fund.
His is just one of the moving stories told in three short videos released today. These profiles show how unions have helped workers in very different occupations — child care, freelance writing and taxi driving — gain and maintain wages and benefits that are key to a middle-class standard of living.
On the flip side, La Tonya describes the hardship she's faced since public sector workers lost their right to collectively bargain in Wisconsin.
These videos bring to life a huge body of research that finds that unions provide invaluable benefits for workers. CEPR regularly focuses on this topic and has many reports about how union membership increases workers' chances of having health insurance and a retirement plan. Some reports focus on specific groups of workers — African American, Latino, women, young, low Wage, service sector, and immigrant — and find the same positive effects across the board.
Internships can be great opportunities for undergraduates or recent college graduates to gain career-related experiences or skills. Additionally, these learning experiences can improve trainees’ chances of future employment as they develop networks and connections. But, the widespread use of unpaid internships also raises legal and ethical questions, especially in the for-profit sector. Unpaid internships at non-profit organizations and government bodies also deserve attention, but these programs are not subject to the same rules as at for-profit, private businesses because interns can be considered “volunteering” their time.
The Obama administration had considered cracking down on illegal unpaid internships, which perhaps prompted the Department of Labor’s Wage and Hour Division (WHD) to release a memo that clarifies what constitutes a legal unpaid internship with a six-part test.
The internship, even though it includes actual operation of the facilities of the employer, is similar to training, which would be given in an educational environment;
The internship experience is for the benefit of the intern;
The intern does not displace regular employees, but works under close supervision of existing staff;
The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
The intern is not necessarily entitled to a job at the conclusion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Recently, over 3,000 former unpaid interns of the Hearst Corporation filed a class action lawsuit against the magazine business. The former interns argued they had been doing the work of paid employees and the “unpaid” classification was misused and illegal. The lines between a mutually beneficial learning experience and free labor have thus become increasingly blurred as more businesses have adopted unpaid internships in recent years. It appears likely that many other for-profit organizations either openly ignore the six-part test or bend the rules in order to avoid paying for work or any other benefits.
McKinsey and Company released a report this week that found 42 percent of recent college graduates are currently in jobs that do not require four-year degrees. This finding was comparable to those estimates of previous studies that I mentioned in this blog post. McKinsey surveyed more than 4,900 recent graduates (2009-2012) using the learning platform, Chegg. Almost 45 percent of graduates of public universities reported that their current job requires less than a four-year degree compared with only 34 percent of those from private universities.
Almost half of recent college graduates did not get jobs in their field of choice. The majority of these underemployed appear to work in the retail or restaurant industries. Among those working in the retail industry, 78 percent had desired to enter a different industry prior to graduating. Similarly, 81 percent of those graduates working in the restaurant industry had wanted to enter a different industry. This study once again showed that many of our recent graduates are currently underutilized.
It's always nice when other scholars reach conclusions similar to those in CEPR's work. For this reason it was good to see Brookings publish a paper by Stephanie Owen and Isabelle Sawhill questioning whether everyone benefits from going to college. The paper noted that there was a substantial overlap between the earnings distribution for people with just a high school degree and those with college degrees. Specifically, they pointed out that 14 percent of workers with just a high school degree earned more the median college graduate.
This is similar to the findings in a paper that CEPR published with the Center for American Progress two and a half years ago. That paper, by John Schmitt and Heather Boushey, called attention to the large dispersion in earnings among men at all education levels. As a result of this dispersion, almost 20 percent of male college graduates between the ages of 25-34 earned less that the average male with just a high school degree in 2009.
This could help to explain why there has been little increase in college enrollment rates among men over the last three decades in spite of a sharp increase in the college premium. The marginal college student (a person debating whether or not it makes sense for him to go to college) may think it is likely that he could end up in this 20 percent who earn less than the average high school grad. This means that he will have foregone the opportunity to work full-time for four years, and incurred considerable expenses associated with college, yet have little to show for it in terms of a higher paycheck. Given these facts, it is not surprising that many men who graduate high school opt not to go to college.
It's good to see that Brookings' researchers are finding a similar story. If we want to get more people to attend college it will be necessary to have either a surer payoff for those who complete their degree and/or lower costs for attending college. Given the current situation, for many men it probably does not pay to attend college.
New research from the Bureau of Labor Statistics highlights the increased access to employer-sponsored benefits for union workers. Across every type of benefits examined, union workers had more access to those benefits. For example, in 2011, 92 percent of union workers in the private sector received medical benefits compared to just 67 percent of those that were nonunion. The only exception was defined contribution retirement plans, but more union workers had access to retirement plans overall.
Much analysis of the economy is excessively swayed by one or two economic reports or short-term fluctuations that may be driven by random factors like the weather. This appears to be the case following the Labor Department’s release of the April jobs report last week. In a post for the Roosevelt Institute's Econobytes, economist Dean Baker, co-director of the Center for Economic and Policy Research, on why the April jobs report does not presage an economic boom:
The April jobs report showed somewhat faster than expected job growth for the month, along with upward revisions to the prior two months’ numbers, and a drop in the unemployment rate to 7.5 percent. This led many commentators to speculate that the recovery was accelerating and that perhaps the Federal Reserve Board should be pulling back from its quantitative easing program. A more careful assessment of the data does not support this view.
The Commerce Department released a report showing that durable goods orders had declined 4.0 percent in March from their February level.
Even pulling out the volatile transportation component, the drop was still 2.0 percent.
More narrowly, new orders for non-defense capital goods (excluding aircraft) rose 0.9 percent in March, but were still almost 4.0 percent below their January level. The March number is less than 0.2 percent above the year ago level suggesting that the equipment investment component of GDP is barely growing.
The data that the Commerce Department released on construction last week was not any better.
In spite of strong growth in residential construction, total construction spending fell 1.7 percent in March driven by a 4.1 percent falloff in spending by the public sector.
This sector will likely continue to show weakness as cutbacks at all levels of government, coupled with weakness in non-residential private construction, offset growth in the residential sector.
For young college graduates, high unemployment is certainly a primary concern, but beneath this is the issue of whether those who are employed are being used to their fullest capabilities. Many young graduates who cannot find suitable college-level jobs may opt to accept jobs that do not require college degrees. Two studies examining recent data found that the incidence of this “over-qualification” has risen for graduates of four-year programs in recent years, particularly since the end of the Great Recession. They find that approximately four-in- ten recent college graduates are working at jobs that don’t require a degree, a number similar to the findings of a recent Accenture survey.
Neeta Fogg and Paul Harrington of Drexel University studied the growing disconnect between college graduates and the labor market (2011). Without any standard measurement of defining workers as being “overqualified” for a particular job, Fogg and Harrington utilized the Department of Labor’s O*NET occupational-analysis information system in order to determine which jobs required four-year college degrees (college labor market or CLM). Concentrating on those between the ages of 20 and 24, Fogg and Harrington defined college graduates (Bachelor’s degree) as being “mal-employed”, or overqualified, if they were not in a CLM occupation. Analyzing cross-sections of three separate years (2000, 2007, 2011) of Current Population Survey data, Fogg and Harrington found that a greater share of young employed graduates turned to jobs for which they were overqualified (see table below for results). Note that these numbers represent the share of those employed, and therefore leave out all of those who are unemployed. As of 2011, over 39 percent of those sampled are employed in jobs that do not use their acquired skills and likely pay less than the average college-level job. We know that long unemployment stints can hurt job prospects and future earnings for workers. It appears that persistent over-qualification can have similar detrimental effects for one’s medium-term earnings (Kahn, 2010; Oreopoulos et al., 2012).
Similar to Fogg and Harrington, Grusky et al (2013) employed O*NET’s classifications to distinguish those occupations that typically require college degrees. Concentrating on 21-24 year olds, Grusky et al estimated job placements across three two-year periods (before recession, 2005-2007; during recession, 2007-2009; and after recession 2009-2011). Despite these subtle differences in sampling, the report’s numbers were very similar to those of Fogg and Harrington. Grusky et al also estimated the numbers for those with high school degrees and Associate’s degrees. Compared with either of these groups, college graduate lost more college-level jobs but the percentage losses were greater for high school and Associate’s graduates. In light of this comparison, Grusky et al suggested that college education had protected many graduates from the worst of the recession. However, having four-in-ten young college graduates overqualified for their jobs is a substantial waste of skill (not to mention the investments made by individuals and their families to acquiring said education).
Job prospects have deteriorated for recent college graduates. Besides facing high unemployment rates, young college graduates are now accepting more jobs that do not require college degrees. Not only do these stints of over-qualification affect the future earnings of these college graduates, they also make it more difficult for high school graduates to find employment as they face competition from higher-educated workers. Young workers certainly face an uphill battle as the economy continues to struggle.
 It is important to note that this definition overlooks those who are in a CLM occupation, but the position does not relate to their field of study, typically indicating some mismatch of skills.
Last month, Moody’s, one of the big three bond-rating agencies announced that it was changing the way that it will treat public pension liabilities. While there are several notable features to announced changes, two are especially important.
First, instead of accepting projections of pension fund returns based on the assets they hold, Moody’s will evaluate their liabilities using a risk-free discount rate.
The second major change is that it will evaluate pension assets at their current market value rather than using a formula to smooth volatile asset prices over a period of 3-5 years as is the current practice.
Together Moody’s changes in accounting will have the effect of making pension funds seem in considerably worse financial condition.
They could also lead pension fund managers to follow investment strategies that will provide far lower rates of return on assets. This would mean higher costs for taxpayers with little obvious benefit in reduced risk.
The practice of using a risk-free discount rate to assess liabilities is a departure from the current practice of effectively discounting liabilities using projected rates of returns on assets.
Most pension funds project rates of return on assets of between 7.0-8.0 percent. By contrast, the rate that Moody’s would apply at present would be around 4.5 percent.
This makes a huge difference in assessing liabilities. If a pension fund was obligated to make $1 billion in payments each year for the next thirty years its liabilities would be calculated at $16.5 billion using a 4.5 percent discount rate.
By comparison, they would be just $11.9 billion using a 7.5 percent discount rate. This is a difference of almost 40 percent.
Put another way, a pension that is fully funded using the 7.5 percent return assumption would be almost 30 percent underfunded using Moody’s new approach.
While the implication for an assessment of funding levels is clear, there are grounds for debating which method is appropriate.
Supporters of the Moody’s approach argue that it is appropriate to discount for the risk associated with pension returns, and especially stock returns.
However this argument is problematic since it is not clear that there is much risk for pension funds on projected returns when they are properly calculated.
The reason is that a pension fund, unlike individuals, does not need to be concerned about the stock market’s short-term fluctuations.
State and local governments do not have retirement dates where they have to start drawing on stock holdings. They need only concern themselves with long period averages, without worrying about short-term fluctuations.
This post originally appeared in Dissent Magazine. Colin Gordon is a professor and director of Undergraduate Studies, 20th Century U.S. History, at the University of Iowa.
What happened to the good jobs? This is the question posed by the walkouts of fast food workers in New York and Chicago in recent weeks. It is the question posed by activists in those corners of the economy—including restaurants and domestic work and guestwork—where the light of state and federal labor standards barely penetrates. And it is the question posed (albeit from a different set of expectations), by recent college graduates for whom low wages and dim prospects are the dreary norm.
There are no shortage of suspects for this sorry state of affairs. The stark decline of labor, now reaching less than 7 percent of the private sector, has dramatically undermined the bargaining power and real wages of workers. The erosion of the minimum wage, for which meager increases have been overmatched by inflationary losses, has left the labor market without a stable floor. And an increasingly expansive financial sector has displaced real wages and salaries with speculatory rent-seeking.
New work by John Schmitt and Janelle Jones at the Center for Economic and Policy Research recasts this question, posing it not as a causal riddle but as a political challenge: What would it take to get good jobs back?
Schmitt and Jones start with a basic distinction between good jobs (those that pay $19.00/hr or better and offer both job-based health coverage and some retirement coverage) and bad jobs (those that meet none of these criteria). Each of these categories accounts for about a quarter of the workforce (the rest fall somewhere in between), with the share of good jobs slipping since 1979 and the share of bad jobs creeping up. The goal, by simulating the impact of different policy interventions, is to increase the share of good jobs and to eliminate—as much as possible—the bad jobs entirely.
CEPR’s Director Watch fundraising campaign on Indiegogo ends on Friday, May 3 at noon. Thanks to everyone who has donated so far! We’re close to raising our goal…we need only $4,586 to make our initial $17,000 goal.
For those of you who haven’t heard, The Huffington Post has agreed to partner with CEPR to host a new website called Director Watch. Director Watch will bring to light the names of people serving on corporate boards who get large paychecks even as the companies they oversee are going down the tubes.
Here’s a graph showing just why we need Director Watch:
We’re so close! Please click here and help us to get Director Watch up and running.
The following highlights CEPR's latest research, publications, events and much more.
CEPR on Venezuela CEPR closely followed the April 14, 2013, elections in Venezuela, live-blogging the election and the follow-up, as well as providing research and analysis both before and after election day.
CEPR Co-director Mark Weisbrot released this press release on the narrow victory of Nicolás Maduro over Henrique Capriles, and he wrote several op-eds calling on the U.S. to recognize the election results. As Mark pointed out, former U.S. president Jimmy Carter last year called Venezuela’s electoral system “the best in the world”. “President Obama should not play politics with this one” he wrote, noting that Venezuela’s voting system is very secure, with 54.3 percent of the machines subject to a random paper ballot audit by the National Electoral Council (on which the opposition is represented)”.
Mark offered further post-election analysis of the U.S.’s refusal to recognize the results of election, here in The Guardian and here in Folha de São Paulo (Brazil). “Recent events indicate that the Obama administration has stepped up its strategy of ‘regime change’ against the left-of-center governments in Latin America, promoting conflict in ways not seen since the military coup that Washington supported in Venezuela in 2002” wrote Mark.
In addition to offering pre- and post-election live blogging – which brought a record number of visitors to CEPR’s website, and was widely discussed on Twitter – CEPR’s Americas Blog provided additional analyses and reactions to the election. Guest blogger George Ciccariello-Maher wrote this post debunking myths circulating about so-called ‘civil society’ in Venezuela. CEPR research Assistant Stephan Lefebre wrote this post on former president of Brazil Lula da Silva’s warm and unequivocal endorsement of Nicolás Maduro prior to the election. Mark and International Communications Director Dan Beeton each weighed in with analysis of the opposition’s refusal to recognize the results – supported by Washington – and related post-election violence.
The Americas Blog’s most recent entry offers astatistical analysis that shows that if Venezuelan opposition claims that Nicolás Maduro's victory was obtained by fraud were true, it is practically impossible to have obtained the result that was found in an audit of 53% of electronic voting machines that took place on the evening of Venezuela’s April 14 elections. The post is a preview of a forthcoming paper and was also the subject of a press release last week that received notice in Latin America and was picked up by numerous outlets including Telesur, as well as the Dow Jones Newswire.
The worldwide debate over fiscal policy and austerity was turned upside down last week by a paper co-authored by a University of Massachusetts grad student Thomas Herndon and two professors, Michael Ash and Robert Pollin (HAP). The paper uncovered serious calculation in errors in an important paper by Harvard professors Carmen Reinhart and Ken Rogoff (R&R).
The Reinhart and Rogoff paper, “Growth in a Time of Debt,” has been widely cited in policy debates in the United States and around the world as providing the basis for cutting deficits even at a time when the economy is suffering from large amounts of unemployment and interest rates are extraordinarily low. Ordinarily economists would argue that these are exactly the circumstances in which governments should undertake aggressive stimulus measures. Government spending can both boost growth and increase employment in the short-run, and also lead to long-run benefits insofar as the stimulus takes the form of investment in infrastructure, research and development, and education.
The Reinhart and Rogoff paper was used to argue against increased spending because it purports to show that high ratios of debt-to-GDP lead to large falloffs in growth. The implication of the paper is that the United States and other wealthy countries are at debt levels near a tipping point where further increments of debt can lead to decades of slow growth.
The moral of the Reinhart and Rogoff analysis is that we have no choice but to live with the pain of high unemployment and slow growth now, since the eventual cost in terms of a prolonged period of slow growth and high unemployment would be so awful. This is the sort of reasoning behind the austerity plans that are leading to double-digit unemployment across Europe and slow growth and high unemployment in the United States.
The paper by HAP was a body blow to the intellectual foundations for these policies. When corrected, the R&R analysis provides no basis for the concerns about a high debt cliff that they had been pushing for the last three and half years.
The renewed interest in breaking up too-big-to-fail (TBTF) banks may remind people about the extraordinary influence that banks and financial institutions hold over our economy. The financial industry has experienced substantial growth over the last few decades. The financial sector’s share of corporate output (gross value added less Fed profits) has grown rather steadily from 5.7 percent in 1960 to 14.1 percent in 2006 (see Graph 1). Yet, the financial sector’s share of total corporate profits (net operating surplus less Fed profits) soared from slight losses to 22 percent (corresponds to an increase of $142 billion in 2006) in the same timeframe. This increase in finance’s share of profits far exceeded its gain in the share of corporate production. In the years leading up to the financial collapse (2001-2006), the financial industry enjoyed profits that were hugely disproportionate to their share of output. The disparity between the share of profits and production peaked in 2003 at a difference of 8.3 percentage points. The financial sector’s share of total corporate business profits has been very erratic over the last few decades with a general upward trend, contrasting to a more gradual increase for its share of output. It is important to remember that the high pay and bonuses of top executives and traders, which can run into the millions or tens of millions a year, do not count as profits.
Graph 1 (Click for a larger version)
The growth in the size of the financial industry provides an interesting juxtaposition to the growing inequality over the last few decades. Between 1970 and 2006, the bottom 40 percent of households’ share of aggregate income fell by almost 3 percentage points while the shares of the top 20 percent and 5 percent rose 7 and 6 percentage points, respectively. Many of the highest incomes were earned in the financial sector. (The pay of top executives and traders are counted as wages rather than profits in the National Income Accounts.)
When toxic assets threatened the operations of those prominent banks and financial institutions, bailout funds provided them liquidity. The total amount lent at below market interest rates was well over $10 trillion; although most of the loans were relatively short-term. These subsidized loans enabled the financial sector to return to its pre-recession profit levels by 2009. In contrast, American households are still recovering from income shocks, unemployment stints and wealth shocks.
The Carmen Reinhart and Ken Rogoff (R&R) paper purported to show that countries with debt-to-GDP ratios above 90 percent see sharply slower growth rates, and has been widely cited in policy discussions in the United States and Europe and used as a rationale for a near-term focus on deficit reduction. Politicians and policy analysts relied on the results of this paper to insist on spending cuts and tax increases even in economies that are operating at levels of output far below full employment. Based on R&R’s findings, they argued that it was important to keep debt levels from crossing the 90 percent threshold.
This debate is important because the threat to growth from high debt levels was one of the main arguments against the aggressive use of fiscal policy to boost growth. The work of HAP and UMass economist Arindrajit Dube has essentially undermined the basis for this argument. No one can still maintain that we have good evidence that debt levels of the size we could conceivably face in the near future would impair growth.
The new paper from HAP works off the original spreadsheet used by R&R and uncovers several important calculation errors.
The most important of these errors was excluding four years of relevant data from New Zealand. Correcting this mistake raised New Zealand’s average growth rate in high debt years from the -7.9 percent R&R reported to a positive 2.6 percent.
Because only 7 countries have crossed the 90 percent debt-to-GDP barrier highlighted by R&R, this change alone raises the growth rate among the high debt countries by 1.5 percentage points.
When this and other adjustments are made to R&R’s data, the sharp falloff in growth rates for countries with debt to GDP ratios above 90 percent disappears.
While the corrected growth rate is still lower for high debt countries, the difference is much smaller and nowhere close to being statistically significant.
Furthermore, the sharpest falloff in growth rates occurs at very low debt levels (less than 30 percent of GDP).
If the corrected results from R&R could be taken as a basis for policy, then the implication would be that countries should strive to have extremely low debt to GDP ratios, certainly well below the levels that the United States and other wealthy countries have generally sustained.
For those of you who haven’t heard, The Huffington Post has agreed to partner with CEPR to host a new website called Director Watch. Director Watch will bring to light the names of people serving on corporate boards who get large paychecks even as the companies they oversee are going down the tubes.
It will rely on crowdsourcing, meaning that people will submit information on directors who failed to effectively restrict CEO pay and ensure that the companies they oversaw were on sound footing, but nonetheless got rich in the process. The staff of Director Watch will verify the information and will post it on the Internet in a user-friendly and easily searchable format.
Because the site will be crowdsourced, we decided to use crowdfunding to raise the money needed to get Director Watch up and running (we need to hire staff to research the initial entries and to design the website). We have only 16 days left to raise over $13,000. Can you help?
We need to make our $17,000 goal in order to receive all of the funds donated so far. It’s a huge sum for us, but a drop in the bucket compared to the $96,000,000 salary that Oracle CEO Lawrence J. Ellison earned in 2012. That figure was twice as much as he earned in 2011…yes, he received a hefty raise even though Oracle’s stock dropped 22% in fiscal 2012. And $17,000 is about the same amount as Erskine Bowles pulled in for an hour or two of labor as a director at Morgan Stanley (which also lost value under his and the other board members watchful eyes.)
Tax Day has come and and gone and while people all over the country now know their taxable wages and their adjustable gross income last year, most people still have no clue where their taxes go. Many think half goes to foreign aid and the other half goes for welfare. The media deserve tons of blame for this. They insist on expressing spending amount in billions of dollars, amounts that are really, really scary and 100 percent uninformative.
No reporter can tell me with a straight face that when they say we are spending $20 billion on TANF, they have conveyed any information whatsoever to 95 percent of their audience (I'm thinking of NPR listeners and New York Times readers). People have no clue how large the budget is. You could add or subtract a zero to this number and it would mean the same thing to almost everyone who hears it.
It would be very simple and infinitely more informative to routinely express these numbers as a share of the total budget – for instance, TANF is about half of one percent of the budget -- but most reporters don't do this because it would violate the fraternity ritual of supplying very little actual information while sounding very, very serious. So instead, they use a manner of expression that provides zero information and then say they have done their job.
Taxes are actually very simple for most people. We could make them simpler by having the IRS calculate them and send the form for people to evaluate. If they accept it fine -- end of story. If they disagree, then they fill out the forms. Several European countries have been doing this for years. Our policy people aren't that much less competent than the folks in Europe. The reason we don't go this route here is that H&R Block and other tax preparers don't want to lose the business. It’s pathetic.
One of the best guilt trip tactics of the gang trying to cut Social Security and Medicare is to compare government spending on these programs, which primarily benefit the elderly, to government spending on children. By showing that the former is much higher than the latter, those of us old-timers or soon to be old-timers are supposed to feel guilty and willingly agree to surrender our Social Security and Medicare for the good of the children.
There are many serious problems with these sorts of calculations, but let’s play along for a while. If it’s interesting to compare what we spend on each senior to what we spend on each kid then it should also be interesting to compare what we spend on each rich person to each kid.
The basis for this comparison would be the amount of money that the government spends on the fastest growing entitlement: interest on the debt. This is projected to grow from $224 billion (1.4 percent of GDP in 2013) to $857 billion (3.3 percent of GDP in 2023). The main reason for this projected growth is not the larger debt burden. Rather the main reason is the Congressional Budget Office’s projection that as the economy recovers interest rates will rise substantially from the current near record low levels.
We can get a ballpark measure of how much of this interest will go to the rich by simply assuming that their share of the government debt is proportionate to the share of all wealth in the country. According to a recent paper by Ed Wolff, the richest one percent in the United States own 42 percent of non-housing wealth.
If we apply this number to interest paid on the debt, it means that 94.1 billion will be paid as interest to the wealthy in 2013. Dividing that by the 3.16 million people in the richest one percent gives us $29,800 per rich person. That compares to $12,300 per kid according to the Urban Institute.
New Mexico Republican Governor Susana Martinez signed legislation last week that overhauled the state's public pension system. This was a big deal because New Mexico had one of the largest funding gaps, relative to the size of the state's economy, of any state in the country. There was pressure from the right for big cutbacks or even the elimination of defined benefit pensions altogether.
As it turned out, the overhaul left the main structure of the pension system intact. This was the result of an effort by the public employee unions in the state to get out in front of the issue and push through a plan their members could accept before the right had the chance to jam through a more onerous version of "reform."
To be sure, the workers made substantial concessions. They agreed to lower end age limits for collecting pensions and longer service requirements. They will also be contributing more from their paychecks in the future to support the system. But people who have spent their careers working for the state will still be able to count on a decent retirement. Unfortunately this is becoming an all too rare story in the United States these days.
I'm happy to say that CEPR played a small role in this one. Some on the right, who wanted to derail the plan in favor of eliminating the DB pension altogether, argued that the 7.75 percent rate of return assumption used by New Mexico's plans was unrealistically high. They wanted to substitute a much lower rate of return based on high-grade bonds, which would have made the gap in funding seem impossibly large.
CEPR's work in this area proved very useful. I went to New Mexico and spoke with many of the leaders in the legislature and addressed the relevant committees of the state House and Senate. They were willing to move forward with the plan because they felt comfortable that the return assumptions applied to the plans were reasonable and derived from a realistic assessment of the future prospects of the economy and the stock market.
Hopefully other states with troubled plans (these are the exceptions) will be able to use New Mexico as a model.