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Medicare Cost Reductions: Is the Point to Save Money or Inflict Pain? Print
Written by Dean Baker   
Tuesday, 05 March 2013 10:38

Washington budget debates often contain a large element of the absurd. In 2000 there was a major debate among serious people over the year in which we should pay off the national debt (really). Today one of the central stumbling blocks to a budget deal appears to be President Obama's reluctance to make cuts to Medicare that would inflict serious pain on beneficiaries.

The fact that Medicare poses such a stumbling block is striking because we have already seen sharp declines in the projected cost of Medicare over the years in which President Obama and Congress have been fighting over the deficit. The Congressional Budget Office has lowered its projections for Medicare costs over the years 2013-2023 by $400 billion compared with what was projected back when Bowles-Simpson put together their initial budget proposal. That proposal called for a bit more than $300 billion in cuts to Medicare, less than the reductions in projected spending that we have already seen.

Furthermore, CBO has not reduced its projections by as much as cost growth has slowed in the last three years. In a new discussion piece in the Journal of the American Medical Association, Harvard economics professor David Cutler and researcher Nikhil Sahni argue that the trend for slower health care costs is likely to continue. They calculate that if CBO adjusts its projections in line with the slower cost growth that we have seen to date it would imply another $363 billion in savings through 2023.

This is not a reason not to seek further savings, for example by bringing Medicare payments for prescription drugs more in line with payments in other countries. However, it suggests that we have likely already exceeded the targets that even deficit hawks were setting for savings in Medicare.

This raises the obvious question, if we hit our targets for savings in Medicare, why is the Washington policy crew still insisting on further cuts to the program? This demand is coming not just from conservatives and Republicans, but from ostensibly centrist types who say that President Obama must make cuts to Medicare to show that he is serious about dealing with the deficit. It seems as though inflicting pain on low and middle income seniors has become an end in itself in elite Washington circles. As we can see, Washington budget debates often contain a large element of the absurd. 

 
CEPR News February 2013 Print
Written by Dawn Lobell   
Friday, 01 March 2013 13:45

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

CEPR on the Minimum Wage

President Obama's call for an increase in the minimum wage during his State of the Union address drew much attention from the media, providing CEPR with an opportunity to inform the debate. CEPR released a new paper that finds that moderate increases in the minimum wage – such as the one proposed by President Obama – have little impact on employment, due to adjustments by employers and workers. The paper, "Why Does the Minimum Wage Have No Discernible Effect on Employment?" by CEPR Senior Economist John Schmitt,reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. The strongest evidence suggests the most important adjustments are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases.

"This is one of the most studied topics in economics, and the evidence is clear: modest minimum wage increases don't have much impact on employment," said John.

Brad Plumer wrote a long summary of the report for Ezra Klein's Wonkblog, and it was mentioned on several other blogs from the National Journal to Jared Bernstein's blog (Jared called the report a "must read" in a subsequent post). Paul Krugman cited the paper in a post where he supported the proposed increase, and he linked to John’s paper in the online version of his New York Timescolumn. Rachel Maddow highlighted the report on her MSNBC show, and it was also mentioned in this piece on CBS News' Moneywatch. Newspapers across the country ran articles on the report, including the Orlando Sentinel and the Minnesota Daily.

John gave several radio interviews about the paper, including this one for WNUR's This is Helland this one for KBAI's The Joe Show. The paper also served as the basis for John's testimony on February 25th before a Select Committee of the Minnesota state legislature and his remarks at a separate public event on the minimum wage sponsored by JOBS NOW Coalition at the University of Minnesota. John also penned this post for the CEPR Blog responding to an ad in Politico by the conservative Employment Policies Institute claiming that the minimum wage harms low-wage workers, as well as this post on his Dissent article with Colin Gordon on benchmarking the minimum wage

CEPR Co-director Dean Baker weighed in with this piece for the Huffington Post, and he was mentioned in this highly-viewed piece on Yahoo!Finance. Dean also wrote this post for the CEPR Blog, where he and co-author CEPR Domestic Intern Will Kimball showed what the minimum wage would be if it had kept up with productivity growth over the past 44 years. CEPR Senior Research Associate Shawn Fremstad wrote thesetwo CEPR blog posts on the issue.

Read more...

 

 
The Bipartisan Policy Center Endorses a Bi-Partisan Failure Print
Written by Dean Baker   
Friday, 01 March 2013 09:30

The Bipartisan Policy Center's Housing Commission released its report, Housing America's Future, on housing policy this week. Its recommendations include winding down Fannie Mae and Freddie Mac, and limiting federal government involvement in mortgages to a "Public Guarantor." In a post originally published by the National Housing Institute. Dean Baker responded.

There is a good argument for having a public company like the old Fannie Mae sustain a secondary market in mortgages. Fannie Mae created this market in the 1930s. It was able to substantially reduce regional differences in mortgage costs and availability, with minimal operating expenses. This publicly-run company was a success by any reasonable measure.

We also know that the private market can provide housing finance without any direct support from the government. This is demonstrated by jumbo mortgages, which typically carried a premium of 25-50 basis points above conformable mortgages.

Given these successful routes for providing housing finance, the Bipartisan Policy Center took the natural path for people in Washington: a proven failure.

Instead of opting for either a public company or companies to sustain the secondary market or leaving finance to the private sector, the Bipartisan Policy Center opted for the sort of public-private mix that we saw with Fannie Mae and Freddie Mac in the years leading up to the housing crash. They want the government to guarantee investors’ stakes in mortgage backed securities.

Read more...

 

 
The Family and Medical Leave Act at 20: A Record of Success, But More Can Be Done Print
Written by CEPR   
Thursday, 28 February 2013 13:45

The federal Family and Medical Leave Act (FMLA) celebrated its 20th anniversary this month. It was a huge step forward for the U.S., which lags behind nearly all other high-income countries in enabling people to take the time they need, without worrying that they may be fired from their jobs, to care for themselves and their families when faced with serious illness or welcoming a new child.

The FMLA has been used 100 million times in the last 20 years, benefiting families and without unduly burdening employers. Yet there remain millions of Americans who are not covered by the FMLA – they can still be fired if they get sick, have a baby, or need to care for a seriously ill family member. And millions more are eligible but do not take the time off because they do not know they are eligible or can’t afford to go without pay.

Department of Labor surveys of experiences with the FMLA, released earlier this month, find ways to improve the effectiveness and increase the coverage of family and medical leave for American families. CEPR senior economist Eileen Appelbaum recently wrote a series of blog posts to review these findings of the FMLA surveys and draw lessons about what to do next.

Read more...

 

 
Benchmarking the Minimum Wage Print
Written by Colin Gordon and John Schmitt   
Thursday, 28 February 2013 12:10

In his State of the Union address, President Obama heartened many progressives with a call for raising the minimum wage to $9.00 (from its current $7.25), and then pegging its value to increases in the cost of living. This would be a bold move, and it raises an important question: What should the minimum wage be? What is the appropriate floor for the labor market?

Every legislative battle over the minimum wage has been marked by grave concerns about interfering with markets or freedom of contract, and by dire predictions that each increase would drive businesses into bankruptcy and workers into the soup lines. In the absence of a professional wage commission (common in other countries, including the United Kingdom), every increase had to run the gauntlet of Congress. As a result, the American minimum wage hits a lower target, and covers a smaller share of its workforce, than those in most of its peer countries. Of the subset of thirteen rich OECD democracies with comparable data, all but two (Spain and Portugal) have higher minimum-wage rates (calculated at either the exchange rate or the purchasing power parity of the U.S. dollar) than the United States. On the ratio of minimum-wage rates to the median earnings of full-time workers in each country, the United States ranks dead last.

Read the entire article at Dissent.

 
Temporary Assistance for Families Should Empower Working-Class Parents Not Serve as a Slush Fund for States Print
Written by Shawn Fremstad   
Thursday, 28 February 2013 09:55

A House subcommittee is holding a hearing today to review guidance, issued by HHS last summer, on a federal statute that allows states to test “innovative strategies … that are designed to improve employment outcomes.” The guidance made clear that under this longstanding law the federal government can approve state requests to test whether Temporary Assistance programs that use new types of outcome-based performance measures are more effective than programs that use the old-school activity-rate measures.

Why is the House holding a hearing on such a mundane matter? Apparently, many conservatives today believe that outcome-based performance measures are anti-work, while activity-rate measures are pro-work. Go figure.

The real problem with Temporary Assistance is its failure to provide millions of striving, low-income parents with the support and tools they need to provide for their families while securing a job, getting needed skills and education, and weathering setbacks.

Even conservatives sometimes acknowledge that Temporary Assistance should be helping low-income parents in this way. In fact, in the notice for the hearing, Chairman Dave Reichet (R-WA) tells us that “Americans consistently believe welfare should … empower able-bodied [low-income parents] with the tools to secure a job, lift oneself out of poverty, and provide for one’s family.”

What conservatives seem unable to acknowledge (and this goes for plenty of Clinton-style moderates also), is that Temporary Assistance isn’t actually doing what the public thinks it should be doing.

Read more...

 

 
The Family and Medical Leave Act at 20, Part 4 Print
Written by Eileen Appelbaum   
Wednesday, 27 February 2013 09:45

The first three entries in this series examined the need for better outreach, education and enforcement to ensure that all workers eligible for a job-protected leave under the Family and Medical Leave Act know about and have access to such leaves. The second entry showed that extending the FMLA to cover work sites with fewer than 50 workers would not be a heavy lift for smaller businesses, many of which already provide at least some types of FMLA leave. Expanding the coverage of the FMLA to smaller businesses would level the playing field for these good employers. Part 3 of the series documented the unequal access of workers to employer-provided pay during FMLA leaves, mostly cobbled together from paid time off, paid sick days, and paid vacation benefits that are far less available to worker in low-paid and low-status jobs. A paid leave insurance program similar to those in California and New Jersey would narrow the gap in access to pay during a family or medical leave between workers in high-paid and low-paid jobs and help reduce inequality without burdening employers.

In this final entry in the series, we examine the experiences of employers with the FMLA.

Family and Medical Leave – A Non-Event for Employers

For a decade before the FMLA was finally signed into law, business lobbyists opposed its passage on the grounds that it would impose a burden on employers and would lead to fraudulent claims and abuse by workers. Now that employers have had 20 years' experience with the Act, it is clear that these fears were unwarranted.

The 2012 Employer survey asked employers what effect complying with the FMLA had at their work site on employee productivity, absenteeism, turnover, career advancement and morale, as well as the business' profitability. More than 9 out of 10 (91.2 percent) of employers at covered work sites with 50 employees in a 75 mile radius reported either no noticeable effect (53.8 percent) or a positive effect (37.4 percent). Intermittent leaves – periodic leaves for chemotherapy treatments or to recover from a disabling migraine head ache – were a special concern of employers who felt that they would be especially detrimental to business operations and would be vulnerable to abuse by employees. Neither of these fears has materialized. Just 3.1 percent of employers at covered work sites report moderate or large negative effects on productivity at their work site, and 1.6 percent report moderate or large negative effects on profitability.

Read more...

 

 
Studying the Studies on the Minimum Wage Print
Written by John Schmitt   
Tuesday, 26 February 2013 16:45

In a full page ad in today's Politico, the conservative Employment Policies Institute (not to be confused with the progressive Economic Policy Institute) claims that “85 percent of the most credible economic research from the last 20 years” demonstrates that the minimum wage “reduces opportunities for the least-skilled jobseekers.” In making that claim, the Employment Policies Institute cites research published by economists David Neumark and William Wascher in 2007.

The problem here is that Neumark and Wascher make a decidedly subjective selection of studies to draw their conclusion. We actually have objective evaluations of the full body of recent minimum wage research and these point strongly in the direction of no significant effects on employment.

In their analysis,* Neumark and Wascher reviewed 102 studies of the minimum wage, 33 of which they declared “credible.” Of the 102 studies examined, only 53, however, used data for the United States, which would seem to be an important criteria for evaluating the employment impact here. Of these 53 U.S. studies, 19 earned the rating of "credible" from Neumark and Wascher. But, fully five of these 19 — more than one-fourth — were ones that Neumark and Wascher had conducted themselves. This raises real questions about the objectivity of Neumark and Wascher's evaluations.

Read more...

 

 
The Family and Medical Leave Act at 20, Part 3 Print
Written by Eileen Appelbaum   
Monday, 25 February 2013 09:30

In Part 1 of this series we saw that two decades after passage of the FMLA, about a third of all workers (34 percent) still have not heard about the Act. More surprising, perhaps, is the finding that a significant share of employers who are covered by the FMLA do not comply with all of its provisions. Nearly a quarter of work sites subject to the FMLA, employing nearly a tenth of all workers (9 percent), do not know that the FMLA applies to them.  Twenty percent of work sites covered by the FMLA do not permit employees to take leave for one or more FMLA qualifying reasons for leave. Nearly a third of workers are employed at these work sites.  A greater emphasis on outreach, education and enforcement can increase the number of employees able to take a family or medical leave.

In Part 2, we saw that 20 years of experience with the FMLA has created the beginnings of a culture change among employers. Many businesses that are too small to be covered by the FMLA either believe that they are covered and offer leaves for FMLA-qualified reasons to their employees or, even knowing they are not required to do so, allow workers to take leave for many of the FMLA-qualified reasons.

FMLA leaves are unpaid, creating undue hardship for many families when leave is necessary. This blog examines what we can learn from the employer and employee surveys about paid family and medical leave.

Family and Medical Leave Insurance

The U.S. is the only high-income country without a national program of paid family and medical leave. Out of 178 nations, it is one of only three that has no national program of paid maternity leave; the other two are Papua New Guinea and Swaziland. Some employers provide pay to workers who take a family or medical leave by letting them draw on paid sick days, paid vacation or other paid time off, or via short or long-term disability insurance. Other research has shown that it is mainly professional and managerial employees that have access to these employer-provided benefits. While paid sick days and paid vacations are basic employment standards that employers should provide for all employees, this is not the case for the more extended family and medical leaves. Paid family and medical leaves are best handled through a family leave insurance program.  

Read more...

 

 
Labor Market Policy Research Reports, February 9 – 22, 2013 Print
Written by Will Kimball   
Friday, 22 February 2013 16:21

Here is a collection of the latest labor market policy research reports from the past few weeks:


Center for American Progress

An Executive Order to Prevent Discrimination Against LGBT Workers
Lee Badgett, Crosby Burns, Nan D. Hunter, Jeff Krehely, Christy Mallory, and Brad Sears


Center for Economic and Policy Research

Why Does the Minimum Wage Have No Discernible Effect on Employment?
John Schmitt


Center for Law and Social Policy

A Framework for Measuring Career Pathways Innovation

The Alliance for Quality Career Pathways Approach: Developing Criteria and Metrics for Quality Career Pathways


Center on Budget and Policy Priorities

Cutting State Personal Income Taxes Won’t Help Small Businesses Create Jobs and May Harm State Economies
Michael Mazerov

Testimony of Chad Stone, Chief Economist, on Unintended Consequences: Is Government Effectively Addressing the Unemployment Crisis?
Chad Stone


Economic Policy Institute

Declining Value of the Federal Minimum Wage Is a Major Factor Driving Inequality
Lawrence Mishel


Institute for Women’s Policy Research

Increasing Pathways to Legal Status for Immigrant In-Home Care Workers
Cynthia Hess and Jane Henrici

Improving Career Opportunities for Immigrant Women In-Home Care Workers
Jane Henrici

Valuing Good Health in Maryland: The Costs and Benefits of Earned Sick Days
Claudia Williams

 
The Family and Medical Leave Act at 20, Part 2 Print
Written by Eileen Appelbaum   
Friday, 22 February 2013 09:20

In Part 1 of this series we saw that two decades after passage of the FMLA, about a third of all workers (34 percent) still have not heard about the Act. More surprising, perhaps, is the finding that a significant share of employers who are covered by the FMLA do not comply with all of its provisions. Nearly a quarter of work sites subject to the FMLA, employing nearly a tenth of all workers (9 percent), do not know that the FMLA applies to them.  Twenty percent of work sites covered by the FMLA do not permit employees to take leave for one or more FMLA qualifying reasons for leave. Nearly a third of workers are employed at these work sites.  A greater emphasis on outreach, education and enforcement can increase the number of employees able to take a family or medical leave.

Expanding Coverage of the FMLA

In this blog post, we examine what the DOL surveys tell us about the possibilities for expanding coverage of the FMLA. Just a tenth (9.7 percent) of work sites employ 50 or more workers and thus are covered by the FMLA; although 16.6 percent self-report that the FMLA applies to them. Since the FMLA applies to larger businesses, the 10 percent of employers actually covered by the Act employ almost three-quarters (73.6 percent) of employees.

Not all workers at a covered business are eligible for leave under the FMLA. To be eligible, a worker must not only be employed at a covered work site, but must have worked for that employer for 12 months (not necessarily consecutively) and must have logged at least 1,250 hours in the past 12 months.  Just under three-fifths (59.3 percent) of workers in the U.S. meet all of these criteria. According to the employee survey, 15.9 percent of eligible employees took an FMLA leave in the past 12 months; although just 3.1 percent were on leave at the time the survey was taken. Employers report that 9.8 percent of employees took a leave for an FMLA-qualified reason.

Read more...

 

 
Gender, Debt, and Dropping Out Print
Written by John Schmitt   
Thursday, 21 February 2013 14:44

The latest issue of the peer-reviewed academic journal, Gender and Society, has an excellent paper by Rachel Dwyer, Randy Hodson, and Laura McCloud on “Gender, Debt, and Dropping Out of College” (which is, unfortunately, behind a paywall).

The new paper finds strong evidence for one of the arguments that Heather Boushey and I made in a 2010 report for the Center for American Progress called: “The College Conundrum: Why the Benefits of a College Education May Not Be So Clear, Especially to Men” (pdf). We argued there that one reason why men may be falling behind women in college completion is that men have a lower tolerance for going into debt to finance their education. According to Dwyer, Hodson, and McCloud's research, once men hit a debt level of about $12,500, further increases in debt reduce their likelihood of completing college. For women, the estimated debt threshold is about $2,000 higher, meaning that women are more likely to hang on as the debt piles up.

One explanation the researchers offer for this finding is that --in the short run, at least-- men without a college degree face a much smaller wage penalty for not finishing college than young women do. The wage penalty increases for men and women later in their careers, but over a shorter time horizon, men can do much better than women without a degree, which may lead more men than women to drop out (or to skip college altogether).

Read more...

 

 
The Family and Medical Leave Act at 20, Part 1 Print
Written by Eileen Appelbaum   
Wednesday, 20 February 2013 11:44

The federal Family and Medical Leave Act, signed into law in 1993 by President Bill Clinton, was a huge step forward for the U.S., which lags behind nearly all other countries in establishing standards that enable people to take the time they need to care for themselves and their families. The FMLA makes it possible for eligible employees to have time to recover from their own serious illness or from child birth, to bond with a new child, or to care for a seriously ill spouse, parent or child without worrying that they may be fired from their jobs. It has been used 100 million times in the last 20 years with resounding benefits for families and without undue burdens on employers. Concerns about the FMLA raised by employers’ associations and business lobbyists have proven to be unwarranted.  

Yet, as we celebrate the accomplishments of the FMLA, we remain acutely aware of the millions of Americans who are not covered by the Act – who can still be fired if they get sick, have a baby, or need to care for a seriously ill child or family member: and of the millions more who are eligible but do not take the time they need because they do not know they are eligible for leave or can’t afford to go without pay. We can do better.

Department of Labor surveys of work site (employer) and employee experiences with the FMLA, released in early February on the Act’s 20th anniversary, tell us a lot about the directions in which we can go to improve the effectiveness and increase the coverage of family and medical leave for American families. This series of blog posts will review the findings of the FMLA surveys to draw lessons about what we can and should do next. 

We begin our series with a discussion of the need for education and enforcement so that people who are eligible can get a leave when they need it. Subsequent blog posts will examine what the surveys tell us about expanding coverage to small businesses, providing family leave insurance so that the leaves are paid, and the effects of the FMLA on businesses including small employers.

Read more...

 

 
Why Are Proponents of the Chained CPI So Scared of Data? Print
Written by Dean Baker   
Friday, 15 February 2013 14:58

Like the global warming deniers, proponents of basing the Social Security cost-of-living adjustment (COLA) on a chained CPI are scared to death of data. They are all anxious to assert that the chained CPI is a more accurate measure of the cost of living and therefore it should provide the basis for the COLA. However, they have no research on which to base this assertion.

There is research showing that the chained CPI is a better gage of the cost of living for the population as a whole. But we know seniors have substantially different consumption patterns than the population as a whole. They tend to consume more housing and health care and spend less on new cars, computers, and smart phones. The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index that shows seniors experience a higher rate of inflation than the population as a whole.

It also has conducted research on the size of the substitution bias that the chained CPI is supposed to eliminate. This research shows that the substitution bias differs by income group and for those receiving benefits like Supplemental Security Income and Temporary Assistance for Needy Families (TANF) it was essentially zero. This may well prove to be the case with the larger Social Security population as well. If the goal is to have a more accurate COLA for seniors then the remedy is simple; have the BLS construct a full elderly CPI and see what it shows.

While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn't raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.

For those who find it more politically practical to take money from moderate income seniors than high income taxpayers (for example as a mechanism for funding pre-K education) switching the basis for the COLA to the chained CPI can serve a very useful purpose. But let's be very clear, this is just about cutting Social Security benefits. The chained CPI has nothing to do with accuracy.

 
Tax Credit Expansions Don't Make Up for the Lower Minimum Wage Increase Proposed by President Obama Print
Written by Shawn Fremstad   
Friday, 15 February 2013 10:15

The $9 minimum wage proposed in the SOTU is less than the $9.50 that Obama proposed during his first campaign. For a full-time worker, that's about $1,000 less per year. And, as Tim Noah has noted, if adjusted for inflation, that proposed minimum would be around $10 (or $2,000 less) today.

In response to questions about the difference, the White House makes this argument:  "Obama was able to secure refundable tax credits that are worth 75 cents an hour for someone with two children who works full-time, [NEC Deputy Director Jason] Furman said, 'so if you think of that extra money together with the extra money from this minimum wage increase, the two of those together would first of all exceed the minimum wage number he called for on the campaign.'"

Hmm, no.

The problem here is that in his 2008 campaign, President Obama proposed not only a $9.50 minimum, but also a more extensive set of refundable tax credits than the ones now in place. The tax credits the President proposed in 2008 that have not been adopted include:

  1. a refundable Making Work Pay Tax Credit, which as originally proposed would have equaled 6.2 percent of earnings up to $500 per worker (a $400 per worker MWP was in place for 2009-2010);
  2. making the Child and Dependent Care Tax Credit refundable and equal to 50 percent of child care expenses less than $6,000;
  3. a refundable "Universal Mortgage Credit" equal to 10 percent of mortgage interest for nonitemizers up to $800;
  4. more than doubling the currently very small EITC for childless workers (under the maximum credit for childless workers would have increased from $452 in 2009 to $1,110 in 2012);
  5. making the Saver's Credit refundable and changing it to a 50 percent match of the first $1,000 in savings; and
  6. a refundable American Opportunity Tax Credit equal to 100% of the first $4,000 of college expenses (as extended in the fiscal cliff deal, this credit is capped at $2,500).
Read more...

 

 
Raising Minimum Wage to $9 Not Enough to Ensure that Families with Fulltime Workers Live Above Poverty Line Print
Written by Shawn Fremstad   
Thursday, 14 February 2013 14:15

According to the White House, the President’s proposal to increase the minimum wage to $9 an hour by the end of 2015 will ensure that “no one who works fulltime should have to raise their family in poverty.”

But is a $9 minimum wage sufficient to meet this goal? Not necessarily, even if we use the antiquated official poverty threshold, and especially not if we use a modern threshold that comes a little bit closer to what families need to make ends meet at a basic level in today's economy.

First, let’s look at where $9 an hour gets a family of four using the antiquated official threshold. Using the same assumptions as the White House, a family of four supported by a full-time worker earning $9 an hour would have gross earnings of $18,018 in 2015. This would put them about $6,600 below the projected 2015 poverty line of $24,635. (To get the projected poverty line, I adjust the Census official poverty threshold using CBO’s most recent inflation projections.)

If we subtract payroll taxes and add in the Earned Income Tax Credit and Child Tax Credit, their net income would come to $24,501—99 percent of the official poverty line (here, again, I adjust the value of the EITC and CTC, which are indexed to inflation, using CBO’s projection). This calculation is favorable to the Administration because it assumes that the $9 minimum will be in place for all of 2015 (the White House fact sheet says only that it will be in place by “end of 2015”).

Read more...

 

 
Nearly 1.4 Million Workers Have Below-Poverty Incomes; Most of Them Have Education Beyond High School Print
Written by Shawn Fremstad   
Wednesday, 13 February 2013 14:25

In his State of the Union address, President Obama reminded us that "there are millions of Americans whose hard work and dedication have not yet been rewarded… for more than a decade, wages and incomes have barely budged… We know our economy is stronger when we reward an honest day’s work with honest wages." The table below provides a perspective on this trend. It shows the increase between 2007 and 2011 in the number of workers (ages 25-64) below the federal poverty line, and breaks the numbers down by educational attainment.

workers-below-pov-line-2013

As the table shows, there were nearly 1.4 million more workers with below-poverty incomes in 2011 than in 2007, and the worker poverty rate increased from 4.9% to 6.2%. Pundits typically frame poverty as being due to low educational attainment (when they're not ascribing it to bad parenting practices), but the table shows how narrow-minded this is. Yes, poverty rates are higher among workers without a high school diploma, but the vast majority of workers below the poverty line (72% in 2011) have a high school diploma or higher, and more than one in three today have a BA degree or some college. As I've noted previously, Americans living below the poverty line today are better educated than e ver, a trend that appears to have continued over the last several years.

One caveat here is that the federal poverty line (a laughable $18,500 for family of three) hasn't been updated for changes in mainstream living standards since the Beatles' first American tour. As a result, the table substantially undercounts the number/percentage of American workers who don't have sufficient incomes to make ends meet.

 
The Minimum Wage and Economic Growth Print
Written by Dean Baker and Will Kimball   
Tuesday, 12 February 2013 22:26

In his State of the Union address to Congress President Obama called for a higher minimum wage. The purchasing power of the minimum wage peaked in the late 1960s at $9.22 an hour in 2012 dollars. That is almost two dollars above the current level of $7.25 an hour. Most of the efforts to raise the minimum wage focus on restoring its purchasing power to its late 1960s level, setting a target of around $10 an hour for 2015 or 2016, when inflation will have brought this sum closer to its previous peak in 2012 dollars.

While this increase would lead to a large improvement in living standards for millions of workers who are currently paid at or near the minimum wage, it is worth asking a slightly different question. Suppose the minimum wage had kept in step with productivity growth over the last 44 years. In other words, rather than just keeping purchasing power constant at the 1969 level, suppose that our lowest paid workers shared evenly in the economic growth over the intervening years.

This should not seem like a far-fetched idea. In the years from 1947 to 1969 the minimum wage actually did keep pace with productivity growth. (This is probably also true for the decade from when the federal minimum wage was first established in 1937 to 1947, but we don’t have good data on productivity for this period.)

As the graph below shows, the minimum wage generally was increased in step with productivity over these years. This led to 170 percent increase in the real value of the minimum wage over the years from 1948 to 1968. If this pattern of wage increases for those at the bottom was supposed to stifle growth, the economy didn’t get the message. Growth averaged 4.0 percent annually from 1947 to 1969 and the unemployment rate for the year 1969 averaged less than 4.0 percent.

baker-2013-02-12

This link between productivity and the minimum wage ended with the 1970s. During that decade the minimum wage roughly kept pace with inflation, meaning that its purchasing power changed little over the course of the decade. The real value of the minimum then fell sharply in the 1980s as we went most of the decade without any increase in the nominal value of the wage, allowing it to be eroded by inflation. Since the early 1990s the real value of the minimum wage has roughly stayed constant, which means that it has further fallen behind productivity growth.

How was it decided to break the link between productivity growth and the minimum wage? It is not as though we had a major national debate and it was decided that low-wage workers did not deserve to share in the benefits of economic growth. This was a major policy shift that was put in place with little, if any, public debate.

If the minimum wage had kept pace with productivity growth it would be $16.54 in 2012 dollars. It is important to note that this is a very conservative measure of productivity growth. Rather than taking the conventional data published by the Bureau of Labor Statistics for the non-farm business sector, it uses the broader measure for economy-wide productivity.[1] This lowers average growth by 0.2-0.3 percentage points.

This measure also includes an adjustment for net rather than gross output. It also uses a CPI deflator rather than a GDP deflator, which further lowers the measure of productivity growth.[2] Even with making these adjustments the $16.54 minimum wage would exceed the hourly wage of more than 40 percent of men and more than 50 percent of women . We would have a very different society if all workers were earning a wage above this productivity linked minimum wage.



[1] If we just used non-farm productivity as the basis for indexing the minimum wage, the most commonly used measure of productivity, the minimum wage would have been $21.75 in 2012 [http://www.cepr.net/index.php/blogs/cepr-blog/new-cepr-issue-brief-shows-minimum-wage-has-room-to-grow].

[2] These adjustments are explained in Baker, 2007. For the years since 2006 we assumed that the difference in the growth rate of non-farm productivity and the growth of this adjusted measure is the same as it was on average for the years 2000-2006.

 
The Productivity Dividend for Dummies: Raising Pay While Working Less Print
Written by David Rosnick   
Tuesday, 12 February 2013 14:15

I am greatly pleased to see such interest in CEPR’s recent report on work hours and climate change.  All evidence points to the idea that gradually reducing annual labor hours per worker will reduce the amount of climate change with which the world will have to cope.  But this does not mean that ordinary workers will have to make a sacrifice.  Rather, this is about how workers may choose to enjoy the fruits of increased productivity—if only they are given the chance to share fully in economic progress.

Throughout the 1950s, workers in the United States enjoyed fewer hours of labor than almost every country in Western Europe.  On average, an employed American worked 1,909 hours in 1950.  Only Sweden—at 1,871 hours—worked less.  By contrast, Greeks averaged 2,712 hours that year; the Irish put in 2,753.

Today, workers in Greece are second only to Poland for the longest working hours in all Europe and labored 330 hours longer in 2012 than their American counterparts.  However, productivities of these countries have climbed dramatically since 1950 as hours have fallen.  In each hour of work in 2012, each American produced 3.2 times as much as in 1950.  This allowed workers to build 2.9 times as much in each year— and do so in 200 fewer hours than in 1950.  In this way, American workers labored a bit less and still prospered materially.

These same Americans might have enjoyed a little more time off and still produced far more than did workers in 1950.  Over those same 62 years, the average French work-year fell by 684 hours and still workers produce 4.7 times as much in a year.

Of course, this broad prosperity of increased consumption and less labor is much less true for ordinary Americans.  According to the Bureau of Labor Statistics, the real hourly wage for nonsupervisory and production workers rose only 6.5 percent between 1972 and 2012—less than 0.16 percent per year.

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What's Missing from the Kristof-Greenstein Dialogue on Poverty: Jobs and the Economy Print
Written by Shawn Fremstad   
Tuesday, 12 February 2013 12:43

In a recent column to bolster his claim that means-tested programs have only addressed "the symptoms of poverty, not causes", Nick Kristof notes that "the proportion of Americans living beneath the poverty line, 15 percent, is higher than in the late 1960s in the Johnson administration." 

Kristof then goes on to locate the causes of poverty, not in our failure to ensure that wages kept pace with productivity growth over the last several decades, but instead in "a difference in parenting strategies." According to Kristof, the real problem isn't what poverty-expert Sheldon Danziger has described as "the turn to an unequal economy after the 1970s," it's that "working-class families often take a more hands-off attitude to child-raising." 

Conservatives used to think Murphy Brown's childrearing was the problem; Kristof now tells us it's really Roseanne and Dan's parenting that we need to be worried about. 

In a response, CBPP's Bob Greenstein mostly steers clear of parenting practices, and instead takes on Kristof's disparaging of means-tested programs. Greenstein notes that the official poverty measure doesn't count the Earned Income Tax Credit and in-kind nutritional assistance. Although he doesn't say it directly, his implication seems to be that the "real" poverty rate today is much lower than the official Census number of 15 percent. 

It's certainly right to say that millions of children are better off today because of Medicaid, the Earned Income Tax Credit, nutrition assistance, and various other means-tested components of our welfare state. These investments address both the symptoms and the causes of poverty. They also help stabilize the economy during downturns, a function that has broad economic and social benefits. We're a richer nation today as a consequence. 

Still, we have to acknowledge that the poverty rate today isn't lower than it was in the late 1960s. Yes, the official poverty rate (15.1 percent in 2011) doesn't count important benefits, which biases the rate upward. But the official measure also relies on an archaic poverty line that hasn't been updated (except for inflation) for four decades and doesn't take into account the way that broad public consensus about basic needs has evolved since then. This biases the rate downward.  At best, the differences cancel each other out. 

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