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Young College Graduates: Overqualified Print
Written by Will Kimball   
Tuesday, 07 May 2013 15:10

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)[1]. 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).

cepr-blog-2013-06-07 490pix

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.

[1] 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.

The Financial Health of Public Pensions Print
Written by Dean Baker   
Friday, 03 May 2013 10:45

In a post for the Roosevelt Institute's Econobytes, Dean Baker, co-director of the Center for Economic and Policy Research, on the state of public pensions:

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.


The Politics of Good Jobs Print
Written by Colin Gordon   
Thursday, 02 May 2013 16:00

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.



Final Days! CEPR's Director Watch Really Needs Your Help Print
Written by Dawn Lobell   
Wednesday, 01 May 2013 13:00

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:

Hourly wages


We’re so close! Please click here and help us to get Director Watch up and running.

CEPR News April 2013 Print
Written by Dawn Lobell   
Tuesday, 30 April 2013 14:45

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.

Prior to the election, CEPR corrected media misrepresentations of the Venezuelan economy. Mark wrote an op-ed for Al Jazeera titled “Haters Gonna Hate: Rory Carroll's Venezuela on NPR” that countered the Guardian reporter’s claims that "Venezuela is a country of extremes - and extreme inequality”. Mark reiterated these views in interviews with the PBS NewsHour and Democracy Now! (where he appeared with Rory Carroll). Mark also appeared on Counterpoint radio. CEPR Senior Associate for International Policy Alexander Main, who was in Venezuela monitoring the election, was interviewed by several news oulets including Democracy Now, Al Jazeera’s Inside Story Americas, Free Speech Radio News, WBAI, Sojourner Truth Radio, Alternet Radio Hour and Houston’s KOOP.

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.



Labor Market Policy Research Reports, April 13 – 26, 2013 Print
Written by Will Kimball   
Friday, 26 April 2013 15:24

Here are the latest labor market policy research reports:

Center for American Progress

Lessons Learned: Reflections on 4 Decades of Fighting for Families
Judith Warner

Center for Economic and Policy Research

Making Jobs Good
John Schmitt and Janelle Jones

Center for Law and Social Policy

Innovative City and State Funding Approaches to Supporting Subsidized Employment and Transitional Jobs
Chris Warland, Melissa Young and Elizabeth Lower-Basch

Economic Policy Institute

Guestworkers in the High-skill U.S. Labor Market
Hal Salzman, Daniel Kuehn, and B. Lindsay Lowell

Schwartz Center for Economic Policy Analysis

Are Connecticut Workers Ready for Retirement?
Joelle Saad Lessler, Teresa Ghilarducci, Kate Bahn, Anthony Bonen, and Lauren Schmitz

Institute for Women’s Policy Research

Valuing Good Health in Vermont: The Costs and Benefits of Earned Health Care Time
Claudia Williams with assistance from Jasmin Griffin and Jeffrey Hayes

The University of Massachusetts Econ Department: How We Know Reinhart and Rogoff Were Wrong Print
Written by Dean Baker   
Wednesday, 24 April 2013 10:40

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.



Too-Big-to-Fail Banks Recover as the Rest of the Economy Struggles Print
Written by Will Kimball   
Monday, 22 April 2013 15:45

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[1]) 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 Reinhart-Rogoff Debt-to-GDP Error: Why it Matters Print
Written by Dean Baker   
Thursday, 18 April 2013 12:02

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.


CEPR's Director Watch Needs Your Help Print
Written by Dawn Lobell   
Thursday, 18 April 2013 09:02

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.)



Media Could Do a Better Job Explaining Taxes Print
Written by Dean Baker   
Tuesday, 16 April 2013 09:15

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.

Government Spending on the Rich Versus Government Spending on Kids Print
Written by Dean Baker   
Sunday, 14 April 2013 04:59

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 Restructures Pensions to Address Shortfall Print
Written by Dean Baker   
Saturday, 13 April 2013 05:15

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.

Labor Market Policy Research Reports, March 23 – April 12, 2013 Print
Written by Will Kimball   
Friday, 12 April 2013 14:20

The following are the most recent labor market policy research reports:

Center for American Progress

The High Cost of Youth Unemployment
Sarah Ayres

Growing the Wealth: How Government Encourages Broad-Based Inclusive Capitalism
David Madland and Karla Walter

Center on Budget and Policy Priorities

Earned Income Tax Credit Promotes Work, Encourages Children’s Success at School, Research Finds
Chuck Marr, Jimmy Charite, and Chye-Ching Huang


Stuck: Young America's Persistent Jobs Crisis
Catherine Ruetschlin and Tamara Draut      



Even with Exemptions, Chained CPI Proposal Will End Up Hurting Low-Income People Print
Written by Shawn Fremstad   
Wednesday, 10 April 2013 17:25

The budget documents released so far today don’t provide much detail on the President’s proposal to switch to the chained CPI. But a short section on the proposal, at page 46 of the budget, says that the shift to the chained CPI would be made for “most programs and the Internal Revenue Code” and that it “includes protections for the very elderly and others who rely on Social Security for long periods of time, and only applies the change to non-means tested benefit programs.” And a just-released White House fact sheet claims that the proposal is coupled with “measures to protect the vulnerable and avoid increasing poverty and hardship.”

Does this mean people who rely on means-tested benefits and low-income income people generally should breathe a sigh of relief? Hardly. Here are some reasons why (setting aside for the moment the impact of the chained CPI on Social Security for low-income retirees, which I’m sure my colleague Dean Baker will have more to say about):

1) Although Disability Insurance is not a means-tested benefit, the benefits it provides and the typical incomes of the workers receiving benefits are already quite modest. On average, female workers receiving Disability Insurance receive a benefit of only $993 a month and male workers receive a benefit of $1,256 a month. As a result, a woman with a disability living on her own and relying solely on an average Disability Insurance benefit has an income that is barely equal to the extremely austere poverty line (HHS’s monthly poverty guideline for 2013 is $958). Thus, for typical disabled workers receiving Disability Insurance, even seemingly modest benefits cuts over the short run can be a big deal. The White House fact sheet says that their plan includes a “benefit enhancement” for people who receive Disability Insurance benefits for more than 15 years, one that is phased in over a subsequent 10-year period. But that means 15 years of cuts first. And many disabled workers will not live long enough to see any of the subsequent phased-in "enhancement."

2) The exemption of means-tested programs (including Medicaid, ObamaCare premium assistance, Supplemental Security Income, Pell Grants, and certain nutrition assistance programs) and the poverty guidelines detailed in the White House fact sheet will almost certainly be only a very temporary exemption. Once the chained CPI is adopted for the tax code and Social Security—an immensely popular program, in large part because it is tied to workers’ contributions—it will only be a matter of time until it is applied to the less-popular, non-contributory means-tested ones. And, until the chained CPI is applied to means-tested programs, conservative opponents of those programs will have a field day decrying what I imagine they’ll label along the lines of “liberals’ special treatment for welfare recipients” and perverse preference for “welfare over work.” It’s worth remembering here that some means-tested programs have no automatic inflation adjustments. Funding for Temporary Assistance, for example, has been frozen in nominal dollars for nearly two decades. So, advocates for low-income people shouldn’t be optimistic about holding the line against the chained CPI in the means-tested programs that lucky enough to have COLAs.

Once applied to means-tested programs, the chained CPI would produce substantial cuts over time as Alison Shelton of the AARP Public Policy Institute shows in an excellent brief detailing the impact of the chained CPI on benefit programs.

3) Applying the chained CPI to the tax code will reduce the value of refundable tax credits, particularly the Earned Income Tax Credit, and increase tax rates on low-income, working class people. CBO had previously estimated that the cuts to refundable tax credits would add up to $17.9 billion over the next ten years. The Urban-Brookings Tax Policy Center has estimated that 45 percent of tax units in the lowest income quintile (below $26,000) and 84 percent of tax units in the second quintile (roughly $26,000 to $47,000) will pay about $175 more on average in taxes in 2020. Now, this may not seem like a lot, but if you’re a poorly compensated worker trying to raise two children on $10 an hour, every dollar counts.

Farmer’s Folly: Bringing the Nikkei Godzilla to America Print
Written by David Rosnick   
Friday, 05 April 2013 12:45

UCLA’s Roger Farmer has suggested that the government should bid up asset prices—say, purchasing shares of companies in the S&P 500 in order to drive up the stock market.  In essence, he argues that the wealth effect will stimulate consumption and investment and lower unemployment.

But does the S&P 500 drive unemployment?  And how much of an intervention would have been required to maintain full employment?  Farmer kindly provided me the data behind his 2012 paper The stock market crash of 2008 caused the Great Recession: Theory and evidence.  Using pre-1980 data to fit the model, I precisely reproduced his results.  Figure 1 recreates Figure 6 of Farmer’s paper.


At first glance it appears that Farmer’s model fits post-1980 data pretty well, right up until the last few quarters.  Yet Figure 2 shows the distribution of predicted and actual changes in unemployment.  It shows that Farmer’s model is biased toward optimistic predictions of unemployment.


So why does Farmer’s model appear to hold up fairly well in Figure 1?  It is largely because the model actually predicts changes in unemployment rates one quarter ahead but the unemployment rate does not change much from quarter to quarter.  So when Farmer’s prediction is low in one quarter, the model yanks the prediction back up to its historical value before predicting the next quarter.  In technical terms, Figure 1 looks good for Farmer because it takes advantage of serial correlation in the unemployment rate.



They Didn't Think Anyone Was Watching Print
Written by Dawn Lobell   
Thursday, 04 April 2013 07:45

Erskine Bowles, who served as President Clinton’s chief of staff and president of the University of North Carolina, has made several million dollars serving on the boards of companies whose stock prices have plummeted. He was a director at General Motors at the time it went bankrupt and at Morgan Stanley when it was bailed out by the government. He was also a director of Facebook during the period when the value of its stock fell by close to 50 percent. 

This is not supposed to happen. While top executives can expect to be well-compensated when their actions substantially boost stock prices, they should not get large paychecks when they have failed. It is the job of directors on corporate boards to prevent this sort of fleecing of shareholders.

But they aren’t doing their job. They don’t think anyone is watching. Well, we are. 

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 directors who get large paychecks even as the companies they oversee are going down the tubes. 



CEPR News, March 2013 Print
Written by Dawn Lobell   
Friday, 29 March 2013 14:40

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

CEPR on Venezuela
CEPR marked the March 5th death of Venezuela’s President Hugo Chávez with op-eds, blog posts and articles on Chávez’s legacy. In this op-ed for Al Jazeera, CEPR Co-director Mark Weisbrot stated that Chávez will be remembered for the reforms he made to improve the lives of Venezuela’s poorest citizens. Mark followed up with another op-ed for Al Jazeera, noting the stark differences between the outpouring of honor and respect from his fellow leaders in Latin America and the cold statement from the White House that didn’t offer condolences to the Venezuelan people or to Chavez’s family.

CEPR also provided analysis in several posts on The Americas Blog. In this post, Mark corrected a New York Times article that misstates economic growth during the Chávez years. CEPR also contacted the New York Times and asked them to correct the story. After several requests from CEPR, the NYT issued this correction on March 27th: “An article on March 8 about the legacy of the Bolivarian revolution of President Hugo Chávez of Venezuela, who died earlier that week, misinterpreted data from the World Bank about Venezuela’s rank in economic growth in relation to that of other countries. Venezuela ranked 13th of 18 countries in per capita economic growth from 1999 to 2011, according to statistics for Mexico and Central and South America. It did not have one of the lowest rates of economic growth in the region during the 14 years that Mr. Chávez held office.”)

In other blog posts, Program Assistant Sara Kozameh and Research Associate Jake Johnston penned this widely-circulated graphic representation of Venezuela’s economic and social performance under Chávez. CEPR also posted several pieces on responses from world leaders to the news of Chávez’s death, including this one by CEPR Senior Associate for International Policy Alex Main and thesetwo by Sara, while CEPR International Communications Director Dan Beeton asked whether the U.S. would seek to improve relations with Venezuela following Chávez’s death and Jake examined the Chávez government’s aid and support for Haiti, before and since the earthquake.

CEPR staff was interviewed numerous times for radio and TV programs. Mark appeared on on Al Jazeera’s Inside Story to talk about “Hugo Chávez's Economic Legacy” and Alex later discussed “Chávez and the media.” Mark was also on BBC Radio's Newshour, BBC World TV, Sky News, France 24, and FAIR’s Counterspin, Alex was on the Real News where he discussed who benefits from Venezuela’s oil wealth, and was also interviewed on Russia Today as well as The Richard Kaffenberger Show (KTOX 1340 AM), Alex and Mark were both on Sojourner Truth Radio (KPFK). Director of International Programs Deborah James appeared on Latin American TV network NTN24, while Dan gave several radio interviews, appearing on the Saturday Morning Talkies (KPFA 94.1, Berkeley, CA -- Dan joins the program at 18:20), Latino Media Collective (WPFW 89.3FM, DC) and the Rev. Jesse Jackson’s Keep Hope Alive Radio Show.

In addition, CEPR was quoted in several publications about Chávez’s life and legacy, including Foreign Policy, the Boston Globe, Salon, The Hindu, The Namibian, Inter Press Service, and many others. CEPR was widely cited for its research on Venezuela’s economic performance under Chávez, noting that once Chávez got control over the oil industry, Venezuela's economy almost doubled over the next six years, poverty was reduced by half and extreme poverty by 70 percent.

In other Venezuela news, Mark was quoted in this Reuters article on the launch of Venezuela’s new Forex system, and he wrote this Guardian op-ed examining the recent currency devaluation.


Supplemental Security and Temporary Assistance: How "This American Life" Got the Story Wrong Print
Written by Shawn Fremstad   
Friday, 29 March 2013 12:15

In both her story on disability insurance and a Wonkblog interview, reporter Chana Joffe-Walt implies that lots of people are receiving Supplemental Security who don’t deserve the help, and that large numbers of families with children have simply been shifted from Temporary Assistance to Supplemental Security. I was just sitting down to write on why Joffe-Walt’s treatment of this issue is so misleading, when I noticed that Harold Pollack, a disability expert and professor at the University of Chicago, beat me to it in this terrific blog post. (Wonkblog also has an interview with Pollack discussing this and other problematic aspects of the story.)

Some key points made by Pollack:

  1. “Child SSI caseloads are not exploding. Nor are large numbers of single moms transitioning from traditional welfare (Temporary Assistance to Needy Families, or TANF) to SSI. … Rising poverty rates, not lax program rules, is the critical factor.”

  2. “[T]he rise in the child SSI caseloads is dwarfed by the decline in the number of children receiving cash assistance after the 1996 welfare reform."

  3. “Child SSI is simply a small matter when shown alongside one of the tragic policy failures of the Great Recession: TANF’s failure to remotely keep pace with macroeconomic crisis and rising child poverty.” Here Pollack points to a graph showing that the percentage of children below the poverty line receiving either Temporary Assistance or Supplemental Security has fallen by more than half since the mid-1990s. 

  4. Two graphs juxtaposed by Joffe-Walt—one showing the decline in the number of families with children receiving Temporary Assistance and the other showing an increase in the number of low-income adults generally receiving Supplemental Security—“just don’t go together. They cover different populations, whose dynamics are influenced by different processes.”

  5. Pollack points to a longitudinal study that tracked particularly disadvantaged single parents receiving Temporary Assistance between 1997 and 2003: “By the end of the survey period, 37 out of 532 women ended up on SSI or SSDI. 114 others had applied for disability benefits, but were found ineligible within a supposedly lax disability system.”


Sorry Ira: There are Factual Errors in Your Story on Disability Insurance Print
Written by Shawn Fremstad   
Wednesday, 27 March 2013 14:30

As my colleague Dean Baker has noted, a controversial This American Life piece on disability insurance “got some of the basics wrong” and “failed to recognize the actual importance of the economic collapse.”  Yet, in a statement to the press, Ira Glass says he knows of “no factual errors” in the story on disability and stands by it.

I won’t take on the entire story here, but I want to note one quite clear-cut and basic factual error. In the story, reporter Chana Joffe-Walt unequivocally states: “People on federal disability do not work.” This is factually incorrect. According to researchers at Mathematica and SSA, about 17 percent of disability beneficiaries worked in 2007. Their earnings were generally very low (about 4.8 percent had annual earnings of $1,000 or less), but that doesn’t justify the reporter’s unequivocal characterization of all disability beneficiaries as non-workers.

A related technical error in the story, Joffe-Walt goes on to say: “Yet because [disability beneficiaries] are not technically part of the labor force, they are not counted among the unemployed.” For unemployment rate purposes, the Bureau of Labor Statistics counts people as unemployed if they have no employment, were available for work, except for temporary illness, and made specific efforts to find employment during the last four weeks. So, while the vast majority of disability beneficiaries are not counted in the unemployment rate, that’s different than saying absolutely none of them are counted.

BLS has published regular data on the employment and unemployment status of people with disabilities since 2009. In February 2013, the unemployment rate for people with disabilities (those in the labor force looking for work, most of whom probably do not receive disability benefits) was considerably higher (12.3 percent) than the rate for people with no disability (7.9 percent). This disparity, which should get much more attention than it currently does, was not mentioned at all in the story. This is especially striking because, as Stephan Lefebvre, a research assistant at CEPR, reminded me, equal employment opportunity has been such a major focus of disability activists in recent decades.



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