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Why Don't We Feel 63 Percent Richer? Print
Written by John Schmitt   
Tuesday, 31 July 2012 12:45

I don’t think the average non-economist appreciates just how much richer and more productive the U.S. economy is today than it was three decades ago. For the typical American, the large increase in economic inequality has masked most, if not all, of the progress.

Janelle Jones and I prepared the table below for a CEPR report (pdf) released today. The table assembles several indicators that all demonstrate a substantial rise in the country’s productive capacity. The share of workers with a four-year college degree or more increased from about one-fifth in 1979 to over one-third in 2010. The median age of the workforce increased by seven years. While we don’t have ideal data, the amount of physical capital (buildings, machinery, equipment, etc.) per worker is about 50 percent higher today than in 1979; and more than 60 percent of workers now use a personal computer on the job, compared to essentially zero in 1979.

The workforce today is more experienced, much better educated, and working with more –and better– capital. Largely as a result, GDP per capita was 63 percent higher in 2010 than it was in 1979.

Read more...

 

 
It's Not Just Friendly's - Sun Keeps Ownership of Its Bankrupt Companies Print
Written by Eileen Appelbaum   
Friday, 27 July 2012 13:15

Mike Spector has a great piece in today’s WSJ explaining how private equity firm Sun Capital retained ownership of Friendly’s after taking the iconic ice cream parlor chain into bankruptcy. Normally, owners lose their investment in a bankruptcy. But Sun arranged for another of its affiliates to provide a loan to keep Friendly’s operating while in bankruptcy, and so became its major creditor as well as its owner. As Spector noted, ‘ That put Sun first in line to be repaid in a bankruptcy, allowing the buyout shop to reacquire Friendly's with a $75 million "credit bid"—essentially using debt owed it as currency to bid for the company.” Sun retained ownership of Friendly’s but with fewer liabilities – including getting rid of its employees’ pensions, which it off loaded onto a government agency when Friendly’s declared bankruptcy. This is not the first time a company owned by Sun has declared bankruptcy, only to emerge from bankruptcy still owned by Sun. Sun has used this tactic in other cases as well. The PE firm managed to pull off the same deal with Anchor Blue, Big 10 Tires, and Fluid Routing.  

 
The Disagreement Behind Planet Money's Economic Platform Print
Written by Dean Baker   
Thursday, 26 July 2012 15:45

This post is in response to a recent segment on NPR's Planet Money in which a panel of economists, which included Dean Baker, made recommendations for a dream presidential economic platform. Dean writes that disagreements between the five economists on the panel should be noted, as the resulting fake presidential candidate "will have to do a bit more work to get my vote, even if I did help to design the platform."

I do feel there were some important aspects of these issues that listeners may not fully appreciate that I would like to lay out.

First, while I fully endorse the view expressed in the segment that a tax deduction for employer provided health care makes no sense abstractly, there is a historical basis for this deduction that makes it difficult to change. Workers, and especially unionized workers, have often explicitly given up higher wages for better health care benefits. If they were to lose employer provided health care benefits, there is no guarantee that their wages would rise by a corresponding amount. While all good economists believe that there is trade-off between wages and benefits, that does not mean that the trade-off is always one-to-one and immediate.

I would be worried that if we were to eliminate the health care deduction in an environment like the current one, in which high unemployment has badly weakened workers' bargaining power, it would result in a net reduction in workers' compensation. In my view, that can't be a good thing at a time where we have already seen such a large upward redistribution of income.

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Family Structure is Overrated as an Explanation of Inequality, Part 5 Print
Written by Shawn Fremstad   
Thursday, 26 July 2012 08:30

According to NYT reporter Jason DeParle: “there are suggestions that the absence of a father in the house makes it harder for children to climb the economic ladder.” To support this proposition, he cites an “unpublished analysis” of the effects of single parenthood on intergenerational income mobility that only follows children until their mid-20s.

This seems an odd choice to say the least. In a blog post, DeParle says that “there is not much that examines long-term effects [of being raised by a single parent] on a child’s chances of moving up the income ladder.” At the end of the post, he claims that the unpublished analysis he relies on is “broadly consistent with those found in a study by the Pew Mobility Project, which used a different data set.” 

Ok, so why not use data from the Pew study? Among other things, it has the benefit of being published (not in a peer-reviewed journal, but it was reviewed by peers) and available on the Internet, and written by two experienced researchers at major universities who have published in peer-reviewed journals. It also follows children beyond their mid-20. 

Perhaps because that study tells a different and more nuanced story than DeParle wants to tell. Here are some of the main findings:

  • looking at “absolute” mobility, 88 percent of children born to unmarried mothers have greater family income than their parents compared with 82 percent of children of always-married mothers (not a statistically significant difference) and 74 percent of children of ever-divorced mothers (statistically significant), this same finding holds when looking only at parents in the bottom third of the income distribution.
  • looking at “relative” mobility, among children who start in the bottom third of the income distribution, 42 percent of those born to unmarried mothers move up to the middle or top third of the income distribution as adults, compared with 50 percent of children with continuously married parents (authors don’t say if statistically significant) and 26 percent with ever-divorced parents.  
Read more...

 

 
Three Years with No Increase in the Federal Minimum Wage Print
Written by John Schmitt   
Tuesday, 24 July 2012 10:00

Today makes three years since the last increase in the federal minimum wage — to $7.25 per hour on July 24, 2009. Since then, the value of the minimum wage — adjusted for inflation — has fallen about six percent.

Yesterday, a group of top economists signed a letter urging Congress to raise the minimum wage in three steps to $9.80 by 2014. They estimate that a bump in the federal minimum would benefit 29 million workers. About 20 million low-wage workers would receive direct pay increases and another 9 million, who earn just above the new legal minimum, would capture some “spillover” as employers adjusted relative wages within firms. The “vast majority” of these beneficiaries, the economists say, would be “adults in working families.”

The letter writers also argue that a boost in the minimum wage might even help on the jobs front, by providing much-needed stimulus:

“In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market. A minimum wage increase can also serve to stimulate the economy as low-wage workers spend their additional earnings potentially raising demand and job growth.”

The economists who signed the letter include: Nobel Laureate, Joseph Stiglitz; John Bates Clark Medal winner, Daron Acemoglu; former Labor Secretary, Robert Reich; former chair of the Council of Economic Advisors, Laura Tyson; as well as, Jeffrey Sachs, Robert Frank, Richard Freeman, Lawrence Katz, Michael Reich, and Economic Policy Institute president Lawrence Mishel.

As CEPR research has demonstrated, an increase to $9.80 by 2014 would be a very modest proposal relative to any reasonable benchmark.

 
Why Don't More Young People Go To College? Print
Written by John Schmitt   
Monday, 23 July 2012 09:45

Heather Boushey and I have a piece in the new issue of Challenge that asks why more young people don’t follow the advice of economists and go to college. We think two factors are particularly important.

First of all, while it is certainly the case that the average college graduate earns a lot more than the average high school graduate, a small, but important share of workers with college degrees actually earn less than the average high school graduate in the same age range – even before factoring in the cost of college. We argue that many young people on the fence about attending college or not might be taking their cues from those who are on the low end, not the middle or high end, of the college-graduate earnings pool.

Second, while the payoff to college definitely grew a lot between 1980 and 2000 (though not really since then), it is also the case that the cost of college has increased even more. Financial aid has offset only a part of this increase in tuition and fees. The shift in financial aid from grants to loans has exacerbated concerns about cost, since many young people and their families worry about being saddled with large, long-term debt, especially when more than 40 percent of those who start college don’t complete their degree within six years.

You can read the whole piece (behind a paywall) here.

This post originally appeared on John Schmitt's blog, No Apparent Motive.

 
Labor Market Policy Research Reports July 14 – 20, 2012 Print
Written by Eric Hoyt   
Friday, 20 July 2012 15:00

Here’s a roundup of labor market research reports released in the past week:


Center for Economic and Policy Research

Caring for Caregivers in Retirement: Social Security Works for Direct Care Workers
Shawn Fremstad


National Employment Law Project

Big Business, Corporate Profits, and the Minimum Wage

 
Try to Knock Us Out of First Place Print
Written by Dawn Lobell   
Friday, 20 July 2012 14:00


fundraising-bottles-2012

In case you haven’t heard, CEPR was once again the most cost-effective think-tank in 2011. That’s right: CEPR ranked first in media hits per budget dollar of all major think-tanks, based on an analysis of Fairness and Accuracy in Reporting’s 2011 think tank media citation rankings and organizational budgets. CEPR outpaced all other think-tanks with 1.3 media citations per ten thousand budget dollars. CEPR had also been first in hits per dollar in the five years from 2004-2008.*

We’re proud of our ability to do so much with so little, but sometimes we fantasize about what we could do with a budget even half the size of those other think-tanks (well, since CEPR brags on getting the numbers right, the truth is that our budget is LESS than half of the others). So we are asking you, our friends and supporters, to challenge us to remain number one. Donate to CEPR today and help us to increase the size of our budget, and in return we will promise to continue to use our resources wisely.  That means more of what you value most about CEPR:  our research, analysis, media work, outreach, columns and blogs.

We think that we can stay in first place, even with more money.  We welcome the opportunity to prove it to you.

Thanks for your support,
Dean Baker, Mark Weisbrot and CEPR staff

*CEPR did not do this analysis for the years 2009 and 2010 because Fairness and Accuracy in Reporting (FAIR), which produces the measure of think tank media citations that is the basis of this analysis, did not compile its list in those years.

 
Income-Related Inequalities in Health Care Print
Written by Shawn Fremstad   
Friday, 20 July 2012 08:30
In this new working paper, Marion Devaux and Michael de Looper of the OECD examine income-related inequalities in health care use in 19 OECD countries, including the United States. David Rosnick and Dean Baker have given the OECD a well-deserved thrashing for their analysis of the causes of income inequality, but this one, on a different subject, looks sound on initial viewing.) 

The figure below from the report shows the distribution of doctor vists in the previous 12 months across income quintiles, adjusted for need. The U.S. shows up at the bottom as the most unequal, that is, the between difference in visits between those in the highest-income quintile and those in the lowest one (Denmark's numbers are based on a different survey recall period, so OECD warns that they're not comparable to the rest).  

needs-adjusted-prob-doc-visit-07-2012

The chart below, also from the report, shows the relationship between health inequity and the share of health expenditures that are public ones. Especially with the U.S. in the mix, as public expenditures increase as a share of total expenditures, inequity in doctor visits declines. 

public-health-expend-07-2012

All in all, just one more reason to make all states implement the Affordable Care Act's provision extending Medicaid eligibility to all Americans with incomes below 133 percent of the poverty line.

 
Family Structure is Overrated as an Explanation of Family Income Inequality, Part 4 on DeParle's Marriage Plot Print
Written by Shawn Fremstad   
Thursday, 19 July 2012 14:00

The basic assumption undergirding Jason DeParle's piece is that changes in family structure have been one of the primary drivers of growth in family income inequality over the last several decades. What is never considered is whether the causation moves in the other direction, that is, whether income and wage inequality drive some of the trends in family structure.

In a fascinating paper published in the most recent issue of the Journal of Economic Perspectives, researchers Melissa Kearney and Phillip Levine provide some evidence on this and other questions related to teen childbearing. Kearney and Levine have done the most important and interesting research on teen pregnancy in the last decade, so it is striking that DeParle doesn't cite them in his piece. The JEP article is particularly worth reading because it summarizes findings from much of their work on the issue in an accessible way.

Looking at the relationship between state-level income inequality, which they measure using the 50-10 income ratio, and teen childbearing rates, Kearney and Levine conclude find that "women with low socioeconomic status have more teen, nonmarital births when they live in higher-inequality locations, all else equal." Specifically, "income inequality can explain a sizable share of the geographic variation observed in the teen childbearing rate, on the order of 10 to 50 percent." They also find the difference is due not to differences in state-level rates of teen sexual activity or pregnancy rates, but rather because the most disadvantaged teens in the high-inequality states are much less likely to have abortions. Finally, when they compare income inequality with teen childbearing at both the county level and across countries, their results on the linkage between inequality and teen births are similar.

This table, from their paper, divides states into three categories based on level of income inequality. The red box, which I've added, highlights the high-inequality states, which, as you can see, are all high teen birth rate states also.

kearney-jep

 

What explains the link between inequality and teen childbearing? Kearney and Levine's hypothesis is that: "[I]f girls perceive their chances at long-term economic success to be sufficiently low even if they 'play by the rules,' then early childbearing is more likely." I think there is probably more going on here in terms of differences between high-inequality states and low-inequality ones that contributes to the difference in teen childbearing rates (although Kearney and Levine do look at some other factors like religiousity and partisan orientation, none of which produces any changes in their results). Here, again, Naomi Cahn and June Carbone's Red Families vs. Blue Families: Legal Polarization and the Creation of Culture seems relevant. Regardless of the precise explanation for it, the connection Kearney and Levine find between income inequality and teen childbearing is an important one that deserves both future investigation and attention from media outlets like the New York Times.

Finally, Kearney and Levine are careful to note that theirs is an explanation of geographic disparities in teen childbearing, not trends over time. Teen pregnancy rates have declined over time. My guess is that feminism and Supreme Court decisions made in the 1960s and 1970s (including Griswold v. Connecticut and Roe v. Wade, overturning laws that prohibited contraceptives and abortion) have played an important role in that trend.

 
Low-Wage Workers Are Older and Better Educated Than Ever – Infographic Edition! Print
Written by Janelle Jones   
Wednesday, 18 July 2012 15:00

In April, John Schmitt and I published a CEPR report describing how the experience and education upgrading of the workforce has not received the labor market rewards it deserves. And while I think we did an excellent job, it turns out we left out an important piece: an amazing infographic! That’s where Colin Gordon steps in. Earlier this week, Colin used the report’s data to create an interactive figure that shows the increased educational attainment of low-wage workers. For each state, you can look at the different education categories – less than high school, high school, some college, and at least a four-year degree – for two time periods, 1980 and 2010.

My personal favorite is to toggle between 1980 and 2010 with only the high school and some college categories selected. In 1980, those extra classes after high school really mattered, as seen by the wide distribution along both axes. However, by 2010, the data converges into one large data point, showing that returns to a few years of post-high school education without a four-year degree is doing very little for low wage workers.
 
Family Structure is Overrated as an Explanation of Inequality, Part 3 on DeParle's Marriage Plot Print
Written by Shawn Fremstad   
Wednesday, 18 July 2012 12:00

Sociologist Loïc Wacquant writes that "binary oppositions are well-suited to exaggerating differences, confounding description and prescription, and setting up overburdened dualisms that erase continuities, underplay contingency, and overestimate the internal coherence of social forms."

It's written in jargony academese, but I think it gets to the heart of the problem with Jason DeParle's piece on family structure and inequality, which is built on the definitely overburdened dualism of unmarried vs. married mothers. 

Just one example, DeParle writes that: "Married couples are having children later than they used to, divorcing less and investing heavily in parenting time. By contrast, a growing share of single mothers have never married, and many have children with more than one man."

But a closer look at the evidence suggests DeParle overgeneralizes here.

Read more...

 

 
Family Structure is Overrated as an Explanation of Inequality, Part 2 on DeParle Print
Written by Shawn Fremstad   
Tuesday, 17 July 2012 09:30

In Sunday's New York Times, Jason DeParle contrasts the economic security of Jessica Shairer, a single mother of three who works at a child care center in Ann Arbor and makes under $25,000 (despite having an A.A. degree, being a manager, and working six years with the same employer), with that of her boss, Chris Faulkner, who is married to a man who appears to makes around $60,000. (DeParle says Ms. Faulkner makes $25,000 a year, and that her family income is near "the 75th percentile", so their total income is probably around $85,000).

DeParle's uses Shairer and Faulker to tell a story that pins a big chunk of the rising income inequality among families with children on changes in family structure. As the story's title puts it, when Deparle looks at Shairer and Faulkner, he sees "Two Classes, Divided by 'I Do.'" As I pointed out in my previous post, the reality-based, rather than anecdotal, evidence for his framing is weak. Yes, the increase in single-parent families between 1975-1985 had some affect on inequality among families with children, but long-term increases in women's employment and educational attainment far outweight any effect family structure trends have had.

When I read DeParle's story, the big questions that came up for me mostly had to do with gender inequality and how poorly we compensate workers like Ms. Shairer (and Ms. Faulkner for that matter) whose job it is to take care of children, seniors, and people with disabilities. 

Read more...

 

 
Family Structure is Overrated as an Explanation of Inequality Print
Written by Shawn Fremstad   
Monday, 16 July 2012 08:30

In a front-page piece in Sunday's New York Times, reporter Jason DeParle touts family structure as a neglected factor in the increase in income inequality. I don't have a lot of faith in some of the researchers DeParle cites (like Scott Winship, who has previously argued that growth in inequality isn't such a big deal because "the cost of living has risen less for the poor and middle class than for upper-income households"!!). But DeParle also cites a more credible source, sociologist Bruce Western, who he says "found that the growth in single parenthood in recent decades accounted for 15 to 25 percent" of the increase in income inequality among families with children in the last several decades. 

But when I turned to Western's published research on this issue, I found it to be somewhat more complicated than DeParle's story suggests. In research published in the American Sociological Review, Western and his co-authors separated the correlated effects of education, single-parenthood, and maternal employment.

Western's Table 4 summarizes his findings—I've pasted it below, along with a bar chart of the percent of change in family inequality explained by each of his factors.  So, yes, as you can see, an increase in the percentage of single parents between 1975-2005 did contribute to an increase in family income inequality, but note that the increase in women's employment offsets basically all of the family structure effect (the percent change for each is circled in the top red oval in the last column of the table). If women's employment (and educational attainment) had stayed flat over the last three decades, perhaps a story like DeParle's would have merited the NYT's front page, but it hasn't and it doesn't. Moreover, note how the effect of the increase in single parenthood on inequality is concentrated in 1975-1985. So, not exactly front-page news in 2012.

Read more...

 

 
Labor Market Policy Research Reports, July 7 – 13, 2012 Print
Written by Eric Hoyt   
Friday, 13 July 2012 14:45

Here’s a roundup of labor market research reports released in the past week:


Center for Economic and Policy Research

Missing the Story: The OECD's Analysis of Inequality
David Rosnick and Dean Baker


National Employment Law Project

Report: Lessons Left Unlearned: Unemployment Insurance Financing After the Great Recession
Mike Evangelist


National Women’s Law Center (NWLC):

Third Anniversary of the Recovery Shows Job Growth for Women Slowed by Public Sector Job Losses
NWLC

 
People Living Below the Income Poverty Line Today are Better Educated than Ever Print
Written by Shawn Fremstad   
Wednesday, 11 July 2012 14:30

John Schmitt and Janelle Jones' Low Wage Workers Are Older and Better Educated than Ever, a CEPR report published in April, found that ... well, their title really says it all. The report got me interested in looking at whether working-age adults with incomes below the federal poverty line are also much better educated than in the past. Not surprisingly, the answer is "yes, much better educated." As the chart below shows, among middle-aged workers living below the income poverty line, nearly one-third had at least some college or a Bachelor's Degree in 2010, more than twice the share in 1979. And the share without a high school diploma has fallen by nearly half. A take-away point: Increasing educational attainment by itself is not at all sufficient to reduce inequality and income poverty — we need stronger labor market institutions, particularly ones that increase workers' bargaining power to address these issues.  

edu-attainment-adults-7-201

Technical stuff: 1979 figures are calculated from published Census tables for the 1980 March CPS. I calculated the 2010 figures using the Census CPS Table Calculator. The figures in the table use the alternative poverty measure in the calculator that allows the addition of the EITC, SNAP and other benefits not currently counted in the official poverty measure. That said, the figures don't change significantly if these benefits aren't counted and the official measure is used.

 
Poor Sales, Not High Wages, Worry Small Businesses Print
Written by Eric Hoyt   
Tuesday, 10 July 2012 13:30

Lawmakers at the federal and state level are talking seriously about increasing the minimum wage.  Business interests have been vocal in their opposition.  In a May 17 press release, for example, the National Federation of Independent Businesses (NFIB), an organization that often acts as a front for larger corporate interests, stated: “[The] NFIB is strongly opposed to raising the minimum wage, especially in the midst of an unemployment crisis. Small business owners warn that . . . there’s no way for them to absorb higher mandatory wages without cutting jobs.”  Even a brief analysis of the NFIB’s own survey reveals a very different picture.

While the NFIB warns that minimum wage increases would create serious cost problems for small businesses, few of their members list "labor costs" as their "most important problem."  Instead, what we see from the NFIB survey results is that the percentage of small businesses listing labor costs as their most important problem has hovered consistently between 3% and 5% since the beginning of the recession in December 2007.  In the most recent data, the percentage fell to 2%, its lowest level since the start of the recession. 

Read more...

 

 
Job Loss and the Recovery Print
Written by Alan Barber   
Monday, 09 July 2012 14:47

The June jobs report shows the unemployment level remained unchanged, at 8.2 percent. And it’s not just the April and June reports that look bad. The unemployment rate has been above 8 percent for the last 41 months. Millions continue to struggle trying to find full-time work, settling on a part-time job or just giving up all together. The big problem, not just for President Obama, but for whoever ends up in the White House in January of 2013 -- and probably 2017 for that matter -- is that if nothing is done, things probably won’t get much better for some time to come.

My CEPR colleagues John Schmitt and Tessa Conroy pointed out back in 2010 that the economy was in a pretty deep ditch. Looking at job creation under different scenarios, they concluded that even at a moderately fast pace of job creation, the economy won’t return to the levels it should be at until sometime in 2021. 

A recent chart from the University of Iowa’s Colin Gordon sheds further light on the hole the economy is in by comparing the rate of recovery from recessions dating back to 1948.

job loss and recovery in postwar recessions

As can be seen in the chart, the number of jobs lost and the duration of this recovery are significantly worse than the aftermath of any of the most recent recessions.

This isn’t to say that nothing can be done to speed up the current recovery. As EPI’s Josh Bivens wrote last month, the government could “…finance job-creating measures like aid to distressed households and states and infrastructure investment”. Another option is work-sharing, in which employers cut back on hours but unemployment benefits make up half the difference in lost pay. Either way, one thing is clear: if nothing is done, it will take years for the economy to create enough jobs to get back to its potential.

 
Labor Market Policy Research Reports June 30 – July 6, 2012 Print
Written by Eric Hoyt   
Friday, 06 July 2012 14:15

Here’s a roundup of labor market research reports released in the past week:


Economic Policy Institute:

Black Metropolitan Unemployment in 2011:  Las Vegas's Rates Rise Significantly
Algernon Austin

Hispanic Metropolitan Unemployment in 2011:  Providence, RI, Again Tops the List
Algernon Austin


Schwarz Center for Economic Policy Analysis:

Near Retirees' Defined Contribution Retirement Account Balances
Joelle Saad-Lessler and Teresa Ghilarducci

 
Results are in for CEPR’s 'Pledge to Help Beat the Press' Drive Print
Written by Dawn Lobell   
Friday, 06 July 2012 11:30

In January, we asked our friends and supporters to pledge a donation to CEPR for every time the Washington PostNew York TimesWall Street Journal and National Public Radio reported that eurozone countries are facing sovereign debt crises because of a pattern of profligate spending that led to unsustainable deficits. We figured that if the reporters couldn’t be counted on to get the story straight, at least CEPR could earn some much needed revenue from their inaccuracies.

The results are in, and the four media sources misrepresented the cause of the eurozone crisis a total of 57 times from February through June.  The individual totals are as follows:

New York Times – 23
Washington Post – 21
Wall Street Journal – 8
NPR – 5

Read more...

 

 
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