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.
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.
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.
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.
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.
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.
In January, we asked our friends and supporters to pledge a donation to CEPR for every time the Washington Post, New York Times, Wall 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
Most Americans will never see a million, let alone billions, of dollars in their lifetimes. So it’s easy to get lost among various federal budget options in the billions of dollars.
To help, here’s a handy chart that shows the financial transaction tax (a.k.a. the Wall Street or Robin Hood Tax) compared to 4 other revenue options that are often mentioned in the budget debates. As you can see, the Joint Committee on Taxation’s estimate of $352 billion over 9 years from the FTT swamps the other options.
This is not to say that the FTT is the end-all solution to budget deficits. But this does support the argument that it should be seriously considered, along with the other options, when policy makers and the media discuss deficit reduction.
Notes on the chart:
Revenue estimates are for 2013-2021, except for the Obama bank tax estimate, which is for 2014-2022.
“Buffett” rule: JCT estimate of “Paying a Fair Share Act” (S. 2059, H.R. 3903), which assumes the Bush tax cuts expire. Citizens for Tax Justice’s higher estimate assumes the extension of the Bush tax cuts.
Carried interest loophole: Treasury Department’s explanation of the Administration’s FY 2013 revenue proposal to “tax carried (profits) interests as ordinary income.” This is estimate is lower than prior-year versions due to the new clarification that only “investment partnerships” would be affected.
The following highlights CEPR's latest research, publications, events and much more.
CEPR on the Eurozone CEPR Co-Directors Dean Baker and Mark Weisbrot issued a statement calling for action by the U.S. Federal Reserve to contain the eurozone crisis by intervening in the Spanish bond market. Mark's column in The Guardian notes that the Spanish government and European authorities are taking advantage of the crisis to impose unpopular policy changes. Mark discussed these issues in an interview with the Real News and he discussed alternatives to austerity on The Big Picture with Thom Hartmann. Mark was also interviewed by Canada’s Business News Network, video here.
Mark has emerged as a leading expert on the eurozone crisis, most recently countering claims by IMF Director Christine Lagarde and others that Latvia’s economic policies have been a success story. He penned this Guardian op-ed in response to Lagarde’s claims, followed by this piece for Al Jazeera. He was also quoted in this piece that appeared in Toronto’s Globe and Mail.
Dean weighs in with theseposts in "Beat the Press." And CEPR’s Senior Research Associate Ha-Joon Chang contributed to the austerity critique with this widely-circulated Guardian op-ed and a video interview with the Social Europe Journal, where he discussed the EU fiscal treaty’s incompatibility with an economic growth agenda./p>
Earlier this year, CEPR released Size and Characteristics of States’ Union Workforces, which includes Asian American and Pacific Islander (AAPI) workers as a share of the overall and unionized workforces in each state and DC. A figure in that brief shows unionization rate (the share of the workforce that is either a union member or covered by a collective bargaining agreement) by state for the overall workforce.
The new figure below looks at AAPI workers in the same way. Again using Current Population Survey data, CEPR calculates the unionization rate for AAPI workers in each state. The top five most-unionized states for AAPI workers are Hawaii (25.4%), Alaska (19.8%), New York (15.9%), California (15.8%), and Washington (15.5%). In 46 of the 51 states (including DC), the AAPI unionization rate is lower that that of the overall workforce. Nationally, the AAPI unionization rate is 12.1%, compared to 13.3% for the overall workforce.
The New York Times DealBook ran a piece by Richard Farley, who advises banks on leveraged buyout financing, that claims workers are better off in difficult economic times working for private equity-owned firms. Private equity, he argues, saves jobs. Farley makes two points to support his claim.
First, he notes that PE-owned firms are no more likely than other companies with similar credit ratings to experience financial distress. Fair enough. It’s the high debt load, not PE-ownership, that increases the risk of default. Indeed, a study of 2,156 highly leveraged companies, half owned by private equity and half not, found high rates of default in both during the last three economic contractions. A quarter of these firms defaulted between 2007 and the first quarter of 2010. The important point, however, is that high debt is typical of private equity buyouts of operating companies. It’s the companies that private equity acquires in a leveraged buyout – and not the private equity firms- that are saddled with these high debt loads, making them vulnerable to failure in tough times. Management fees and dividend recapitalizations that transfer money from the operating companies to their PE owners assures that PE will profit regardless of the company’s success.
Second, Farley points to a study by Moody’s that shows that PE-owned companies that default on their debt are less likely to declare bankruptcy. Though Farley doesn’t mention it, the Moody’s study attributes this to private equity’s greater ability to get lenders to exchange distressed debt for new debt due a few years in the future. These ‘amend and extend’ deals – less flatteringly referred to as ‘amend and pretend’ – allow equity sponsors to restructure the balance sheets of distressed companies they own to protect their equity stake. Distressed debt exchanges from 2008-2010 are coming due now and, according to a separate Moody’s study, a large percentage of these have failed. This is fueling an otherwise puzzling uptick in corporate bankruptcies since the fall of 2011.
Delaying bankruptcy is not the same as saving jobs.
That's the implication of a new study by two economists, Stephan Cecchetti and Enisse Kharroubi, at the Bank of International Settlements. This study analyzed the link between growth and the size of the financial sector across 50 wealthy and developing countries. It found that a larger financial sector seems to foster growth up to a certain point. After achieving an optimal size relative to the size of the economy, the financial sector acted as drag on growth when it grew larger.
The study looked at industry level data from a smaller sample of wealthy countries. It found that industries that were the most dependent on external financing and that were heaviest in R&D spending were the ones that were most likely to experience slower productivity growth in countries with rapidly growing financial sectors.
There is a plausible explanation for this pattern. In the first case, if a bloated financial sector is pulling away capital that could otherwise have gone to productive investment, then it makes sense that the most affected sectors would be the ones that need external financing. The companies that can generate all the money they need for investment from their own profits may not be hurt much by an over-sized financial sector.
In the case of R&D intensive industries, the financial sector should be viewed as a competitor for talent. If there are lots of high paying jobs for people with good math and technical skills in finance, then they are less likely to be working in designing software.
The Wall Street crowd will no doubt raise some issues with this study. For example, in looking at the effect of the size of financial sector on growth, it might be appropriate to have a non-linear control for starting income levels, meaning that we may expect that very wealthy countries have slower growth than other countries, but middle income countries may not. (This could distort the findings if very wealthy countries also have relatively larger financial sectors.) Also, it might useful to use 2007 as an end point in the industry regressions rather than 2008. Productivity growth in 2008 largely reflects how quickly firms could dump workers in response to the downturn.
But on the whole the basic analysis looks pretty solid. The moral of the story would seem to be that if we want more people to work developing new computer technology that people value or making advances in medicine that will extend and improve people's lives, then we want fewer people working on Wall Street.
Latest indicators and developments in the housing sector show more evidence that the housing market is on the mend. Prior to May, the market had seen unusually high levels of sales due to unusually good winter weather across much of the country. For this reason we should have expected a sharp falloff in sales in May. Instead, May sales were down by only 1.5 percent from their April level. They were 9.6 percent above the May 2011 level.
The data also show permits for single family homes were up 4.0 percent in May from their April level and were 19.9 percent above their year-ago level. This is the highest rate of construction since early 2010 when the first-time buyers’ credit was temporarily boosting the market. Also, new home sales in May were at their highest level since the end of the first-time buyers’ tax credit caused a surge in April of 2010.
On the other side of the spectrum, 52 financial professionals have broken rank with their industry peers to support small taxes on financial transactions. There will be a briefing call on Thursday, June 21, at 10 am EDT featuring some of them to discuss why they believe the tax will help improve the functioning of markets.
Speakers (see below) will also provide an update on the growing international momentum behind this tax at a critical moment, including an expected June 22nd EU finance ministers vote on the tax.
• Wallace Turbeville, Fellow, Demos, and former Vice President, Goldman Sachs
• Leo Hindery, Jr., Managing Partner, InterMedia Partners, LP, a media industry private equity fund
• Professor Lynn A. Stout, Distinguished Professor of Corporate and Business Law, Clarke Business Law Institute, Cornell Law School
• Sarah Anderson, Global Economy Project Director, Institute for Policy Studies
• U.S. Representative Peter DeFazio (invited)
to RSVP for the call.
The call is being organized and will be moderated by Americans for Financial Reform. Co-hosts are: AFL-CIO, Center for Economic and Policy Research, Institute for Policy Studies, and Public Citizen.
Last Friday, the IMF released a Public Information Notice on the Executive Board’s discussion of Jamaica’s Article IV consultation, an annual report in which the IMF assesses member countries’ economic programs. Of course, the timing was perfect, released just one day after the conclusion of the Jamaican parliamentary debate on its 2012/13 budget. The Article IV discussion clearly shows which way the IMF’s Executive Board—or at least 62.5 percent of it— wants Jamaica to go: further fiscal austerity.
The Jamaican Finance Minister had told Parliament that there were no pre-conditions that had to be met before securing a new IMF loan. Nonetheless, Jamaica’s new “creditor’s budget” is explicitly designed to placate the IMF after the previous loan agreement veered off track over a year ago, when the Jamaican government defied the IMF by paying out back wages and giving already agreed-upon raises to public sector workers. The new budget for 2012/13 cuts non-interest expenditure by two percentage points of GDP—this despite the fact that GDP remains below its 2007 level and per capita GDP is not projected to reach its 2007 level until after 2017.
The IMF praised the cuts, as the Executive Directors “welcomed the authorities’ efforts to increase the primary surplus in this fiscal year.” In addition, “[t]hey were generally of the view that a strong upfront fiscal adjustment would provide credibility to the program.” But not all of the 24 Executive Directors agreed. In a rarely seen move, the IMF press release notes that a “number of Directors, however, supported a balanced pace of adjustment to safeguard the fragile recovery and social cohesion.” Flipping to the convenient “Qualifiers Used in Summings Up of Executive Board Meetings,” one finds that a “number” of Directors means from six to nine. In other words, over a quarter of the Executive Board cautioned against such front-loaded fiscal austerity.
The Consumer Price Index fell 0.3 percent in May, representing the fourth consecutive month of slowing in headline inflation as energy prices plunged, according to the Bureau of Labor Statistics' latest reports on the consumer price, U.S. import/export price and producer price indexes. Energy prices, which showed a 1.7 percent decline in April, dropped 4.3 percent. Core inflation remained steady at 0.2 percent for the third consecutive month, and prices have risen at a 2.7 percent annualized rate over the last three months.
The consumer price of health insurance has rebounded over the past 12 months after falling for three consecutive years. The price of medical care services rose 0.5 percent in May, including a 0.6 percent increase in hospital services. By contrast, the price of medical care commodities—largely drug prices—was unchanged. A 0.8 percent increase in health insurance prices brought the 12-month change to 13 percent. The increase over the past year follows a multi-year slide, and over the past five years, insurance prices are up only 2.3 percent. Health insurance prices have grown at a 2.3 percent annualized rate since December 2005.
For a more in-depth analysis, read our latest Prices Byte.
The Center for Economic and Policy Research once again 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.*
CEPR was also number one in web traffic per budget dollar in 2011, getting more than twice the number of hits as its closest competitor. CEPR had ranked first in three of the five years from 2004-2008 and placed second in the other two years.
* 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.
Many of the leading voices in economic policy debates are telling us that excess government spending, like that characteristic of Western European welfare states over the past sixty years, leads ultimately to rising interest rates. This happens, it is argued, because excessive government spending is likely to crowd out private investment and consumption. This will slow growth and lead to higher inflation.
However, a cursory glance at recent data on government spending and the interest rates of government bonds reveals a different story. For 2011, we plotted government expenditure as a percentage of GDP versus the yields on ten-year government bonds for the OECD countries, and found a slight positive relationship between spending and interest rates, as is shown in the following figure.
While a small positive relationship appears to exist, as can be seen by the upward slope of the line of best fit in the chart above, regression analysis of bond yields and government expenditure showed that this relationship was not statistically significant. Any miniscule positive relationship can be attributed to a few countries with high government expenditure as share of GDP and high bond yields. These are the European economies of Greece, Portugal, and Ireland. While it is possible that government spending played a role in precipitating the current crisis in Greece, this is not the case for the other distressed economies. For instance, Ireland and Spain both ran budget surpluses in the years just before the recession. Noteworthy, also, are the many countries, such as France, Denmark, Finland, and Belgium, with high government expenditure and very low bond yields.