At the Upshot today, David Leonhardt asks if college is “worth it” and answers with a resounding “clearly,” citing data he obtained from the Economic Policy Institute. Leonhardt's answer, however, raises a bigger question, which he leaves unexamined: if college is such a good investment, why aren't more people making it?
The data he presents show a big increase between 1979 and 2013 in the earnings of college graduates relative to high school graduates (the top line in the chart below). The gap, which has always been large, grew steadily for more than 20 years from the end of the 1970s into the early 2000s before slowing down in the 2000s. Leonhardt makes much of the uptick in the last couple of years, which puts the returns to college at an all-time high, but the growth in the college premium has clearly decelerated somewhat since about 2002, even with the finishing flourish in the chart.
For example, the President and some Congressional leaders would like to see the federal minimum wage go up to $10.10 per hour. If that were to happen, the data show that just over 1 million AAPI workers would be directly affected (that's 13.7% of AAPI workers). And economic research shows that a significant number of workers making just above the $10.10 line would also get raises.
Larry Summers in his review of Capital in the Twenty-First Century gives Thomas Piketty high marks for demonstrating “absolutely conclusively” that those at the very top – the top 1 percent, top .1 percent, and top.01 percent – have claimed an increasing share of income and wealth since 1980. Indeed, as Summers notes, the disparity between the top 0.1 percent and the rest of the top 10 percent has grown wider than the gap between the income of the top 10 percent and that of average income earners. As Summers acknowledges, this cannot be explained by a lack of worker skills.
The private equity industry is often at the center of a debate over whether it saves failing businesses or undermines healthy companies at the expense of creditors, vendors, workers and retirees. This should not be surprising. Since modern private equity got its start with the first leveraged buyout of a publicly traded company in 1979, the industry’s complex organizational structures allowed for little oversight and government regulation. Much of the analyses available on PEs are positive accounts by industry insiders and slightly more modest takes by finance economists, and as a result, it has been difficult to assess the economic impact of this $3.5 trillion dollar industry.
Noting this lack of transparency, the Securities and Exchange Commission (SEC) recently began an investigation of industry practices. Since 2012, SEC staffers have reviewed roughly 400 PE funds and the results are striking. Of the firms reviewed, general partners at 200 firms collected fees and expenses from the companies they managed without disclosing or sharing these fees with investors.
While the SEC examinations focus on the need for greater oversight of the industry, Private Equity at Work: When Wall Street Manages Main Street, by CEPR’s Eileen Appelbaum and Cornell University’s Rosemary Batt offers a broader and more comprehensive examination of the private equity business model and its impact on the U.S. economy and labor market. Their analysis draws on original cases, interviews with PE and pension fund managers, legal documents, bankruptcy proceedings and academic scholarship.
A new study on the reduction in mortality rates in Massachusetts following the implementation of RomneyCare has received a great deal of attention. The analysis finds a substantial reduction in mortality rates associated with the extension of insurance. Furthermore, it identifies this reduction with lower death rates from treatable conditions, like heart disease.
Based on this analysis, some people have pointed to the additional deaths that we can expect to see in states that refuse to expand their Medicaid programs. This refusal stems from the opposition of Republican officeholders at the state level to cooperate with the Affordable Care Act (ACA). Since the Supreme Court decision made it optional for states to expand their Medicaid program, most of the states that are under Republican control have refused to do so.
While it is worth calling attention to the cost in human lives of this decision, it is also possible to use the new study to make a more bipartisan condemnation of public policy. The Great Recession was the result of decisions by leaders in both political parties to set the economy on a path of bubble-driven growth. In this sense they share responsibility for the downturn that followed the collapse of the housing bubble.
They also share responsibility for the failure to provide adequate stimulus to boost the economy back to full employment. We have known at least since Keynes wrote the General Theory in the 1930s how to pull an economy out of a severe downturn: spend money. We tested this theory with massive spending during World War II which pushed the unemployment rate down to 2.0 percent.
However spending to grow the economy and create jobs is not on the political agenda in Washington. There is a cult of balanced budgets, which argues that we need to keep our deficits down even in a period of high unemployment. Followers of this cult are content to keep millions of people unemployed or underemployed so that we can have lower budget deficits.
According to this new study, the folks pushing lower budget deficits are also prepared to see thousands of people die. The reason is that we know that fewer people have health insurance coverage during periods of high unemployment. And from this study, we know that people without health insurance coverage are more likely to die.
The exact impact of unemployment on coverage is difficult to determine. Most of the people who have insurance who are below age 65 (the cutoff for Medicare eligibility) are covered through their employer or the employer of a family member. This means that when more people have jobs, more people will have insurance. However, fewer employers are covering people, which is a factor going in the opposite direction over time.
If we look at the period before the downturn, the number of people with coverage through an employer had been rising consistently. It went from 177.4 million in 2003, the year when the economy first began adding jobs following the prior recession, to 179.0 million in 2007.
It is reasonable to assume that this number would have at least stayed constant had the economy not collapsed the following year. As a result of the recession the number of people insured through an employer fell to 169.4 million in 2010, before recovering somewhat to 170.9 million in 2012, the last year for which data are available.
Some of the people who lost employer-based coverage were able to get government insurance, primarily Medicaid. However many were not. The number of uninsured rose by 5.9 million in 2010 compared to where it had been in 2007.
Based on the Massachusetts study we can also attach an additional number of deaths to this rise in the number of the uninsured. This is shown in the figure below.
Applying the estimate from the Massachusetts study of one additional death for every 840 uninsured people, there would have been 6980 additional deaths in 2010 as a result of the downturn. The cumulative total of additional deaths for the years 2008 through 2012 would be 23,620. If 2013 is similar to 2012 in terms of the number of uninsured, the total additional death count through 2013 would be close to 28,000.
These numbers are obviously crude estimates. Many factors other than insurance will have affected death rates in these years, including other effects of the downturn. But the Massachusetts study gives us a basis for projecting the cost in human lives of the downturn and the prolonged period of high unemployment that followed.
In advance of these hearings, here are some pertinent questions that could lead to some very interesting and enlightening responses:
Since Shinzo Abe took over as prime minister in Japan, it has pursued a policy of aggressive fiscal stimulus, coupled with a central bank commitment to raising the inflation rate to 2.0 percent. This is in spite of the fact that its debt to GDP is more than twice as high as in the United States. Since then the economy has picked up and the employment to population ratio has increased by 1.6 percentage points. This would be the equivalent of more than 4 million new jobs in the United States. Do you think Japan's experience offers any lessons for the United States?
The Fed's preferred measure of inflation, the core personal consumption expenditure deflator, has risen at just a 1.2 percent annual rate, well below the Fed's 2.0 percent target. With inflation running below target would you view an uptick in inflation as a positive development rather than cause for alarm?
One of the main factors that led to the financial crisis is that the investment banks issuing mortgage backed securities (MBS) faced little downside risk if these assets went bad. Are you concerned that giving the investment banks the option to issue MBS that would carry a 90 percent guarantee, as envisioned on Johnson-Crapo, will create an even worse problem of moral hazard?
It appears that a core group of countries in the euro zone stand to move ahead with a financial transactions tax. This will lead to a modest increase in the cost of individual transactions and presumably a reduction in the volume of trading. If the United States were to impose a similar tax, would you be worried that the resulting decline in liquidity would obstruct the smooth working of financial markets?
Four years ago today, the Dow Jones dropped almost 1000 points in minutes. This frightening episode, now known as the Flash Crash, demonstrated how computerized high-frequency trading (HFT) could exacerbate swings in financial markets to dangerous magnitudes.
On this anniversary, coincidentally, several European nations announced that they have agreed move ahead with a multi-national financial transaction tax (FTT) by the start of 2016 at the latest. While originally proposed in response to the 2008-09 world financial crisis, the EU FTT has received renewed attention as an instrument to help slow down overheated trading as well.
CEPR’s webmaster has been hard at work overhauling and revamping CEPR’s (admittedly outdated) website, and we’re thrilled with the results so far. We wanted to give you an exclusive sneak peek at the new cepr.net (click on the image below), but before we do, we would like to ask you to please make a donation to support this effort, as well as all of our research, analysis, outreach, publications – everything we do.
The unemployment rate fell from 6.7 percent in March to 6.3 percent in April, but the drop was entirely the result of 800,000 people leaving the labor force. Employment, as measured in the household survey, actually fell by 73,000. The employment to population ratio remained unchanged at 58.9 percent.
Women and white teens were the big gainers, with the unemployment rate for women falling by 0.5 percentage points to 5.7 percent. The unemployment rate for white teens fell by 2.4 percentage points to 15.9 percent. The unemployment rate for black teens increased by 0.7 percentage points to 36.8 percent, although their EPOP also rose by 1.4 pp. The unemployment rate for Hispanics also fell sharply from 7.9 percent to 7.3 percent.
The establishment survey showed an unambiguously positive picture with the economy adding 288,000 jobs. With upward revisions to the prior two months' data, the average for the last three months has been 234,000.
I agree with everything Dean Baker has to say in his post on the NYT article on changes in living standards of low-income people, but have a few additional thoughts.
Reporter Annie Lowrey is mostly right to say that: “despite improved living standards, the poor have fallen further behind the middle class and the affluent in both income and consumption.” But she’s on less firm ground when she says “two broad trends account for much of the change in poor families’ consumption over the past generation: federal programs and falling prices.”
The rate of GDP growth slowed to just 0.1 percent in the first quarter, largely as a result of sharp reversals in exports and investment in equipment. In the fourth quarter, exports had grown at a 9.5 percent annual rate adding 1.23 percentage points to fourth quarter growth. Equipment investment rose at a 10.9 percent rate adding 0.58 percentage points to growth. Both numbers were largely reversed in the current quarter, with exports shrinking at a 7.6 percent rate and equipment investment falling at a 5.5 percent rate. Together these drops subtracted 1.39 percentage points from growth for the quarter.
There was also a reversal on inventories, which showed a slower rate of accumulation in the quarter. As a result, they subtracted 0.57 percentage points from growth in the quarter. They had added 1.87 percentage points to the strong 4.1 percent growth number reported for the third quarter of 2013.
One strong spot was health care spending, which added 1.1 percentage points to growth for the quarter. This is undoubtedly the effect of the Affordable Care Act. Presumably this indicates a one-time jump and not a higher rate of growth going forward. While the weakness in the first quarter number is clearly overstated by focusing on the 0.1 percent overall growth figure, this report suggests GDP growth might for 2014 might be somewhat lower than most forecasters had expected.
At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state).
Last month, CEPR looked at state-by-state employment growth in the first two months of 2014, highlighting these 13 minimum wage-raising states for easy comparison. Using new employment data from the BLS, we can now update these figures with data from the month of March.
Early on in his (rightly) highly complimentary review of Thomas Piketty'sCapital in the 21st Century, Paul Krugman declares: “This is a book that will change both the way we think about society and the way we do economics.” Krugman is certainly correct about the impact that Capital in the 21st Century will have on the way we think about the world. But, I wonder whether the book will have much impact on the progressive policy agenda in the United States.
Last week, when Piketty was in Washington, DC, I attended one of his book events (at the Economic Policy Institute with co-sponsorship from the Washington Center for Equitable Growth) and watched another (at the Urban Institute) online. At those events, as in the book, Piketty warned that unless we can lower the rate of return to capital (r) below the rate of growth (g) in the overall economy, it will be very hard to block rising inequality in income and wealth at a national and a global scale. Piketty's preferred policy for getting “r” below “g” is a steep, global, progressive wealth tax.
Silicon Valley has for some time prided itself on a supposedly novel approach to corporate practice. High-tech firms, and the luminaries who lead them, have espoused doctrines pledging to think differently, not be evil, or otherwise changing or breaking with traditional corporate behavior. While these firms may at times fail to live up to their high-minded ideals – accumulating vast cash reserves beyond the purview of the US tax code, and shifting their workforces overseas, much like their corporate peers outside of the Valley – they have gotten a pass from much of the public for their well-minded intentions (not to mention savvy marketing campaigns).
Lawrence Summers, former U.S. Treasury Secretary, will deliver the keynote address. This conversation is especially crucial in the context of continuing high unemployment and growing inequality, even after 5 years of economic recovery.
Convened by Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities and previously Vice President Biden’s chief economic adviser, CEPR co-director Dean Baker will be one of the featured panelists. They'll be joined by economists Laurence Ball, Kevin Hassett, and Susan Houseman, and other renowned public policy experts.