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Austerity and the Employment Rate Print
Written by Ben Wolcott   
Monday, 09 June 2014 16:07

In 2010, after an initial round of coordinated stimulus from both wealthy and developing countries, deficit hawks around the world regrouped. Pointing to growing deficits and debt, they demanded that countries reverse course and begin moving toward balanced budgets. The deficit hawks argued that deficit reduction could be accomplished without impairing growth because of the effect it would have in boosting confidence among businesses and consumers.

Many economists argued against this drive towards austerity at the time. They noted and rigorously explained the fallacious logic in the idea that deficit reduction could be expansionary. They also pointed out how fiscal policy had already saved the economy from a second depression and that more stimulus would likely be necessary. However, now we have more than three years of data, so we no longer have to speculate. A simple picture can be worth a thousand words (or in this case, billions).



Private Equity at Work: Limit Leverage to Limit Risk Print
Monday, 09 June 2014 15:28

The 2008-2009 financial crisis ended well for Wall Street, with little in the way of financial reform and Wall Street veterans in positions of influence on regulatory bodies. Perhaps, though, the provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and more recent financial reform efforts, modest as they are, have begun to bite. The limited oversight the Dodd-Frank Act provides to the Securities and Exchange Commission (SEC) has already led to suspicions of misbehavior or even fraud. Half the reviews conducted by the SEC to date revealed a failure of PE firms to share fees charged to portfolio companies with investors in their PE funds. Of even greater consequence, perhaps, are actions taken by regulatory agencies in the last year to limit the excessive use of debt in leveraged buyouts of Main Street companies.

Post-mortems of the financial crisis make clear the dangers to the financial system of gambling with other people’s money, making excessive use of debt (leverage), and shifting the risks of failed investments to others. This could as well describe today’s private equity business model.



Labor Market Policy Research Reports, June 3-6, 2014 Print
Monday, 09 June 2014 11:31

The following reports on labor market policy were recently released:



Update on Low-wage Workers Print
Written by Janelle Jones and John Schmitt   
Saturday, 07 June 2014 15:07

In a 2012 Issue Brief and a 2013 blog post, we reported on the dramatic change since 1979 in the composition of the low-wage workforce. Low-wage workers today are much older and much better educated than they were at the end of the 1970s. 

Here are the numbers updated through 2013. 


low-wage workers 1979 2013


(Note that if you compare across all three sources, the 1979 numbers change slightly with each new set of numbers. This is because the same dollar cut-off in the most recent year --2011, 2012, or 2013-- corresponds to a slightly different inflation-adjusted value of that cut-off in 1979. The 2011 numbers differ further --though, again, only slightly-- because we initially used a $10.00 cut-off for 2011 and then switched to a $10.10 cut-off for 2012 and 2013 to reflect the level currently under consideration in Congress.)

Piketty in One Graph Print
Friday, 06 June 2014 09:52

This graphic summarizes the key inequality and policy trends (for the U.S.) traced in Thomas Piketty’s Capital in the Twenty-First Century. Scrolling through the inequality metrics suggest the key themes in Piketty’s examination of the U.S. case: the now-familiar “suspension bridge” of income inequality, dampened only by the exceptional economic and political circumstances of the decades surrounding World War II; the growing share of recent income gains going to the very high earners (the 1% or .01%); the stark inequality within labor income (see the top 1% and top 10% wage shares) generated by the emergence of lavishly-compensated “supermanagers”; and a concentration of wealth that fell little over the first half of the twentieth century and has grown steadily since then.



Jobs Flash: Labor Force Participation Rate Unchanged in May Print
Written by Dean Baker   
Friday, 06 June 2014 07:21

The May employment report showed another healthy month of job gains, with the economy adding 217,000 jobs. This brings the three month average to 234,000. If this rate is sustained, it will lead to a substantial decline in unemployment in the months ahead. However, this is difficult to reconcile with the weak growth the economy has seen in recent quarters, hence the fall in reported productivity in the first quarter. The job gains were concentrated in health care (33,600), restaurants (31,700), social assistance (21,300) and employment services (20,200).

To the surprise of many, the unemployment rate was unchanged in May. This is due to the fact that the 0.4 percentage point plunge in labor force participation reported for April was not reversed. The labor force participation rate remained at 62.8 percent.

Other news in the household survey was more positive. The number of involuntary part-time workers fell again, while the number of voluntary part-time workers rose. Also the percent of workers who are unemployed due to the fact that they voluntarily quit their jobs jumped to 8.9 percent, the highest level since October of 2008.

Labor Market Research Reports, May 19 – June2 Print
Monday, 02 June 2014 13:54

The following reports on labor market policy were recently released:



CEPR News May 2014 Print
Friday, 30 May 2014 16:04

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



#AAPI Workers the Least Likely to Be in Private Sector #Unions Print
Wednesday, 28 May 2014 09:48

Since it's Asian American and Pacific Islander (AAPI) Heritage Month, CEPR decided to take a look at some Census data about AAPI workers. Last week, we talked about low-wage AAPI workers and how an increase in the minimum wage could affect them.

Another interesting story is that of labor unions and AAPI workers. Along with Latinos, AAPIs are the fastest growing sector of the overall workforce as well as unions. The most recent data reveals that 1 in 9 AAPI workers is unionized, which is significantly lower than the rate for whites and blacks, and slightly higher than that of Latino workers.



Why Don't More People Go To College? Print
Tuesday, 27 May 2014 15:35

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.



1 Million #AAPI Workers Would Get a Raise if the #MinimumWage Were $10.10 Print
Wednesday, 21 May 2014 10:39

Since May is Asian American and Pacific Islander (AAPI) Heritage Month, CEPR's looked into Census data about AAPI workers and found some interesting tidbits.

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.



Summers’ Review of Piketty’s Book Gets Private Equity Wrong Print
Monday, 19 May 2014 10:49

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.



Labor Market Research Reports, May 5 – 16 Print
Friday, 16 May 2014 19:10

The following reports on labor market policy were recently released:



New Book on Private Equity Tackles Myths About the Industry Print
Written by Alan Barber   
Friday, 16 May 2014 11:05

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.



The Death Toll from Bursting Bubbles and Balanced Budget Worship Print
Written by Dean Baker   
Thursday, 08 May 2014 10:03

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.



insurance-recession 8295 image001

                                        Source: Census Bureau and author's calculation.


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.

Questions for Janet Yellen Print
Tuesday, 06 May 2014 14:40

Tomorrow morning, Federal Reserve Chair Janet Yellen will appear for the first time before Congress' Joint Economic Committee. And on Thursday morning, she'll testify before the Senate Budget Committee.

Especially after last week's divergent economic data -- slow 1st quarter economic growth, a robust increase in jobs, and a sharp drop in labor force participation -- the financial markets likely will be hanging on her every word about the nation's current economic outlook and the Federal Reserve's future actions.

In advance of these hearings, here are some pertinent questions that could lead to some very interesting and enlightening responses:

  1. 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?

  2. 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? 

  3. 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? 

  4. 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?
After the #FlashCrash, Nations Look to a #WallStTax Print
Tuesday, 06 May 2014 13:07

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.



Sneak Peek at the New CEPR.net Print
Friday, 02 May 2014 14:19

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.



Jobs Flash: April Data Show Sharp Drop in Unemployment as People Leave Labor Market Print
Written by Dean Baker   
Friday, 02 May 2014 09:05

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.

Low- and Middle Income People’s Living Standards Are Mostly Affected by the Economy and the Policy Decisions that Shape It Print
Friday, 02 May 2014 08:48

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.”



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