Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

At the Inequalities blog, Brendan Saloner, citing a perennial report from the Heritage Foundation, notes: "… many of the so-called poor appear to be living at a more middle-class standard. Most of them have fridges, microwaves, televisions, and even air conditioning and game systems. There are data that support this point, and it needs to be addressed. I have not heard a clear response from leftwing commentators."

There's actually no dearth of responses, including ones from Stephen Colbert and the Center for American Progress. Here's Colbert: 

And you would not believe some of the stuff poor people have in their homes! Luxuries like ceiling fans, DVD players, answering machines, and coffee makers. I don't have those things. I have central air, a Blu-Ray player, voicemail, and I go to Starbucks every day. Must be nice. Must be pretty nice.

I also recently had the chance to respond to Heritage's Robert Rector in a public radio debate with him. Rector's message is that we shouldn't be too concerned about economic insecurity and declining real incomes among the working class and middle class. In support of this message, he points to data showing that among households with income below the federal poverty line in 2005—an austere $19,806 for a family of two parents and two children that year, less than half of the income most Americans say such a family needs to "get along" at a basic level—most have refrigerators and cars, and some have computers and even own homes.

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Over at Cato, Cannon pimps for the Ryan Plan, but leaves out all the most important facts to make his case. Citing the Dartmouth Atlas, he writes, "one third of Medicare spending is pure waste. Since the amount of the [Ryan Plan] vouchers would be based on per-enrollee Medicare spending, they would essentially give Medicare enrollees 50 percent more money than they would need to purchase all the beneficial medical care that Medicare currently provides." Actually, this would be true only if they could use the voucher to buy back into Medicare, rather than purchasing private health insurance. According to the Congressional Budget Office, Medicare-equivalent health care spending is 12 percent larger when going through private insurance than through Medicare itself. CBO projects that private insurance will perform worse over time, so that by 2022 when Ryan's plan would go into effect, total spending through private insurance would be 52 percent higher than through Medicare.

Furthermore, the Ryan Plan increases the age of eligibility from 65 to 67 — greatly increasing the costs to those who would have been covered by Medicare. Combined with the higher prices, the Ryan Plan would raise individual spending on Medicare-equivalent health care by $256,000 over 20 years for each the first beneficiaries (currently age 54). In order save any money under the Ryan Plan, these first beneficiaries would have to cut their medical coverage by half. The problem only gets worse over time, so that today's 14 year olds would have to cut their coverage by nearly three-quarters.

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Lane Kenworthy has posted two extremely helpful graphs that try to gauge the efficiency of the US health-care system relative to those of other wealthy countries. The first shows life expectancy in each country, in 2007, against per-capita health expenditures in the same year.


Source: Lane Kenworthy.

The United States is a huge outlier. We spend the most –by far– and yet we also have the lowest life expectancy.

But, as Kenworthy notes, the US could be an outlier for reasons that don’t have to do with the efficiency of our health-care system. Our life expectancy might be lower because we have a much higher murder rate or a much higher incidence of obesity, for example. So, he offers a second graph that, for the same group of countries, traces out the relationship over time between life expectancy and per-capita health expenditures. In this graph, we can see to what extent additional health expenditures help to reduce life expectancy within each country.

Life expectancy versus health expenditures, 1970-2008

Source: Lane Kenworthy.

The United States is still a substantial outlier. In every other country in the sample, extra health-care spending is associated with much higher increases in life expectancy than we see in the United States.

Neither graph proves causality, but both –and especially the second graph– suggest that the US health-care system is expensive and inefficient relative to the systems in place in other rich countries.

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

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A roundup of the labor market research reports released this week and last week.

Center for American Progress

Workers and Their Health Care Plans: The Impact of New Health Insurance Exchanges and Medicaid Expansion on Employer-Sponsored Health Care Plans
Alan Reuther

Center on Budget and Policy Priorities

Letting Payroll Tax Cut Expire Would Shrink Worker Paychecks and Damage Weak Economy
Chuck Marr and Brian Highsmith

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Workers of color are substantially less likely to participate in an employer-sponsored retirement plan than white workers are. Over the years 2003-2009, for example, almost half of white workers (49.0 percent) participated in an employer-sponsored retirement plan, compared to only 42.6 percent of Asian American and Pacific Islander (AAPI) workers, 41.3 percent of black workers, and 26.6 percent of Latino workers.


Women (43.7 percent) are also generally less likely than men (45.4 percent) are to be in an employer-sponsored retirement plan. This holds true for white, AAPI, and black workers. Latino men, however, are less likely (25.3 percent) than Latino women (28.5 percent) to participate in an employer-sponsored plan.

retirement-race-fig2(Data note: All data are from the March Current Population Survey for the years 2004 through 2010, covering calendar years 2003 through 2009. The sample is all workers ages 18 to 64. Participation in an employer-sponsored plan requires both that the employer has a plan and that the employee participates in the plan. Participation does not require that the employer make a financial contribution.)

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According to the Bureau of Economic Analysis, in the second quarter of 2011 the United States produced goods and services at a $15 trillion annual rate (Table 1.1.5). The Congressional Budget Office, meanwhile, figures that the economy was then capable of producing $16 trillion per year. This implies a loss of $250 billion income over just three months.

From October 2007 through June 2011, the difference between what Americans might have produced and what they actually produced has a total value of $3.21 trillion. Amazingly, CBO projects that there is another $2.56 trillion in lost income yet to come over the next five years. That is, if CBO’s projections come to pass, we will have foregone income of $5.78 trillion over the course of the recession.

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The Consumer Price Index rose 0.4 percent in August and at a 2.6 percent annualized rate over the last three months, according to the Bureau of Labor Statistics' latest reports on the consumer price, U.S. import/export price and producer price indexes. By contrast, the CPI rose at a 4.6 percent rate from February to May and at a 5.6 percent rate the three months before that.

Average real hourly earnings fell again in August, 2.0 percent from its peak in June 2010. Earnings have only increased by 0.7 percent in the last four years, which means it will take until sometime in 2062 to see an increase in real earnings of just 10 percent. As long as this slow growth in earnings remains along with weak job growth, there is no reason to expect much domestic price pressure.  Worldwide commodity prices and a falling dollar, however, may contribute to inflation—particularly in the short run.

For more, read our latest Prices Byte.

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In a news story in the Financial Times, historian Alice O'Connor—whose Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth-Century History is must-read for any serious student of anti-povery policy—says "we are entering territory which looks like the period before we even starting fighting a 'War on Poverty' in the 1960s."

At 15.1 percent in 2010, the poverty rate appears quite a bit lower than the rates that prevailed in the 20th century before 1964. The official rate was 19 percent in 1964 when the Economic Opportunity Act was enacted, and 22.4 percent in 1959. What we have entered is Reagan-Bush I territory, when the poverty rate last crossed the 15-percentage-point level (15% in 1982, 15.2% in 1983, and 15.1% in 1993).

One important distinction between now and the Reagan era is that Congress and President Obama did more to help working-class people in 2009 and 2010—and less to harm them—than Reagan in the early 1980s. Unfortunately, things may get worse since Tea-Party inspired members of the current Congress seem hell-bent on blocking any new action to create jobs and bolster social insurance. 

Another important distinction between now and the period just before the War on Poverty is that income poverty had already been trending downward for more than a decade and a half back then—it was just over 40 percent in 1949 and had been cut in half by 1964. By contrast, over the last decade, poverty has been on the rise—going from 11.3 percent in 1999, it's lowest level since 1973 to 14.3 percent in 2009. In other words, things were steadily improving then, while today we've lost an entire decade of economic progress.

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I have been dismissive of the claim that the financial crisis has condemned the country to 8-10 years of high unemployment and low growth. This claim is derived from the book by Carmen Reinhart and Ken Rogoff, "This Time is Different."

Reinhart and Rogoff perform a valuable exercise in recounting the history of financial crises over the last six centuries. They note that these crises have been followed by a long period of adjustment in which economies are subject to weak growth and high unemployment. Based on this history, they and others have argued that the United States is condemned to a prolonged period of stagnation. The moral of the story is to stop your whining and live with it.

I find this to be a case of incredibly bad induction. If we had looked at the probability that newborns would live to age five, examining random 20-year intervals in different countries over the last six centuries, we would find that in most of these intervals, most newborns do not live to age five. If we therefore concluded that we should expect children born today to die before the age of five, we would be utterly crazy. The advances in health care, nutrition and sanitation over this period make it possible for the vast majority of children almost everywhere to survive to adulthood.

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The Census Bureau has released its annual report on income and health insurance coverage in the previous year, and as expected the report shows a substantial deterioration in Americans' economic security between 2009 and 2010. Substantial income losses for middle- and working-class Americans and an increase in the number of Americans without health insurance cap off what can only be called a "lost decade" in economic terms. However, things could have been worse: The 2009 Recovery Act and the 2010 Affordable Care Act, as well as existing social insurance, moderated the declines.

The latest CEPR Poverty Byte looks at the new Census numbers, and in a new paper Shawn Fremstad offers recommendations for addressing poverty in a jobs and economy framework.

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Back in the summer of 2009, Nathan Lane and I wrote a CEPR report (pdf) documenting something that is surprising to many Americans. The United States has just about the smallest small-business sector in the world’s rich economies.

Our report used OECD data to look at the share of workers in small businesses in each of a variety of industries (manufacturing, computer-related services, research and development, “restaurants, bars, and canteens”, real-estate activities, “renting of machinery and equipment”). These were all of the industry categories for which the OECD had produced comparable data on the employment share by enterprise size. Unfortunately, at that time, the OECD had no numbers for the distribution of employment by enterprise size for the economy as a whole.

But, the OECD’s Entrepreneurship at a Glance 2011 now reports internationally comparable data on total small-business employment for a collection of rich and selected middle-income countries. The first figure below shows the share of total national employment in each country in enterprises with one to nine employees. The United States is dead last, with about 11 percent...

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This is an abridged version of a CEPR paper available here.

There are many economists who argue that temporary tax cuts, like those in 2009 stimulus and the ones proposed by President Obama last night, have no impact on the economy. They argue that people will save a temporary tax credit rather than spend it.

Stanford University Professor (and Hoover Fellow) John Taylor is one of the economists making this argument. He purports to show that there was no statistically significant increase in private consumption of goods and services as a result of certain types of government transfers made over the last decade.  According to his analysis, it is unclear whether an additional dollar of government transfers led to any additional spending, or, alternatively, whether it raised personal savings by more than one dollar.

However, a closer look reveals something quite different.

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There are plenty of depressing numbers to highlight from last Friday’s employment report from the Bureau of Labor Statistics. And you can check out the latest Jobs Byte to get the details, but I’d like to draw attention to this number: 16.7 percent. This is the unemployment rate for blacks in August. Last August, that number was 16.3 and last month it was 15.9. Neither of these numbers are particularly uplifting, and that we have surpassed them both speaks to the utterly devastating situation in which black adults have found themselves.

ThinkProgress pointed out earlier this week that this is the highest level of black unemployment in 27 years. The current state of employment in the black community does more than remove much-needed income from families; it has lasting effects on the children within those families. A recent report from EPI highlights the numbers of children feeling these effects. In 2010, 15.8 percent of black children had at least one parent unemployed, up from 8.2 percent in 2007 and compared with 8.3 percent for whites in 2010. Those numbers become scarier when we look at the share of black children with a parent underemployed, which includes involuntary part-time workers and those who want, and are available for work but have not searched for a job in the past month. Nearly one-in-four (24.3%) in 2010 have at least one parent underemployed, up from 13.7 percent in 2007 and compared with 14.3 percent for whites in 2010. Moreover, these aren’t short spells of unemployment; the percent of long-term unemployed, those out of work for at least 27 weeks, was 48.4 percent last year.

A 2009 report by researchers at UC Davis showed that parental joblessness increases the probability of a child repeating a grade by about 15 percent. Given the link between academic achievement and parental unemployment, we are witnessing what could be a detrimental cycle for black families. High unemployment rates lead to a generation not reaching their educational, and thus job, potential, placing us firmly back at square one. If children are our future, I hope someone does something about jobs today.

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Somehow the European Central Bank (ECB) is managing to avoid the intense anger that it richly deserves. While some of us have lambasted the Fed for failing to recognize the largest housing bubble in the history of the world (or perhaps worse, not realizing that its collapse would devastate the economy), the ECB scores just as highly in the economic incompetence category. Furthermore, it is compounding the destruction caused by its incompetence with its continued commitment to its 2 percent inflation target.

In this respect it has performed far worse than the Fed in the post-collapse world. While the Fed pushed its overnight interest rate to zero and has committed to keep this rate for the next two years, the ECB never went below 1.0 percent. Incredibly, it actually began raising rates earlier this year. Its overnight rate is now 1.5 percent.

Even more serious is its efforts to impose austerity throughout the euro zone. Somehow the ECB president never learned basic economics. If they force austerity throughout the euro zone the outcome is even slower growth.

Furthermore, by failing to commit itself to supporting the debt of troubled countries it is terrifying world financial markets with the risk of another Lehman-style meltdown. The stock market plunge last month that was widely attributed to the S&P downgrade of U.S. debt was almost certainly due to fears of a meltdown stemming from the euro crisis. Certainly this is the most obvious explanation of the current turmoil.

The question is why isn't the public more outraged at these unelected central bankers threatening the world with another financial crisis. Haven't they already done enough damage?

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A roundup of the labor market research reports released this week.

Center for Economic and Policy Research

Improving Job Quality: Direct Care Workers in the U.S.
Eileen Appelbaum and Carrie Leana


The Fraying of Oregon’s Middle Class

Economic Policy Institute

Putting America Back to Work: Policies for Job Creation and Strong Economic Growth
Ross Eisenbrey, Lawrence Mishel, Josh Bivens, Andrew Fieldhouse

Sustained, High Joblessness Causes Lasting Damages to Wages, Benefits, Income and Wealth
Lawrence Mishel and Heidi Shierholz

Institute for Women’s Policy Research

Recommendations for Improving Women’s Employment in the Recovery

San Francisco Employment Growth Remains Stronger with Paid Sick Days Law Than Surrounding Counties
Kevin Miller and Sarah Towne

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Matt Yglesias offers some “Cynical Thoughts on The Minimum Wage.” Cynical is fine, but informed would be better.

Most of the post focuses on what Yglesias believes are enforcement problems with the minimum wage. He recites an anecdote about a magazine that reclassified workers as interns rather than pay them the minimum wage; links to a series of exemptions to the federal minimum wage; and offers some hypothetical scenarios that might allow employers to sidestep the law.

But, we actually have good empirical evidence on what happens after the minimum wage goes up. The series of three graphs below, taken from David Card and Alan Krueger’s landmark 1995 book on the minimum wage, are just one example.

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There was no job growth in August and the job growth numbers for the last two months were revised downwards by 58,000, according to the latest Bureau of Labor Statistics' employment report. Job growth over the last three months has now averaged 35,000, well below the 90,000 needed to keep pace with the growth of the labor force. Peculiarities like the recent Verizon strike may have reduced the number of jobs in August, but adjusting for that particular factor, job growth would have averaged 50,000 over the last three months. The unemployment rate remained unchanged at 9.1 percent.

The employment-to-population ratio (EPOP) did edge up from its recession low to 58.2 percent. The number of people involuntarily working part-time jumped up by 430,000, to 8.8 million. A disproportionate share of the increase in employment in the household survey was among blacks, who saw a rise of 155,000 in employment. However, this went along with a jump in the African American unemployment rate of 0.8 percentage points to 16.7 percent. The unemployment rate for black men rose by 1.0 percentage point to 18.0 percent and for black teens by 7.3 percentage points to 46.5 percent. The EPOP for black teens was just 13.0 percent, a new low for the downturn.

The BLS report shows an economy that is growing, but at such a slow pace that it is not even creating sufficient jobs to keep pace with the growth of the labor force. It is difficult to see how this will change absent a boost from the government.

For more, read the latest Jobs Byte.

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Source: Robert Gordon

The eminently mainstream economist Robert Gordon has posted a surprisingly hard-hitting paper at the voxeu site. The brief paper estimates that the U.S. economy is currently short about 10 million jobs (14 million using a less conservative estimate –see graph above).

What makes the paper hard-hitting is that Gordon argues a major cause of this enormous employment gap is the increase since the 1980s in “managerial power.” In Gordon’s view, the problem is that “workers are weak and management is strong.”

The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Meanwhile, the rise in the importance of stock options as a share of total executive compensation has encouraged managers to come out “with all guns blazing to [cut] every type of costs, laying off employees in unprecedented numbers.”

His econometric analysis suggests that this combination of weaker worker bargaining power and changes in corporate governance have led to a 50 percent higher level of layoffs today for any given decline in aggregate demand. “For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard.”

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

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

CEPR on Haiti
CEPR’s recent paper argues that cholera treatment and prevention efforts in Haiti have fallen woefully behind, leading to thousands of preventable deaths, even though the dramatic rise in new cases this spring and summer was entirely predictable. CEPR’s paper was mentioned in this release from Partners In Health and this report by Free Speech Radio News. Mark recently accompanied CEPR Board Director Danny Glover on a trip to Haiti, where they observed firsthand the attempted eviction of people made homeless by the earthquake from their camp (see a photo here).  Mark questions where the billions of dollars in disaster aid have gone in this op-ed in The Guardian, and he argues for the withdrawal of MINUSTAH troops from Haiti in this piece in Folha de São Paulo (Brazil),  Mark also discussed these issues on WBAI 99.5FM’s “Talk Back ”. You can read more about Haiti in CEPR’s Haiti: Relief and Reconstruction Watch blog.

The End of Loser Liberalism is Here!
Dean Baker’s new book, that is. In The End of Loser Liberalism: Making Markets Progressive, Dean argues that progressives hurt their cause whenever they accept conventional wisdom that conservatives are for the "free" market while progressives are for government intervention in the market economy. Dean says that this is bad policy and bad politics. He then explains how markets can be restructured to lead to greater equality rather than redistributing income to a small group of elites.

Dean published the book under a Creative Commons license and as a free electronic download.  As he argues in the book, Dean sees copyrights as a form of government intervention in markets that leads to enormous inefficiency, in addition to redistributing income upward. Distributing the book for free not only enables it to reach a wider audience, but Dean hopes to drive home one of the book's main points via his own example. (Hard copies will be available for purchase - at CEPR’s cost - in the near future.)

Instead, CEPR is asking that readers consider making a donation to CEPR help cover our expenses, if possible. All donations will be used to help CEPR fight for the progressive economic policies described in the book. So please download your free copy today, and share freely with your friends!

(Note from Dean: “In response to many readers’ questions, the Bichon on the cover is Biscuit, one of my three dogs. The others are an adorable doberman and a lab shepherd mix. All three are shelter dogs.”)

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According to several conservative bloggers and columnists, back in the 1990s economist Alan Krueger (with his colleague David Card) wrote a "fatally flawed,"  "faulty," "tortured," and subsequently "disputed," "debunked,"  and "demolished" study on the employment impact of the 1992 increase in the New Jersey State minimum wage.

This 15-year-old research is in the news now because Krueger has just been nominated by the White House to the head of the Council of Economic Advisors. I wrote a long post yesterday responding to the wildly off-base criticisms of Krueger’s work made in a specific post at the National Review Online’s "The Corner," but I want to take up the issue again today because I am struck by a feature common to all of yesterday’s conservative outpouring on the Card and Krueger research.

Every one of these pieces mentions implicitly or explicitly (1) Card and Krueger’s 1994 study (pdf) based on a telephone survey of 410 fast-food restaurants, only to go on to claim that this work was later refuted by (2) Neumark and Wascher’s 1995 NBER working paper (which analyzed payroll data from a non-random sample of 235 fast-food payroll records). But, every one of these attacks on Card and Krueger is completely silent about, and in fact, appears to be completely ignorant of (3) Card and Krueger’s 2000 follow-up paper (pdf) published in the American Economic Review.

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Last week was the 15th anniversary of federal legislation that replaced the Social Security Act's Aid to Families with Dependent Children (AFDC) program with a block grant called Temporary Assistance for Needy Families (TANF). Conservatives and even some liberals referred to this as the 15th anniversary of "welfare reform." But conflating "welfare reform" with the 1996 law is misleading, and not particularly helpful for progressive reformers who want to improve the TANF program, which has turned out to be a largely failed conservative experiment.

Rather than a singular event that took place in 1996 there are really two distinct categories of welfare reform that unfolded in the late 1980s and the 1990s. First, a moderately progressive welfare reform that was mostly put in place in the late 1980s and early 1990s, and, second, a "truly conservative" one, the 1996 legislation that established the TANF block grant.

Key elements of progressive welfare reform during this period included: 1) the large-scale expansion of the Earned Income Tax Credit (EITC) in 1993—in 1994, federal expenditures on the EITC exceeded expenditures on AFDC/TANF for the first time; 2) increases in the federal minimum wage in the first half of the 1990s; 3) the development of several progressive welfare reform demonstration projects, particularly the Minnesota Family Investment Program (MFIP) and the New Hope Project, in the early 1990s; and 4) the expansion of Medicaid eligibility to all very low-income children in the late 1980s and early 1990s. The basic idea guiding progressive reform during this period was to "make work pay."

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