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

Even former President Bill Clinton thinks that structural unemployment – unemployment stemming from a mismatch between job seekers' skills and job requirements – is an important cause of unemployment today. One oft-cited cause of structural unemployment is "housing lock," which happens when unemployed workers can't move to where the jobs are because they can't sell their houses in depressed housing markets.

However, according to a recent CEPR analysis of data from the January 2010 Displaced Workers Survey (DWS), staying rates for displaced workers in states where house-price declines were steepest have not been significantly different from those in states where there was little or no change in house prices.

If housing lock existed, we would expect to see the inter-state migration rates to fall after the housing bubble burst in 2007. But, as economists Greg Kaplan and Sam Schulhofer-Wohl recently showed, inter-state migration rates have not responded in any obvious way to the recession. Instead, they've continued on their same long-term path evident from 1996.

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The NYT treated us to this column from a recent college grad complaining about the prospect that he will be faced with higher taxes to pay for his parents' and grandparents' Social Security and Medicare. The idea that our children and grandchildren are going to be poorer on average than we are is a regular theme of much of the budget reporting and advocacy work (think Peter Peterson funded enterprises) that we see regularly.

It is of course absurd on its face, as all economists and budget analysts know. Real per capita disposable income has risen at average rate of just under 2.0 percent year as shown in the chart below.


Source: Bureau of Economic Analysis.


All projections show that real per capita disposable income will continue to rise, meaning that future generations will on average be richer than we are today and much richer than our parents and grandparents' generations. Of course there is an issue of inequality, if most of the gains from growth go to the Goldman Sachs-Mark Zuckerberg types, then most today's children may not be much better off than their parents and grandparents, but that is an issue of inequality within generations, not between generations.

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The Republican proposals to slash the budget seem to work from the premise that if we fire government employees that we will induce private employers to hire more workers. This runs directly opposite to the idea behind the stimulus, that if the government stimulated demand by spending money and/or cutting taxes it would create more jobs. Interestingly, there is new research that indicates that the stimulus did raise employment. In fact, it seems that its effect was even larger than the Obama administration had predicted.

But the Republicans seem uninterested in these research findings. They instead claim that the best way to create private sector jobs is by having the government fire workers and spend less.

It is difficult to follow the logic of this view. If we think of a cross section of employers – hospitals, construction companies, car factories, retail stores and restaurants – which ones on this list do we think will hire more workers after a big round of federal budget cuts and layoffs?

Do we think that hospitals will suddenly rush out and hire more nurses and doctors because because of the National Institutes of Health is cutting funding for cancer research? Will Wal-Mart expand its sales staff because the government is laying off people from Head Start? These stories don’t seem very plausible.

Undoubtedly some of the government employees losing their jobs will be experienced and highly educated workers who private employers will be anxious to hire, but this will generally be for positions that would have existed in any case. These former government employees will simply be displacing other workers who would have held these jobs; there will not be new jobs in the private sector created for them.

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One of the most e-mailed articles on the New York Times webpage today is "Report Urges Even Higher Global Retirement Ages," about a new OECD report, “Pensions at a Glance 2011.”  The article summarizes the report:

Retirement ages in advanced economies will have to rise more than currently planned if countries hope to cover the increase in costs caused by aging populations, a global economic organization warned Thursday....

In a report, the organization said that by 2050, the average age in industrialized countries for drawing pensions would reach 65 for both sexes. This represents an increase of about 1.5 years for men and 2.5 years for women from current levels.

Question: When will the OECD bring their own pension scheme into accordance with their recommendations?  According to the OECD's salaries and benefits webpage, OECD staff can start receiving reduced pensions at the ripe old age of 51:

The maximum age for retirement is 65, but staff members are entitled from the age of 63, and after at least 10 years of service, to a pension amounting to 2% of the final basic salary per year of service up to a maximum of 70 per cent for 35 years of service. A reduced pension can be paid to retiring staff members from the age of 51.

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This week, we post links to reports from Center for American Progress, Center for Economic and Policy Research, Center on Budget and Policy Priorities, Demos, Economic Policy Institute, and National Employment Law Project.

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Earlier this week, my colleague John Schmitt and I released a paper, “Deconstructing Structural Unemployment,” highlighting some additional data that counters the argument coming from some quarters that what we are seeing today is a dramatic increase in structural rather than cyclical unemployment. We used data from the Bureau of Labor Statistics’ Displaced Workers Survey to show that even though construction workers were more likely to become displaced over the three years 2007-2009, they were strikingly similar to other workers in terms of finding new work, being geographically mobile, and taking pay cuts in new jobs. We also looked at whether or not “housing lock” – immobility caused by decreases in housing prices – might be contributing to structural unemployment, and found that the effects are miniscule and, regardless, not caused by structural problems in the labor market.

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Andrew Sullivan has put forward a dramatic proposal for means testing Social Security. He wants to eliminate all Social Security benefits for individuals with non-Social Security incomes above $40,000. In addition, he wants to raise the retirement age to 70. Let's take these in turn.

First, $40,000 is probably a bit low for most people's definition of wealthy. Most people probably don't think of firefighters and nurses as wealthy, but we don't live in Mr. Sullivan's world.

So, in the interest of dealing with projected deficits in the years ahead, rather than taxing the rich, taxing financial speculation, fixing the health care system, or cutting defense, Mr. Sullivan wants to use a "Social Security" tax on the wages of middle class workers to pay for shortfalls elsewhere in the budget. I look forward to seeing candidates running on this platform.

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The deficit hawks are acting like they just got a shot of steroids. William Gross, the head of Pimco, sold off the government bond holdings of their largest investment fund. The deficit hawks are claiming this as evidence that the sky is now falling and that we have to take steps now to Social Security, Medicare and other important programs.

Before we throw current and future retirees overboard, we may first want to ask a few questions about Mr. Gross's qualifications as an oracle. As a first point, if he was really all-knowing, he would have sold off his bonds in early October when the interest rate on 10-year Treasury bonds was 2.41 percent. If he waited until January and the interest rate had risen to 3.39, then he cost his investors a lot of money. He could have sold these bonds at a much higher price when the interest rate was lower.

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The latest government report on job openings and labor turnover – the JOLTS report – makes an important point. Recent improvements in the labor market – employment gains and the falling unemployment rate – owe little to an increase in hiring by employers. Instead, they result mainly from a decline in involuntary separations – layoffs and firing – of workers. Making it possible for workers to keep their jobs is important to the economic recovery.

Routine illnesses can threaten workers’ employment. Too many workers still face an impossible choice: take off from work to care for themselves or their kids when illness strikes and risk losing their jobs or risk their health or that of their children and come into work. A surprisingly high two-fifths of all workers, and three-quarters of low-wage workers, have no paid sick days at all. And most workers who do have paid sick days can’t use them to care for a sick child. Routine illnesses create a crisis for these workers and their families.

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This week, we post links to reports from Center for Economic and Policy Research, Demos, Economic Policy Institute, National Employment Law Project, and Political Economy Research Institute.

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With the recent spate of attention to public sector workers, here's a (hopefully handy!) summary of CEPR resources about them and public pension funds:

The Origins and Severity of the Public Pension Crisis

This paper shows:

  • Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009.
  • The argument that pension funds should only assume a risk-free rate of return in assessing pension fund adequacy ignores the distinction between governmental units, which need be little concerned over the timing of market fluctuations, and individual investors, who must be very sensitive to market timing.
  • The size of the projected state and local government shortfalls measured as a share of future gross state products appear manageable.

Returns on Public Pensions: What Rates Should We Assume?
An explanation that state pension plans should make their projections based on the expected value of their stock holdings. For a fund assuming 3% inflation, that translates into the nominal 9.5-10.0% yield that most assume for the portion of their funds held in stock.

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This week, we post links to reports from Center for American Progress, Center on Budget and Policy Priorities, Center for Law & Social Policy, Economic Policy Institute, The Joint Center for Political and Economic Studies, and Political Economy Research Institute.

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It seems that Andrew Biggs, at the American Enterprise Institute, is taking issue with my argument on the rate of return that public pensions should assume on the portion of their assets held in stock. (The rate of return on the asset is the same issue as the rate of discount applied to future liabilities. I use rates of return just because it makes the discussion easier to follow.)

To start, we should be clear on what exactly is at issue. Andrew and I are not debating the expected rate of return on stocks. Both of us agree that the pension funds are at least close to the mark in their assumptions on stock returns. Rather, Andrew feels that their return assumption does not correctly account for the risk associated with stock returns. He notes that the higher return on stocks comes in exchange for higher risk. Since the pension obligation is an absolute commitment, he argues that pensions should assume a risk-free rate of return on their assets.

My contention is that because a state or local government is essentially an infinitely lived entity, it need not be as concerned about the variance in returns as individuals. Therefore state pension plans can make their projections based on the expected value of their stock holdings.

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The economy generated 192,000 new jobs in February, knocking the unemployment rate down to 8.9 percent, according to the latest Bureau of Labor Statistics report. The unemployment rate has now dropped by 0.9 percentage points in the last three months. According to BLS' establishment survey, job growth during this period has averaged just 136,000, which is only slightly faster than the 90,000 rate needed to keep pace with the growth of the labor force.

It is difficult to reconcile the sharp drop in unemployment with the weak job growth. Generally, the establishment survey is much more accurate since it has a far larger sample and it is benchmarked every year to unemployment insurance data, which provide a near census of payroll employment. Other data in the establishment survey are consistent with the picture of modest job growth. However, there is nothing to suggest the strong job growth necessary to restore full employment. At the rate of job growth over the last three months, it would take almost 14 years to get back to normal rates of unemployment.

For more, check out our latest Jobs Byte.

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Conservatives have tried to argue that the problem state and local governments face is that the public-sector employees have used union power to pull away from the rest of us. What has really happened over the last 30 years is almost the opposite. Since the end of the 1970s, the policy changes that got into full swing under Ronald Reagan have actually pulled the bottom out of the private sector. The public sector isn't pulling ahead --the private sector is falling behind the standard that it long provided.

As an example, the figure here shows the share of workers in the private sector and in state and local governments that have employer-provided health insurance where the employer pays at least a portion of the premium. In 1979, the earliest year of data available, the private, state, and local sectors were not far apart. (Then, as now, state and local employees tend to be older and have more education, two factors that are highly correlated with better pay and benefits.) Over the next 30 years, the health-insurance coverage rates remained essentially unchanged for state and local government workers. But, the share of private-sector workers with employer-provided health insurance fell more than 15 percentage points --from over 70 percent to just under 55 percent.


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Since the Great Recession was formally declared over in June 2009, the economy has experienced only two quarters of above-trend growth in real GDP – growing at an annual rate of 5.0 percent in the fourth quarter of 2009 and 3.7 percent in the first quarter of 2010. For the rest of 2010, real GDP growth was disappointing – a point driven home in the recent downward revision of fourth quarter GDP growth from 3.2 to 2.8 percent. Employment -- which in February 2011 was still below its December 2007 level by nearly than 7.5 million jobs -- will add just 2 million jobs this year at this rate of growth. That’s a scant 1 million more jobs than are needed to keep up with the growth of the working age population, and will reduce unemployment by just half a percent over 2011.

The economic problem is clearly one of slack demand. The pain experienced by workers as a result of the slow growth in real GDP is palpable. Yet, there is no leadership in Washington and no grassroots political pressure to renew, let alone expand, government stimulus measures. Quite the contrary: Fiscal policy in 2011 and 2012 looks set to embrace spending cuts that will reduce the rate of real GDP growth below CBO’s forecasts of 3.1 percent in 2011 and 2.8 percent in 2012 – rates of growth already too low to make much of a dent in the unemployment rate. Unemployment in the CBO projections is expected to end 2011 above 9 percent and 2012 above 8.

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Structural unemployment – unemployment stemming from a mismatch of workers' skills and job requirements – has been cited in mainstream media as the main cause of current, high unemployment. Data from the National Federation of Independent Business (NFIB), however, suggest that structural unemployment is not what is ailing the economy. The graph below draws on data from the NFIB's monthly survey from December 2007 (the official start of the recession) to January 2011. Each month, the NFIB asks its sample of small businesses to state the single most important problem facing their business today. Since the recession began, respondents overwhelmingly have cited "poor sales," suggesting that today's unemployment is primarily due to a lack of demand. "Quality of labor," the factor most consistent with structural unemployment, barely made the list.


In fact, as the recession deepened, "poor sales"  became increasingly important, while "quality of labor" was cited less and less often. Furthermore, through an analysis of the NFIB data, we looked at the indicators that had the largest increase since and decrease since 2007, and they ended up being  "poor sales" and "quality of labor" respectively. These findings suggest that the current, high unemployment is indeed cyclical and not structural.

Add a comment, a project of the Annenburg Public Policy Center, wrongly attacked a number of prominent Democrats for correctly pointing out that Social Security does not contribute to the deficit. The people attacked included New York Senator Charles Schumer, Senate Majority Whip Richard Durbin, and President Obama’s Budget Director Jacob Lew.

This point should be pretty straightforward. Under the law, Social Security is financed by a designated tax, the 12.4 percent payroll that workers pay on their first $107,000 of income each year. The money raised through this tax is used to pay benefits. Any surplus is used to buy U.S. government bonds. All funding for the program comes either from this tax or from the bonds held by the program’s trust fund. (The Social Security system is also is credited with a portion of the income tax paid on Social Security benefits.)

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This is the fifth installment of a new weekly feature at the CEPR Blog. Every Friday, we'll post a list of labor market related policy research reports from progressive research centers around the country. This week, reports from Center for American Progress, Center on Budget and Policy Priorities, Center for Economic and Policy Research, Center for Law and Social Policy, Economic Policy Institute, Political Economic Research Institute, and UCLA Institute for Research on Labor and Employment.

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

Praise for CEPR’s work on Haiti
Here's a quote from The Notion, the Nation magazine's blog: ”Praise to the Center for Economic and Policy Research for being the only Washington think-tank to pay consistent, skeptical attention to Haiti. As usual, they have been doing invaluable work on the issue, including a statistical analysis of the stolen vote”.

CEPR's work continues to have a major influence on the debate over the Haitian elections. CEPR Co-Director Mark Weisbrot has been all over the airwaves talking about the most recent developments in Haiti, including the ongoing debate over the election results and the return of former Haitian President Jean-Bertrand Aristide. Mark was interviewed by FAIR’s CounterspinAl-Jazeera and KPFA 94.1FM Berkeley.

He was also quoted numerous publications, including in this AP article. And he authored several columns on the elections and Aristide.

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The economy lost more than eight million jobs during the Great Recession. Last year, it recovered just over one million of those lost jobs. But, a new report from the National Employment Law Project demonstrates that the new jobs were heavily concentrated in low-wage industries such as retail, restaurants, and temp agencies.


As the NELP figure above shows, about 3.5 million of the jobs lost in the downturn were in high-wage industries, but fewer than 200,000 of the jobs created in the last year were in those same industries. Over half of the jobs created since the economy bottomed out were in the lowest-paying industries.

As the report's author, Annette Bernhardt, says: "[T]he job opportunities currently available to workers have deteriorated compared to what was available before the recession." The NELP data flatly contradict the idea that the economy is currently facing a structural "mismatch" where workers don't have the skills that employers are demanding. The recession-related job losses were concentrated in high-wage industries and the new jobs have been in low-wage industries, leaving millions of workers from middle- and high-wage industries high and dry.

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