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Article Artículo

China and Demographics: Lessons for the Washington Post

The end of China's one child policy is producing an outpouring of nonsense about demographics. Nowhere is the confusion greater than in the opinion pages of the Washington Post, which gets the gold medal for confusion on this issue. In honor of this occasion, BTP will explain the issue in a way that even a Washington Post editorial page editor could understand.

The key point here is that the ability to support a given population of retirees depends not only the ratio of workers to retirees, but also the productivity of the workers. The Post again told readers today that China faces a terrible demographic problem because of its one-child policy.

"Even with its recent rapid economic growth, China is growing old before growing truly wealthy; its shrinking labor force will be hard-pressed to support the millions of dependent elderly."

To see why this is not true, we will take a very simple story where we contrast a country with moderate productivity growth and no demographic change with a country rapid productivity growth and a rapid aging of its population. The figure below shows the basic story.

Book3 9522 image001

Source: Author's calculations.

We assume that in 1985 there are five workers to every retiree in both the Washington Post and China story. If we set output per worker in 1985 equal to 100, then the amount of output per worker and retiree in 1985 is 83.3 (five sixths of the output per worker). We then allow for different rates of productivity growth and population growth over the next three decades.

Dean Baker / November 01, 2015

Article Artículo

Disability

Health and Social Programs

Raising the Retirement Age Has Increased the Costs of the Disability Program

Last week CEPR released a report titled Rising Disability Payments: Are Cuts to Workers’ Compensation Part of the Story? The report examined the extent to which cuts in state-level workers’ compensation programs have led to increased expenditures for the Social Security Disability Insurance (SSDI) program. The findings showed that up to a fifth of the increase in SSDI awards between 2001 and 2011 could be attributed to cuts in workers’ compensation programs.

Another obvious source of rising SSDI costs is the increase in Social Security’s full retirement age. The Social Security program maintains two distinct insurance systems: Old-Age and Survivors Insurance (OASI) for retired workers and their families, and Disability Insurance (DI) for workers who become disabled and can no longer work. Once someone on DI hits “full retirement age,” or the age at which retirees can begin receiving full OASI benefits, he is immediately transferred from the DI rolls to the OASI rolls.

CEPR and Nicolas Buffie / October 30, 2015

Article Artículo

Economic Growth

United States

Workers

We Need More Quitters

In January 2001, the nonfarm quits rate — the percentage of the nonfarm workforce deciding to leave their jobs in a given month — stood at 2.6 percent. During the recession, the quits rate fell to 1.3 percent; since then, it has mostly but not fully recovered to its pre-recession peak, which itself was lower than the rates seen in the early 2000s:

CEPR and Nicolas Buffie / October 28, 2015

Article Artículo

Disability

Health and Social Programs

The Disability Pay Gap

The Social Security Disability Insurance (SSDI) program is expected to completely deplete its trust fund by late 2016. If the program’s funding isn’t increased, benefit cuts of about 20 percent will automatically go into place.

In the past, Congress has reallocated revenues between Social Security’s Disability Insurance fund and its Old Age and Survivors Insurance (OASI) fund when one program was facing financial difficulties. Reallocating funding from the OASI fund to the DI fund would not significantly impact the solvency of the OASI fund: while the OASI trust fund has a projected reserve depletion date of 2035, the combined Old Age and Survivors Insurance and Disability Insurance (OASDI) trust fund has an expected depletion date of 2034. This means that keeping the DI trust fund solvent for another 18 years would decrease the solvency of the OASI fund from 20 years to 19 years.

CEPR and Nicolas Buffie / October 28, 2015

Article Artículo

Can High Unemployment Slow Productivity Growth?

I see that my co-author Jared Bernstein has been pondering this question. While this sort of thinking can get you thrown out of the church of mainstream economics, I think that he is very much on the mark. Let me throw out a few reasons.

First, there is an issue about the money available to firms to invest. While larger and more established firms likely to have little problem financing investment in the current low interest rate environment, smaller and newer firms may find it difficult to get access to capital. For them a rapidly growing economy can be strong sales growth and higher profits, both of which are strongly linked to investment. This is a finding from an old paper by my friend Steve Fazzari and Glenn Hubbard (yes, that Glenn Hubbard.)

A second reason why productivity can be tied to growth is that firms will have more incentive to adopt labor saving equipment in a context of a rapidly growing economy. When they see additional demand for their products, they have to find a way to meet it. Of course they can hire more workers or have the existing workforce put in more hours, but another option is to find a way to produce more with the same amount of labor. Of course profit maximizing firms should always be trying to produce more with the same amount of labor, but they may not follow the economics textbook. Meeting increased demand can give them more incentive to do so.

A third reason is changes in the mix of output. At any point in time we have many high paying high productivity jobs and many low paying low productivity jobs. When we have a strong labor market, people go from the low paying, low productivity jobs to the higher paying high productivity jobs. This means that many people now working at fast food restaurants, the midnight shift at a convenience store, or as greeters at Walmart will instead find better paying jobs in a strong labor market leaving these low-productivity jobs unfilled.

The rapid growth of jobs in low-paying sectors in this recovery has been widely noted. Rather than reflecting an intrinsic feature of the economy, this could be the result of the failure of demand to create enough growth in the high-paying sectors. This is again a story where the causation goes from growth and low unemployment to high productivity.

Dean Baker / October 27, 2015