Mark WeisbrotThe Guardian Unlimited, October 7, 2011

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

Center for American Progress

Redefining Teacher Pensions: Strategically Defined Benefits for New Teachers and Fiscal Sustainability for All
Raegen Miller

CLASP-CEPR

How Much Does Employee Turnover Really Cost Your Business?

Demos

The State Of Massachusetts' Middle Class
Tamara Draut

October 7, 2011

October 7, 2011 (Latin America Data Byte) En Español

Dean Baker
Al Jazeera English, October 7, 2011

October 7, 2011 (Jobs Byte)

October 7, 2011

In his column today, Paul Krugman picks up the suggestion from Richard Yeselson, that debt relief for working people would be a good demand for the Wall Street occupiers to pursue. While there is a good logic to this demand -- many people find themselves facing crushing mortgage, credit card or student loan debt -- there are also problems with going this route.

For example, suppose we go the route of making every underwater mortgage above water by writing off the extent to which the debt exceeds the value of the home. As of what date do we wipe out underwater debt, today, six months ago, six months from now? That it isn't a joke, home prices are still falling in many areas. So do we say that people who were smart enough to be underwater as of some prior debt benefit, but folks who waited to get underwater are screwed?

Do we have a limit on debt write-offs? There are a lot of people who were speculating in homes who took out zero-down mortgages on expensive properties in places like Las Vegas and Miami at the peak of the bubble. Say they borrowed $450k on a home that is worth $200k today. Is it important to ensure that these people have their mortgages brought above water.

There is also the question of the other side of these loans. Close to half would of the underwater mortgages would now be held by Fannie Mae or Freddie Mac, so the write off would be a loss of government money. We can argue over whether this is the best use of it. Some of the rest of the mortgages are held by banks, but most are in pools. The owners of these pools include some rich investors, but it also includes institutional investors like pension funds and individuals with 401(k) holdings.

This raises both a question of fairness and also dampens the economic impact -- which has been hugely overstated in any case. If we eliminate $900 billion in underwater mortgage debt (certainly a high estimate, since it implies that almost 10 cents of every mortgage dollar outstanding represents underwater debt), we should expect the additional wealth to generate around $54 billion of additional consumption a year (this assumes a 6 percent wealth effect)