Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor’s claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.
The MSS paper shows that the shifts in occupational shares don’t fit the pattern for trends in inequality very well over the last three decades. They also show that most of the rise in inequality, especially in the last two decades, has been within occupations and not between them. (There are many other issues, it is a 60-page paper.)
I will just note a couple of points in Matthews write-up. He cites Autor as saying that much of the inequality within occupations could be attributable to technical change. This is of course true, but his occupational analysis has nothing to say on this issue. His analysis is designed to show that inequality is driven by changing demand for different occupations. Insofar as inequality is attributable to differences in the demand for workers within an occupation, his occupational shift theory can provide no insight.
The other point is one of motives. Matthews quotes Autor:
“Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, …All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change.”
While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn’t much we can do about it has plenty of rich and powerful adherents.
For example, the Hamiltion Project, which is largely funded by former Treasury Secretary and Citigroup honcho Robert Rubin, has published many papers that advanced this theme, including this one by David Autor. This doesn’t mean that Autor in any way altered his research or his writings to curry the favor of the Robert Rubin crowd, only that substantial incentives do exist to produce research that absolves policy of any responsibility for the upward redistribution that we have seen over the last three decades.
For this reason it is probably best for discussions of inequality to focus on the evidence. In principle we should be able to determine where the weight of the evidence lies. We will probably never know the true motives of the various individuals involved in the debate.
Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor’s claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.
The MSS paper shows that the shifts in occupational shares don’t fit the pattern for trends in inequality very well over the last three decades. They also show that most of the rise in inequality, especially in the last two decades, has been within occupations and not between them. (There are many other issues, it is a 60-page paper.)
I will just note a couple of points in Matthews write-up. He cites Autor as saying that much of the inequality within occupations could be attributable to technical change. This is of course true, but his occupational analysis has nothing to say on this issue. His analysis is designed to show that inequality is driven by changing demand for different occupations. Insofar as inequality is attributable to differences in the demand for workers within an occupation, his occupational shift theory can provide no insight.
The other point is one of motives. Matthews quotes Autor:
“Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, …All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change.”
While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn’t much we can do about it has plenty of rich and powerful adherents.
For example, the Hamiltion Project, which is largely funded by former Treasury Secretary and Citigroup honcho Robert Rubin, has published many papers that advanced this theme, including this one by David Autor. This doesn’t mean that Autor in any way altered his research or his writings to curry the favor of the Robert Rubin crowd, only that substantial incentives do exist to produce research that absolves policy of any responsibility for the upward redistribution that we have seen over the last three decades.
For this reason it is probably best for discussions of inequality to focus on the evidence. In principle we should be able to determine where the weight of the evidence lies. We will probably never know the true motives of the various individuals involved in the debate.
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Michelle Rhee gained notoriety as the chancellor of DC’s public schools under Adrian Fenty’s administration from 2007 to 2011. Her conduct in this position was one of the main reasons he was not re-elected. Among other things, she publicly took pleasure in firing large numbers of teachers and administrators. Incredibly, she also claims not to have realized that high stake testing would provide incentives for teachers or administrators to cheat on the scoring of exams.
Since she left the DC school system she started a new organization, StudentsFirst, which was created to push for the sort of changes to the school system she sought to implement as chancellor. The organization received considerable media attention for a report card it issued on the public school systems in the 50 states earlier this week. While most of the items on the report card were part of an educational agenda of questionable merit (see Diana Ravitch’s blog for specific critiques), one item had nothing to do with education whatsoever.
Rhee’s report card gave schools a failing grade if teachers received a defined benefit pension (worse if it was backloaded). The school system gets an “A” in this category if teachers only had a 401(k) type defined contribution plan or a cash balance account.
Pensions are now and have historically been an important part of teachers’ compensations. Teachers, like most public sector employees, are paid less in wages than workers in the private sector with comparable education and experience. They make up much of this gap with a better benefit package, including better pension benefits, than workers in the private sector receive.
Given this reality, it is difficult to see how students are helped if a school system replaces a defined benefit pension that guarantees teachers a specific level of income after they retire, with a defined contribution plan, where retirement income will depend on the teachers’ investment success and the timing of the market. Since state governments don’t have to care about the timing of market swings, only overall averages, assuming timing and investment risk is an important benefit that governments can provide their workers at essential zero cost. A defined benefit pension will make a job more attractive to workers than if the state gave teachers the same amount of money in the form of a contribution to a 401(k) account.
In short, Rhee’s report card means that states get credit for making their teachers more financially insecure without saving the government a penny. This position might coincide with a business agenda to eliminate defined benefit pensions, but it is very difficult to see how it will improve our children’s education.
Michelle Rhee gained notoriety as the chancellor of DC’s public schools under Adrian Fenty’s administration from 2007 to 2011. Her conduct in this position was one of the main reasons he was not re-elected. Among other things, she publicly took pleasure in firing large numbers of teachers and administrators. Incredibly, she also claims not to have realized that high stake testing would provide incentives for teachers or administrators to cheat on the scoring of exams.
Since she left the DC school system she started a new organization, StudentsFirst, which was created to push for the sort of changes to the school system she sought to implement as chancellor. The organization received considerable media attention for a report card it issued on the public school systems in the 50 states earlier this week. While most of the items on the report card were part of an educational agenda of questionable merit (see Diana Ravitch’s blog for specific critiques), one item had nothing to do with education whatsoever.
Rhee’s report card gave schools a failing grade if teachers received a defined benefit pension (worse if it was backloaded). The school system gets an “A” in this category if teachers only had a 401(k) type defined contribution plan or a cash balance account.
Pensions are now and have historically been an important part of teachers’ compensations. Teachers, like most public sector employees, are paid less in wages than workers in the private sector with comparable education and experience. They make up much of this gap with a better benefit package, including better pension benefits, than workers in the private sector receive.
Given this reality, it is difficult to see how students are helped if a school system replaces a defined benefit pension that guarantees teachers a specific level of income after they retire, with a defined contribution plan, where retirement income will depend on the teachers’ investment success and the timing of the market. Since state governments don’t have to care about the timing of market swings, only overall averages, assuming timing and investment risk is an important benefit that governments can provide their workers at essential zero cost. A defined benefit pension will make a job more attractive to workers than if the state gave teachers the same amount of money in the form of a contribution to a 401(k) account.
In short, Rhee’s report card means that states get credit for making their teachers more financially insecure without saving the government a penny. This position might coincide with a business agenda to eliminate defined benefit pensions, but it is very difficult to see how it will improve our children’s education.
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Thomas Friedman apparently believes that global warming and the government debt are problems of the same nature, with a looming crisis getting worse every day it is neglected. This is wrong for two obvious reasons.
First, Thomas Friedman apparently doesn’t follow the news closely, but the budget deficit is getting more attention than anything else in the world. In fact, Congress and President Obama have already taken substantial steps to reduce the debt, in contrast to the incredibly limited action on global warming.
This raises the second point, Friedman apparently missed the economic collapse that gave us the large deficits of recent years. The country in fact had very modest deficits until the collapse of the housing bubble sank the economy. This sent tax collections plummeting and spending on items like unemployment insurance soaring. We also deliberately increased the deficit with the stimulus to support the economy since sufficient demand was not being generated by the private sector.
The deficit reduction that President Obama and Congress agreed to in 2011 is already slowing the economy and adding to unemployment. Those who want more deficit reduction now may not realize it, but they in fact want to throw people out of work and make our children’s parents unemployed.
It is difficult to understand why this would be good policy or how it connects to reducing greenhouse gas emissions to save the planet. We don’t save the economy by having a generation of children raised in families with parents who can’t find decent jobs.
The long-term deficit problem is due to three things: health care, health care and health care. We currently spend more than twice as much per person on health care as other wealthy countries. This is projected to grow to three or four times as much in the decades ahead. If these growth projections prove accurate then health care costs will devastate the economy. If our health care costs were comparable to those in other countries we would be looking at long-term budget surpluses, not deficits. This is why serious people talk about controlling health care costs, not the projected budget deficits.
But Friedman is not the sort of person to let the evidence stand in the way of a good story. That is why he tries to tell us budget deficits are like global warming.
Addendum:
If we believe that the debt to GDP ratio can impose some magical curse on the economy, and ignore the fact that Japan’s debt to GDP ratio is well more than twice the size of ours and does not appear to suffer from the curse, it is worth noting that there is an easy route to reducing the ratio. If interest rates rise, the price of long-term bonds will fall. This will allow us to quickly eliminate huge amounts of debt by buying back these long-term bonds at steep discounts. (See the discussion here.) This would be a pointless exercise since it doesn’t change the interest burden at all, but it should make influential people who worship the debt to GDP ratios, like Friedman, very happy.
Thomas Friedman apparently believes that global warming and the government debt are problems of the same nature, with a looming crisis getting worse every day it is neglected. This is wrong for two obvious reasons.
First, Thomas Friedman apparently doesn’t follow the news closely, but the budget deficit is getting more attention than anything else in the world. In fact, Congress and President Obama have already taken substantial steps to reduce the debt, in contrast to the incredibly limited action on global warming.
This raises the second point, Friedman apparently missed the economic collapse that gave us the large deficits of recent years. The country in fact had very modest deficits until the collapse of the housing bubble sank the economy. This sent tax collections plummeting and spending on items like unemployment insurance soaring. We also deliberately increased the deficit with the stimulus to support the economy since sufficient demand was not being generated by the private sector.
The deficit reduction that President Obama and Congress agreed to in 2011 is already slowing the economy and adding to unemployment. Those who want more deficit reduction now may not realize it, but they in fact want to throw people out of work and make our children’s parents unemployed.
It is difficult to understand why this would be good policy or how it connects to reducing greenhouse gas emissions to save the planet. We don’t save the economy by having a generation of children raised in families with parents who can’t find decent jobs.
The long-term deficit problem is due to three things: health care, health care and health care. We currently spend more than twice as much per person on health care as other wealthy countries. This is projected to grow to three or four times as much in the decades ahead. If these growth projections prove accurate then health care costs will devastate the economy. If our health care costs were comparable to those in other countries we would be looking at long-term budget surpluses, not deficits. This is why serious people talk about controlling health care costs, not the projected budget deficits.
But Friedman is not the sort of person to let the evidence stand in the way of a good story. That is why he tries to tell us budget deficits are like global warming.
Addendum:
If we believe that the debt to GDP ratio can impose some magical curse on the economy, and ignore the fact that Japan’s debt to GDP ratio is well more than twice the size of ours and does not appear to suffer from the curse, it is worth noting that there is an easy route to reducing the ratio. If interest rates rise, the price of long-term bonds will fall. This will allow us to quickly eliminate huge amounts of debt by buying back these long-term bonds at steep discounts. (See the discussion here.) This would be a pointless exercise since it doesn’t change the interest burden at all, but it should make influential people who worship the debt to GDP ratios, like Friedman, very happy.
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Good questions raised in this column by Eduardo Porter. We’re number one by a large margin, but unfortunately it’s in the category of costs. We’re nowhere close in terms of outcomes.
Good questions raised in this column by Eduardo Porter. We’re number one by a large margin, but unfortunately it’s in the category of costs. We’re nowhere close in terms of outcomes.
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I’m not kidding, he notes the sharp redistribution from labor to capital over the last four decades then tells readers;
“Although the stars are lined up in favor of the anti-corporate left, American business, when its back is to the wall, has historically proved to be extraordinarily resourceful.”
Seriously, it’s a thoughtful piece, but it’s difficult to see the rising anti-business tide that Edsall discerns. From where I sit it looks like the country is controlled by two parties dominated by business interests. They both push policies that are likely to continue the upward redistribution of income, the main difference is that the Democrats think that the wealthy should pay their taxes.
I’m not kidding, he notes the sharp redistribution from labor to capital over the last four decades then tells readers;
“Although the stars are lined up in favor of the anti-corporate left, American business, when its back is to the wall, has historically proved to be extraordinarily resourceful.”
Seriously, it’s a thoughtful piece, but it’s difficult to see the rising anti-business tide that Edsall discerns. From where I sit it looks like the country is controlled by two parties dominated by business interests. They both push policies that are likely to continue the upward redistribution of income, the main difference is that the Democrats think that the wealthy should pay their taxes.
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It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:
“Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.
“In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into ‘a permanent disconnect’ between government outlays and revenue.
“‘We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,’ Dr. Cowen wrote. ‘As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'”
This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, “we are all Keynesians now.”
The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan’s agenda became “ascendant.” In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble.
In short, if Buchanan’s argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.
It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:
“Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.
“In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into ‘a permanent disconnect’ between government outlays and revenue.
“‘We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,’ Dr. Cowen wrote. ‘As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'”
This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, “we are all Keynesians now.”
The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan’s agenda became “ascendant.” In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble.
In short, if Buchanan’s argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.
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David Brooks is very upset about the possibility that the cost of Medicare will prevent the United States from being as large a military force in the world in the future as it has been in the past. He tells readers:
“Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years. …
“So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both.”
Of course fans of arithmetic everywhere know that the basis for these projections is the assumption that per person health care costs, which are already more than twice the average for other wealthy countries, will increase to three or four times the cost in other countries. This means that our health care system will become ever more dysfunctional.
While that is of course possible, the problem is not the American people getting what they want, as Brooks asserts, it is the health care industry using its political power to extort incredible sums from the rest of us. If our health care costs were in line with costs in other countries, we would be looking at budget surpluses, not deficits.
In principle we should be able to reform our health care system to get its costs in line with those in other countries. However Brooks never even considers this possibility. (Actually, health care costs in recent years have come in way below projections, suggesting that we may already be on a slower growth path.) Alternatively, if our political system is too corrupt to allow reform we could allow Medicare beneficiaries to buy into the more efficient health care systems in other countries and split the savings with the government. However, Brooks is not interested in this option either.
Brooks would rather see people denied care under the argument that it is necessary to preserve the country’s military standing in the world. In reality, we should make sure that we are not wasting trillions of dollars paying more than necessary for our health care. We should also decide what sort of military involvement we want the United States to have in the world. It may not be desirable to be intervening widely and fighting wars on different continents even if we can in fact afford the cost.
David Brooks is very upset about the possibility that the cost of Medicare will prevent the United States from being as large a military force in the world in the future as it has been in the past. He tells readers:
“Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years. …
“So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both.”
Of course fans of arithmetic everywhere know that the basis for these projections is the assumption that per person health care costs, which are already more than twice the average for other wealthy countries, will increase to three or four times the cost in other countries. This means that our health care system will become ever more dysfunctional.
While that is of course possible, the problem is not the American people getting what they want, as Brooks asserts, it is the health care industry using its political power to extort incredible sums from the rest of us. If our health care costs were in line with costs in other countries, we would be looking at budget surpluses, not deficits.
In principle we should be able to reform our health care system to get its costs in line with those in other countries. However Brooks never even considers this possibility. (Actually, health care costs in recent years have come in way below projections, suggesting that we may already be on a slower growth path.) Alternatively, if our political system is too corrupt to allow reform we could allow Medicare beneficiaries to buy into the more efficient health care systems in other countries and split the savings with the government. However, Brooks is not interested in this option either.
Brooks would rather see people denied care under the argument that it is necessary to preserve the country’s military standing in the world. In reality, we should make sure that we are not wasting trillions of dollars paying more than necessary for our health care. We should also decide what sort of military involvement we want the United States to have in the world. It may not be desirable to be intervening widely and fighting wars on different continents even if we can in fact afford the cost.
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That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
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The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
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