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Article Artículo

Economic Growth

United States

Workers

Losers-to-Leavers Ratio Shows that Demand, Not the Workforce, Is the Problem

During the height of the 2008-2009 recession, there was considerable debate about the origins of the soaring unemployment rate. The New York Times and other major media outlets said that the problem was mostly low demand, pointing out that there were more people searching for jobs than companies searching for workers. During the recession, companies decreased their monthly hiring by about a third, despite the fact that the number of Americans searching for work had more than doubled.

The data mostly indicate that workers weren’t choosing to stay unemployed; rather, they were losing their jobs and having trouble finding new ones. This can be seen most clearly by looking at the ratio of unemployed job losers to unemployed job leavers. Unemployed job losers are out of work because they lost their previous job; unemployed job leavers are out of work because they voluntarily left their last job. In 2006, there were roughly four unemployed job losers for every one unemployed job leaver; by early 2010, that ratio had shot up to nearly 11-to-1. This indicates that the vast majority of the drop in employment during the recession was due to companies laying off workers, not to workers leaving their jobs. Moreover, this phenomenon held true for every major demographic group, as can be seen in the figure below:

buffie rawlins dont blame 2017 01 27 01

CEPR, Nicolas Buffie and Sarah Rawlins / February 01, 2017

Article Artículo

Potential Savings on Medicare Part D from Lower Drug Prices

Four years ago, we calculated the potential savings to the federal and state governments, as well as beneficiaries, from lower drug prices. In the paper, Reducing Waste with an Efficient Medicare Drug Benefit, we compared how much people in the United States paid for drugs with payments in other wealthy countries. We then calculated how much the federal and state governments, as well as beneficiaries, would save on the Medicare prescription drug benefit if we paid the same amount for drugs as people in other countries.

The calculation had low and high savings scenarios. In the low savings scenario, it was assumed people in the United States would pay as much for prescription drugs as in Canada, the highest country in the group. This involved savings of 27.8 percent on drugs, since Canadians pay on average 72.2 percent as much as people in the United States. The high savings scenario was based on drug payments in Denmark, which are on average 34.5 percent as high as in the United States, implying a savings of 65.5 percent.[1]

CEPR / January 31, 2017

Article Artículo

Economic Growth

Environment

Government

United States

Costs and Benefits of the 1990 Clean Air Act Amendments

Opponents of amendments to the 1990 Clean Air Act (CAA) argued that increased regulations would damage the economy, leading to a loss of jobs and output. However, the legislation’s passing produced nowhere near the economic devastation predicted. Instead, projections by the Environmental Protection Agency (EPA) expect the benefit of the CAA amendments to reach a cumulative total of 2.0 trillion dollars by 2020 or a bit less than 0.5 percent of GDP for this period. For comparison, the estimated cost of complying with CAA regulations is 65 billion dollars or less than 0.02 percent of GDP over this thirty year period. That is $30.77 of benefit for every dollar spent on regulation.

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In 2020 alone, the amendments are expected to prevent over 230,000 early deaths. Those prevented deaths come in the form of decreased adult and infant mortality from exposure to the ozone and fine particle pollution. They also estimate a decrease in chronic bronchitis, acute myocardial infarction, and asthma exacerbation. The amendments will decrease emergency room visits by 120,000, prevent 5,400,000 missed school days, and 17,000,000 lost work days.

CEPR and Sarah Rawlins / January 30, 2017

Article Artículo

Painful Nonsense on Trade

It really is amazing how much effort elite types expend denying that trade has cost us manufacturing jobs. The latest entry is from Robert Samuelson who tells us that it isn't true that manufacturing jobs have been lost to trade. Samuelson's main source on this is Brad DeLong, who is actually a very good economist and surely knows better.

Samuelson tells readers:

"Contrary to popular opinion, trade is not a major cause of job loss. It’s true that U.S. manufacturing has suffered a dramatic long-term employment erosion, sliding from roughly one-third of nonfarm jobs in 1950 to a quarter of jobs in the early 1970s to a little less than 9 percent now, according to economist J. Bradford DeLong of the University of California at Berkeley in an essay posted on Vox. But the main cause is automation."

The cheap trick here is going back to 1950. Yes, we have lost lots of manufacturing jobs to automation and over a 70-year period that does swamp the impact of the jobs lost due to trade, but this is really a dishonest way to present the issue. Manufacturing was declining as a share of total employment even in the 1950s and 1960s, but the pace was modest enough and we were creating enough jobs in other sectors that the job loss still allowed for real wage growth in both manufacturing and the economy as a whole.

CEPR / January 30, 2017

Article Artículo

Washington Post Pushed Fear on Corporate Tax Reform

The headline warned readers that the Republican's proposal for reforming the corporate income tax is coming for your toys, literally:

"Trump-era tax reform could come for your toys."

Okay, we get it. The Washington Post doesn't like the tax reform and is not content to keep its views to the opinion pages. (This article ran at the top of the Sunday business section.)

The basic story is almost Trumpian in its unreality. The tax reform includes a border adjustment tax on imports. This is similar (not identical) to what countries with value-added taxes do, which is almost every other wealthy country. The conventional wisdom among economists is that currencies adjust so that the net effect on the price of imports, including toys, is minimal.

While this piece notes this argument, it implies that consumers and retailers have great cause for concern over the tax. In this respect, it is worth pointing out that currencies fluctuate by large amounts all the time, in ways that are likely to have far more impact on the price of imported toys than this tax. The figure below shows the inflation-adjusted value of the dollar measured against the currencies of our major trading partners.

CEPR / January 29, 2017

Article Artículo

Paul Krugman and the Republican Corporate Income Tax Proposal

The current corporate income tax is a massive cesspool. There are so many routes for avoidance that it is almost becoming voluntary. This matters not only because we don't get the revenue we should from the tax, but also because it has created a massive tax avoidance industry.

The tax avoidance industry is a big deal. This is an industry that contributes nothing to the economy. It involves people designing clever tricks to allow corporations to avoid paying their share of taxes.

The tax avoidance industry is also an important source of inequality since it is possible to get very rich designing clever ways to avoid taxes. My colleague Eileen Appelbaum  (along with Rose Batt) show how the private equity industry is largely a tax avoidance industry in their recent book Private Equity at Work. Many of the very richest people in the country got their wealth as private equity fund partners.

In his movie, Capitalism: A Love Story, Michael Moore highlighted "dead peasant" insurance policies. This is when a major company like Walmart buys life insurance policies on tens of thousands of front line workers, like checkout clerks. Usually the insuree doesn't even know of the existence of the policy, but if they die, the company collects. 

Moore emphasized the morbid nature of this game, but missed the real story. The point of these policies is to smooth profits, partly to manipulate share prices, but also for tax purposes. The real highlight of this story is that there is someone who likely got very rich by developing dead peasant insurance policies, rather than contributing anything productive to the economy.

I mention this as background to the corporate income tax discussion since to my view a major goal of corporate tax reform is to eliminate the enormous opportunities for gaming that currently exist. These opportunities are making some people very rich and are a complete waste from an economic standpoint.

CEPR / January 28, 2017

Article Artículo

The Clinton-Trump Vote and the Socioeconomic Progress of the White Working Class

By Dean Baker and Sarah Rawlins

Since the presidential election, there has been an ongoing debate about the extent to which support for Donald Trump by white, working-class voters was driven by racism, xenophobia, and misogyny, as opposed to economic hardships and insecurity. An aspect of this debate that is worth considering is that the size of the white working class (defined here as non-college educated) is itself dependent on the socioeconomic progress of this group.

Specifically, as the situation of the white working class improves, more children from white, working-class families will graduate from college. This means that the size of the white working class will shrink by this definition as they become more prosperous.

As we show below, if the percentage of college grads among the young had continued to increase in the years since 1979 at the rate it did in the years from 1959 to 1979, and we assume the same voting patterns among college grads and non-graduates as we saw in November, Hillary Clinton’s margin in the popular vote would have increased by 1.8 million.

Slowing Progress in College Graduation Rates

A big part of the story of the upward redistribution of the last four decades has been a slowing in the rate of growth of college graduates. The share of people age 25 to 29 who were college graduates increased by 12.0 percentage points from 1959 to 1979. Over the next twenty years it increased by just 5.1 percentage points. This slowdown affected both men and women and blacks and whites. Table 1 shows the percentage of college grads among this age group, by race and gender, for 1959, 1979, 1999, and 2015, the most recent year for which data are available.[1]

CEPR / January 27, 2017