Brookings: Experts - Gary Burtless

Some Good News on April Job Growth

Gary Burtless — Fri, 03 May 2013 11:52:00 -0400

Gloomy news in last month’s jobs report was partially erased by better news in this month’s report. Employers reported payroll gains of 165,000 in April, a considerable improvement compared with the initial estimate that payrolls grew just 88,000 in March. That initial estimate of March job gains turns out to have been too low and was revised in this month’s report. The BLS now estimates that March payroll gains were 138,000—not a terrific number, but 50,000 better than the initial estimate.

The April jobs report also contains a major revision to earlier estimates of job growth in February. The BLS initially estimated that February’s job gains were 246,000, certainly a welcome piece of news. In its March report it revised February’s job gains up to 268,000. And in its latest report, February job gains are now estimated to have totaled 342,000, the fastest rate of job gain we have seen in three years.

Taking the revisions into account, the BLS now estimates that payroll gains have averaged 208,000 a month for the past 6 months. Employment growth was even faster in the private sector, averaging 216,000 a month. Unfortunately, improving conditions in the private sector have been partly offset by weakness in government payrolls. These fell another 11,000 in April.

Government payrolls have shrunk 532,000 since the end of the last economic expansion. In percentage terms, the fall in government payrolls has been larger than the decline in private payrolls over the same period (-2.4% in the government versus -1.8% in the private sector). It is an astonishing development. Public sector employment is typically thought to be more stable than private sector employment. Although government employment was indeed much better protected during the worst months of the downturn, it has turned out to be a persistent source of weakness throughout the recovery. Since December 2009 private-sector payrolls have grown more than 6.7 million. Government payrolls have shrunk 636,000.

The gloomy news in the March employment report was not entirely erased by today’s numbers. Unemployment remains exceptionally high for this stage of an economic recovery, and long-term unemployment remains at historically high levels. Nonetheless, the unemployment rate edged down 0.1 point, to 7.5%, in April, and it has fallen 0.3 points since the end of last year. The unemployment rate has now hit its lowest level since December 2008.

The improvement in the unemployment rate in April was not the result of a shrinking labor force. It occurred because estimated employment levels rose. Respondents to the BLS household survey reported employment gains of 293,000. This number is less encouraging than it sounds, because in March respondents to the same survey reported employment losses of 206,000. Since January, employment gains in the household survey have only averaged about 86,000 a month, a rate of job gain that seems too slow to cause they unemployment rate to fall. For the unemployment rate to fall with such meager job gains the participation rate must fall. Indeed, the adult participation rate has fallen 0.3 points since January, though it held steady in April. The household survey gave us good news on job growth and a dip in unemployment in April, but the longer term picture remains discouraging. The job market continues to improve painfully slowly from its worst downturn since the Depression.

Authors

Gary Burtless

Image Source: © Keith Bedford / Reuters

Bad News in March: Tepid Job Gains and a Shrinking Workforce

Gary Burtless — Fri, 05 Apr 2013 10:49:00 -0400

Employers added only 88,000 workers to their payrolls in March, far off the pace of job gains in the previous six months. Between August 2012 and February 2013 payrolls grew at an average rate of 197,000 a month; private payrolls rose slightly faster than 205,000 a month. The much slower pace of job gains in March may foreshadow a slowdown in payroll growth over the next few months as fiscal contraction at the federal level begins to bite.

Employment gains reported in the household survey show an even bleaker picture of the job market. The number of adults in the household survey who report holding a job fell 206,000 in March, capping a 5-month period in which reported employment losses have averaged 34,000 a month. The unemployment rate declined 0.3 percentage points between October and March, and 0.1 percentage point in March, because the labor force shrank an average of 137,000 a month during the period.* The labor force participation rate reached a 35-year low in March, dipping to just 63.3% of the adult population. The last time the participation rate was this low was in the Carter Administration.

A small part of the recent drop in the labor force is traceable to population aging. The large baby boom generation is now in its 50s and 60s, ages when participation in the workforce falls rapidly. However, most of the drop since last November is explained by continued weakness in the job market and the decline in the availability of long-term unemployment benefits. When it is hard to find a job, some workers become discouraged and stop looking. Others who would be expected to join the workforce fail to do so. Some workers who cease looking do so because they’ve exhausted their eligibility for unemployment benefits. In order to collect an unemployment check nearly all laid-off workers must actively search for a new job. They have less reason to pore over want ads and pound the pavement when their unemployment check stops. As the maximum duration of regular and extended benefits has been scaled back, laid-off workers are now exhausting their unemployment benefits sooner after a layoff than was the case a year or two ago.

The March jobs report shows some continued areas of strength. The average workweek edged up 0.1 hours. Employment in the construction industry increased for the 10^th consecutive month, though at a slower pace. Professional and business services and the health care sector also showed continued strength. Retail employment, however, fell 24,000 after enjoying a year of solid gains.

As usual, government payrolls shrank in March, falling 7,000, about the average rate of monthly decline in the previous year. Federal government employment declined 14,000 in March, more than offsetting small gains in state and local government employment. The drop in federal government payrolls accounts for almost two-thirds of the overall drop in public employment over the past year. Policymakers in Washington seem intent on scoring an own goal. Not only have they adopted fiscal policies that weaken demand for private-sector workers, they are directly contributing to the nation’s job woes by trimming the government workforce and reducing the annual pay of federal employees. Job seekers will have to hope that continued strength in the private sector prevails against these headwinds.

* The estimated 5-month changes in employment and the labor force account for BLS’s annual population adjustments in January.

Authors

Gary Burtless

Image Source: © Lucas Jackson / Reuters

Do Budget Commitments to the Old Shortchange the Young?

Gary Burtless — Tue, 26 Mar 2013 00:00:00 -0400

Federal spending on children edged down last year. As a result of the phase-out of stimulus programs as well as budget cuts imposed by the sequester, federal spending on children’s programs is expected to drop still further this year and next. Meanwhile, outlays on federal programs for the elderly continue to rise. Most of this spending consists of transfer payments under Medicare, Medicaid, and Social Security. Virtually all that spending is protected against cuts connected to the sequester.

According to recent estimates published by the Urban Institute, the average American older than 65 now receives $6.66 in federal outlays for every $1.00 received by a child under age 19. Moreover, an overwhelming share of the spending on the aged is determined by benefit formulas that boost spending per person in line with increases in the cost of living or medical prices. Because medical costs have risen without interruption in recent decades and the share of the population past age 65 is increasing steadily, child advocates fear that kids’ programs will become orphans in a storm. Government spending on children will inevitably be squeezed as more public resources are diverted to fund programs for the elderly.

This fear is not without foundation. Based on the historical record, however, it appears wildly overblown. Core programs for children – providing public schooling and health insurance – have proven to be surprisingly resilient. Despite budget pressures to fund programs for the aged and for national defense and to pay interest on the national debt, per capita government spending on public schools and child health insurance programs has continued to climb. Big public programs for the aged may appear to operate on automatic pilot and hence to be immune to budget cuts. But presidents, governors, and legislators have also displayed an enduring regard for programs that educate and protect the health of children.

For example, per pupil spending on K-12 education has increased with virtually no interruption over the past 120 years. In the three decades between 1980 and 2009 real spending per pupil increased 2.3% a year (see Chart 1). True, per pupil spending on public schools climbed more slowly in the most recent decade than it did in the previous two. It only increased 2.1% a year between 2000 and 2009. Still, this rate of increase is considerably faster than the growth in per capita personal income during the same period. Notwithstanding the impact on government budgets of two recessions and two wars, per pupil spending on K-12 education continued to rise. The end of federal stimulus payments to state and local governments combined with state and local revenue problems have undoubtedly slowed educational spending growth since 2009. Nonetheless, it is hard to see evidence in the historical record that legislators will savagely cut outlays on public schools.

Government spending on child health insurance has also climbed steeply in recent years. The Census Bureau estimates that almost 4 in 10 children under 18 now obtain health coverage under a public insurance program. This represents a major increase in public coverage compared with the situation in the late 1990s. Rising rates of public health coverage have more than offset losses in child health insurance obtained under private insurance. In fact, since 1999 children under 18 and young adults between 18 and 24 are the only age groups in the population that have seen an increase in health coverage. All of the improvement has been due to expansions in government coverage. Meanwhile, Americans older than 25 have seen health coverage rates fall (see Charts 2 through 4).

Much of the concern over the future prospects of children’s programs arises from an understandable confusion over the source of funding for these programs. Since establishing the Social Security program in the great depression, the federal government has assumed a major role in assuring Americans’ old-age income security. Because personal savings and private pensions proved inadequate to assure safe retirement incomes in the 1930s, the national government established a contributory pension system that provided predictable, but modest, public pensions. The federal government has thus assumed the leading role in collecting contributions and disbursing benefits for old-age income security.

It has not assumed a similar role in assuring public benefits for children. The primary source of income support for children is parental earnings. State and local governments continue to play the leading role in education and public health insurance, though federal aid to states and localities is increasingly important in funding state and local commitments. Whereas the federal government spends $6.66 on each aged American for every $1.00 it spends on a child, state and local governments spend $8.88 on each child under 19 for every $1.00 they spend on a person older than 65. Since the federal government spends considerably more than states, total per capita public spending on the aged is higher that per capita spending on the young.

The crucial point, however, is that state and local governments are the primary source of funds for programs that provide education and other benefits to children. It is conceivable that budget pressures arising from increased health costs and an aging population will eventually cause public spending on youngsters to fall. The historical record provides little evidence to support this view, however. Long-term spending trends, both at the federal and local levels, suggest that core programs for children receive roughly the same budget protection as programs for the aged.

Authors

Gary Burtless

Publication: Real Clear Markets

Image Source: © ERIC THAYER / Reuters

Sizeable Job Gains, but a Long Way from Good Health

Gary Burtless — Fri, 08 Mar 2013 12:26:00 -0500

Employers added 238,000 workers to their payrolls in February, the 29^th consecutive month of job gains. Over the past six months employers have added 187,000 jobs a month, a rate of gain that is fast enough to reduce the ranks of the unemployed. The unemployment rate, which is calculated using a different survey, dropped to 7.7% in the month, its lowest level since December 2008.

As has been the case for most of the past year, the employer survey offers a brighter picture of progress than the Labor Department’s household survey. Reported job gains in the household survey were only 170,000 in February. An important reason the unemployment rate fell 0.2 percentage points in the month is that the number of adults who are employed or looking for work fell 130,000. Over the past year, the household survey shows that the labor force participation rate has declined 0.4 percentage points. Part of the decline is traceable to the aging of the population. A large number of workers in the Baby Boom generation are reaching retirement age each month, shrinking the percentage of adults who would be expected to work. Since the end of the last economic expansion in December 2007, the participation rate has fallen 2.5 percentage points. About half the decline is due to an aging population. The other half can be traced to a discouraged worker effect. The weakness of the job market discourages some adults from joining the workforce and induces others to give up their search for a job.

Nonetheless, employers continue to report sizeable gains in their payrolls. As has been the case since the labor market recovery began, all the gains have occurred in the private sector. In fact, the number of workers on government payrolls shrank in February. Notable employment gains were seen in professional and business services (+73,000 jobs), construction (+48,000), and retail trade (+24,000). The improvement in construction employment is especially encouraging because that industry has experienced very little net employment growth since the low point of the recession. In the past four months, seasonally adjusted job gains have averaged 34,000 a month.

The health care industry continues to add to its payrolls. In 2009 through 2011 health care payrolls increased about 20,000 a month. Last year they rose nearly 27,000 a month, and they have continued to increase a healthy clip so far this year. The job gains in health care appear strong in contrast to anemic payroll trends in most other industries. However, the payroll numbers show there has been a long-term slowdown in the pace of job gain in the health sector. Whereas health care payrolls climbed 2.7% a year between 1991 and 2007, they have only grown 2.0% a year since the end of the last economic expansion.

The household survey offers a mixed picture of the current state of the unemployed. The broadest measure of unemployment, the so-called U-6 measure which accounts for workers on involuntary short hours and discouraged workers who remain marginally attached to the labor force, fell to 14.3% in February, its lowest level since January 2009. However, both the average and median duration of an unemployment spell in progress edged up in February, mainly because of an increase in the number of unemployed workers reporting they were in long unemployment spells.

Long-term unemployment remains extraordinarily high by historical standards (see chart below). Spells of unemployment longer than 6 months are classified as “long-term.” Between 1967 and 2007 the fraction of the labor force in a long-term unemployment spell averaged 0.9%, and never exceeded 2.6%. Since 2008 the long-term unemployment rate has averaged 3.1% and rose as high as 4.3% in 2010. As the job market has improved, the number of long-term unemployed has shrunk. Even so, the long-term unemployment rate in February remained a bit above 3%. In spite of sizeable gains in payroll employment in recent months, the labor market remains a long way from robust good health.

Authors

Gary Burtless

Upward Revisions Offer Brighter Picture of Job Growth

Gary Burtless — Fri, 01 Feb 2013 16:05:00 -0500

Employers added 157,000 workers to their payrolls in January, the 28th consecutive month of job gains. The unemployment rate, which is calculated using a different survey, edged up slightly in the month. It has remained approximately unchanged since last September. Overall, the latest employment report shows little change in the steady trend toward an improved job market.

The more interesting aspect of the report is the light it sheds on employment growth over the past two years. Following its usual practice the BLS issued revisions in its past estimates of the previous two years’ payrolls. The new estimates are based on updated and comprehensive reports from employers. The revisions substantially raise previous BLS estimates of job gains in 2011 and 2012. Compared with the payroll numbers published in early January 2013, the most recent report shows employers added an extra 263,000 jobs in 2011 and 335,000 extra jobs in 2012. In combination, the new numbers boost estimated job gains in the last two years by almost 600,000, or 16%. Payroll jobs lost in the Great Recession are being replaced considerably faster than we thought a month ago.

In the employment report issued in January, the BLS estimated that monthly job gains in the October-December quarter averaged slightly more than 150,000 a month. This is a decent though not extraordinary pace of job growth. The U.S. economy needs to generate about 90,000 new jobs a month to keep up with the growth in the working-age population. If payrolls are climbing 150,000 a month, the pace of job growth is fast enough to gradually reduce the nation’s unemployment rate. The revised payroll numbers published today suggest that job gains in the October-December quarter averaged slightly more than 200,000 a month. Thus, employment increases in the last quarter of 2012 were more than twice as fast as the gains needed to accommodate the growth of the working-age population. We should expect to see the unemployment rate fall in future months, possibly by a faster pace than we have seen over the past year.

The optimistic picture of job growth in recent months seems hard to square with the downbeat report on GDP issued by the Commerce Department earlier this week. There are a variety of reasons that an initial report of GDP growth may provide a gloomier picture of the state of the economy than the picture that emerges from the jobs report. At this stage, both the GDP and payroll employment reports are based on data that are subject to revision as more complete information becomes available. Nonetheless, the payroll employment statistics show a consistent picture of improvement in payrolls, and the revisions reinforce the view that private-sector employers see a steadily increasing need for new employees.

The demand for workers in the public sector continues to be weak. Total government employment fell slightly in January. It has declined 74,000 in the 12 months through January. In contrast, private payrolls rose almost 2.1 million in the same period. The best that can be said about the trend in government employment is that public agencies shed fewer jobs in the past year than they did in 2010 or 2011.

Authors

Gary Burtless

Image Source: © Lucas Jackson / Reuters

The Psychological Toll and Economic Fallout of High Unemployment

Gary Burtless — Tue, 08 Jan 2013 10:39:00 -0500

The job market continued to improve last year, but the pace of improvement was agonizingly slow. The unemployment rate edged down to 7.8%, a drop of 0.7% compared with the end of the previous year. Payroll employment grew 153,000 a month. Payroll gains in 2010, 2011, and 2012 have now offset a little more than half the loss in payroll jobs we suffered in 2008 and 2009. The net improvement is less than these numbers suggest, because we need employment to increase about 90,000 every month in order to accommodate the growth of the working-age population.

Two features of the recovery have inflicted harsh burdens on the nation’s unemployed. First, an exceptionally high proportion of unemployment has been long-term, that is, has lasted six months or longer. Second, since reaching a peak of 10% in October 2009, unemployment has fallen at a glacially slow pace.

Unemployment and the burden it imposes are very unequally distributed across the population. Young workers, employees in cyclically sensitive industries like construction and manufacturing, and members of historically disadvantaged minorities are more likely to suffer layoffs than other workers. The labor income of most unemployed workers falls to zero, and only part of it is replaced by unemployment compensation and other social benefits. Workers who lose their jobs after short spells of employment or who become unemployed after leaving school or rejoining the labor force seldom qualify for any unemployment benefits at all.

In many respects, U.S. public policy was unusually generous to the unemployed during the recent downturn. Compared with earlier post-war recessions, laid off Americans were eligible to receive unemployment compensation for an exceptionally long time—up to 99 weeks in some states with high unemployment rates. Even with these improvements, however, unemployment benefits remain less generous than they are in other rich industrialized countries. Laid off workers, especially those who suffer long spells of joblessness, receive less income protection in the United States than they do in most of Western Europe, for example.

The psychological toll of unemployment—and of long-term unemployment in particular—is known to be high. Surveys in many industrialized countries show that being unemployed reduces happiness. This finding is hardly surprising. What is more interesting is that the drop in happiness that accompanies unemployment is greater than the change in happiness that can be explained by the drop in income that accompanies job loss. It is widely known that, in a cross-section of people in the same country, differences in income help account for differences in individual happiness. Not surprisingly, people with higher income tend to be happier than people who have less income. Even accounting for the effects of income differences, however, people who describe themselves as unemployed are considerably less happy than the employed.

The gap in happiness between the unemployed and employed cannot be explained by differences in happiness that existed before job loss occurs. A number of longitudinal studies demonstrate that a sizeable drop in happiness accompanies or follows the involuntary loss of a job.

Both longitudinal and cross-section evidence suggests that the drop in individual happiness associated with unemployment is smaller in countries and regions where the average unemployment rate is high. In other words, massive and persistently high local unemployment seems to take some of the sting out of being unemployed. In a low-unemployment environment, the unemployed may feel more isolated in their suffering. If unemployment is more widespread, more peers may share an unemployed worker’s pain, lessening the psychological burden of living without paid work. For some of the unemployed, one side effect of the reduced psychological burden is that they devote less effort to finding another job. When reduced job-search effort results in slower re-employment, high joblessness can become to some degree self-perpetuating.

Thus, massive and persistent unemployment, by modestly reducing the psychological toll of joblessness, may indirectly create an environment in which long-term unemployment spells become more palatable and common. At the moment, U.S. unemployment is abnormally high as a result of fallout from a financial crisis and the massive loss of housing wealth. There is too little demand for goods and services produced in the United States to employ all the adults willing to work at the going wage. If high unemployment persists, the search behavior of the unemployed may change and make it more difficult to attain the full-employment unemployment rate we enjoyed in the middle of the last decade.

Sources

Andrew E. Clark (2003), “Unemployment as a Social Norm: Psychological Evidence from Panel Data,” Journal of Labor Economics 21(2) (April): 323-351.

Ed Diener and Martin E.P. Seligman (2004), “Beyond Money: Toward an Economy of Well-Being.” Psychological Science in the Public Interest 5: 1–31.

Rafael Di Tella, Robert J. MacCulloch and Andrew J. Oswald (2001), “Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness,” American Economic Review 91(1) (March): 335-341 .

Carol Graham (2008), “The Economics of Happiness,” The New Palgrave Dictionary of Economics 2^nd Edition, Steven Durlauf and Larry Blume (eds.) (Hampshire: Palgrave MacMillan).

Liliana Winkelmann and Rainer Winkelmann (1998), “Why Are the Unemployed So Unhappy? Evidence from Panel Data,” Economica 65(257) (February): 1-15.

Authors

Gary Burtless

Publication: Real Clear Markets

Image Source: © David McNew / Reuters

Slow but Steady: Job Market Improves in December

Gary Burtless — Fri, 04 Jan 2013 11:38:00 -0500

Employers added 155,000 workers to their payrolls in December, close to the average monthly gain we have seen over the past two years. Workforce growth requires an added 90,000 to 100,000 jobs a month to keep the unemployment rate from rising. Economic growth has been strong enough so we have comfortably–but not wildly–exceeded this benchmark for the past three years. Although the unemployment rate has remained roughly unchanged over the past four months, it has fallen 0.7% (reaching 7.8%) during the past year. If job gains continue at this rate, we should expect to see slow but steady progress toward full employment. At the current pace, however, full employment will not be achieved until the end of 2016.

The year-end job numbers shed some light on the sources of employment growth during the past year. Education and health services saw another year of robust growth. Over the past year private employers in these industries added an average of 38,000 workers to payrolls each month. Job gains in education and health accounted for one-quarter of the total rise in employment over the past year. For purposes of comparison, at the end of the last economic recovery in 2007, private employment in education and health accounted for only 13% of total employment.

The growth of payroll jobs in professional and business services was even faster, accounting for 26% of all job gains in 2012. Since payroll employment began to grow in March 2010, professional and business service employment growth has accounted for nearly a third of total job gains. In comparison, the sector accounted for just 13% of total employment at the end of the last economic expansion.

Wholesale and retail trade saw payrolls rose by an average of 22,000 a month in 2012, approximately the same rate of increase we saw in the first two years of the recovery. The proportionate rise in employment in these sectors has matched the rate of overall employment growth. Over the past year manufacturing payrolls have also grown in line with the growth of total employment. Compared with other industries, however, manufacturing sustained much bigger job losses in the recession. As result, manufacturing now accounts for a significantly smaller share of all jobs – 8.9% of total employment in December 2012 compared with 10.0% at the end of 2007.

The recent recovery has been much weaker in other industries, most notably construction and government. The construction industry eked out small payroll gains over the past year, adding about 2,000 jobs per month. Between December 2006 and December 2009, construction employment fell more than 2 million, or about one-quarter. In the first year of economic recovery, construction employment continued to fall, and it has rebounded very little since that time. Federal stimulus spending on public infrastructure has played a deplorably small role, if any, in offsetting the massive slump in private demand for new construction.

The drop in government employment has itself played a major role in slowing the rebound of employment. The best that can be said about 2012 is that the drop in public payrolls slowed. In 2010 and 2011, state, local, and federal payrolls shrank more than 20,000 a month. In 2012 they only fell 5,700 a month. State and local governments have seen an improvement in tax collections, but a shift in political philosophy in state capitals has worsened the outlook for public-sector employment growth. The steady growth in labor demand in the private sector has fortunately been strong enough to offset the public sector’s shrinking appetite for new workers.

Authors

Gary Burtless

Image Source: © Rebecca Cook / Reuters

Slow Recovery in the Job Market

Gary Burtless — Wed, 26 Dec 2012 08:23:00 -0500

Employment continued to improve modestly, unemployment edged down, and wage gains were approximately equal to price inflation in 2012. By the end of the year the recovery from the deep recession in 2008-2009 will be 3½ years old. The health of the job market, like that of the broader economy, is improving at a steady but comparatively slow pace. Jobless workers have seen improvements in their chances of finding a job, but wage and benefit improvements have lagged behind gains in worker productivity.

As was the case in 2011 private employers added payroll jobs at a fast enough clip to reduce the ranks of the unemployed. Part of the employment gain in the private sector was offset by a small drop in government payrolls. Slightly more than 90,000 new jobs are needed every month to keep up with the growth of the working-age population. In the 12 months ending in November 2012 private employers added about 161,000 jobs a month to their payrolls. This is similar to the pace of private-sector job gains in 2011. Small job losses in the public sector offset some of these gains. Fortunately, however, government employment fell more slowly in 2012 than in 2011. Thus, the overall rate of gain in payroll employment was a bit faster in 2012 than in 2011.

On average, total public and private payrolls increased 157,000 a month, which was fast enough to reduce the unemployment rate over the year. Indeed, the unemployment rate dropped 1.0 percentage points, falling from 8.7% to 7.7%, in the twelve months after November 2011. Since reaching a high point of 10.0% in October 2009, the unemployment rate has fallen nearly a quarter. Although the pace of the recovery has been slow, the unemployment rate has declined steadily. The number of adults who report holding a job increased faster than the number of payroll jobs reported by employers. Whereas payrolls increased a little less than 160,000 a month, the number of adults who report being employed increased about 220,000 a month in the twelve months through November 2012. Whichever estimate of job gain is accepted as accurate, it is clear that employment is expanding fast enough to reduce the unemployment rate, though slowly.

The labor force participation rate – that is, the percentage of the adult population that either holds a job or is looking for work – fell 0.4 percentage points to 63.6% in the twelve months through November 2012. The November participation rate has now fallen for six years in a row. Between November 2006 and November 2012 the adult participation rate fell 2.7 percentage points.

The continued decline of the participation rate, even in the 3½ years of economic recovery, is an indicator of a continued shortage of job vacancies. Some jobless workers, discouraged by their poor prospects of finding a job, simply drop out of the labor force and are no longer classified as unemployed. Other potential job seekers fail to enter the workforce, though they would have done so in a healthier labor market. The continued weakness of the job market certainly helps explain some of the drop in the participation rate.

It turns out, however, that about half of the drop in the participation rate since November 2006 can be traced to the graying of the population. Adults between 25 and 44 have the highest labor force participation rates, and they are a shrinking percentage of the adult population. People older than 55 have much lower participation rates, and they represent a growing fraction of the population. Thus, even if the economy had been near full employment in 2012 we would expect the adult participation rate to be about 1.3 percentage points lower than it was in 2006.

The current labor market slump has seen record levels of long term unemployment. In November 2012 about 4 out of 10 of the unemployed had been jobless for six months or longer. The median duration of an unemployment spell was 19 weeks. The median unemployment spell has shrunk over the past couple of years, but it remains high by historical standards. In 2010 and 2011 almost 3 percent of the total U.S. workforce was unemployed longer than a year, a historically high long-term unemployment rate. For purposes of comparison, the rate in 2010 and 2011 was more than twice as high as the peak long-term unemployment rate in the 1981-1982 recession, which was the nation’s worst post-war slump before the 2008-2009 downturn.

There are good reasons to worry about long-term unemployment. In the short run, the main focus of concern is the unemployed themselves. The penalties imposed by a recession are very unequal, and the long-term unemployed suffer the heaviest penalties. Unemployment benefits provide very incomplete compensation for the income losses experienced by the long-term unemployed. Economists also worry about the longer term consequences for workers who suffer long periods of idleness. Some of the unemployed eventually exit the workforce, retiring long before their work capacity and willingness to work end. Others find employment, but in positions that are not a good match for their talents and experience. These losses have potential consequences for the broader economy. When workers prematurely exit the workforce or become resigned to jobs far below their capacity, potential output can shrink.

An equally worrying prospect is that the long-term unemployed eventually become invisible to critical decision makers in the economy. This can have undesirable effects for wage determination and inflation. At high levels, unemployment puts a check on wage inflation. Workers become cautious in their wage demands, and employers become more reluctant to grant pay increases. According to an influential theory of economy-wide wage setting, if unemployment rises above a critical threshold, known as the “non-accelerating inflation rate of unemployment” or NAIRU, annual wage increases start to shrink and labor cost pressures on prices begin to decline. By permitting the unemployment rate to rise above the NAIRU, policymakers can reduce inflation.

A critical issue is whether the long-term unemployed have the same weight as the short-term unemployed in restraining inflationary pressures in the economy. The two kinds of unemployed would have the same weight if employers regarded the short-term and long-term unemployed as being equally available to fill any job vacancies. If instead employers do not regard the long-term unemployed as adequate substitutes for newly laid off workers, it is easy to imagine that a 1-percent increase in the long-term unemployment rate would have a smaller restraining influence on wages and prices than an equivalent increase in the overall unemployment rate that is caused solely by an jump in the number of short-term unemployed.

There is also a risk that the long-term unemployed will become invisible in the economic policymaking process. If each American worker faced identical odds of losing a job, and each job loser then suffered an identical spell of unemployment, most workers would probably have keen interest in minimizing both the risk of unemployment and the duration of unemployment spells. In fact, the risk of losing a job varies tremendously across workers, and unemployment spells are highly unequal across workers who become unemployed. The risk of losing one’s job is a matter of small concern to many workers, and the severe problems facing the long-term unemployed are an even smaller concern.

The percentage of employed workers who became unemployed in a typical month averaged about 1.2 percent in 2007, the final year of the last economic expansion. Between October 2008 and September 2009 the monthly probability of entry into unemployment surged more than half, rising to 1.8 percent. During the worst phases of the recent slump most workers were acutely aware of the increased risk of job loss. This gave policymakers a strong base of support for policies to halt the economic slide and provide aid to the workers harmed by it. After the economy began to grow in early 2010 the percentage of workers who entered unemployment in a given month began to fall. By early 2012 the entry rate into unemployment was about one-quarter below the peak rate attained in the worst months of the downturn. Though job loss rates remain a bit higher than they were at end of the last expansion, they are well below their recession peaks. Helping the long-term unemployed may seem like a less urgent concern when an employee’s personal risk of entering into long-term unemployment is low. The long-term unemployed and their problems have a shrinking weight in determining voters’ and politicians’ policy interests.

In sum, the job market continued to improve in 2012, though at a painfully slow pace. Workers chances of losing their job are not much different than was the case near the end of the last economic expansion. The number of job vacancies has increased since the low point of the business cycle, but jobless workers continue to find it hard to land a new job. The number of jobless workers in unemployment spells lasting longer than a year remains high by historical standards. Unfortunately, the extremely large losses in well-being suffered by the long-term unemployed seem to play a shrinking role in economic policymaking. Concern over the deficit, rather than the long-suffering unemployed, has become the central focus of policy.

Authors

Gary Burtless

Image Source: © Mike Blake / Reuters

Can Working Longer Solve Our Budget Problems?

Fri, 07 Dec 2012 09:00:00 -0500

Event Information

December 7, 2012
9:00 AM - 2:00 PM EST

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
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The Baby Boomer generation is reaching retirement age. The long-term outlook for the federal budget is bleak, with much of the federal budget devoted to the elderly and people with disabilities through Social Security, Medicare, and Medicaid. As more Americans leave the workforce, the cost of these programs will soar. The budget outlook would improve if American workers delayed their retirement. Longer work lives would reduce the near-term cost of Social Security and Medicare benefits and boost the income and payroll taxes that older Americans pay. How much would later retirement contribute to solving the federal deficit problem?

On December 7, the Economic Studies program at Brookings hosted a forum to discuss the impact of longer work lives on the budget outlook. How would later retirement affect government outlays, particularly on programs targeted on the aged, and how would it affect income and payroll taxes? What kinds of Americans are most likely to delay their retirements? Will workers delay their departure from career jobs or will they take bridge jobs that have less responsibility, lower hours, or worse pay than their previous jobs? How would longer work lives affect younger workers and the distribution of income? What kinds of policies can boost employment of the elderly and disabled while preserving the crucial functions of the social safety net?

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Another Heartening Report on Job Market Progress

Gary Burtless — Fri, 02 Nov 2012 11:59:00 -0400

The headline numbers in October’s employment report show continued recovery from the nation’s worst post-war slump. The pace of recovery remains faster than it was earlier in the year. Both the employer survey and household survey uncovered fresh evidence it is getting easier to land a job. Nonfarm payrolls increased 171,000 in October, with all the improvement coming from job gains in the private sector. The household survey showed an even bigger leap in employment. With seasonal adjustment, the number of adults who report holding a job increased 410,000 in October compared with September. The unemployment rate edged up 0.1% because the number of Americans in the labor force rose. The active workforce increased 578,000 in October; it has climbed almost 1 million in the past two months.

October’s good news on the employment front was reinforced by revisions in the payroll employment statistics for August and September. The updated payroll numbers added 84,000 to previously reported job gains in late summer and early fall. Since January of this year payroll employment has increased an average of 144,000 a month, with virtually all the improvement occurring in the private sector. During the same months, adult employment reported in the household survey increased by an average of 194,000 a month. The gains in both employer payrolls and adult employment are fast enough to push down the unemployment rate. Indeed, the jobless rate has fallen 0.4 percentage points since January and by a full percentage point over the past 12 months. All the drop in unemployment since January has been the result of increases in adult employment; none of it has been caused by a decline in labor force participation.

If the job market continues to improve we should expect to see an increase in labor force participation, especially among young adults. The adult labor force participation rate has dropped a bit more than 2 percentage points since the end of the last economic expansion. Part of the drop can be explained by the aging of the adult population. As the baby boom generation has begun to enter its retirement years, the fraction of the adult population in the workforce has shrunk. About half the drop in the participation rate since 2007 is due to an aging population. The remainder, however, is the result of a depressed job market. Workers who think they have bleak prospects of finding a job have dropped out of the workforce. As the job market mends, we should expect to see a gradual rise in the participation rate. We have seen labor force growth in the past couple of months, but there is still a long way to go.

Payroll gains in October were broadly distributed across goods-producing and service-producing industries. Employment edged up slightly in manufacturing, partly offsetting job losses in the past couple of months. Construction also saw job gains, though total employment in that industry remains more than 25% lower than it was before the onset of the recession. Service industries have fared much better than goods-producing industries in recent months. Temporary help firms also registered job gains in October, more than offsetting the job loss they experienced in September.

Government agencies bucked the general pattern of job gains in October and saw a small loss of employment. However, revised estimates of public-sector payrolls in August and September mean that the government has added about 83,000 employees since June. This represents a sharp reversal of the pattern during most of the recovery. Government payrolls shrank rather than expanded after the economy began growing again in late 2009. It now seems possible that the long trend toward government job losses may have ceased.

Authors

Gary Burtless

Image Source: © Jim Urquhart / Reuters

Life Expectancy and Rising Income Inequality: Why the Connection Matters for Fixing Entitlements

Gary Burtless — Tue, 23 Oct 2012 11:15:00 -0400

Nearly all indicators of inequality show American income disparities have increased since the late 1970s. The magnitude of change in inequality is sensitive to the particular income measure we use, but essentially all measures imply that income gaps are bigger today than they were three decades ago.

Statisticians analyzing the most comprehensive income measures find that much of the jump in inequality was due to gains at the very top of the distribution. More than three-quarters of the relative income gains enjoyed by Americans in the top fifth of the income distribution were obtained by people in the top 1% of the distribution. We saw an uptick of inequality among households in the bottom 95% of the income distribution in the 1980s, but this trend seems to have run its course by the end of that decade.

The growth in inequality has been a topic of intense interest to social scientists for the past quarter century. More recently it has become the focus of political debate and press attention. Although the effects of increased inequality remain uncertain, there has been a flurry of research aimed at understanding possible links between inequality and a variety of social and economic trends.

One of the most basic indicators of well-being is life expectancy. Analysts have long recognized the powerful association between personal income and expected life spans. People with higher incomes tend to live longer than people with lower incomes. Statistical tabulations suggest that the relationship is nonlinear. A $10,000 increase in annual income does more to lift the life expectancy of someone who lives on a meager income than it does to boost the life span of someone who is already well off. This suggests that transferring $10,000 a year from someone who is rich to someone who is poor should lift the expected life span of the poor recipient more than it hurts the life span of the rich donor. It therefore seems logical to expect that a more egalitarian income distribution would lift average life expectancy.

We can conceive of societies where a reduction in inequality would surely add to average life spans. Of course, we can also imagine societies where the attempt to reduce inequality through redistribution would reduce economic growth, generate political turmoil, and slow the rise in average incomes. If you oppose income redistribution because you fear its potential impact on politics or growth, you may not be impressed by the argument that longevity would improve a bit faster if there were less inequality.

As many observers have noted, the United States has exceptionally wide inequality for a high-income country. It also has relatively low average life expectancy. Among 34 countries in the Organization of Economic Cooperation and Development (OECD), the U.S. ranks 27^th in life expectancy at birth. If we limit our comparison to the 21 large OECD countries with high incomes, America ranks dead last. This lowly rank is especially surprising because average income in the U.S. is about 40% higher than it is on average in other OECD countries, and real health spending per person is about 150% higher than it is in the other countries. Of course, wide income disparities in the U.S. mean that low-income Americans have lower incomes than people in comparable positions in the income distributions of many other rich countries.

A recent study of American life expectancy uncovered trends that may be partly traceable to increased income inequality. S. Jay Olshansky and his colleagues found evidence that white men and women who lack high school diplomas have seen a noticeable drop in life expectancy over the past three decades. These groups have struggled as job prospects for less educated workers have dried up. Their declining economic position may be worsening their chances of living a long life. Another interpretation is that the fraction of whites who fail to complete high school has shrunk, so the apparent decline in dropouts’ life expectancy may be a result of shifts in the composition of the population that lacks a high school diploma. Expected life spans for whites in general, and indeed for Hispanics and African Americans, continue to improve.

An older study of changes in life expectancy used Social Security records to determine the relationship between workers’ position in the wage distribution and their mortality rates. Hilary Waldron, a Social Security Administration researcher, estimated mortality rates of white men born between 1912 and 1941 who had earnings between ages 45 and 55. She divided these men according to their average position in the earnings distribution when they were between 45 and 55, and she then determined the effects of their income position on their mortality rates between ages 60 and 89. Between ages 60 and 80 men with a worse earnings position had a higher mortality rate. More disturbingly, the mortality differential between low-earnings and high-earnings men increased substantially over time. The mortality rates of both low-earnings and high-earnings men improved during the period Waldron examined. However, improvements in life span overwhelmingly favored the men at the top of the earnings distribution. Men born in 1912 who had earnings in the top half of the wage distribution lived 1.2 years longer than men born in the same year who had earnings in the bottom half of the earnings distribution. For men born in 1941 the difference in life expectancy soared. Better paid men in the younger birth cohort can expect to live 5.8 years longer than men born in the same year who are in the bottom half of the wage distribution.

It is not clear whether the growing life expectancy gap between the affluent and less affluent can be traced to widening inequality. It may be due instead to growing differences in eating habits, smoking, exercise, and lifestyle habits that favor the affluent over the less affluent.

Even if we cannot be confident of our explanation of the trend, some of its policy implications should be plain. If gains in expected life spans are increasingly concentrated among the well-to-do, we should not ask the less affluent to bear the main burden of an aging society. One proposal to deal with the financial problems of Social Security and Medicare is to lift the age of eligibility for benefits. This policy makes sense if the gain in life spans is enjoyed equally by the rich and poor. It makes less sense to ask the poor to wait longer for retirement benefits when a disproportionate share of the life span improvement is concentrated among the affluent.

Authors

Gary Burtless

Publication: Real Clear Markets

An Upbeat Household Survey and Revisions in Old Payroll Statistics Paint a Brighter Picture of the Job Market

Gary Burtless — Fri, 05 Oct 2012 11:36:00 -0400

In September 2012 the unemployment rate fell below 8% for the first time since January 2009. Though the recovery from the 2008-2009 recession has been heartbreakingly slow, the latest unemployment statistics combined with revisions in old payroll employment numbers offer a brighter picture of job market progress than we have seen in recent BLS reports.

The September employment report shows that private payrolls increased for the 31^st consecutive month, rising 104,000 compared with August. While this is a somewhat slower pace of private sector employment growth than we saw earlier in the year, a turnaround in public employment and revisions in estimated job gains in July and August significantly lifted the estimated rate of payroll gains this past summer. Initial estimates showed that government employment fell 21,000 in July and 7,000 in August. The latest BLS revisions suggest government payrolls increased 18,000 in July and 45,000 in August. In addition, preliminary estimates for September show public payrolls increased 10,000 in September.

This is the first time since March–May 2010, when the Census Bureau was adding temporary workers for the decennial census, that we have had three successive months in which government employment increased. Between May 2010 and July 2012, the drop in government payrolls offset more than a quarter of the job gains in the private sector. Private payroll employment rose more than 3.9 million, while government employment fell almost 1.1 million. The latest BLS statistics show that government employment is now adding to rather than subtracting from employment growth. BLS revisions to the preliminary July and August payroll numbers added 86,000 to estimated job gains this past summer. While the overall pace of job growth was not spectacular, it was clearly fast enough to shrink the unemployment rate.

The employment numbers from the latest household survey are even more heartening. The number of employed adults increased 873,000 while the number of adults saying they are either employed or looking for work increased 418,000. The number of unemployed workers thus fell 456,000, and the unemployment rate fell 0.3 percentage points to 7.8%. The number of unemployed workers is now the lowest it has been since January 2009.

The unemployment rate would certainly be higher if workers’ prospects of finding jobs were brighter. Since the end of the last economic expansion in late 2007 the labor force participation rate has dropped 2.3 percentage points. Some of the decline is due to factors other than a lousy job market, however. I estimate that about half of the decline can be traced to an aging population. As the baby boom gets older, a larger percentage of adults is in age groups with low labor force participation rates. Still, we would expect that in a healthy job market the number of labor force participants would be 2½ million to 3 million larger than it was in September 2012. While the September employment report was more encouraging than the ones we have seen in recent months, the job market is still a long way from rosy good health.

Authors

Gary Burtless

Growth in Health Consumption and Its Implications for Financing OASDI: An International Perspective

Barry P. Bosworth and Gary Burtless — Thu, 20 Sep 2012 12:46:00 -0400

The rising cost of U.S. health care has reduced the share of compensation that is taxable by Social Security. Between 1960 and 2010, non-taxable employer premiums for worker health plans increased from 1 percent of employee compensation to 7 percent. We use international data to examine the determinants of trends in health care spending and the reasons that the U.S. experience has differed from that of other high-income countries.

In 2010, the share of U.S. gross domestic product devoted to health care was 7.2 percentage points higher than the share in other rich countries. We document the growth of this gap in the past five decades. Much of it developed between 1980 and the mid-1990s, though we also find another episode of outsized growth in the early 2000s. We identify six countries, including most of Scandinavia, which have seen a slowdown in health spending growth. These were also countries that had higher-than expected health spending, given their average incomes, in the 1960s and 1970s.

The slowdown in health expenditure growth may simply reflect a reversion of their spending toward the OECD mean. We find no mean reversion in U.S. health spending growth. Our review of other literature suggests that the current excess in U.S. health costs is mainly traceable to higher prices for health care goods and services. Compared with other OECD countries, the United States has been slow to develop institutions or global budget constraints that restrain the pace of growth in health costs.

To read the full paper, visit the Center for Retirement Research's website »

Authors

Publication: Center for Retirement Research, Boston College

Image Source: Jim Young / Reuters

Disappointing Numbers on Income and Poverty: What's Wrong With This Story?

Gary Burtless — Mon, 17 Sep 2012 16:44:00 -0400

Once a year the Census Bureau publishes estimates of the number of poor under the official poverty definition. At the same time, it releases estimates of the trend and distribution of income as well as health insurance coverage. The numbers for 2011 were issued last week, and as usual they received wide notice in the press.

The news. The latest numbers contained some good news and bad news. The good news is that the poverty rate and number of people in poverty probably fell slightly. The official poverty rate in 2011 was 15.0%, slightly below the peak rates attained in the recessions of the early 1980s and early 1990s and in 2010. Second, the number of Americans employed full-time and year-round increased 2.4% after three successive years of decline. Finally, the fraction of Americans covered by a health insurance plan increased by 0.6% following three years of decline. These improvements in poverty, in the number of earners, and in health coverage show the bad times between 2008 and 2010 gave way to somewhat better times in 2011.

The report also contained large helpings of bad news, however. The Census Bureau reported that median household income fell for the fourth consecutive year. It was the ninth time in the past 12 years this headline number has declined. Adjusted for inflation, median household income shrank 1.5% last year, and it has dropped about 9% since 1999. The real earnings of full-time, year-round workers also fell last year, dropping 2.5% among both men and women. For people who worry about American inequality, the latest Census numbers gave additional reasons for concern. Household income disparities reached a new high in 2011. The most popular measure of inequality—the Gini coefficient—reached a historical peak, as did the share of total income received by the top one-fifth of households. The shares of income received by the bottom three-fifths of households—that is, by the middle class and poor—reached all-time lows.

What’s wrong with this story? Most people who read or heard about the Census numbers were surely disappointed to learn how slowly incomes and wages are recovering from the deep recession. Several reports mentioned that median household income, adjusted for inflation, has now dipped to a level last seen in 1995. In the bottom one-fifth of the income distribution, the new Census report showed that real incomes have dropped to a level last seen in 1985. If we accept the numbers at face value, the underperformance of the economy so far in the 21^st century has brought living standards in middle- and low-income families back to levels of 16 or 26 years ago.

The statistical flaws. The recessions in 2001 and especially 2008-2009 were indeed severe, but the Census income reports provide a misleadingly gloomy picture of the longer term trend in real living standards. One way to see this is to compare the gains in average income reported by the Census Bureau with estimates published by the Commerce Department in the national income and product reports. The Census reports suggest that average income per person fell more than 5% between 2000 and 2011. In contrast, the national income accounts show that real disposable income per person increased more than 9%.

The astonishing gap between the two numbers is partly explained by differences in income definitions. Disposable personal income includes noncash benefits we receive from our employers and the government (including health insurance and food stamps) and takes account of household payments for income and payroll taxes. The Census Bureau’s income definition ignores these items. For most households, the health benefits we receive have increased faster than our cash incomes. In addition, our income and payroll taxes have increased much more slowly than our cash incomes. For many households, direct tax payments declined substantially.

The Commerce Department’s national income accounts do not tell us how income is distributed across households. In a report published in July, however, the Congressional Budget Office (CBO) used a comprehensive income definition to analyze trends in the distribution of after-tax income up through 2009. Unlike the Census Bureau’s income definition, the CBO’s takes account of noncash benefits, like health insurance and food stamps. And unlike the Census Bureau estimates, the CBO’s reflect incomes reported to the IRS as well as in household surveys. Finally, the CBO analyzes net, after-tax incomes, while the Census Bureau focuses on before-tax incomes. In sum, CBO attempts to estimate income trends under a truly comprehensive income definition.

How do the two sets of estimates differ? The Census household survey shows that the average income of Americans in the bottom one-fifth of the income distribution shrank in 8 out of 10 years between 1999 and 2009. In those 10 years income fell a total of 9%. In contrast, under the CBO’s comprehensive after-tax income definition, average incomes in the bottom one-fifth fell in only 3 out of 10 years—and in none of the years of the Great Recession. The average after-tax income in the bottom fifth actually increased 11% in the decade between 1999 and 2009. According to the Census Bureau’s estimates, Americans in the middle one-fifth of the income distribution saw their incomes fall in 6 of the 10 years between 1999 and 2009. Their average incomes fell a total of 6% over the decade. Under the CBO’s comprehensive definition, the after-tax incomes of the middle fifth fell in just 4 of 10 years, and they increased a total of 8% in the decade after 1999.

A comparison. In measuring the gain or loss in middle class income, the headline number in the Census Bureau report is median household income. We cannot yet compare the latest median income estimate from the Census Bureau with better estimates based on a more comprehensive definition of income. However, the CBO’s July report allows us to compare the Census Bureau’s median income estimates up through 2009 with a comprehensive income estimate up through the same year. I show the comparison in Chart 1. The bottom line in the chart shows the Census Bureau’s estimates of median household income; the top line shows the CBO estimates of median after-tax income under a comprehensive measure of income.

Two features of the chart are striking. The CBO estimates show higher median incomes in every year.[1] In addition, the Census measure shows a bigger falloff in income during recessions—in the early 1990s, in the first years of the last decade, and after 2007. The CBO income estimates are higher because they include capital gains income and noncash income sources, like food stamps, health insurance, and employer pension contributions. Compared with the Census Bureau estimates, the CBO estimates show smaller income losses in recessions because they reflect the fact that household tax payments fall by a bigger percentage in a bad economy than households’ pretax incomes. The drop in household tax burdens accelerated after 2000 because of sizeable tax cuts. In the 1980s, the CBO’s estimate of median income is only about 10% higher than estimates under the Census Bureau definition. In the years after 2000, the CBO estimates are 24% higher than those produced by the Census Bureau. The result is the median income gains are bigger (or income losses are smaller) under the CBO’s income definition. Chart 2 shows the differences in three periods—1989 to 2009, 1999 to 2009, and 2007-2009. In all three periods income gains are considerably faster (or income losses smaller) under the CBO comprehensive definition. For example, the two bars on the right show the drop in median incomes in the Great Recession. The median household income estimates of the Census Bureau show a 4.2% drop, while the more comprehensive CBO estimates suggest median income declined than 1%.

The basic difference between the Census income estimates, on the one hand, and the Commerce Department and CBO statistics, on the other, is that the Census is measuring a narrower and increasingly out-of-date concept of income. Much of the income Americans receive is not received as cash or is poorly reported in a household survey. For example, more than a fifth of our personal consumption now consists of health care, and we pay for only about a quarter of that care out of our cash incomes. The rest is reimbursed through employer-provided or government-financed health insurance.

More worrying is the failure of the Census Bureau’s money income concept to reflect many of the policy measures used by the government to combat the effects of severe recessions. Congress and two Administrations made sizeable tax cuts in 2001, 2003, 2008, 2009, and 2010. None of the tax cuts are reflected in money income. Congress and the Obama Administration liberalized food stamps in 2009. Those benefit improvements are also excluded from the Census money income measure. The federal government provided generous aid to states so they could maintain or improve health insurance programs for the unemployed and indigent. Even though the extra aid boosted enrollment in government insurance programs, none of the increase is reflected in the Census Bureau’s definition of income.

Using a comprehensive income definition changes our sense of the long-term trend in income. Properly measured, incomes have increased rather than shrunk since the end of the 1990s. Through 2009, the most recent CBO report suggests after-tax incomes at the bottom actually improved faster than they did in the top fifth of the income distribution. Both the Census Bureau and CBO income estimates agree in showing inequality has increased over much of the past four decades. But unlike the new Census income report, estimates from both the Department of Commerce and CBO suggest that American incomes have improved over the past decade.

Endnote:

[1] The CBO median income estimates are taken from Table 5 of the supplementary tables published with CBO’s July 2012 income distribution report. The Census Bureau estimates were obtained from the Census Bureau website. In order to produce estimates from the CBO comparable to the Census Bureau estimates, I used the CBO median income series that is not adjusted to reflect household size. The CBO and Census Bureau use different measures of price inflation to convert incomes in different years into real dollars. The CBO uses the personal consumption expenditure price series from the national income and product accounts; the Census Bureau uses the CPI-U-RS price index. I adjusted the CBO median income series so that the Census Bureau’s price index series (the CPI-U-RS) is used to calculate incomes measured in constant prices.

Authors

Gary Burtless

Poverty and Income in 2011: A Look at the New Census Data and What the Numbers Mean

Wed, 12 Sep 2012 14:00:00 -0400

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September 12, 2012
2:00 PM - 4:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

The U.S. Census Bureau will release new data on poverty and family income for 2011 on September 12. Poverty declined every year between 1993 and 2000, reaching its lowest level ever for black children and children in female-headed families, but increased from 2001 to 2004. The rate then declined slightly in both 2005 and 2006, but increased in 2007 and every year since. Given the continuing high rate of unemployment since the Great Recession, many analysts predict an increase in poverty and child poverty again in 2011.

On September 12, the day the Census poverty report is released, the Center on Children and Families at Brookings held its tenth annual briefing to discuss the new figures on poverty and income and their implications for families and policymakers. Two keynote speakers and a panel of experts offered their analysis on the Census report and perspectives on the significance of the new data.

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The Job Market Has a Case of the Blahs

Gary Burtless — Fri, 07 Sep 2012 09:50:00 -0400

The sluggish labor market recovery continued in August, with employers adding 96,000 to their payrolls. This rate of job gain is approximately fast enough to keep pace with the growth of the working-age population. If maintained over several months, however, it is too slow to put a dent in the nation’s unemployment rate. For the 30th consecutive month private payrolls grew, increasing 103,000. Since the turnaround in private payrolls began in March 2010, private employers have added a total of 4.63 million workers to their payrolls, for an average gain of 154,000 workers a month. In 24 of the 30 months since March 2010, however, government payrolls declined. Last month they fell another 7,000. The good news is that this is a slower rate of decline than we have seen during most of the recovery.

The headline number in the jobs report is the unemployment rate, which fell 0.2% to 8.1%. The encouraging trend in unemployment masks a discouraging trend in labor force participation. The participation rate fell 0.2% in August, reaching a new low for the current business cycle. Some workers who have exhausted their unemployment benefits or remained jobless for a more than half a year gave up their search for work and dropped out of the workforce. The number of workers unemployed longer than 6 months fell 152,000 in August and has fallen almost 1 million over the past 12 months.

With respect to employment gains, the household survey offers a discouraging picture. The number of Americans reporting they hold a job fell 119,000 in August following a drop of 195,000 in July. Since January, the household survey shows that employment has risen just 464,000, or about 66,000 a month. If sustained over many months, this pace of employment gain is too slow to keep the unemployment rate from rising. The unemployment rate has edged down since January, but only because the fraction of working-age Americans in the job market has shrunk. The economy needs to see a sizeable jolt in economic growth this fall if the job market gains of 2010 and 2011 are to be duplicated.

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Gary Burtless

Image Source: Jessica Rinaldi / Reuters

Brookings: Experts - Gary Burtless

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Another Heartening Report on Job Market Progress

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Life Expectancy and Rising Income Inequality: Why the Connection Matters for Fixing Entitlements

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An Upbeat Household Survey and Revisions in Old Payroll Statistics Paint a Brighter Picture of the Job Market

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Growth in Health Consumption and Its Implications for Financing OASDI: An International Perspective

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Disappointing Numbers on Income and Poverty: What's Wrong With This Story?

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Poverty and Income in 2011: A Look at the New Census Data and What the Numbers Mean

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The Job Market Has a Case of the Blahs

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