I love the New York Times. But its reporters’ slant on public employee pensions has been driving me crazy, and the latest story by Mary Williams Walsh and Rick Lyman didn’t help. Walsh has been carrying a vendetta against public pensions for many years, so it is no surprise that the article makes the unsupportable claim that none of the 40 state pension overhauls has “come close to closing their pension gaps quickly enough to keep pace with a rapidly agingand retiring—public work force.” I leave it to the reader to fully decipher that statement, but it seems to reflect the story’s headline, that “Public Pension Tabs Multiply as States Defer Costs and Hard Choices.”  It implies that despite the states’ pension overhauls, things are getting worse everywhere because public employees are aging and retiring faster than the financing is improving. It’s surely meant to be alarming, as is the chart of Moody’s Investor Service data showing 13 states with “unfunded pension liability greater than annual revenue.”

Moody’s, itself, tells a different story. Moody’s points out that its data are 20 months old and don’t reflect current balance sheets or the enormous market gains of the last 18-20 months. Moody’s points out that “A run-up in financial markets has helped shrink public pension shortfalls” since June 30, 2012, because “Investment returns provide the lion’s share of the retirement systems’ revenue”:

But fiscal 2012 ended for most states on June 30, 2012, and since then, a run-up in financial markets has helped shrink public pension shortfalls. Investment returns provide the lion’s share of the retirement systems’ revenue, and in 2013, pensions’ holdings reached record amounts.

That could make fiscal 2012 the high-water mark for pension problems that have rocked state governments over the last decade and led to a wave of pension reforms recently, according to Moody’s.

Pension liabilities “for 2012 may reflect a cyclical peak as a result of subsequent strong market returns and a rising interest rate trend,” the rating agency said.”

Read more

Education policy in both the Bush and Obama administrations has suffered from failure to acknowledge a critical principle of performance evaluation in all fields, public and private—if an institution has multiple goals but is held accountable only for some, its agents, acting rationally, will increase attention paid to goals for which they are evaluated, and diminish attention to those, perhaps equally important, for which they are not evaluated.

When law and policy hold schools accountable primarily for their students’ math and reading test scores, educators inevitably, and rationally, devote less instructional resources to history, the sciences, the arts and music, citizenship, physical and emotional health, social skills, a work ethic and other curricular areas.

Over the last decade, racial minority and socio-economically disadvantaged students have suffered the most from this curricular narrowing. As those with the lowest math and reading scores, theirs are the teachers and schools who are under the most pressure to devote greater time to test prep, and less to the other subjects of a balanced instructional program.

Read more

This is black history month. It is also the month that the Emergency Manager who took political power and control from the mostly African American residents of Detroit has presented his plan to bring the city out of the bankruptcy he steered it into. This is black history in the making, and I hope the nation will pay attention to who wins and who loses from the Emergency Manager’s plan.

Black people are by far the largest racial or ethnic population in Detroit, which has the highest percentage of black residents of any American city with a population over 100,000. Eighty-three percent of the city’s 701,000 residents are black. It continues to be an underreported story that a white state legislature and white governor took over the city and forced it to file for bankruptcy against the will of its elected representatives. It is also underreported that white governors and the white state legislature failed to provide Detroit with its fair share of state tax revenues – a significant contributor to the city’s current financial distress.

Detroit’s bankruptcy plan calls for the near-elimination of the retiree health benefits that city workers earned over the years, as well as drastic cuts in the pensions that retired and current workers have earned and counted on. It is telling, I think, that for the first time since the Michigan constitution was adopted 50 years ago, the governor chose in this case to ignore the Michigan constitution’s guarantee that public employee pension benefits will be paid in full, given that Detroit’s public workforce is majority black and represented by unions that opposed the governor’s election.

Read more

This piece originally appeared on the Huffington Post.

 The recent defeat of its effort to unionize workers at Volkwagen’s Chattanooga, Tennessee factory was a crushing blow to the United Auto Workers, and a setback to the embattled U.S. labor movement, which could have used the morale boost of a high-profile victory.

It was also a big loss for the vast majority of Americans who must work for a living, whether they are union members or not. Without a large robust unionized sector, there is little hope that the relentless spread of low-wage work, job insecurity and economic inequality will be reversed.

Labor unions were key to the post-World War II social contract under which the benefits of economic growth were broadly shared. Collective bargaining agreements set industry-wide standards for wages and working conditions, which put pressure on nonunion firms to keep up or face union organizing drives. Politically, unions were the most important force supporting Social Security, Medicare, unemployment compensation, overtime, job safety, progressive taxes and full employment policies that promoted prosperity far beyond their membership.

Read more

This is a story about misdirection, how authors contort their analysis to answer a question no one is asking but make it seem as if they are answering an important current question, such as ‘why has income inequality increased?’. The consequence is to be grossly misleading or, worse, to present conclusions that are directly opposite of what one’s data show.

The paper in question is titled “US income inequality and assortative marriages” and written by Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos for VoxEU.org. The research relates to an increase in positive assortative mating: “how likely a person is to marry someone of similar educational background. Since education is an important determinant of income, these patterns of matching might have an impact on the economy’s distribution of income.” Basically, if higher income men are now more likely to marry higher income women then household income inequality will grow.

The authors conclude that “rising assortative mating together with increasing labour-force participation by married women [emphasis added by me] are important in order to account for the determinants of growth in household income inequality in the US.” So, right out of the gate, a key influence not trumpeted in the headline (rising labour-force participation by married women) is introduced. But we’ll stick with the findings on assortative mating for now. The authors compare assortative mating in 2005 to that of 1960. The selection of the dates for comparison, 1960 and 2005, determines their story and they choose a misleading one. They show their key finding in the very first graph, presented below, which uses Kendall’s tau statistic to measure the relationship between husband’s and wife’s educational levels. The higher the tau statistic ‘the higher is the degree of positive assortative mating.”

Read more

I was glad to see the United Auto Workers (UAW) file objections with the National Labor Relations Board (NLRB) over the nasty campaign by anti-union Tennessee politicians to affect the results of the union election at Volkswagen last week. It would be so enlightening for the NLRB to question Sen. Corker (R-Tenn.) under oath about his alleged conversations with the “real decision makers” at VW, the supposed source of his threat/promise that voting in the UAW would doom the VW plant’s hopes for expansion. Was Corker lying, or were VW executives breaking their neutrality agreement with the UAW and using Corker to help defeat the union? If he was VW’s secret agent, the election should be set aside.

Read more

In a Wall Street Journal op-ed last month, Sylvester Schieber and Andrew Biggs said that census data failed to capture much of the income Americans derive from 401(k) and IRA plans. Though no one denies that the data don’t include some distributions from retirement accounts, the extent of the under-reporting is under dispute, with Biggs and Schieber claiming census data ignore 60% or more of the money that seniors receive.

In an earlier blog post, I noted that Schieber and Biggs may be basing this attention-grabbing claim on Internal Revenue Service measures that count rollovers from one retirement account to another as “income.” At an American Enterprise Institute event today, Paul Van de Water of the Center on Budget and Policy Priorities, who first brought the rollover issue to my attention, asked Schieber whether he based his claims on IRS measures of total or taxable income from retirement plans. Whereas taxable income measures exclude Roth IRA distributions, total income measures include these distributions, but also rollovers. As Federal Reserve and IRS researchers have explained, rollovers are included in some IRS income measures even if taxes aren’t owed on the amounts (and whether or not households report the transactions) because financial service providers report them to the IRS.

So, which measures are Schieber and Biggs using—total or taxable income from retirement plans? Schieber wasn’t able to answer, deferring to a coauthor, Billie Jean Miller, who wasn’t present. This should raise eyebrows, since Schieber has been making the same point for years and Social Security Administration researcher John Woods raised the rollover issue back in 1996.

Without claiming any familiarity with IRS data, it appears to me that Schieber and Miller are using measures of total income from these accounts, at least with respect to pension and annuity income. In Exhibit 5 of their Journal of Retirement article, for example, Schieber and Miller cite an IRS measure of pension and annuity income of $812 billion for 2008. According to summary statistics published by the IRS, total pension and annuity income was $845 billion in 2008, whereas taxable pension and annuity income was $506 billion (all figures have been rounded). Though Schieber and Miller’s figure is somewhat smaller than the IRS measure of total pension and annuity income, the difference could be due to revisions or differences between the internal IRS data and micro-data made available for public use.

Over the last six years, the labor force participation rate dropped by several percentage points. There is a debate over how much of that drop is a direct result of the lack of job opportunities in the Great Recession and its aftermath (changes that are generally labeled cyclical), and how much is instead a result of long-run trends, such as baby boomers beginning to retire (changes that are generally labeled structural). A recent blog post in the Wall Street Journal said that among Federal Reserve officials, the view that much of the decline is structural is gaining traction. If true, that’s a problem. My read of the data shows that most of the decline is cyclical, so if the Fed believes it’s structural, it means they believe there’s less slack in the economy than there really is.

Part of the misunderstanding is that there are two components of structural change. First, there are population shifts. Age groups that tend to have lower labor force participation rates are now a larger share of the population (think retiring boomers). These are called “compositional” shifts. Accounting for purely compositional changes by gender and age, more than 40 percent of the decline in the labor force participation rate over the last six years can be accounted for. Many people doing a quick analysis on this topic tend to stop there.

However, the other component of structural change is made up of long-run trends in labor force participation within age/gender groups. The labor force participation rate among people under age 25 has been declining since the 1980s, in part due to increasing college and university enrollment. The continuation of that long-run trend accounts for an additional structural decline in the overall labor force participation rate over the last six years. The projected trend in labor force participation rate of workers age 25-54 was virtually flat, so that trend did not meaningfully contribute to structural changes over the last six years. The trend labor force participation of workers age 55+, however, was expected to rise significantly over this period, particularly for women, as cohorts with much stronger labor force attachment throughout their 20’s, 30’s, and 40’s than the cohorts that preceded them began aging into this age bracket. In other words, that’s a structural change that should have substantially contributed to an increase in labor force participation over this period.

Putting these factors together—the compositional changes between gender/age groups and the structural trends within gender/age groups—the result is that only around a quarter of the total drop in labor force participation over the last six years is structural. This means that around 75 percent of it is cyclical. In other words, there are now around 5.8 million workers who are not in the labor force but who would be if job opportunities were strong. If these workers were in the labor market looking for work, the unemployment rate right now would be 10.0 percent instead of 6.6 percent. That is a lot of additional slack in the labor market.

It has been pointed out that it is likely that at least some of the workers who are out of the labor force due to cyclical factors are people who gave up and decided to retire early. Given that retirees are less likely to reenter the labor force when job opportunities improve, improving economic conditions may not draw these workers back in. This means that labeling them as being out of the labor force due to cyclical factors may not be very useful. However, it is important to note that there are large participation gaps for workers age 54 or younger, who are unlikely to be early retirees. In fact, more than 70 percent of the 5.8 million missing workers are under age 55. These missing workers under age 55—4.2 million of them—are therefore unlikely to be deterred from entering or re-entering the labor force when job opportunities strengthen.

While much of the reaction to the most recent CBO Budget and Economic Outlook (released earlier this month) focused on the labor market impacts of the Affordable Care Act, it’s important to note that this report actually contained a multitude of interesting findings and updated projections. Among the most important is CBO’s revised projection of the costs of federal health care programs—Medicare, Medicaid, ACA subsidies, and some smaller programs as well—over the next decade. For the fourth year in a row, CBO revised these cost projections downward. The figure below shows CBO’s projections of these costs in the decade following each Budget and Economic Outlook published since 2011.

While health care costs remain the fastest growing portion of the federal budget, and are still projected by CBO to grow significantly faster than the overall economy over the next decade, the downward revisions of the past three years are quite significant. Put simply, since 2011, CBO’s projection of what the level of federal health spending will be in 2021 has dropped by $183 billion, or about 10.4 percent.

To put this in perspective, when lawmakers passed the counterproductive, indiscriminate sequestration spending cuts as part of 2011’s Budget Control Act (BCA), they were looking at projections of federal health spending over the following decade that the latest estimates indicate were $900 billion too high. The $1.2 trillion in “sequestration” cuts over the decade, with their damaging effect to public investment and to the still-incomplete economic recovery, look even more unnecessary in this light.

Genuinely informed budget wonks know that the BCA cuts were particularly perverse because they took an ax to the portion of the budget— discretionary spending—that is not projected to grow in coming years, relative to the economy. To the extent that long-run budget projections highlight a need for restraining spending, this is entirely driven by the rapid rise in health care costs—both public and private. And these health care costs have rapidly decelerated in recent years. This deceleration began even before the provisions of the Affordable Care Act (ACA) meant to restrain cost-growth went into effect. Health care costs are so important in driving long-run budget trends that if the cost-growth slowdown of the past five years continues, there will be no long-run budget deficit problem. Lawmakers who actually cared about long-run budget deficits, not to mention living standards of typical Americans, would reverse the damaging cuts to discretionary spending and instead continue to press for efficiencies that further slow health care cost growth.

Mark Price and Estelle Sommeiller’s new paper traces the trajectory of top incomes in American states and regions from 1917 through 2011. Mapping this data across the continental United States and over the last century suggests both important similarities across states, and some key differences.

On the map below, the states tip from green to red when the top 10 percent’s share of income exceeds one-third. In the early years, inequality (as measured by the high income share of top earners), is starkest in the Northeast. This inequality is generalized by the impact of depression and war in the 1930s and 1940s, but once the policy innovations of the New Deal (collective bargaining, retirement security, labor standards, and financial regulation) take hold, inequality eases: by the middle 1950s, only New York and the Deep South are still colored red.

The pattern across the last generation is just as telling. Of the sixteen states to top this threshold in 1972, the only ones outside the South were the tri-state home of big finance—New York, New Jersey, and Connecticut. As we scroll forward from there, the states in which the top 10 percent claim less than a third of total income gradually diminish, disappearing entirely by 1989. By 2011, the top 10 percent are claiming almost 60 percent of income in New York and Connecticut, and over 40 percent in all but three states (Iowa, Nebraska, and South Dakota).