Entitlements, the ACA Individual Mandate and Intergenerational Transfers

Young adults in their early 30’s have faced a much more difficult labor market over the past decade than earlier generations; the age 25-34 cohort experienced an unemployment rate two percentage points higher and an employment rate three percentage points lower than the same age cohort over the decade from 1993 to 2003.  The severe recession and weak labor market recovery has caused younger adults to delay career advancement, family formation, and home purchases.  Despite the struggles that younger workers have faced over the past decade, they are being taxed to support entitlement programs that transfer income to wealthier retirees.  In addition, beginning in 2014 many of these younger workers will also be forced to purchase more health insurance, and more expensive health insurance, than they would choose without a federal mandate.

The Affordable Care Act (ACA) requires some relatively healthy adults to purchase more expensive and comprehensive health insurance than they would otherwise choose.  Many relatively healthy adults prefer a less expensive catastrophic health plan with higher deductibles and fewer benefits.  However, for adults age 30 and above a high deductible catastrophic plan does not fulfill the individual mandate of the ACA.  The ACA requires healthier and younger adults to purchase more insurance than they want, for higher premiums than they would voluntarily select, to subsidize the provision of health insurance to wealthier, older and less healthy adults.  This intergenerational transfer from young to old compounds the intergenerational transfers in the Social Security and Medicare programs.

A 34 year-old employee who worked full-time from 2003 to 2013, earned the median wage, and experienced the average amount of unemployment*, has contributed over $39,200 to Social Security and almost $9,200 to Medicare in the past decade.  Had these resources been devoted to a Standard and Poors 500 index fund, the effective annual rate of return on contributions would have been 5.67%.  Thus, despite the biggest financial crisis and stock market crash since the Great Depression, the median 34 year-old full-time employee would have more than $51,900 in an individual Social Security account and $12,100 in an individual Medicare account.  The expected return that a worker age 25 to 34 can be expected to receive on their Social Security and Medicare taxes is difficult to assess because the programs are largely pay-as-you-go.  Nonetheless, it is quite clear that workers under the age of 35 won’t earn an annual return anywhere near 5.67% on their tax contributions to these entitlement programs.

The individual mandate in the Affordable Care Act (ACA) puts an additional burden on younger workers by forcing them to overspend on health insurance.  The ACA requires that all insurance plans offer the following “essential benefits”:

  • Emergency services
  • Hospitalizations
  • Laboratory services
  • Maternity care
  • Mental health and substance abuse treatment
  • Outpatient, or ambulatory care
  • Pediatric care
  • Prescription drugs
  • Preventive care
  • Rehabilitative and rehabilitative (helping maintain daily functioning) services
  • Vision and dental care for children

Prescription drug benefits, vision and dental care, and substance abuse treatment are the types of benefits that should be optional for those who prefer to spend less on their health insurance coverage.  The supposed purpose of the individual mandate is to prevent free-riding, so that uninsured adults don’t seek expensive medical care in emergency rooms.  A mandate for health insurance to cover vision tests or teeth cleaning is a mandate for adults to buy pre-paid health care plans, restricts freedom and solves no free-rider problem.  The uninsured aren’t coming to emergency rooms to get a new prescription for eyeglasses or to have a cavity filled.

Our entitlement programs are in need of reform because they discourage saving and transfer resources from younger workers to wealthier older workers and retirees.  The individual mandate in the ACA, combined with the requirement that all insurance plans offer comprehensive benefits, doubles down on the policy of subsidizing programs for older Americans by taxing younger workers.  It seems logical that younger voters would be opposed to this type of policy.  Nonetheless, polls show that voters age 18 to 29 have the highest support for the ACA while voters age 65 and above have the highest disapproval rates for the ACA.

Young workers are being taxed to support unsustainable entitlement programs that benefit the current generation of retirees.  The ACA taxes younger workers by requiring them to purchase more insurance and more expensive insurance than they want.  These policies seem especially deleterious for a generation that has faced much higher jobless rates over their first decade in the workforce than any generation since the Great Depression.

*The typical full-time worker age 25-34 earned $655 per week over the past decade and faced an unemployment rate of 7%, on average.

Jobs Endangered by a $15 Minimum Wage in Seattle

Both candidates in the Seattle mayoral race support an effort to raise Seattle’s minimum wage to $15 per hour.  Mayor Mike McGinn says he would even support an effort to set the minimum wage even higher.  Mayor McGinn and challenger Ed Murray are foolish if they believe that the Seattle mayor or City Council can ignore the laws of supply and demand.  A mandate that workers in lower paying occupations receive higher wages will lead to substantial job losses in these occupations.  The labor force in the city of Seattle is about one-third of the King County labor force and one fifth of the labor force in the Seattle metro area. This means that when Seattle laws make it more expensive to operate a restaurant, coffee shop, retail outlet or other business inside city limits, businesses will relocate to the suburbs and shoppers and customers will follow.

The economics of a minimum wage for a city is quite simple.  Employers in Seattle are price takers in the market for unskilled and less skilled labor.  It doesn’t matter how inelastic the demand for less skilled labor is in the aggregate, all that matters is the elasticity of demand for workers within city limits.  A large increase in the cost of hiring dishwashers or cashiers within Seattle merely shifts demand for these services to businesses outside city limits where the minimum wage is $9.15 and costs are lower.  The $15 minimum wage will destroy jobs in Seattle but will increase employment in some businesses in the suburbs.  The best substitute for shopping or dining in the city is shopping or dining in the suburbs.  Customers will be inconvenienced, unskilled workers in the city will be harmed and have to commute further to work.  However, business owners and unskilled workers in suburban areas could benefit from a $15 minimum wage in Seattle.

Mayors and mayoral candidates who support large increases in the minimum wage should also be required to specify which jobs in their cities would be endangered by their policies.  Following the International Union for Conservation of Nature which designates species as endangered, vulnerable or near threatened, I believe that politicians should acknowledge when their policies threaten the viability of certain jobs.  Politicians should also be required to use the same sort of designation to indicate the severity of the threat posed by their actions.  Politicians can make jobs extinct by raising the minimum wage so much that workers are priced out of the market for their services.

I propose that in Seattle:

  • A job is endangered if 90% of current workers earn less than the proposed $15 minimum wage.
  • A job is vulnerable if 75% of current workers earn less than the proposed $15 minimum wage.
  • A job is near threatened if 50% of current workers earn less than the proposed $15 minimum wage.

The Bureau of Labor Statistics (in its OES data) lists 637 detailed occupations in the Seattle metro area.   In 120 of those occupations, employing 27.7% (over 390,000 workers) of the workforce, the median wage less than $15 per hour.  The following tables provides examples of occupations that are most at risk due to a $15 minimum wage.

There are 16 endangered jobs in Seattle.  These jobs are endangered because at least 90% of workers earn less than $15 per hour.  The following table lists some of the most common endangered jobs.  For example, there are 25,930 food preparation and servers in the Seattle metro area and 90% earn $14.07 or less.  A $15 minimum wage will likely cause restaurants in Seattle to lose business to suburban competitors.  Other jobs on this list are endangered by information technology.  For example, as the cost of hiring hotel and motel clerks increases, more businesses will use kiosks and encourage customers to check-in online.

Endangered Jobs in Seattle

At Least 90% of Employees Earn Less   Than $15.00 per Hour

Occupation Title

Number of Workers

90th Percentile Wage

Food Preparation and Servers, Including Fast Food

25,930

$14.07

Personal Care Aides

9,100

$14.11

Dishwashers

5,080

$12.72

Dining Room Attendants and Bartender Helpers

5,010

$14.94

Home Health Aides

4,120

$14.65

Hosts and Hostesses, Restaurants and Lounges

2,930

$14.30

Hotel and Motel Desk Clerks

2,070

$14.82

Baggage Porters and Bellhops

1,070

$13.75

There are 33 vulnerable jobs in Seattle.  These jobs are vulnerable because at least 75% of workers earn less than $15 per hour.  The following table lists some of the most common vulnerable jobs.  For example, there are 12,590 cooks in the Seattle metro area and 75% earn $14.59 or less.  A $15 minimum wage will likely cause restaurants in Seattle to lose business to suburban competitors.  Other jobs on this list are vulnerable to technological change.  For example, as the cost of parking lot attendants and ticket takers increases, more businesses will use kiosks and other devices to substitute capital for labor.

Vulnerable Jobs in Seattle

At Least 75% of Employees Earn Less   Than $15.00 per Hour

Occupation Title

Number of Workers

75th Percentile Wage

Restaurant Cooks

12,590

$14.59

Food Preparation Workers

7,300

$13.71

Maids and Housekeeping Cleaners

7,280

$13.82

Counter Attendants, Cafeterias and Coffee Shops

6,900

$12.38

Packers and Packagers

5,740

$12.40

Childcare Workers

4,620

$12.28

Amusement and Recreation Attendants

2,990

$12.56

Cleaners of Vehicles and Equipment

2,740

$14.65

Parking Lot Attendants

2,670

$12.28

Taxi Drivers and Chauffeurs

2,230

$14.58

Ushers and Ticket Takers

1,510

$13.64

Manicurists and Pedicurists

1,370

$11.59

Lifeguards

1,220

$11.79

Laundry and Dry-Cleaning Workers

1,120

$14.15

There are 71 near threatened jobs in Seattle.  These jobs are threatened because at least half of workers earn less than $15 per hour.  The following table lists some of the most common threatened jobs.  For example, there are 47,390 retail sales workers in the Seattle metro area and half of them earn $12.13 or less.  A $15 minimum wage will likely cause shops and stores in Seattle that employ these workers to lose business to suburban competitors.  Other jobs on this list are threatened by technological change.  As the cost of stock clerks and order fillers increases, more businesses will use computer and information technology to substitute capital for labor.

Near Threatened Jobs in Seattle

At Least 50% of Employees Earn Less   Than $15.00 per Hour

Occupation Title

Number of Workers

50th Percentile Wage

Retail Salespersons

47,390

$12.13

Cashiers

26,110

$11.70

Stock and Material Movers

19,290

$13.76

Stock Clerks and Order Fillers

16,860

$13.84

Janitors

16,300

$13.74

Nursing Assistants

9,400

$14.43

Receptionists

9,270

$14.82

Security Guards

8,790

$14.02

Landscaping Workers

8,730

$14.36

Bartenders

7,610

$12.43

Counter and Rental Clerks

7,440

$13.57

Hair Stylists

5,500

$14.31

Bank Tellers

4,550

$13.58

Preschool Teachers

3,480

$13.69

Cafeteria Cooks

3,200

$14.82

Meat, Poultry and Fish Cutters

3,050

$11.43

Bakers

1,950

$13.56

Sewing Machine Operators

1,460

$11.65

File Clerks

1,360

$14.47

The mayoral candidates in Seattle may think they help workers in their city who are struggling in today’s economy by advocating a $15 minimum wage.  In fact, the mayoral candidates’ policies will harm the workers they would like to help.  These candidates tell Seattle residents that if they can’t find an employer willing and able to pay at least $15 per hour for their services, they will be prohibited from working inside city limits.  A $15 minimum wage in the city will cause Seattle residents to commute to the suburbs to work in stores, shops and restaurants. The only voters and businesses that should support this silly policy are those located outside Seattle city limits.

How Long Until The Next Debt Ceiling Debate?

Everyone understands that the federal government debt ceiling will eventually be increased, but much of the policy discussion in the past week has focused on the harm from a default that could be triggered by a delayed increase in the ceiling.  Few journalists are asking by how much the debt ceiling will be increased and when Congress is likely to confront this problem again.  The debt ceiling was increased 50 times between June 1965 and 2002 and ten times in the past decade.  The following chart plots the number of years between each increase in the debt limit.

Debt1

Debt ceiling increases have become larger in magnitude and less frequent.  From 1965 to 2002 the average debt ceiling increase was effective for 277 days, on average.  Over the past decade the average debt ceiling increase was effective for 380 days, an increase of 37% over the prior four decades.  Overall, 78% of increases in the debt ceiling were effective for one year or less, 50% required a subsequent increase in less than 8 months, and 25% required another increase within four months.  Only four increases in the debt ceiling were effective for at least two years.  If this Congress were to raise the debt limit comparably to the median previous Congress, it will need to address the question of another debt increase on about June 10 of next year.

Debt ceiling increases in the past decade have been more than twice as large, relative to GDP, as they were between 1965 and 2003.  The following chart plots the magnitude of each increase in the debt ceiling from 1965 to the present.

Debt2From 1965 to 2002 the average debt ceiling increase was equivalent to about 3.46% of GDP.  The past ten increases raised the debt ceiling by an average of 7.09% of GDP.  The distribution of previous debt increases is skewed; about half raised the debt limit by less than 2% of GDP and one-quarter by less than 1.2% of GDP.  If this Congress were to increase the debt limit comparably to the median previous Congress, in terms of the share of GDP, expect a $325 billion increase or enough to cover the deficit for about six months.

Many taxpayers and voters would like to avoid another government shutdown knowing that a shutdown means that monuments will be barricaded, citizens will be inconvenienced, and furloughed federal workers will receive back pay for days that they didn’t work.  While default on federal debt obligations is not an option, it may make sense for conservatives who prefer smaller government to link a larger than typical increase in the debt ceiling to tax and entitlement reform.  Half of debt ceiling increases since 1965 were effective for less than 8 months and many only covered the federal deficit for about four months.  A larger than typical increase in the ceiling would mean that another government shutdown wouldn’t occur for at least a few years.  Taxpayers should support such a large increase in the debt ceiling if it is accompanied by entitlement reform and tax reform that promotes economic growth.  If future tax and spending reform is not linked to the increase in the debt limit, expect another debate over debt, spending and taxes in 4 to 8 months when the Congress will need to raise the debt limit once again.

Note: The data on federal debt limit increases I used was found here and here.

New Jobless Claims Aren’t As Good As They Look

The Department of Labor announced yesterday that new jobless claims have fallen to 305,000 for the week, a six-year low.  Unfortunately, the new jobless claims figure isn’t as reliable an indicator of labor market trends as it used to be.  It says more about the continued decline in layoffs than it does about a surge in hiring.  The biggest problem in today’s labor market is a weak hiring rate for employers.  So while a lower level of new jobless claims is better than a higher level, I don’t expect this to signal a boom in job creation.

To see why layoffs aren’t the problem, as many workers were laid off in the five years since the Lehman collapse as during the real estate boom of 2003-2007.  In the five years between 2003 and 2007, in the midst of a real estate boom and economic recovery, when the unemployment rate averaged 5.2%, there were 1.86 million layoffs per month, on average.  In the five years since the Lehman collapse in August 2008, including the biggest recession since the Great Depression, when the unemployment rate averaged 8.6%, there were also 1.86 million layoffs per month, on average.  While layoff rates were elevated during the second half of 2008 and all of 2009, over the past three years layoffs have been 8.8% lower than pre-recession levels and continue to decline.

Over the past three years during our tepid economic recovery, only 4.23 million people have been hired per month, on average, compared to 5.1 million people per month in 2003-2007. 870,000 fewer people have been hired each month over the past three years compared to 2003-2007.  This great slowdown in hiring, which represents a decline of 17% compared to the previous economic recovery, is the biggest challenge facing the labor market and the economy.

Unemployment insurance data are less relevant in 2013 because of the narrow focus on relatively recent job losers.  New labor market entrants and re-entrants to the labor force, comprise about half of the unemployed but are ineligible for unemployment insurance.  Longer term unemployed workers and jobless workers who have given up their job search and dropped out of the labor force are also ineligible for UI.  For unemployed new entrants and re-entrants to the labor force, and for the millions of jobless workers who have dropped out of the labor force, a surge in hiring is needed to bring them back to work.  So while there were 3.8% fewer layoffs in the past 12 months compared to one year earlier, the fact that hiring only increased by 1.1% over the same period means that employment rates will remain low until businesses increase the pace of their hiring.

Unemployment insurance data are also less relevant in today’s economy because the fraction of unemployed workers eligible for state unemployment insurance programs is at an all-time low.  The following chart shows the percentage of unemployed workers who are job losers and have been unemployed for 26 weeks or less.  These two conditions are good proxies for the key determinants of eligibility for most state UI programs.* Since 1980, in non-recession years, about 40% of unemployed workers would satisfy these requirements.  During recession years, about 45% of the unemployed are job losers in their first 26 weeks of unemployment.  Over the past 3 and one half years, however, only about one-third of unemployed workers have been relatively recent (26 weeks or less) job losers.

losers

The fraction of jobless workers who are eligible for UI is even smaller.  If one includes workers who have dropped out of the labor force in the past year but are available for work as “jobless”, only 26% of “jobless” workers satisfy the conditions required by most state UI programs.

While new jobless claims data provide some information about the rate at which workers are losing jobs, and whether job losers appear to be finding work before filing for UI benefits, yesterday’s new claims figures must be interpreted carefully.  The labor market of 2013 is very different from the pre-recession labor market.  Layoffs continue to decline but have not coincided with commensurate increases in hiring in a weak recovery.  Most jobless workers are long-term unemployed, new-entrants or re-entrants to the workforce unable to find work, or those who have given up job search altogether and are no longer labor force participants.  Employers have hired 870,000 fewer workers per month over the past three years than they were prior to the recession.  Until hiring levels approach the 5 million hires per month that were common in 2003-2007, job growth will continue to disappoint.  Slightly lower new jobless claims per week is just one small step in the right direction.

*Unemployed workers are eligible for Federal UI benefits if they are unemployed longer than 26 weeks and reside in states where unemployment rates are sufficiently high.  Most state UI programs allow up to 26 weeks of benefits but they need not be the first 26 weeks of a worker’s unemployment spell and benefits are only available for job losers.

The Decline in Construction Employment, Infrastructure Investment and the Davis Bacon Act

Reihan Salam has a smart piece in National Review Online and provides some good insights about how the construction sector is changing and why construction employment has not rebounded as it has in prior recoveries.  He notes that modular construction and technological change is likely to change the labor intensity of construction projects.  So even when construction activity rebounds, construction employment may never regain the share of total employment it reached during the housing boom of a decade ago.  Salam is correct; trends in construction employment may begin to look a bit more like manufacturing.  In U.S. manufacturing it has been quite common to see output increase despite stagnant or even declining employment because of technological change.

Salam writes that construction projects in the U.S are often inefficient and I agree, especially when it comes to infrastructure investments.  The federal regulations make public sector projects far too expensive to taxpayers even at a time when a record downturn in construction employment should mean much lower costs.  The federal government has not taken enough advantage of the considerable slack in construction employment to build and repair infrastructure.

By law, federal government projects must pay the prevailing wages of construction workers, and these wages are often union scale.  This regulation, known as the Davis Bacon Act, has artificially inflated the price of construction labor on public sector projects.  Even in states and counties  where construction employment has been depressed for the past five years, government contractors are sometimes required to pay wages in construction trades that exceed the average in the area by at least $10 per hour.

Davis Bacon wages do not rely on carefully designed samples of workers, such as the Bureau of Labor Statistics (BLS) Occupation Employment Statistics (OES) Survey to determine the wage distribution in construction trades in a local area.  Instead, Davis Bacon wages are determined in the Labor Department’s Wage and Hour Division which over-samples unions and obtains much higher construction wage estimates.  Only 6.6% of private sector workers are union members so the special treatment of unions in Wage and Hour Division surveys leads to unrepresentative prevailing wage estimates.

As an example consider Riverside County, California where the unemployment rate in July was 11.1%.  The most recent OES survey reports that the average wage for a carpenter is $27.25 per hour and 75% of carpenters earn $36.39 per hour or less in Riverside.  Yet the Davis Bacon Act mandates that federal contractors pay at least $48.43 per hour to carpenters in Riverside, in wages plus fringe benefits, on government construction projects.  The Davis Bacon prevailing wage for carpenters is $37.35 per hour and prevailing fringe benefits are $11.08 per hour.  (The BLS National Compensation Survey reports that the average cost of fringe benefits is $10.52 per hour nationwide.)  Similarly inflated compensation is required for brick masons, electricians, plumbers and equipment operators.

Although reasonable economists can disagree about the level of public spending on infrastructure, ideally we should make more public investments in infrastructure during a downturn when opportunity costs are lower.  The Davis Bacon Act interferes with such a common sense policy.  Conservatives should have proposed a repeal of Davis Bacon in the waning months of the Bush Administration or early in the Obama Administration as a way to more efficiently utilize slack resources during the recession.

Requiring taxpayers to pay inflated prices to construction labor makes as much sense as paying inflated interest rates to government bondholders even though market interest rates have declined.  The federal government currently pays lower interest rates on government debt because it pays market rates on new debt issues.  Fortunately there is no equivalent to the Davis Bacon Act requiring that the federal government pay inflated non-market interest rates to protect retirees and pension funds that hold government bonds.  It is time to change the law so that taxpayers can also pay market wages on construction projects.

The Cost of Scheduling a Sacrificial Lamb for Major College Football Programs

Danny Kanell of ESPN has a great idea.  Make the non-conference exhibition games we just witnessed this weekend part of spring football practice.  The lesser schools who need the money to fund their athletic programs can still get paid and the games, as lopsided as they might be, are certainly more entertaining than a spring practice game.

There were 14 non-conference games between top 25 college football programs this weekend with an average score of 49 to 10.  In the 5 conference games involving top 25 teams the average score was 35 to 18.

Darren Rovell of ESPN regularly reports the financial payouts that major college football programs make to smaller programs when they come to play and often lose by 4 touchdowns or more.  For example, this week Savannah State was a 59.5 point underdog at the University of Miami.  Savannah State is receiving $375,000 for travelling a little over 400 miles to Miami to be one of the biggest underdogs in the history of NCAA football.

By my count, Rovell has reported 26 of these non-conference payouts over the past 3 weekends.  Over the past 3 weekends:

  • The average payout received by a visiting team is $613,000.
  • The average distance travelled by a visiting team is 530 miles.
  • The average Sagarin rank of a visiting team is 145 of 247 (end of 2012 season)
  • Only 31% of visiting teams ranked in Sagarin’s top 100 (end of 2012 season)

I estimated a simple regression of the relationship between a visiting team’s payout, its Sagarin rank and the distance travelled to the game.  I found no evidence that higher ranked non-conference opponents commanded a higher payout, but each 10% increase in distance travelled is associated with a 1.8% higher payout.

So while major college football programs can bring in a lesser team to beat up in front of season ticket holders for about $600,000, they should expect to pay about $205 more per mile travelled for each sacrificial lamb.

Simple Arithmetic and the Participation Gap

One week ago Gavyn Davies, columnist for the Financial Times, noted that the labor force participation rate has dropped 2.8 percentage points since 2007.  He explained further that some researchers attribute about half of the decline to demographic change leaving a 1.3 percentage point drop in participation due to the sluggish recovery.  While I strongly disagree with the view that demographic change accounts for half of the decline in participation, that is not the emphasis of this blog post.*

Davies then conjectured that the decline in participation “implies that the genuine amount of slack in the labour market might be about 1 to 1.5 percentage points more than implied by the unemployment rate.”  Presumably Davies, the former head of the global economics department at Goldman Sachs, meant that official statistics report the unemployment rate on a labor force base that is considerably smaller than it would be in a healthy economy.

Where Davies gets this wrong is in the simple arithmetic of his calculation of the shrinking labor force.  Assuming that Davies is correct that the labor force participation rate dropped just 1.3 percentage points due to the weak economy, that decline is 1.3% of an adult U.S. population of 246 million or 3.2 million adults.  The labor force is now measured at about 155 million so the 1.3 percentage point gap in participation translates into a 2.1% drop in the size of the labor force. (about 63% of adults participate in the labor force).  If all of the 2.8 percentage point drop in the participation rate is due to cyclical factors that would mean that the weak economy has shrunk the labor force by 6.9 million adults or 4.4%.

When describing changes in percentage points and comparing one time series to another, analysts should be careful that the base for calculations are consistent. 1% of the adult population represents about 2.46 million people while 1% of the labor force represents 1.55 million people.  The official unemployment rate measures the slack in the labor market conditional on the size of the labor force, not the adult population.  Whether you believe Davies’ numbers or not, its clear that there are between 3.3 and 6.9 million Americans no longer participating in the labor force because of a weak labor market recovery.

*See my previous post explaining that in a healthy labor market participation should be rising not falling for adults age 55+ who are younger (due to the baby boom cohort), have longer life expectancies, longer to wait for Social Security benefits, and women in this age cohort greater lifetime labor force attachment than previous generations.

The Labor Market Recovery is Weak

I present some evidence that the unemployment rate understates the weakness in the labor market recovery and that a full-time-equivalent (FTE) employment to population ratio is a better measure of labor market activity in a guest post at Modeled Behavior.  This is the approach we take in the Welch Consulting Employment Index.

In the post I calculate that FTE employment is 6.1% below trend.  My calculations of FTE employment relative to trend account for the changing age composition of the population and quite different trends in employment rates within each age group.

One of the most important observations that I make in my post is that over 40% of the shortfall in full-time employment is among adults age 55+.  To non-labor economists this observation may seem surprising because FTE employment rates for adults age 55+ remained steady since 2008.  But employment rates were trending up for this group quite steadily prior to the recession as the following figure shows.

Figure3

If the labor market recovery was typical of most postwar recoveries employment rates for the age 55+ cohort would still be increasing.  The fact that employment rates have remained constant since 2008 is very disappointing.  The natural employment rate for this age cohort is trending up for several reasons: (I) the Social Security retirement age for this age group is now 67 rather than 65 so more seniors will remain employed, (2) increases in life expectancy, (3) the aging of the baby boom cohort means that a higher fraction of the age 55+ group are in the 55-59 and 60-64 age categories that have always displayed higher employment rates, and (4) women now reaching age 55 have much greater labor force attachment throughout their careers than earlier cohorts of women.

The bottom line is that despite the unemployment rate dropping from 10% to 7.3% (which is still quite high) the labor market is much weaker than the official unemployment rate would suggest.  There are millions of adults in part-time work who in previous recoveries would have been working full-time and there are millions more who have given up looking for work and are no longer counted as part of the labor force.

 

 

 

Leaving Las Vegas But Devastating Atlantic City and Reno

Employment in casino hotels in the U.S. is on the decline.  Atlantic City, Las Vegas and Reno are seeing fewer visitors and lower revenues.  Part of this decline is due to the weak economy and stagnant middle class incomes.  The employment declines also reflect a long-term shift away from gaming in cities such as Atlantic City and Reno to other forms of gambling and entertainment.  Atlantic City casinos face competition from casinos in Pennsylvania, Delaware and Maryland, and Reno casinos have been hit hard by a very weak Nevada economy and increased competition from casinos in California and other western states.  As more states and cities allow casino gambling as a way to generate state and local government tax revenue, Atlantic City and Reno are likely to suffer even bigger declines in demand.  At one time these cities offered a relatively scarce commodity – legal casino gambling.  They now face sluggish demand because of a tepid economic recovery and increased competition.  Neither of these economic factors is likely to change soon.

The struggles of Atlantic City casinos have been well documented as earnings in the second quarter of 2013 are reportedly down 45% from the second quarter of 2012.  Employment in Atlantic City casino hotels in the second quarter of 2013 was nearly 35% below employment in 2000.  (For ease of exposition in what follows I use casinos to describe the industry group for “casino hotels”)  While employment in Las Vegas casinos is down only about 5% from 2000, casino employment in the rest of Nevada is down 43% from 2000.  Reno has the largest concentration of Nevada casinos outside of Las Vegas and employment there is down 44% since 2000.

As the following chart shows the sharp declines in casino employment in Atlantic City and Nevada outside of Las Vegas has occurred at the same time that casinos have been rapidly expanding outside of Atlantic City and Nevada.  (The chart normalizes employment to 100 in the first quarter of 2000 using the Current Employment Statistics series of the BLS.)

CasinoHotels

Employment in casinos outside of Nevada and New Jersey is up about 45% since 2000.  Vacationers who previously travelled to Atlantic City and Reno to gamble are instead visiting casinos along the Gulf Coast, or one of the 470 American Indian casinos located across the U.S. (including Connecticut, upstate New York, and parts of California).  Casinos outside of Nevada and Atlantic City employed 13.2% of all casino workers in the U.S in 2000 but now account for 21% of U.S. casino jobs.  Moreover casinos outside of Nevada and Atlantic City now employ more workers than all the casinos in Atlantic City, Reno, Laughlin, Lake Tahoe and all of Nevada outside the Las Vegas metro area.  This trend will continue as states and cities hungry for new sources of tax revenue allow more casinos to be built.  New casinos located throughout the U.S. will offer even more competition to Atlantic City and Reno.  The unemployment rate in 2013 has been an average of 13.2% in Atlantic City and 9.8% in Reno – both well above the U.S. rate.  Increased competition in casino gambling, the primary entertainment and tourist attractions in these cities, means that their local economies will continue to struggle.

U.S. Workplaces Have Never Been Safer but Suicides Increased During the 2008-2009 Recession

As we approach the Labor Day weekend it is interesting to examine the latest data on workplace violence and workplace safety.  The Department of Labor just released preliminary figures for fatal work injuries in 2012.  The good news is that workplaces in the U.S. have never been safer.  Workplace fatalities are down and workplace violence is lower than it has been in decades.  The most distressing pattern in recent data has been the increase in suicides in the workplace, apparently a result of the 2008-2009 recession.

The workplace fatal injury data for 2012 released last week will be revised upward when the final fatality rates are recorded.  If the upward revisions are consistent with recent years, the rate of fatal work injuries will be about 3.3 per 100,000 full-time equivalent employees, the lowest rate since the BLS began reporting these figures in 1992.  As the following chart shows, the workplace fatality rate is 36.5% lower than it was two decades ago.

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Transportation accidents continue to be the most common cause of a workplace fatality and account for 41% of all fatalities on the job.  Workplace violence is the second most common cause of fatalities and account for an additional 17.5% of deaths.  Within the workplace violence category, there are more than twice as many homicides as suicides.

Workplace deaths from homicides and transportation accidents have been trending down over the past 20 years.  Transportation accidents have been declining by about 1.4% per year and homicides at work have been declining by about 4.3% per year.  As the following charts indicate, over the past decade the drop in both homicides and motor vehicle accidents has been more pronounced in the workplace than in the general population.  (I have normalized the fatality rates per adult to be 100 in 1992 for all categories of causes of death.)

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Suicides in the workplace declined slightly from 1992 to 2002 following the pattern in the general population as the following chart shows.  More recently suicides in the workplace declined more sharply 2002 to 2007 but then increased rapidly during the 2008-2009 recession.

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The following chart shows the relative increase in the number of suicides at work during the recession and the declining trend  in the number of transportation accidents and homicides in the workplace over the past two decades.  (I normalize the number of workplace fatalities to be 100 for each category in 1992.)

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A simple statistical analysis suggests that there were about 153 more suicides in workplaces as the economy struggled from 2008 to 2010.  At the same time the drop in economic activity meant fewer fatal transportation accidents.  My rough calculation suggests that there were 749 fewer deaths from traffic and transportation accidents from 2008 to 2010 than there would have been if the economy had continued to grow.  In general the recession reduced fatal workplace accidents.

Despite the good news that workplaces in the U.S. are safer than ever, Secretary of Labor Tom Perez is not satisfied.  He issued a statement last week that “no worker should lose their life for a paycheck.”  I am sure that Secretary Perez also would like no U.S. resident to lose their life in any accident, whether they are being paid for their time or not, but that is an unrealistic goal.  Mr. Perez also finds the increase in fatalities in the oil and gas extraction industry unacceptable.  Clearly, many of the men and women who work in oil and gas extraction are risking their lives every day they go to work, but the 138 deaths in this industry last year need to be put into perspective.  Over the past two years fatalities in oil and gas extraction averaged 125 per year, or 22% higher than in the previous 8 years.   This increase is smaller than the 27% increase in employment in the industry over the same period.

As more people find jobs and shift from part-time work to full-time work, we can expect workplace fatalities to increase in many industries and sectors.  This does not mean that workplaces are becoming less safe – in fact workplaces are safer than ever.  In 2012 there were about 36.5% fewer workplace fatalities per full-time equivalent employee than just 20 years ago.  The downside is that some of the increase in safety has been achieved by outsourcing riskier jobs and replacing workers with machines.  As is the case in many economic issues labor faces a tradeoff between workplace safety and employment security.  If organized labor demands exceedingly high levels of safety in U.S. workplaces the U.S. will be more likely to lose jobs to foreign competitors with more lax safety standards and will be more likely to replace workers with machines and robots.

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