The Slightly-Bright Side for Boomers in the Recession

A new working paper (full version here) by Alan L. Gustman, Thomas L. Steinmeier, and Nahid Tabatabai examines the impact the Great Recession has had on the wealth and income of Baby Boomers nearing retirement. It finds, somewhat surprisingly, that their aggregate wealth decreased very little over the past few years:

The retirement wealth held by those ages 53 to 58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percentage points by 2010. ... Very few in the population nearing retirement age have experienced multiple adverse events. Although most of the loss in wealth is due to a fall in the net value of housing, because very few in this cohort have found their housing wealth under water, and housing is the one asset this cohort is not likely to cash in for another decade or two, there is time for their losses in housing wealth to recover.

More People Are Quitting Their Jobs. How Good of a Sign Is That?

Fact: in September, we put out an hour-long Freakonomics Radio podcast called "The Upside of Quitting."

Fact: in September, more Americans quit their jobs than in any month since Nov., 2008.

Coincidence?

Actually, it's not even a coincidence. The podcast was out on Sept. 30; the resignations (2 million of them) covered the month of September.

That said, more resignations would seem to indicate an improving economy. From Time:

According to a recent survey by job-search site Snagajob, 44% of respondents who quit in the past year did so believing they would find a better opportunity elsewhere, up from 31% the year before.

Why, you might wonder, is Time citing Snagajob rather than a government source? And should we believe those numbers?

The Trouble Behind the New Unemployment Data

The November unemployment data that came out on Friday has Democrats crowing about the drop in the unemployment rate; yet Republicans are rightly pointing out that much of the drop was due to labor-force withdrawal. Neither party, however, seems to be noticing the most remarkable thing: the continuing, constant and historically high share of unemployment accounted for by the long-term unemployed, around 43 percent. This is bad for society for two reasons:

1. The burden of unemployment—the loss in utility—must increase the longer one is unemployed (and has perhaps exhausted savings and unemployment benefits).

2. With unemployment concentrated so narrowly, fewer people than otherwise experience the pain, so the political pressure to do anything to ameliorate the situation is lessened.

The huge rise in long-term unemployment, and the huge rise in the share of income accruing to the top 1 percent of households, both work to dis-integrate American society.

Does Raising the Minimum Wage Increase Unemployment?

Conventional wisdom holds that instituting or raising the minimum wage will increase unemployment. But a recent paper by Jeremy Magruder, an economist at Berekley, finds the opposite effect. Magruder examines the case of Indonesia in the 1990s, "where real minimum wages rose rapidly in a varied way and then dropped quickly with the inflation rate in the South East Asian financial crash." Here's an excerpt:

When minimum wages rose in one district relative to their neighbors, that district observed an increase in formal sector employment and a decrease in informal employment. It also observed an increase in local expenditures, which is consistent with the hypothesized mechanism of the big push: that local product demand increases labor demand. Moreover, this increase was only observed in local industries which can be industrialized and do supply local demand, supporting the model further. Tradable manufacturing firms saw no growth in employment, and un-tradable, but non-industrializable services saw an increase in informal employment.

System D: The Shadow Economy is the Second Largest in the World

In 2009, the OECD concluded that half the world's workers (almost 1.8 billion people) were employed in the shadow economy. By 2020, the OECD predicts the shadow economy will employ two-thirds of the world's workers.

This new economy even has a name: "System D."

In a new article (accompanying photoessay here) for Foreign Policy, Robert Neuwirth explains:

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.

Paying the Rent After the Pink Slip

A recent national survey indicates that "[o]ne in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job." Even higher-income households would find themselves in trouble quickly: "Ten percent of survey respondents earning $100K or more a year say they would immediately miss a payment."

Even more Americans -- 61 percent -- wouldn't be able to pay the rent or mortgage after five months of unemployment. Given the current state of the economy, it's perhaps wise to heed Suze Orman's 2008 advice on this blog -- she recommended an eight-month emergency savings fund.

Do Lower Wages and Higher Unemployment Increase Voter Turnout?

A recent study by Kerwin Kofi Charles and Melvin Stephens Jr argues that increases in wages and employment reduce voter turnout in gubernatorial elections, though not in presidential contests.

From the abstract:

This paper argues that, since activities that provide political information are complementary with leisure, increased labor market activity should lower turnout, but should do so least in prominent elections where information is ubiquitous. Using official county-level voting data and a variety of OLS and TSLS models, we find that increases in wages and employment: reduce voter turnout in gubernatorial elections by a significant amount; have no effect on Presidential turnout; and raise the share of persons voting in a Presidential election who do not vote on a House of Representative election on the same ballot.

The Latest from the Brookings Panel

I’m back from my favorite conference of the year—the Brookings Papers on Economic Activity. It was a terrific line-up of papers. And to call the discussion lively would be an understatement. (Full disclosure: David Romer and I are the co-editors.)

While a close reading of technical research papers is my idea of a good time, I’m told not everyone is wired this way. So I went into the studio to record a very simple summary of my thoughts on the papers. You won’t quite get the whole two days of economic policy wonk-ery, but this video is a start:

How Does High Unemployment Affect Wages of Those Who Remain Employed?

Of course higher unemployment generally raises unemployment among men, women and minorities. But how does it affect the wages of workers who keep their jobs? I believe a new paper that I coauthored with Jeff Biddle is the first to use large amounts of data to address this question about cycles in wage discrimination. Here's the abstract:

Using CPS data from 1979-2009 we examine how cyclical downturns and industry-specific demand shocks affect wage differentials between white non-Hispanic males and women, Hispanics and African- Americans. Women’s and Hispanics’ relative earnings are harmed by negative shocks, while the earnings disadvantage of African-Americans may drop with negative shocks. Negative shocks also appear to increase the earnings disadvantage of bad-looking workers. A theory of job search suggests two opposite-signed mechanisms that affect these wage differentials. It suggests greater absolute effects among job-movers, which is verified using the longitudinal component of the CPS.

Obama's Jobs Bill: A Reasonable Plan

Here are some quick thoughts on President Obama's jobs plan:

- It's reasonably big, at about 3% of GDP.

- It's reasonably front-loaded. Goldman Sachs says it will raise 2012 GDP by about 1.5%--before any multiplier effects. Moody's chief economist Mark Zandi thinks the effect on 2012 GDP will be about 2%. Expect more estimates in the 1-3% range for 2012; smaller for 2013.

- It's reasonably well targeted. Unemployment insurance extensions will get spent. Infrastructure money gets spent and also builds stuff. as for the payroll tax: Who knows if it gets spent, but the point is to stimulate hiring, rather than spending.

- It's reasonably well designed. The biggest problem with a payroll tax is that firms get it even for employees already on the books. But this time, the biggest payroll tax cut is only for firms raising their payrolls. This will yield a much bigger bang-for-each-buck. Early analyses have yet to realize how important this is.