Where is Economic Mobility the Greatest?

The Federal Reserve Bank of St. Louis has published an interesting article on economic mobility across Federal Reserve Districts. The economic mobility metric was defined  as the probability that a child raised in the bottom fifth of the U.S. income distribution rose to the top fifth.

Average economic mobility by Federal Reserve District
The authors found considerable variation in economic mobility across Federal Reserve Districts as the above figure demonstrates. “The Minneapolis District had the highest average mobility across districts. This is true even when excluding North Dakota and South Dakota, where some boom towns recorded extremely high mobility rates. (Doing so reduced mobility to 10.8 percent from 11.9 percent and the standard deviation to 3.2 percentage points from 4.8 percentage points.)”

Continue reading–>

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What Size Firm Has Created the Most Jobs in the Recovery?

Via: Federal Reserve Bank of St. Louis:

In general, large firms proportionally destroy more jobs than small firms when unemployment is above trend and create more jobs when unemployment is below trend. A recent Economic Synopses essay examines whether this has been the case during the recovery from the Great Recession.

Economist Maria Canon and Senior Research Associate Yang Liu, both with the Federal Reserve Bank of St. Louis, examined job gains and losses by firm size for recession years and for the years before and after the past two recessions, with the results displayed in the table below. They broke job gains and losses into three groups:

  • Small firms, 1-49 employees
  • Medium firms, 50-499 employees
  • Large firms, 500 or more employees

jobs gains and losses by firm size









As shown in the table, Canon and Liu found that small firms did indeed create a higher fraction of new jobs and destroyed a smaller fraction of jobs late in the recessions. However, in the four years following the Great Recession, the share of jobs created by small firms decreased from 56.31 percent to 52.97 percent, while the share created by large firms increased from 20.25 percent to 23.48 percent, despite unemployment still being above trend.

Shares of job losses, on the other hand, followed traditional patterns during and after the Great Recession. Small firms’ share of job losses fell during the recession, then rose sharply during the subsequent recovery, while large firms’ share of job losses rose during the recession, then fell during the recovery.

Canon and Liu concluded by discussing potential implications of large firms creating a significantly higher fraction of jobs since the Great Recession than after the 2001 recession. In general, labor markets tighten after recessions, so large firms have to poach workers from small firms to fill their ranks. However, the labor market took longer to recover after the Great Recession, meaning there were more unemployed workers available for hire, so large firms did not have to poach workers from small firms.

Canon and Liu wrote, “Because poaching offers and wage gains are often linked, this feature of labor dynamics is also consistent with the slow wage inflation observed since the Great Recession.”

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Is ObamaCare a Jobs Killer? Debunking Another Myth

Via Bloomberg:

“The biggest entitlement legislation in a generation is causing barely a ripple in corporate America.”

Obamacare “is putting such a small dent in the profits of U.S. companies that many refer to its impact as ‘not material’ or ‘not significant,’ according to a Bloomberg review of conference-call transcripts and interviews with major U.S. employers.”

“That’s even after a provision went into effect this year requiring companies with 50 or more full-time workers to provide coverage, and after more workers are choosing to enroll in existing company coverage because of another requirement that all Americans get insured.”

“The collective shrug from the nation’s biggest employers undermines the arguments of Republicans, who call the law a job-killer as they seek its repeal.”

“While U.S. health-care costs continued to rise faster than inflation in the five years since the law was passed, their rate of growth has slowed. Employers spent an average of $11,204 per worker for health benefits in 2014, up 4.6 percent from a year earlier, according to Mercer LLC.

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Long-range Medicare Spending will be Dramatically Lower than Expected Just 5 Years Ago

Via: AARP Public Policy Institute

Medicare growth rates have remained low since 2009, indicating that mid-term and long-range Medicare spending will be dramatically lower than expected just 5 years ago.

Experts believe that the slowdown in Medicare spending is due to a combination of factors, including health care reforms brought about by the Affordable Care Act, slower growth in new technologies, and the recession.

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Paradox: The Smaller the Student Debt the Higher the Likelihood of Default

Kevin Drum at Mother Jones adds to our understanding of the financial aid default crisis by observing the paradox that the smaller the debt the higher the likelihood of default. Drum observes this is the worst possible scenario:

The very lowest debt levels are associated with students who drop out after only a year or so. They have the worst of all worlds: only a high school diploma and a low-paying job, but student debt that’s fairly crushing for someone earning a low income.

The next tier of debt is likely associated with students at for-profit trade schools. These schools are notorious for high dropout rates and weak job prospects even for graduates.

The middle tier of debt levels is probably associated with graduates of community colleges and state universities. Graduates of these schools, in general, get lower-paying jobs than graduates of Harvard or Cal.

Conversely, high debt levels are associated with elite universities. Harvard and Cal probably have pretty high proportions of students who earn good incomes after graduation.

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More Bad Findings on Student Loans, Debt and Delinquencies

Liberty Street Economics has three articles on student loans and debt. Here are some of the major findings:

  • Until 2009, student loans had been the smallest form of household debt. During the Great Recession, Americans reduced their other debts but continued to borrow for education, making student debt the largest category of household debt outside of mortgages since 2010.
  • Since 2004, student loan balances have more than tripled, at an average annualized growth rate of about 13 percent per year, to nearly $1.2 trillion, in 2014.
  • Our data indicate that both increased numbers of borrowers and larger balances per borrower are contributing to the rapid expansion in student loans. Between 2004 and 2014, we saw a 74 percent increase in average balances and a 92 percent increase in the number of borrowers. Now there are 43 million borrowers, up from 42 million borrowers at the end of 2013, with an average balance per borrower of about $27,000.
  • The shares of debt have remained relatively stable, with about one third of the debt being held by borrowers in their 20s, one third by borrowers in their 30s, and the final third by those aged 40 or older. About 5 percent of the total balance is held by borrowers aged 60 or older.
  • Our analysis of borrower distress uncovers some new facts. Perhaps most important, cohort default rates appear to have been worsening over time, and the two- and three-year analyses that feed much of the public discussion are only part of the story. CDRs continue to rise in years four through nine. Second, defaults appear to be concentrated among the lowest-balance borrowers, who may not have completed their schooling, or may have earned credentials with lower payoffs than a four-year college degree. Finally, snapshots of delinquency and default rates miss the fact that many borrowers who are current today have had serious stress in the past. Only about 63 percent of borrowers appear to have avoided delinquency and default altogether.
  • The 90+ day delinquency rate for student loans, however, is different from the others—the rate has increased substantially since our student loan data began in 2003, and has now reached 11.3 percent. Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012.
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College Majors, Unemployment, and Earnings

Via: Center on Education and the Workforce, Georgetown University

The job market for recent college graduates has continued to improve but individual graduates’ chances of finding a job depends on their major, according to a new report by the Georgetown University Center on Education and the Workforce. The report is the third in a series of reports published by the Center that analyze unemployment rates for recent college graduates by major. The newest edition, Hard Times to Better Times, also analyzes changes in unemployment rates and annual wages for recent college graduates since 2009.

The report finds that college remains very much worth the cost in the post-recession economy for most students: unemployment rates declined for recent graduates in most majors. Recent college graduates are more likely to be employed than high school graduates in the middle of their careers in every major, with the exception of social sciences and architecture.

College graduates maintained their wage advantage over high school graduates in the post-recession economy, the report finds, though the size of the wage advantage depends on major: recent college graduates who majored in engineering earn 158 percent more than experienced high school graduates, while those who majored in education earn only 31 percent more than experienced high school graduates.

The report’s other major findings are:

• Unemployment rates for recent college graduates are the lowest for agriculture and natural resources majors (4.5%), physical sciences (5%), and education (5.1%). The majors with the highest unemployment rates are architecture (10.3%) and arts (9.5%).

• Recent college graduates who major in arts, psychology, and social work earn $31,000 per year, only $1,000 more than the average high school educated worker. By comparison, recent graduates who majored in engineering earn $57,000 per year, almost twice as much as the average high school graduate.

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Difference between Those Who Move Up from the Bottom and Those Who Don’t

The Pew Charitable Trust asks and answers the question, “What is the difference between those who move up from the bottom and those who don’t?”

This research reveals:

  • College graduates were over 5 times more likely to leave the bottom rung than non-college graduates.
  • Dual-earner families were over 3 times more likely to leave the bottom rung than single-earner families.
  • Whites were 2 times more likely to leave the bottom rung than blacks.

Moving Up

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Wealth Owned by Whites Widens Over Black Wealth

The Urban Institute dramatically depicts how the wealth owned by whites has been growing much faster than the wealth owned by blacks.

Black/White wealth gap increses

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Walker’s Proposal to Restructure Debt, Increases Total Taxpayer Cost

Via Econbrowser

As the state’s fiscal position becomes more dire, in large part due to the tax cuts implemented last year, Governor Walker proposes to delay some debt payments.

Legislative Fiscal Bureau (LFB) memo released yesterday by Reps. Hintz and Taylor explains that there are two kinds of debt restructuring – one that has the effect of reducing the total amount of interest paid on an outstanding debt, and another type that extends the life of an existing debt and increases the total cost to state taxpayers. The planned delay in the $108 million payment is the second type. Although the LFB memo doesn’t show the full impact of the revised payment schedule, it indicates that the delay will increase debt service costs by $544,900 in 2015-16 and more than $18.7 million in 2016-17.

From Yvette Shields in The Bond Buyer:

The [commercial paper] maneuver is fueling Democratic arguments that the state couldn’t afford to tap a budget surplus last year for a $600 million tax cut package. The state faces a $648 million deficit in its next two-year budget. Walker uses spending cuts to deal with the deficit in his proposed $68.2 billion budget.

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