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Article Artículo

Economic Growth

Workers

States That Raised Their #MinimumWage in 2014 Had Stronger Job Growth Than Those That Didn't

At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state).

Last month, CEPR looked at state-by-state employment growth in the first two months of 2014, highlighting these 13 minimum wage-raising states for easy comparison. Using new employment data from the BLS, we can now update these figures with data from the month of March.

CEPR and Jeffrey Gianattasio / April 28, 2014

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Robert Samuelson Is Badly Confused About the Well-Being of Retirees

Robert Samuelson told readers in his latest column that we need not worry that people are undersaving for retirement. Unfortunately this conclusion rests largely on a confused reading of the data.

Samuelson starts by telling readers:

"In 2010, roughly 80 percent of households headed by someone 65 to 74 owned their homes reports, economist Peter Brady of the Investment Company Institute, the trade group for mutual funds. ... For all homeowners, median home equity — the amount not owed on the mortgage — was $120,000."

Another way of putting this is that 60 percent of households in the 65-74 age group had less than $120,000 of equity in their home. With the median house price now near $200,000 this means that many of the 80 percent who owned homes still had far to go to pay them off.

Samuelson continues:

"To supplement Social Security, retirees can borrow against their home equity. They can also draw on retiree savings from defined benefit pensions, individual retirement accounts (IRAs) and 401(k) accounts. In 2010, almost three-quarters of households aged 55 to 64 had some combination of these retirement vehicles. The median value of the IRA and 401(k) accounts was $100,000, Brady says."

It is interesting that Mr. Brady says that almost three-quarters of people in the age group 55-64 either had retirement accounts or defined benefit pensions. (Note that we have shifted age groups here to one with lower rates of homeownership and less equity in their homes.) The Federal Reserve Board put the percentage of people in this age group with a retirement account at 59.6 percent, with a median holding of $100,000. This means that 70 percent of people in this age group had less than $100,000 in assets. If we assume this will be drawn down over a 20 year period, it implies annual income of roughly $5,000 a year or $400 a month.

That's better than nothing, but if the only other source of income is a Social Security check that averages $1,300 a month, this will not get people very far. And, 70 percent of retirees will have less.

Dean Baker / April 28, 2014

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Paul Krugman and the Economics Fringe

Paul Krugman has devoted two recent blogposts to address complaints from heterodox economists over Thomas Piketty’s new book. I have written several pieces on the book and made my own view quite clear. I think it is a great book and I am happy to see it bring so much attention to the growth in inequality over the last few decades, even if Piketty gives short shrift to policies that could reverse this rise in inequality.

Rather than dealing directly with the dispute over Piketty, I will take some issue with Krugman’s account of the mainstream and the crisis. Krugman writes:

“It is true that economists failed to predict the 2008 crisis (and so did almost everyone). But this wasn’t because economics lacked the tools to understand such things — we’ve long had a pretty good understanding of the logic of banking crises. What happened instead was a failure of real-world observation — failure to notice the rising importance of shadow banking. Economists looked at conventional banks, saw that they were protected by deposit insurance, and failed to realize that more than half the de facto banking system didn’t look like that anymore. This was a case of myopia — but it wasn’t a deep conceptual failure. And as soon as people did recognize the importance of shadow banking, the whole thing instantly fell into place: we were looking at a classic financial crisis.”

To my mind this seriously mischaracterizes the nature of the downturn we have experienced since 2008, with important real world consequences. I have long argued that the crisis is really the story of the housing bubble and its collapse. However entertaining it might have been, the financial crisis was secondary.

Dean Baker / April 26, 2014