E & T test 2

Why is labor force participation important?

❖Major determinant of GDP

❖Effects on poverty

❖Social well-being and physical health of population

The Labor Force Participation Rate

equal to the number of individuals who are in the labor force divided by the total number in the population.

The Labor Force Participation Rate Recently

went down in 2020 because of covid

as of December 2022 it is 62.3 so has improved since covid

Women in labor force rates

increased and peaked in 2001 then evened out and is slowly decreasing

Labor force participation rate since 2000

has been declining

Mens labor force participation

in a slow decline since 1950

womens and mens participation rates are

converging

participation rates for people over 55

is increasing

Labor rates for women with children under 3

are increasing

pre-covid was 63%

US labor force participation compared to other developed nations

lower

Why aren’t prime age men and women working?

Demand and supply

Supply side of unemployment

Reflects the number of workers in the population and their demographic composition; who chooses to participate in the formal labor market; and the levels of education and skills they bring to work.

Supply side characteristics are affected by population changes (fertility rate), labor force participation rates, and educational attainment.

Demand side of unemployment

Reflects the jobs created by employers, the occupations in which these jobs are found, the skills that they seek, and other aspects of how they recruit and compensate workers. 

Demand side characteristics are affected by “impersonal” market forces, such as automation/technology and globalization, as well as institutional changes to the nature of work (shifts to more contract or contingent workers (spot market), decline in unionism, government regulations)

Why are women not working?

taking care of home/family

Why are men not working?

ill or disabled

Time bind

not enough hours in the day to get everything done, work, and be fulfilled

Family and Medical Leave Act (FMLA)

Act entitles “eligible employes of “covered employers” to take up to 12 weeks of __unpaid__ leave during a 12 month period for family or medical reasons

What percent of American workers are covered by FMLA?

56-60%

Federal employee’s leave

Trump signed bill for 12 weeks of paid parental leave for federal employees

Government risk management for families

●Family and Medical Leave Act

●Tax Credits for Dependent Children

●Dependent Care Flexible Spending Accounts

Risk bind

the movement of women into the labor market during a period of relatively flat earnings and rising family expenses has increased the risks to families and their standard of living, in many cases pushing them into debt.

Aspects of indebted family

➢Personal Savings

➢Debt (“plastic safety net”)

➢Illiquid assets, housing

Expenses (health, education, child care, housing)

child care costs

more than college tuition in 28 states

in Maryland, 15,000 a year

Cost of housing is

going up

health spending has

grown substantially

11,582$ per capita

Middle class squeeze

expenses outpacing income

big ticket items, housing, education, health care

middle class squeeze in relation to risk

families are not at more risk than ever before

second income is not luxury but is necessary

need for second income means

Fertility rates

are going down

people cannot afford children

Hacker’s view on middle class squeeze

not all consumption is bad, sometimes it can be investments

buying a house is spending but also investment

US unemployment programs

US program of unemployment insurance is not equipped to handle the risks associated with the new world of work and the new contract.

US was US UI meant for

designed to deal with temporary income loss like changing jobs with same salary

Long term unemployment was never a central focus in the design of the UI program and now represents the greatest challenge

Old World

★Shared Risks of Uncertainty in Market

★Shared Productivity Gains

★Worker Loyalty

★Development of Workers’ skills

★Firm Commitment to pay and welfare (employee benefits)

New World

★Individual Gain

★The “spot market” for labor

★Loyalty tied to productivity

★Shifting of development of worker skills

★No benefits, exemptions from unemployment protection, overtime, etc.

Old Workplace

•Firms employed all workers

•Allowed for a career path, higher wages, better working conditions, and more benefits.

•Firms faced economic pressure are increasingly focused on core competencies - Activities that provide greatest value to consumers and investors

New Workplace

•Firms outsource “non-core” jobs such as janitorial, maintenance, and security services

•Slowly spreading into “core” jobs

•Results have shown lower wages, less access to benefits, diminished opportunities to “climb the ladder”, and health/safety issues.

employed persons

All persons who did any work for pay or profit during the survey week, or who worked for at least 15 hours in a family-owned business operated by someone in their household, or who are temporarily absent from their regular job due to illness, vacation, labor/management dispute, child care or maternity/paternity leave, job training (paid or unpaid status).

Unemployed persons

All persons who did not have a job at all during the survey week, __made at least one specific active effort__ to find a job during the previous four weeks and are available for work; also counted are persons waiting to be called back to a job after they were laid off (in this case they are not required to be looking).

*How is the national unemployment rate determined?*

The number of unemployed as a percent of the civilian labor force.

Major Limitations of UI rate

➔Understated because certain groups are excluded (marginally attached and discouraged workers)

➔Silent on those “underemployed” or part/time

➔Silent on groups with historically high unemployment rates

Marginally Attached to Labor Force

Persons who are not in the labor force but want to work, are available to work, and have looked for a job sometime within the prior 12 months.  These persons are NOT counted as unemployed because they have not looked for work in the four weeks preceding the survey.

\
Discouraged Workers

A subset of persons marginally attached to the labor force; these persons are not currently looking for work because they believe that no jobs are available for them or there are no jobs for which they would qualify (they would work if there was a job). 

Considered “Not in the Labor Force” and not counted as “Unemployed”

Discouraged Workers, Marginally Attached to Labor Force

Unemployment rate over time

goes up and down but biggest V spike was because of covid

peak covid was 14.7%

January 2023 3.4%

Types of unemployment

cyclical, technological, structural, frictional, seasonal

cyclical unemployment

Also referred to as “demand deficient” unemployment, unemployment that results from a deficiency in aggregate demand.  Aggregate demand for goods and services is insufficient for generated an adequate number of jobs to provide full employment.

Technological unemployment

Unemployment resulting from displacement of workers by technology (computers, new production techniques).

Structural unemployment

Unemployment that results from a mismatch of worker skills and those required for available jobs.

Frictional unemployment

Temporary unemployment that might occur while changing jobs. 

Seasonal unemployment

Fluctuations due to weather, habits.  Agricultural and construction (both slow during winter)

What does Hacker say about cyclical vs. structural unemployment?

➔Most unemployment today is structural

➔“Downsizing” even while reporting profits

➔Structural unemployment leads to permanent job loss and need to retrain

➔Long-term Unemployed

Special Emphasis on Long-term Unemployment

➔Share of unemployed who have been out of work for 27 weeks or more

➔Unemployment and Long-term unemployment peaks after recessions

➔Job growth post recessions

➔Demographic composition of Long-term unemployed

current long-term unemployment

“This level of persistently elevated unemployment is different from that during previous recessions, and there may even be some __**structural**__ component to it, given how the long-term unemployed are still struggling.”

Post 2008 Recession and COVID

●Dip in 2020 is due to large increase in total unemployed (denominator)

●Jan 2021 data:  long-term unemployed is still rising and stands at 39.5% of unemployed

Jan 2023

Long Term

Unemployment

19\.4%, down from height of 43%

High Levels are similar to 2008 Great Recession when long term unemployment hit a record 45.5%

what races are most likely to experience unemployment

Black and Asian Americans

correlation between age and unemployment

Older people are more likely than younger people to be unemployed long term

connection between education level and joblessness

long-term unemployment does not vary by education

The longer you are unemployed…

the less likely you are to find a job

Pandemic Unemployment Assistance (PUA)

Expanded Eligibility

Pandemic Emergency Unemployment Compensation (PEUC)

Expanded benefit duration

Federal Pandemic Unemployment Compensation (FPUC)

Increased replacement rate

Impact of pandemic UI compensation

increase of benefits cause 3.6% decline in applications despite there being job vacancies

tightness

vacancies/applications

tightness during FPUC

was depressed

FPCU

federal pandemic unemployment compensation

the positive effect of FPUC on tightness was welfare improving

FPUC decreased competition among applicants at a time when jobs were unusually scarce. Our results also help explain prior findings that FPUC did not decrease employment.

U.S. Labor Supply and Demand Projections- Supply Side

➔Slowing Population Growth, Growing Diversity

\
➔Continued declines in Labor Force Participation Rates

\
Lower projections for high education attainment due to population growth for groups historically less educated.

Labor participation forecast

continue to decrease and will be just below 58% by 2050

U.S. Labor Demand and Supply Projections - Demand side

➔Automation

◆Reducing Costs/Increasing Consumer demand

◆Complements vs. Substitutes

◆Adjustments in education, mobility

➔Artificial Intelligence and Machine Learning

Job Displacement/Creation from Automotion

➢New Technology can create job displacement or job creation; today’s “technology” is automation

➢Linking Automation to job polarization (barbell), as “Middle” jobs being displaced and these workers may only be qualified for lower end jobs

Low wage jobs

➢Require few skills

➢Requires high school education or less

➢Repetitive tasks; no creativity

➢Labor is cheaper than technology

mid-wage jobs

Displaced by AI/Robots & Move into Low-Wage Jobs displacing those workers because don’t have advanced education for high wage jobs (time consuming and costly to obtain)

high wage jobs

➢Requires sophisticated skills

➢College education or greater

➢Creativity for advanced tasks

➢No technological replacement (yet)

Is the current UI program helping workers manage risks?  How does it miss the mark?

➔Dealing with Structured and Long-Term Unemployment

➔Decreasing Coverage

➔Contingent Jobs

Workers “fired” or quit due to child/family care

UI program objectives

Federal/state program; States develop their own programs subject to federal minimums; Provide cash payments during involuntary unemployment (maintain personal income); help stability in economy (maintain consumption)

IU programs covered occupations and eligibility

Private firms, state and local gov’t, non-profits; self-employed excluded; workers must earn specified amount of qualifying wages to qualify; worker must be available to work; workers who voluntarily quit excluded.

UI programs duration and benefits

26 weeks of benefits: Benefits vary by state (MA $515/week; TN $144/week) & typically result in 40-50% of prior weekly wage; Extended Benefits (EB) adds 13 weeks for total max of 39 weeks only; Temp Extension only through act of Congress & President

UI program financing

Federal and state payroll tax paid by employers deposited into federal Unemployment Trust Fund (employees do not contribute except in 3 states); federal trust fund administered by Treasury Department and invests in safe government securities; Experience rating system used and employers taxed based on individual experience with laying off workers

US Health care unique

* No Completely Free Healthcare Market Exits (in any developed nation); all have some form of government intervention
* Any purely voluntary system would collapse due to ADVERSE SELECTION
* US is the only developed nation without a single payer system
*  US Public/Private System and how it emerged

Private health care coverage types

plan provided by employer or union

direct purchase- bought through insurance company

TRICARE: coverage through tricare

public health care coverage

medicare

medicaid

CHAMPVA

medicare

federal program that helps pay healthcare costs for people over 65 and under 65 if long term disabilities

CHAMPVA

civilian health and medical program of the department of veterans affairs

US health care compared to other countries

world leader in health care spending

17\.3% GDP

11,500 per capita

Problems with health care in the US

* Uneven Quality of Medical Care
* Waste/Inefficiency
* Defects in Financing (Ability to Pay & Fee-for-Service)
* Local Monopolies and Abuses
* Uninsured
* Rising Health Care Expenditures

Who is uninsured?

working age adults

54% male

non-hispanic whites

concentrated in the south

high school education or less

Commonly cited reasons for health care costs

1\.High Prices for Inputs (medical goods and services)

2\. Poorly Restrained Incentives for Over-Utilization

3\. Tendency to Adopt Medical Innovations Rapidly Even When the Science is Not Conclusive or Absent

4\. Perverse Incentives due to Lobbying and R&D 5. Direct Consumer Marketing

Medicare

covers 50% to control moral hazard

4 parts

medicare bargains on your behalf

* has more power because they represent more people

goal is to provide care to the elderly and the disabled

* two groups private insurance don’t want to touch

Medicare part A

o   Controls where people get their health care

o   Mostly hospitals

o   Social insurance part of Medicare

* Everyone pays in
* Get the benefits when older

o   Funded by pay role taxes

o   You pay half, employer pays half

o   Mandatory

Medicare part B

o   Doctors/outpatient services

o   You don’t go to the hospital, but you go to doctor

o   Paid through premiums

* Pay for it when you are using it

o   Prevent moral hazards

* Co-pays

o   Premium is about 148$ per month

o   Mandatory

Medicare part C

o   Medicare advantage

o   Bundles all healthcare together

* Dental, medical, etc.

o   More like HMO

o   Local private provider on behalf of medicare

Medicare part D

o   Prescriptions

o   Paid by premiums

o   Opt in

Medicaid

1. Joint Federal/State Program
2. Coverage and ACA Expansion
3. Means Tested
4. Financing (overall federal
government covers approximately 57% of all Medicaid costs)

Are people effective at bargaining health care

no

too emotionally attached

insurers like medicare are further attached

Is moral hazard present in healthcare insurance markets?

* ●  Consumer demand for healthcare is limited (insured individuals don’t gladly go to the hospital because it is free)
* ●  Consumption of healthcare is inefficient (consumers lack information and may not consume types of care (e.g., preventative care) that in the long run save money)
* ●  Consumers of healthcare lack bargaining power (we might be unconscious or making decisions for a child or loved one)

Health savings accounts

PRC vibes

save money yourself and use when needed

* Gladwell claims HSA are way to make the insured behave more like the uninsured
* ●  Undermine broad risk pooling
* ●  Actuarial in nature (such that

what you pay into HSAs is based on your own individual risk factors) and thus more attractive to healthy and rich
* ●  Lead to downward spiral of ADVERSE SELECTION

Problems with HSAs

those who are sick will want to stay in insurance markets

health will drops out

causes death spiral of adverse selection

Affordable Care Act

❖ Individual Mandate (Penalty Now Overturned) ❖ Employer Requirements \n ❖ Health Insurance Exchanges \n ❖ Expansion of Medicaid (“Cram Down”)

❖ Coverage for Dependent Children Under Age 26 ❖ Pre-Existing Conditions

PRC attack on medicare

increasing medical costs

lacks control for moral hazard

PRC attack on medicaid

most spending goes to elderly in nursing homes

12 states have not expanded

recent focus on “work requirements”