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Today’s Economist: Nancy Folbre: The Underpopulation Bomb

February 11, 2013 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.“

The birth dearth/empty cradle/baby bust is upon us, threatening consequences just as dire as the overpopulation bomb that Paul Ehrlich predicted would cause mass global starvation in the 1970s. The growing percentage of elderly in the population, the root cause of many of our problems, will soon render the United States economically feeble.

Today’s Economist

Perspectives from expert contributors.

This dire prophecy of underpopulation has gradually made its way from the pages of Foreign Policy to The New York Times and, most recently, The Wall Street Journal. The alarmist fear-mongering is no better founded than Paul Ehrlich’s earlier panic.

Oddly, both sides of the humans-as-bombs debate share certain assumptions. Both seem terrified by the costs of caring for human dependents, whether young or old, describing them as a threat to economic welfare.

Both seem convinced that demography is destiny – that if we just raised the correct number of children, our problems would be solved.

Both typically blame the state for interfering with the relationship between the family and the economy, either subsidizing too many births through public assistance or providing social insurance to the elderly, making them less dependent on their own children for support in old age.

All three assumptions are staggeringly wrong.

Critics of the standard measure of gross domestic product (myself included) have long pointed out that it includes only the value of goods and services purchased in the market. Reducing the dependency “burden” would free time and money to spend on other things. Yet most of us place enormous value on our commitments to family members, friends, neighbors and fellow citizens, whatever their age. Otherwise (my inner economist urges me to add) why would we spend so much time and money on them?

Fertility decline is not some precipitous event. Under way for more than 150 years in the United States and many other parts of the world, it began long before the advent of modern birth-control methods or the so-called welfare state. Potential for young adults to migrate to new areas, along with the growth of wage employment, increased the economic independence of the younger generation and weakened family-based farms and enterprises. The gradual empowerment of women gave them more voice in marriage and family-size decisions.

Recent changes in the average number of births per woman in the United States have been quite modest. As the demographer Philip Cohen points out, the average number of births per woman in the United States declined steeply in the early 1970s, rose in the 1980s and leveled out before heading back down when the 2007 recession hit.

Economic growth, improvements in public health and advances in medical technology, in concert with fertility decline, are increasing the share of elderly in the population. The elderly are more prone to disability than other groups, so this demographic shift will impose costs. But let’s not forget that improved life expectancy represents a huge gain in living standards. How much would you be willing to pay for an extra year of life?

Complaints about the graying of the population sometimes imply an inevitable loss of economic dynamism. But I know of no historical evidence that either the productivity or the creativity of a society is determined by the age structure of its population.

The interaction between demographic and economic change is so much more complex than the simplistic doomsday scenario implies. Some interesting – and not always optimistic – efforts to grapple with it can be found in an open-access special issue of Population and Development Review, recently published by the Population Council in honor of its retiring editor, Paul Demeny.

In retrospect, Mr. Demeny stands out as one of the first demographers to consider seriously the problems that below-replacement fertility poses for the sustainability of public and private pension systems. This is a far more specific and, in my view, more realistic concern than the others described above. It calls attention to the need to rethink some fundamental institutional arrangements that shape the distribution of the costs of caring for dependents.

Several articles in the special issue, including one I wrote with Douglas Wolf of Syracuse University, “The Intergenerational Welfare State,” point out that modern social-insurance systems have socialized some benefits of child-rearing by taxing the younger generation to help support the older one.

As I’ve pointed out in previous posts, both employers and those who devote relatively few resources to raising children are able to indirectly capture some future benefits from the labor power that committed parents nurture.

Yet public support for parents compensates them for only a small share of the costs they incur and outmoded institutional arrangements make it difficult for them to easily combine wage employment with care provision.

The uneven and partial socialization of family costs is probably not a major factor driving fertility decline, which unfolded in many countries – including India and South Korea – long before the establishment of public pensions.

In the absence of those pensions, individuals might choose to invest in private annuities for support in old age rather than in raising children, whose ability and willingness to help parents in old age would remain difficult to determine even if parents were given a strong legal claim on their earnings, as Mr. Demeny and others have proposed.

Regardless of its possible impact on family size decisions, the current distribution of the costs of children seems conspicuously unfair to parents, with particularly negative consequences for single mothers, whose access to good jobs and public retirement benefits remains limited.

Jonathan Last, in The Wall Street Journal, concludes his article on “America’s Baby Bust” with a simple plea for more babies. I conclude with a plea for public policies that could help parents raise healthier, happier children into ever more productive adults.

Article source: http://economix.blogs.nytimes.com/2013/02/11/the-underpopulation-bomb/?partner=rss&emc=rss

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Today’s Economist: Nancy Folbre: The Uneven Progress of Equal Opportunity

January 28, 2013 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.“

The central theme of President Obama’s inauguration speech was equal opportunity and its refrain, “Our journey is not complete.”

Today’s Economist

Perspectives from expert contributors.

He never referred directly to equal opportunity in employment, perhaps because his very election testifies to certain progress since the Civil Rights Act of 1964 outlawed discrimination on the basis of race and sex.

But looking at the United States labor force as a whole, how broad has that progress actually been? Lack of systematic data on workplace segregation over time has long made that question difficult to answer. Recently, however, the  Equal Employment Opportunity Commission made available to researchers a rich legacy of private-sector employer reports known as the EEO-1 survey.

These data star in “Documenting Desegregation,” a new book by the sociologists Kevin Stainback and Donald Tomaskovic-Devey, which analyzes the trajectory of change in workplaces from 1964 to 2005 in careful detail. Their narrative reveals a jagged and uneven process of change driven by political mobilization, electoral outcomes and personnel-department practices, as well as specific legislative actions.

While the Civil Rights Act of 1964 destabilized a system of institutionalized obstacles to equal opportunity for both women and African-Americans, it failed to establish practical mechanisms that could guarantee steady progress toward equal opportunity.

From 1960 to 1972, many African-Americans, particularly men, moved out of segregated jobs. From 1972 to 1980, white women also began to gain access to new opportunities.

After Ronald Reagan was elected in 1980, however, the federal government backed off from activist equal-opportunity enforcement, and racial desegregation stalled. White women continued to make inroads based on increased access to professional and managerial occupations, including human resource departments of major corporations, where they became an internal force for change.

The authors contend that increased education alone does not explain white women’s relative success, because African-Americans steadily improved their educational attainment relative to whites throughout the 1980s and 1990s, even as employment progress stalled. Further, for reasons that may be related to political and cultural backlash, white women’s movement out of gender-segregated work slowed in the 1990s and stalled after 2000.

Five years into the 21st century, the data reveal a surprisingly high level of job segregation in which African-American men, white women and especially African-American women only rarely worked in the same occupation in the same workplace as white men. In order to create a completely integrated private-sector workplace, more than half of all private sector workers would need to change jobs.

In most workplaces, the face of authority looks predictable. As the authors put it, “White men are often in positions in management over everyone; white women tend to supervise other women, black men to supervise black men and black women tend to supervise black women.”

While overt discrimination based on race and sex is no longer culturally condoned, both covert bias and institutional inertia perpetuate inequality. Drawing on a wide range of social-science research, Professors Stainback and Tomaskovic-Devey contend we have shifted from a regime of “condoned exploitation” to one of “contested prejudice,” from a hegemonic regime of bright social boundaries to a fractured social world of blurry, criss-crossed lines.

In this world, remarkable successes like the election of an African-American president coexist with continuing failures, especially in domains where disadvantages based on race, gender and class coincide and collide.

The Civil Rights Act of 1964 might have led to steadier desegregation had we monitored its impact from the very outset, developing an analysis of institutional practices that could be renegotiated rather than relying largely on costly and contentious lawsuits based on particularly striking instances of discrimination.

Indeed, the Equal Employment Opportunity Commission has recognized the need to move toward a strategy of strategic enforcement, to examine industry-specific, regional and local patterns of occupational segregation and pay inequality.

The commission is currently barred from releasing data on the worst or best corporate citizens. By contrast the Environmental Protection Agency, the Occupational Safety and Health Administration and the Securities and Exchange Commission regularly make public company-specific data on the release of toxic chemicals, workplace injuries and financial standing.

Professors Stainback and Tomaskovic-Devey suggest that a similar level of public accountability for equal opportunity in employment could positively influence future corporate behavior.

It could also speed the journey the president urged us to complete.

Article source: http://economix.blogs.nytimes.com/2013/01/28/the-uneven-progress-of-equal-opportunity/?partner=rss&emc=rss

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Economix Blog: Nancy Folbre: A Real Right to Work

December 17, 2012 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.”

All Americans willing and able to work have a right to paid employment. If the private sector can’t generate sufficient jobs, the public sector should provide them.

Today’s Economist

Perspectives from expert contributors.

This definition of “right to work” obviously differs from the one that Republican legislators in Michigan deployed when they passed a new law absolving workers from the responsibility of paying union fees even if they gain contract benefits from them. But perhaps their actions will dramatize the need to challenge their framing and reclaim the genuine meaning of the phrase.

Most of us live in a world in which paid employment is the only avenue to economic self-sufficiency. Without it, families maintained by working-age adults are largely dependent on the kindness of strangers, otherwise known as extended unemployment insurance and food stamps. Yet, for more than four years, this nation has tolerated levels of unemployment that have essentially made it impossible for most of those seeking paid employment to find it, with a ratio of unemployed workers to job openings of more than three to one.

Some Republicans have long insisted that many of the jobless, relaxing in a billowy social safety net, simply aren’t trying hard enough to find a job. My fellow Economix contributor Casey Mulligan makes a similar argument when he contends that the poverty rate should have risen ­between 2007 and 2011, but didn’t ­because public assistance was neutralizing the effect of job loss and undermining incentives to work.


But Shawn Fremstad of the Center for Economic Policy and Research challenges that methodology, pointing to measurements showing that the poverty rate did rise significantly among working-age adults over this period.

Further, increased unemployment contributed to economic stress across most of the social spectrum, not just among the poor and near poor. Between 2007 and 2011, average household income declined in all four bottom quintiles.

Expansion of unemployment insurance and means-tested benefits are not the best solution to persistently high unemployment. As John Stuart Mill emphasized many years ago, those who are capable of supporting themselves should not rely on the habitual aid of others. But Mill went on to explain why such aid is sometimes necessary:

Energy and self-dependence are, however, liable to be impaired by the absence of help, as well as by its excess. It is even more fatal to exertion to have no hope of succeeding by it, than to be assured of succeeding without it. When the condition of any one is so disastrous that his energies are paralyzed by discouragement, assistance is a tonic, not a sedative: it braces instead of deadening the active faculties.

Paralysis by discouragement is a pretty good description of a growing segment of the United States population. In general, the higher the unemployment rate in a state, the higher the percentage of discouraged workers (those who did not search for work in the previous four weeks, for the specific reason that they believed no jobs were available for them) and the higher the percentage of marginally attached workers (those who did not search for work in the previous four weeks, for any reason).

Labor force participation has declined significantly since the last recession began, especially among less-educated men.

The best way to encourage American workers, increase family income and reduce public spending on unemployment insurance and food stamps is to create more jobs. The simplest way to create more jobs is to increase public-sector employment. The federal government could also invest in programs to encourage small businesses to hire workers to improve our aging physical infrastructure (including roads and bridges), our social infrastructure (including early childhood education and home services for the elderly) and our environmental sustainability (including improved energy efficiency and installation of the solar voltaic technologies that Germany now heavily relies upon).

All these investments offer a high social rate of return that private businesses can’t easily capture on their own.

By contrast, there is no evidence that lower tax rates for the rich promote either job creation or economic growth (a detailed study on this topic by the Congressional Research Service was withdrawn as a direct result of Republican protest).

President Obama and Congressional Democrats have called for more stimulus spending aimed at job creation, only to meet tremendous opposition from Republicans. Preoccupation with deficit reduction has crowded out discussion of job creation. Public employment grew steadily during the previous Bush administration. During the Obama administration, however, it has significantly declined.

Now, it appears that any remaining concern with job creation may be thrown over the fiscal cliff.

The next time someone with a comfortable paycheck tells you that American workers no longer have a work ethic, please explain to them that right now, there’s not enough paid work to go around.

Which is why we should fight for a real right to work.

Article source: http://economix.blogs.nytimes.com/2012/12/17/a-real-right-to-work/?partner=rss&emc=rss

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Today’s Economist: Nancy Folbre: The Power of Plastic

November 13, 2012 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.“

Credit card payment networks and card-issuing banks are taking advantage of their market power to extract more and more revenue from small businesses. In last week’s post, I provided an overview of recent legal and legislative battles over rising swipe fees. But as an attentive reader points out in an e-mail, I should have called attention to how hard it is for merchants even to figure out what fees they will be charged.

Today’s Economist

Perspectives from expert contributors.

Michael Latigona of David Michael’s Salon in Berlin, N.J., provides a vivid description of the perils of a phenomenon known as “strategic price complexity”:

Please, take a credit card out of your wallet and look at it closely. Any card will do. Now let me ask you. Can you tell me whether or not your card is a MC rewards class I, II or III (all of which have different rates)? How about your Visa? What type of Visa is it you are holding? Would it be a Visa CPS Retail card; how about a Visa Rewards 1 card? Or it could be a Visa enhanced business card?

You see, each card carries a different fee for the merchant. But how can a merchant ever know what the card is to ask the customer to use a different or cheaper card that carries less fees for the merchant? You can’t. There is nothing on the cards to delineate the literally thousands of types of cards and fees associated with them.

I asked my merchant provider to give me a list to show me the different types of cards and fees associated with them. Well, that was about 20 pages long, and still, even with that knowledge, could never determine what card you are holding, how much I will be charged for such card, let alone ask the consumer to use a cheaper one.

So regardless of the ruling or future settlement, unless it is clearly marked on the card what type of card I am about to swipe, us millions of small businesses have no clue what that charge will be until we receive our monthly statement. It’s like you going to the restaurant and eating, but not seeing the bill until it comes in a month. Would you receive a service without knowing how much it will cost you? Well us small businesses have no clue what our charges will be when we swipe that card.

Did you figure out whether you are a class I, II or III Visa yet? Now even if I gave you my 20-page list of types of cards, could you still determine it? No. So us small business will continue to be forced to accept a card, and have absolutely no clue how much we will be charged for that card, and that is something nobody is talking about.

I hope you can research this and do a story on this. After all, don’t you think us small businesses should know ahead of time what we have to pay before we swipe that card? Or you could come to my salon and I could do your hair, not give you a price and send you a bill later. But I think you might not be happy without knowing how much that fabulous hair I just gave you would cost before the service and get sticker shock when you come to the register. Not quite fair to the consumer is it? And it’s definitely not fair that your credit card doesn’t tell me which one out of the thousands out there I am taking, the fees associated with that type of card and then have sticker shock each month when opening a statement because I have no clue what the actual charge will be when I accept the card.

Here’s some economic background that Mr. Latigona and other small-business owners might find useful:

The credit card payment network is an oligopoly. Visa and MasterCard dominate the market, along with the smaller networks Discover and American Express. This market structure is hard to discern, because cards themselves are issued by different banks, with different terms — and they come in many different colors. Among issuers, the top 10 credit-card-issuing banks accounted for more than 90 percent of outstanding credit card debt in 2009.

Both the payment networks and the card issuers operate in a “two-sided” market — selling their services both to consumers and to merchants. Consumers can engage in at least some comparison shopping — considering both terms of service and interest rates charged by different providers.

Small businesses, however, have long been limited in their ability to steer customers toward credit cards that charge lower fees, partly as a result of payment-network rules and partly because they fear inconveniencing their customers and reducing sales.

Payment networks and card issuers know how to exploit that fear, and they have a common interest in extracting as much revenue as possible from the merchants who rely on their services. Their market power puts them in a strong position to do so.

In a report on interchange fees (also known as swipe fees) published in 2009, the Government Accountability Office concluded that these fees had increased significantly since 1991, especially for so-called premium cards offered only to high-spending customers. It delicately pointed out that producers with market power “have the ability to charge high, noncompetitive prices” and went on to note that representatives of card issuers openly acknowledged that their fees were not determined by costs but “were one of several revenue sources.”

The G.A.O. report also noted that the number of fee categories had proliferated over time, to 60 from four for Visa and to 243 from four for MasterCard between 1991 and 2009.

Here is where the concept of “strategic price complexity” comes in. In his study of retail financial markets, Bruce Carlin of the Anderson School of Management at the University of California, Los Angeles, contends that complexity itself can increase market power, because it reduces the power that buyers would otherwise have to compare prices.

This strategy seems to be working well for credit card issuers. A recent report from the Federal Reserve notes that credit card earnings have almost always been higher than returns on all commercial bank activities. The financial sector in general commands a far higher profit rate than the retail sector.

The proposed legal settlement that grew out of the antitrust suit I described last week gives small businesses more latitude to encourage customers to use cards with lower fees. But this settlement will not solve the problem because, as Mr. Latigona points out, it is difficult for businesses to determine which cards fit this category.

Paying with plastic is technically more efficient for everyone than paying with checks or cash. But the fees we are now charged for using plastic far exceed the actual costs. They reflect the market power of a financial oligopoly.

Article source: http://economix.blogs.nytimes.com/2012/11/12/the-power-of-plastic/?partner=rss&emc=rss

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