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The Search: Talk About Pay Today, or Suffer Tomorrow

May 21, 2011 by Leave a Comment

Many job seekers would be thrilled to be offered a job at all. How ungrateful and even risky, they may feel, to haggle over salary when the unemployment rate is so high.

And research shows that even when economic conditions are good, women tend to be more reluctant than men to negotiate for a salary higher than the one initially offered.

But failing to negotiate can be a mistake that reverberates for years, says Linda C. Babcock, an economics professor at Carnegie Mellon University who specializes in negotiation. Because most raises are based on percentage increases, she notes, all of your future raises — along with contributions to your retirement account — are likely to be lower than if you had negotiated a higher salary at the start.

Some people fear that a job offer will be rescinded if they dare ask for higher pay, and that the employer will move on to the next applicant, says Barbara Safani, owner of Career Solvers, a career management firm in New York. But she says that is very unlikely if you negotiate reasonably.

Still, it’s easy to understand why the thought of salary negotiation induces fear. That’s because the employer holds almost all the cards in this game, and may ask you to give up the few you hold by requesting that you reveal prematurely your past salary and your pay expectations.

Generally, if employers try to broach the salary issue early in the interview process, you should do everything possible to defer this discussion, and, if pressured to give numbers, be as vague as you can, Ms. Safani says.

And once you get an offer, don’t accept it on the spot, she suggests. It is perfectly acceptable to say that while you are excited about the job, you need a few days to think about it.

Use that time to clarify your priorities, Ms. Safani says. Is making a certain salary most important to you? Or is it the vacation time, the hours, the responsibilities or something else?

Gather as much salary intelligence as you can about the position, before the first interview and after the offer. Web sites like Salary.com, Glassdoor.com and PayScale.com list salary ranges within an industry, company and geographic location. Don’t rely on these sources completely, as they may depend on self-reporting, some of it anonymous. But they can give you a benchmark.

And talk to any people you know within that company, or other ones like it. You don’t have to ask them flat-out what their salaries are, Professor Babcock says. Instead, you might ask, “What do you think a good salary for this job would be?”

This research will help determine your true value in the marketplace and can provide the basis for deciding how hard you should negotiate — even if you are now unemployed.

In general, when you are ready to negotiate, “don’t ask for what you want, ask for more than you want,” Professor Babcock says. “You could typically ask for at least 10 percent more than they offer you.”

Once you have your number on the table, the employer might say, “Oh, we can’t possibly do that.” In many cases, that does not mean the negotiation is over, Professor Babcock stresses. “You say: ‘How close can you come to that figure?’ ”

If the company is reluctant to come closer, she says, you should consider asking, “Can we meet in the middle?” That’s often effective, she adds, “because it just seems fair.”

Sometimes, though, employers have a salary limit they cannot exceed, notes Rusty Rueff, a career and workplace expert for Glassdoor.com. Yet there may be ways to work around that so you still come out ahead. Suppose you’re offered $100,000, but you wanted $110,000 and the employer says no. You could seek a bonus at the end of the first year if you meet performance goals, he says, or, depending on the industry, try to arrange for an equity stake in the company.

You may also be able to negotiate a signing bonus, additional time off (paid or unpaid), parking privileges, expanded benefits, relocation expenses, work hours or job title and responsibilities.

Do not bluff by saying you won’t accept a certain salary when you actually will. But if you state honestly and politely that the pay isn’t enough, that may be a catalyst for the employer to offer more. Just be absolutely sure of where your “walk away” threshold lies.

Done correctly, negotiation can strengthen the relationship between applicant and employer. But too often, women are unwilling to try it at all. Men are much more likely to negotiate pay than women, Professor Babcock says.

That’s because of the way many girls are brought up, she says — resulting in the feeling that “there might be backlash against me if I negotiate in a very assertive way.”

“Women often think, ‘Well, this is my personality.’ No, it’s something that our society has done to you,” she says.

In encouraging negotiation, she reminds people that they don’t have to adopt an aggressive, confrontational style that is unnatural to them. In short, she says, you can still be yourself and win a higher salary.

E-mail: thesearch@nytimes.com.

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Economix: Would Privatizing Medicare Lead to Better Cost Controls?

May 13, 2011 by Leave a Comment

Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

The annual Milliman Medical Index, released earlier this week by Milliman Inc., the Seattle-based employee-benefit consulting and actuarial company, is illuminating, and I highly recommend it. The index is particularly timely as the nation considers proposals to reduce sharply the role of the federal government in financing health care, along the lines proposed by Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee.

The index measures the total cost of health care for a typical American family of four covered by a preferred provider plan, widely known as a P.P.O. The index’s great virtue is that it includes not only the employer’s and employee’s contributions to the premium for P.P.O. coverage but also the out-of-pocket expenses the family has under the plan.

Employers can control the growth of health insurance premiums by shifting more and more of the cost from the insurance policy to the family’s budget, through higher deductibles and coinsurance or by excluding benefits from coverage that had previously been covered.

Thus, the index provides a more accurate picture of the actual burden of health spending for a typical American family than does just the premium for P.P.O. coverage.


The estimated average cost of health spending from all sources for a typical privately insured American family more than doubled in the last decade, to $19,393 in 2011 from $8,414 in 2001. Over the decade, the index exhibited an average compound annual growth rate — widely known in the trade as C.A.G.R. — of 8.8 percent, although, in recent years, that rate has ranged between 7 and 8 percent.

Despite that recent abatement, the growth rate is still more than twice the rate at which total average employee compensation has grown, for all but the top executives among private employers. In recent years, the growth in employee compensation has hovered beneath 3 percent.

In other words, health care is chewing up employees’ paychecks like Pac-Man in the famous arcade game. And there is considerable empirical evidence that the employer’s ostensible contribution to the employee’s health-insurance premiums actually comes out of the employee’s take-home pay.

As noted above, it is not a stretch to argue that the Milliman Medical Index bears directly on the hypothesis that private health insurers are able to control the growth in per-capita health spending better than Medicare can.

At the theoretical level, one might be persuaded to subscribe to that theory, because private nonprofit and commercial health-insurance plans have at their disposal cost-control mechanisms that traditional Medicare has been denied by statute — for example, selective contracting with preferred providers that offer the insurer lower prices, or various direct interventions to control the volume of health services.

In addition, private nonprofit or commercial health insurers can offer other advantages that traditional Medicare has not, like disease management, wellness programs and better coordinated care — advantages that, in principle, are empirically demonstrable if they exist.

But the Milliman data do not suggest that superior control over total health spending — as opposed to controlling premium growth through cost-shifting to private household budgets — is among the industry’s strengths. To argue that the industry can do so is, at this point, faith-based analysis.

Indeed, a December 2010 report by the American Health Insurance Plans, or A.H.I.P., the industry’s trade association, itself cast doubt on that score. The table below, taken from that report, illustrates the price trends faced by the insurance industry.

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The association provides the average transaction prices that the nine largest private health insurers paid hospitals in Oregon from 2005 to 2009 for a number of well-defined episodic services; the price data are made available from the Office for Oregon Health Policy and Research.

It can be seen in the table that the average annual compound increases in the average prices for these services are generally north of 10 percent.

The average price paid hospitals for a normal vaginal delivery, for example, rose to about $6,400 in 2009, from $3,800 in 2005, an average compound annual growth rate of 14 percent. The average price of a knee replacement rose to $28,700 from $19,000, or about 10 percent a year.

Unlike Oregon, California does not seem to make available to the public detailed hospital transactions prices with private insurers. The A.H.I.P. instead reports cumulative increases in average net inpatient revenue per inpatient day over the period 2000-9.

Inpatient revenue per day for Medi-Cal, California’s Medicaid program, rose by 18 percent over the decade. The corresponding statistic for Medicare was 76 percent. For private insurers it was 159 percent.

It is widely assumed, among both health insurers and the hospital industry, that the more rapidly rising prices paid by private insurers reflect a cost shift from government to the private sector. The theory is that private insurers must compensate with higher prices for the shortfall from actual cost imposed on providers of care by unduly low Medicaid and Medicare payment rates.

As the A.H.I.P. report notes on this point:

Some hospital systems and their affiliated physician groups have attained dominant market shares in their regions, and they have used their market power to drive up hospital prices for private plans. For example, the dominant hospital system in northern California costs private health insurance plans 44 percent more (inpatient reimbursement per discharge) than the state average for private plans in 2009. However, this “cost-shift” to private payers may not be sustainable.

With a few exceptions, economists remain skeptical on the validity of the cost-shift theory, although it may operate in some market environments.

But suppose one accepted the cost-shift theory at face value. It implies that in many markets with highly consolidated hospital systems and large physicians’ groups, private insurers simply lack the market power to resist price increases from the more powerful providers of health care for whatever reason — cost shift or otherwise.

The available data do not lend credence to the prediction sometimes made in connection with the Ryan plan for Medicare that private insurers will be able to control the overall health spending of elderly Americans any better than traditional Medicare has been able to.

A complete privatization of Medicare will have to be rationalized on other grounds — either with appeal to superior coordination of care or simply on the argument that government must by statute shrink the taxpayers’ obligation for the health-care cost of the elderly by shifting those costs to the elderly themselves.

Article source: http://feeds.nytimes.com/click.phdo?i=4b2185a016b17a052e1b347d0eb2c1a0

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Economix: Where the Jobs Were Lost

May 11, 2011 by Leave a Comment

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

Ben Bernanke, the chairman of the Federal Reserve, said recently that people with less-than-average incomes bore the brunt of the recession’s job losses. Census Bureau data confirm Mr. Bernanke’s statement and show employment gains at the high end.

For the 12 months ended September 2008 — the month Lehman Brothers failed — employment in the United States was 146 million. Over the next 12 months, employment fell to 141 million.

The Census Bureau conducts a monthly survey of households and asks some of them what household members have been earning, if anything, on their jobs. I have used that data to investigate the types of jobs that were lost during the Great Recession and have classified the jobs by their weekly pay.

Among people who are working, the median weekly earnings are a bit more than $600 a week. That is, about half of working people earn less than $600, and about half earn more. So if Mr. Bernanke is correct, the bulk of the losses were of jobs paying less than $600 a week.

Chart 1 categorizes people by their weekly earnings –- people earning $1 to $100 a week are in the first group, those earning $101 to $200 a week in the second, and so on. Although the chart’s horizontal axis goes to $2,500, most workers are in the first seven categories.

The vertical axis measures the change, from the 12-month period ended September 2008 to the 12-month period ended September 2009, in the number of people (in millions) in the various categories. Because the zero earning category is excluded, the sum of all of the changes shown in the chart, plus a year’s adult population growth (about two million), is equal to the change in the number of people without paying jobs, a category that grew by six million.

(These totals do not agree exactly with the Census Bureau’s employment totals for technical reasons related to the lack of reliable earnings information from some respondents. For brevity, I make no distinction between “workers” and “jobs,” although some data shown in the chart include people earning money from more than one job during a week.)

The first two categories gained a bit, which probably reflects the surge in part-time employment during this period. But, over all, Mr. Bernanke was correct: an awful lot of jobs were lost in the $201-to-$600-a-week range. Essentially no jobs were lost in the combined $1,101+ categories.

Because less than a quarter of workers are earning $1,100 a week or more, it helps to examine those categories’ job losses in percentage terms, as in Chart 2.

For example, a value of 9 percent in Chart 2 for $2,101 to $2,200 means that 9 percent more people earned $2,101 to $2,200 a week in the 12 months after Lehman failed than earned that amount in the 12 previous months.

The percentage job losses tend to be less for the higher-paying jobs. All the categories above $2,000 a week actually gained jobs (although those types of jobs are relatively rare, the Census Bureau survey is large enough that it includes more than 12,000 people earning that amount over 24 months).

Economists have yet to examine the recession-era pay data thoroughly, but further study of the employment growth at the high end may someday help gauge the importance of unemployment insurance, “skill mismatch” and other factors that are said to have contributed to the employment downturn.

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Economix: Does the Ryan Plan Curb Health Spending?

April 29, 2011 by Leave a Comment

Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

My post last week, on the budget plan offered by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, ended with the observation that the plan did not propose measures to control overall health spending in the United States, “nor does that appear to have been Mr. Ryan’s objective.”

To which one reader responded:

I do completely reject that there are no cost controls in the Ryan budget. If there is no federal, state, insurance or private money to pay for extremely expensive care such as in Post No. 7 above, such care will simply not be delivered or paid for.

Let me, for all to see, acknowledge this well-taken point. If less money were available to be spent on health care, then overall health spending would be lower.

But let me also reproduce a comment from that Post No. 7:

If cutting Medicare is so important, why not start now, rather than with today’s 55-year-olds? Start by not paying for life-support treatments for critically ill very old people, as Medicare did for my 92-year-old father’s PEG feeding tube three years ago. He got one, recovered enough to spend three more years in nursing homes and died last month after running up another $300K or so in medical bills paid by Medicare and his health insurance as a retired teacher.


Clearly, these comments land us smack in the middle of the treacherous terrain of cost-effectiveness analysis, end-of-life care and rationing of health care — all issues over which President Obama and his allies in Congress got into hot water during the health care debate of the last two years.

Among the harshest critics were Betsy McCaughey, the former lieutenant governor of New York, and Sarah Palin. Longtime readers of this blog may recall that I have explored all of these topics in a number of earlier posts, for example in a piece on rationing; a post on cost-effectiveness analysis and one on pricing human life.

The two readers I cite above advocate rationing of health care through the marketplace, by price and the patient’s own ability to pay, rather than by government. Furthermore, at least one of them argues, with apparent approval, that the Ryan plan will force that result.

The general idea is that, using whatever financial resources are available to them, patients or their loved ones will, of necessity, engage in a benefit-cost analysis and decide whether the anticipated benefits of end-of-life care exceed its expected cost to the household in terms of what that household has to forgo to buy the extra care. This is how markets work.

Economic theory suggests that, other things being equal, rich and less rich households will come to different conclusions on this question. If less money is available over all to spend on elderly Americans, it is the lower middle class that is likely to do most of the self-rationing.

Note that the Ryan plan proposes a means test to determine the federal contribution to Medicare — the very poor elderly will receive larger federal subsidies, although the size of these subsidies remain unspecified. But the middle and lower-middle class is likely to be on its own.

Another way of putting this issue is that patients and their loved ones will calculate the cost of end-of-life year per unit of medical outcome, measured by “quality-adjusted life years” (known as QALYs). That cost is, in effect, a price at which the household can purchase added QALYs from the health care sector.

Once that price is known, patients or those responsible for them can decide whether to buy the added QALYs yielded by end-of-life care at the available price. This forces patients or loved ones to compare the price with the monetary equivalent value of the benefits they anticipate from those QALYs.

This is the private version of what is known as cost-utility analysis, the analytic approach that is anathema in the halls of Congress (see the section starting on Page 519).

For reasons that escape me, many Americans do not regard rationing scarce resources through the marketplace, by price and ability to pay, as rationing at all, reserving that term for government withholding of marginally beneficial procedures, based on formal cost-effectiveness analysis.

I do beg to differ. In their well-known textbook “Microeconomics,” Michael L. Katz of Harvard and Harvey S. Rosen of Princeton, put it thus:

Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not.

That states the matter succinctly, although the authors could have been more precise by writing “willing and able to pay” rather than just “willing to pay.”

I have also applied the economist’s reasoning to an analysis of styles of rationing in Canada and in the United States and would be happy to hear what readers make of that.

Others commenting on last week’s post have suggested that privatizing Medicare along the Ryan plan will not lead to rationing, because the private health insurance system can deliver the same quality care more efficiently and more cheaply. They cite the prescription drug plan under Medicare Part D as support for their position. I will take up that proposition in the future.

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Economix: Human Capital Follows the Thermometer

April 19, 2011 by Leave a Comment

Today's Economist

Edward L. Glaeser is an economics professor at Harvard and the author of “Triumph of the City.”

Over the last decade, population growth in the fifth of American counties where January temperature averaged above 43 degrees was over 9 percent, while the population growth in the fifth of American counties where January temperature average below 22 degrees was less than 2 percent. Population growth was over 13 percent in the fifth of counties where more than 21 percent of adults had college degrees in 2000, while growth in the least educated three-fifths of counties was below 3 percent.

The powerful pull of skills reminds us that human capital is the bedrock of local and national success. The message of the Sun Belt is more complicated. Its success tells us a bit about the pleasures of warmth, and a bit about the importance of natural resources and a bit about the impact of limited government.

Population data is from the 2000 and 2010 Census.
Skills data (share of 25+ population with a college degree) is from the 2000 Census.
January temperature comes from ICPSR (Interuniversity Consortium for Political and Social Research) Study No. 2896, “Historical, Demographic, Economic, and Social Data: The United States, 1790-2002,” by Michael R. Haines, which compiles data from various Census sources over many years.

The chart shows population growth across American counties between 2000 and 2010. I have ranked counties both by average January temperature and by share of the adult population with college degrees as of the year 2000. Each point represents one-tenth of America’s counties. The blue line shows the powerful connection between skills and population growth; the red line shows the also-strong connection between January temperature and population growth. Both trends represent longstanding patterns.

Last week, I discussed a new paper of mine jointly written with Giacomo Ponzetto and Kristina Tobio, looking at population growth over the last two centuries. Our longer-run investigation focused on counties in the eastern United States, roughly bordered by the Mississippi, in order to focus on an area that was populated at the time of the Civil War. For more recent decades, we also look at metropolitan areas throughout the United States.

We cannot look at the correlation between growth and historic skills — at least as typically measured by the share of the population with college degrees — over very long time horizons, because it was only in 1940 that the Census began measuring educational attainments at the county level. We are therefore limited, like earlier researchers, to looking at 1940 education levels. This is somewhat problematic since growing areas might have attracted more educated people.

Looking only at counties in the eastern United States, we find that education as of 1940 is essentially unrelated to county growth during the 19th century. Perhaps education in 1940 is not very correlated with the relevant skill level as of 1830 or 1860 or perhaps skills just weren’t important in generating local success during the era of the railroad and the mechanical reaper.

Starting in 1900, however, skills, as of 1940, predict faster county population growth, during eight of the next 10 decades. During the decades when skills don’t predict county growth in the eastern United States — the 1970s and the 1990s — skills are still powerful predictors of metropolitan area and city population across the entire nation.

Our paper then seeks to understand why skills predict metropolitan area population growth throughout the United States since 1970. Like previous papers on this topic by Jesse Shapiro, we find that the skills-growth link occurs primarily because more educated places have become steadily more productive. In the West, there is also some evidence that suggests that skilled areas have quality-of-life amenities that people increasingly value, but that that isn’t true across the nation more generally.

The impact of sunshine, as measured by average January temperature, on population growth is more complicated. From the 1790s to the 1860s, population grew more quickly in the colder counties east of the Mississippi, which helped ensure that the Union enjoyed a healthy demographic advantage at the start of the Civil War. But after 1870, warmer states grew more quickly for four decades. Between 1870 and 1910, the population of the South increased by nearly 140 percent, while the population of the Midwest increased by 130 percent and the Northeast increased by 110 percent. The growth was particularly strong in the least dense Southern states, which may reflect the increasing spread of railroads into those areas after the Civil War.

But after 1910, the connection — within Eastern counties — between January temperature and population growth disappeared until the 1960s. During those decades, the Great Lakes areas expanded. Areas that had once been centers for shipping natural resources grew as great manufacturing hubs. Proximity to the Great Lakes predicts population growth before 1870 and then after 1910, but not between. Chicago, Cleveland, Detroit and their surrounding areas all boomed as Americans moved from farms to factories.

After 1960, trends changed again. The South came roaring back after World War II and the Great Lakes region became known as the Rust Belt. While the pre-World War II South was hardly known for being friendly to outsiders, the post-World War II South adopted right-to-work laws that helped lure manufacturing to its lower costs. The decline of Jim Crow, a victory for racial justice, also made the South more politically competitive and less frightening to outside investors.

Over the last decade, January temperature continues to predict growth throughout the entire United States. This connection reflects economic productivity, but also the ease of construction in less regulated areas. Atlanta, Dallas, Houston and Phoenix grew more than any other metropolitan areas since 2000 because they combined economic productivity with a regulatory environment that encouraged, rather than stifled, new building.

Sun and skills are not opposites. There are plenty of skilled metropolitan areas, like Atlanta and Charlotte, in the Sun Belt. But at the extreme, sunshine and skills do represent two models of American success. Colder, skilled areas, like Boston, succeed because education makes up for a difficult regulatory environment, especially toward new construction. Warmer, less skilled areas succeed because limited regulation and natural resources make up for limited human capital.

For America to be successful in the 21st century, it is going to need the power inherent in both Houston and Boston. It will need unleashed human capital, and that’s why our nation needs to invest heavily in our children and in policy reforms that will make entrepreneurship easier and less expensive.

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Economix: Ryan’s Medicare Plan

April 18, 2011 by Leave a Comment

Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

On April 15, the House of Representatives passed, on a partisan vote, the budget plan that Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, had earlier introduced to his committee.

Mr. Ryan’s plan should be read closely by every voting citizen, as it comes closer than any other legislative proposal I can recall to the libertarian vision for America.

At the same time, I urge readers to study the Congressional Budget Office’s analysis of Mr. Ryan’s plan and a very good summary of the plan by the Henry J. Kaiser Family Foundation.

With regard to health care, the Ryan plan envisages a major withdrawal of at least the federal government from the financing of health care in America. Among the major provisions to that effect are these:

• Through block grants rather than sharing actual outlays by the states on Medicaid, it would drastically reduce the federal government’s contribution to the state-run Medicaid programs, which, of course, might force states to raise their taxes on their residents or significantly reduce eligibility for the program.

• It would repeal and defund the president’s health-care law, in particular the large federal subsidies that would go either to low-income families toward the purchase of health insurance or to the states to enroll such families in Medicaid. Instead, the plan says, it would “advance common-sense solutions focused on lowering costs, expanding access and protecting the doctor-patient relationship.” What the alternative solutions expanding access would be, especially the financing of these solutions, is not made clear.

• For people now 55 or younger, the traditional Medicare program – a defined benefit plan — would cease to exist and, starting in 2022, would be converted to a defined contribution program. Starting in 2022 the eligibility age would gradually be ratcheted up to 67 from the current 65.

It is not surprising, and altogether healthy in our democracy, that Mr. Ryan’s vision has drawn sharp criticism from the liberal camp, including a speech by President Obama himself. In this post, I will leave such commentary untouched and focus on only one aspect of the proposal.

In an Op-Ed piece in The Wall Street Journal, Mr. Ryan wrote, “Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy.”

He repeated that assertion on NBC’s “Meet the Press” on April 10, when he said, “For future generations, what we are proposing is a personalized Medicare, a Medicare system that works exactly like the health care I have as a member of Congress and federal employees have.”

Exactly? I beg to differ.

There is a huge difference in one important aspect between the Medicare program in the Ryan budget plan and the Federal Employee Health Benefit Plan, or F.E.H.B.P., for federal employees and for members of Congress.

Basically, the F.E.H.B.P. is best described as a typical employer-sponsored health insurance plan. The federal government’s – that is, taxpayers’ – annual contribution to the premiums paid to competing private insurers by employees and members of Congress would rise in step with the average premiums charged by the private insurers (see Page 1).

These premiums have been rising over time more or less in step with the overall increase in per-capita health spending in this country.

By contrast, under the Ryan plan, the federal contribution toward the purchase of private health insurance by future Medicare beneficiaries would be indexed only to the Consumer Price Index (see Page 2 of the C.B.O. analysis).

Over the last three decades, the C.P.I. has grown at a much slower rate than per-capita health spending, especially since 2000 (see the chart below).

Health Spending Data: CMS Data Statistics; C.P.I.: President’s Economic Report to the Congress, 2011, Table B-20.

The following table shows the numerical difference between the growth in the C.P.I. and health insurance premiums since 2000. The table also shows that with the exception of a few years, private health insurance premiums tend to rise as fast and often faster than does Medicare spending per beneficiary, in good part, of course, because Medicare can control the prices it pays the providers of health care (although not the volume of these services).

Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, April 12, 2011. *California Public Employees’ Retirement System, which functions as a private health insurance exchange for 1.3 million active and retired public employees.
**Start of Medicare Part D Prescription-Drug Plan.

Indexing the federal contribution to Medicare beneficiaries to the C.P.I. can thus be expected to shift an ever-larger share of the total health spending on Medicare beneficiaries from the books of government to the household budgets of these beneficiaries. It is fair to wonder whether members of Congress would ever pass a bill indexing the federal contribution to their insurance premiums only to the C.P.I. rather than, as now, to the growth in insurance premiums.

As the Congressional Budget Office noted in its analysis of the Ryan proposal, for a typical 65-year-old with average health spending enrolled in a private plan

with benefits similar to those currently provided by Medicare, C.B.O. estimated the beneficiary’s spending on premiums and out-of-pocket expenditure as a share of a benchmark: what total health care spending would be if a private insurer covered the beneficiary. By 2030, the beneficiary’s spending would be 68 percent of that benchmark under the proposal (see Pages 20-24 and Figure 1 on Page 22).

If private insurance premiums after 2030 continued to grow at a rate exceeding the growth in the C.P.I., the federal contribution to Medicare might shrink even further.

Perhaps this is what the voting public wants — and perhaps not. Either way, it is important that voters, especially those under age 55, follow with open eyes the fierce budget battle now erupting between Republicans and Democrats, so they will be well informed of the consequences of each choice offered them by the feuding politicians.

Unfortunately, the combatants themselves will probably not disclose the full consequences of their options to the voting public. Instead, politicians on both sides of the aisle are likely to camouflage these consequences in mellow language, as Representative Ryan did in regard to his Medicare proposal.

Politicians and elected officials appear to have concluded from years of experience that the public has never favored those who tell them the harsh truth. It’s almost as though the public wants to be misled.

The specific proposals aside, does the Ryan plan offers anything to control overall health-care spending?

No, nor does that appear to have been Mr. Ryan’s objective.

As the Congressional Budget Office observed, “Private plans would cost more than traditional Medicare because of the net effect of differences in payment rates for providers, administrative costs and utilization of health services, as described above.” The data in the table above support that conclusion as well.

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Economix: The Census Surprise in New York

March 29, 2011 by Leave a Comment

Today's Economist

Edward L. Glaeser is an economics professor at Harvard and the author of “Triumph of the City.”

One of the biggest surprises from last week’s release of Census data was that New York City’s population appears to have grown by only 2.1 percent in the last decade, or about 167,000 people. The city’s overall population, 8.175 million, is 200,000 less than the Census Bureau had estimated for 2009.

Unsurprisingly, Mayor Bloomberg is challenging the Census figure and demanding a recount.

The crucial question is whether the Census missed significant numbers of immigrants in Brooklyn and Queens. If the Census total were left unchanged, New York’s population growth rate would have fallen significantly between the 1990s and the 2000s.

At first blush, this decline would seem quite surprising. After all, the city has continued to surge economically. Between 2000 and 2008 (the latest year available from County Business Patterns) payroll per worker in Manhattan increased by 35 percent (7.8 percent in real terms — that is, after adjusting for inflation) to $102,000. Over the same period, national payroll per worker increased by 25 percent (for no real gain) to $42,000.

You might have thought that robust increases in earnings in the economic heart of the city would have pulled in plenty of people.

Moreover, the high prices that persist in New York City suggest that the demand for city living isn’t falling. Case-Shiller data, which captures the metropolitan area rather than the city, shows that the New York area’s prices have risen by 67 percent since 2000 (32 percent in real terms), more than any metropolitan area in the sample except Los Angeles.

We don’t have comparably reliable figures for the city itself, but most data seems to show increases over the decade, as well.

In national perspective, New York’s limited growth is also somewhat surprising. A new policy brief of mine shows that people are moving disproportionately back to areas close to our old ports and to areas that had high wages as of 2000.

But the combination of economic strength and high prices need not lead to population growth if an area doesn’t build many more units. In that case, high housing demand leads only to higher prices — not more people.

The Bloomberg administration has long pushed for more building permits, and there were years during the middle of the last decade when the city was permitting construction of more than 30,000 units annually.

I had thought that all that building activity would lead to a significant increase in the housing stock of the city, but the city ended up adding only 170,000 units over the decade, a 5.3 percent increase.

Typically, population increases by a few percentage points less than the housing stock increases because of shrinking household size, so perhaps we shouldn’t be shocked that New York City’s population grew by only 2.1 percent.

For example, Boston’s population growth of 4.8 percent, the first time the city had grown more quickly than the state since the 1870s, was made possible by an 8.2 percent increase in the housing stock.

The growth of New York’s housing stock in the 2000s was not greatly lower than in the 1990s, when the city added about 200,000 housing units. But during that decade, the population increased far more quickly, in large part because of increased crowding in the outer boroughs.

During the 1990s, New York City’s population increased by 690,000, while Manhattan’s population rose by 50,000. The population of Queens increased by more than 10 percent during that decade, 280,000 people, although the number of occupied housing units increased only by 60,000.

The current 2010 Census doesn’t show a similar surge in the population of the boroughs outside Manhattan, and New York’s growth during the 2000s seems to have been more closely in line with what we should expect from the growth in the amount of housing.

Moreover, the city’s measured vacancy rate increased to 7.8 percent in 2010 from 5.6 percent in 2000, which means 80,000 fewer units being occupied. Increased vacancies meant that the number of occupied units grew less than 90,000, or under 3 percent, which makes 2.1 percent population growth completely understandable.

But this vacancy rate is far higher than the 2.7 percent vacancy rate reported by the 2008 New York Housing and Vacancy Survey, which is one reason why it will surely be part of the dispute between the city and the Census. One question is whether the Census takers made sure that seemingly empty units were actually empty.

One hypothesis is that the immigration-led growth of the 1990s was much slower during the 2000s. The other hypothesis is that the Census managed to miss large numbers of immigrants in the outer boroughs. If there is a recount, we may see which hypothesis is correct.

In either case, the Census count of the number of total housing units is likely to be correct, and that count shows relatively modest growth. Those boom years during the middle 2000s did not expand the city’s housing enough to make the city much more affordable and inclusive, especially in its most attractive neighborhoods.

The Bloomberg administration has worked hard to allow more building, but the recent Census numbers seem to suggest that a combination of slow growth and continuing high prices implies that New York’s barriers to building, such as a complex zoning code and ever more Historic Preservation Districts, are still shutting out families that would like to move to the city.

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Economix: Renewing Support for Renewables

March 28, 2011 by Leave a Comment

Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

The biggest positive result of the accident at Fukushima Daiichi could be renewed public support for the development of renewable energy technologies.

Many influential policy makers, including President Obama, continue to insist that we must expand nuclear power to help meet our energy needs. But plenty of experts disagree.

As the chart below illustrates, renewable energy sources (including hydropower and biofuels) already account for almost the same share of total energy consumption in the United States as nuclear power.

United States Energy Information Administration, “Annual Energy Review 2009,” Table 1.3, “Primary Energy Consumption by Source, 1949-2009.

More important is the rate of change in the cost and utilization of these technologies, particularly those that rely on wind, water or solar power and will not contribute to global warming.

The cost per kilowatt hour of generating electricity from wind and solar power has declined steadily in recent years and is projected to decline further. Energy Secretary Steven Chu predicted that they would be no more expensive than oil and gas by the end of the decade.

The cost of nuclear power, by contrast, has increased, even without factoring in the huge social costs imposed by accidents. These costs include the disruptive effects of major evacuations such as those under way in the vicinity of Fukushima Daiichi, as well as ominous — and difficult to measure — health risks.

In “Nuclear Power: Climate Fix or Folly,” Amory Lovins, a physicist with the Rocky Mountain Institute, and two colleagues argued that expanded nuclear power does not represent a cost-effective solution to global warming and that investors would shun it were it not for generous government subsidies lubricated by intensive lobbying efforts.

In The Wall Street Journal, Prof. Benjamin K. Sovacool of the National University of Singapore recently argued, in “The Business Case Against Nuclear Power,” that subsidies for nuclear power during its first 15 years of use in civilian power generation far exceeded those provided to solar power and wind power in their initial years.

The private sector is clearly moving rapidly in the renewable direction. Clean Edge, a research and advisory group, asserts that the clean energy market grew 35 percent in 2010, and global installation of photovoltaics doubled.

Still, the big question remains. Can wind, water and solar power be scaled up in cost-effective ways to meet our energy demands, freeing us from dependence on both fossil fuels and nuclear power?

Yes, they can, say two highly respected scientists, Mark Z. Jacobson of Stanford University and Mark A. Delucchi of the University of California, Davis. In 2009 they published “A Plan to Power 100 Percent of the Planet With Renewables” in Scientific American.

The article persuasively addresses a number of concerns, such as the worldwide spatial footprint of wind turbines, the availability of scarce materials needed for manufacture of new systems, the ability to produce reliable energy on demand and the average cost per kilowatt hour.

A more detailed and updated technical analysis can be found in a two-part article (see Part I and Part II, recently published in the journal Energy Policy.

As Paul Krugman pointed out in his New York Times blog, projections of energy cost and supply are always hypothetical, based on assumptions that may or may not be borne out. This objection applies to all energy supply and demand projections.

The proven dangers of nuclear power amplify the economic risks of expanding reliance on it. Indeed, the stronger regulation and improved safety features for nuclear reactors called for in the wake of the Japanese disaster will almost certainly require costly provisions that may price it out of the market.

The role of the market, however, is small relative to political battles over relative levels of subsidy to fossil fuels, nuclear power and renewable energy. While both the fossil fuel and nuclear power industries are dominated by large companies with considerable political clout, renewable energy is a more decentralized, small-business-oriented sector that often finds itself outmaneuvered on Capitol Hill.

As Professors Jacobson and Delucchi put it, “The barriers to a 100 percent conversion to wind, water and solar power worldwide are primarily social and political, not technological or even economic.”

Research like theirs will help energize new efforts to overcome those barriers.

Article source: http://feeds.nytimes.com/click.phdo?i=c2ec0b90ce316320f0aaa30ea1b4bc9c

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