The Upjohn Institute Blog
Long-Term Budget Outlook for State and Local Government Is Grim
George Erickcek
State and local governments played a stabilizing role for the national economy during the last recession and through the following moderate recovery. Due in large part to federal revenue sharing and the American Recovery and Reinvestment Act of 2009 (ARRA), state and local government employment levels held fairly stable during the recession, even as private employment dropped dramatically. Still, the nation’s state and local governments lost 450,000 jobs from January 2007 through March 2012, a decline of 2.3 percent. In comparison, private employment fell by 4.1 percent.
In the long-term future, however, state and local governments could become a constant drag on the national economy. According to the nonpartisan Government Accountability Office (GAO), the fiscal conditions of the nation’s state and local governments will deteriorate through 2060, requiring these governments to either raise taxes or reduce expenditures and employment—or both. Either measure would slow economic activity within their boundaries. The primary reason for this forecast budget imbalance is the anticipated rising cost of health care compensation for these governmental units’ current employees and retirees. To fix the expected annual hole in the state and local governments’ budgets would require either a 12.7 percent reduction in expenditures each year or a similar annual increase in governmental revenues, or some combination of both, according to the GAO.
Regarding the impact of the Patient Protection and Affordable Care Act (commonly known as the Affordable Care Act, or the ACA), the GAO believes that it will affect governmental units differently depending on whether their current Medicaid eligibility requirements provide the level of coverage stipulated by the ACA.
Since it is likely that many states may find it necessary to cut education expenditures to fill this potential gap, a trade-off between eds and meds may be an ongoing debate in many capitols across the nation.
George Erickcek can be reached at Erickcek@upjohn.org.
Tagged In: Recession and Recovery
How Are Younger Workers Faring over Time?
Brad R. Watts
When it comes to younger workers, I typically hear two different stories: one suggests that young workers face a grim future of limited jobs and perspectives, while another suggests that younger workers—particularly those with in-demand technical skills—hold the key to our future economic success and are in high demand. It is likely that, on an individual level, both of the statements contain truth in at least some cases. However, it also brings up the simple question of how younger generations of workers are faring, relative to workers in past generations.
To address the question, I tabulated average wage and salary earnings for young workers relative to older workers for points over a four-decade period. As shown in the chart below, relative to earnings of older workers, the average earnings of all young adults aged 25 to 34 have consistently declined over the past four decades; in 1980 the average worker aged 25 to 34 earned 93.2 percent of the average earnings of older workers, versus only 76.2 percent in 2010.
Source: Author’s analysis of census microdata from Ruggels et al., Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010.
When the data are examined by education level, the numbers tell a different story for younger workers, however, as shown in the next table. Although workers aged 25 to 34 with a four-year degree or higher level of education earn a lower wage relative to older workers with the same level of education, the pattern over time for these workers has been quite different than it has been for less-educated workers. Over time, the relative average wage for young college-educated workers has increased slightly, from 67.4 percent in 1980 to 69.2 percent in 2010—although the most recent number is down slightly from higher readings in 1990 and 2000. While the relative earnings of younger workers without a bachelor’s degree or higher level of education has been trending downward, younger educated workers have been able to hold their own.
Source: Author’s analysis of census microdata from Ruggels et al., Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010.
It comes as no great surprise that younger workers earn less, on average, than older workers; it is well-known that experience is a trait highly valued by employers. More concerning is the downward trend over time, which does suggest, at least for those who do not obtain a four-year college degree, that the economic marketplace has become a more difficult place for young people today than it was during earlier times. While the low relative average wage that younger college-degree holders face suggests that the career ladder is long, the fact that the trend in relative earnings has been slightly positive over time indicates that the returns to education remain high, even as more young people attend college and obtain degrees.
Brad Watts can be reached at Watts@upjohn.org.
Tagged In: Education and Training, Employment and Compensation
Major Revisions to State Unemployment Rates
Brian Pittelko
The Bureau of Labor Statistics (BLS) recently revised unemployment rates from 2007 to the present. Most changes were relatively modest, between one- and two-tenths of a point. However, some states received massive updates in one direction or the other, with rates being lowered by as much as 1.3 points and raised by as much as 1.6 points.
The unemployment rate in eight states—Alabama, Delaware, Georgia, Idaho, Nevada, New Mexico, Utah, and West Virginia—was adjusted downward by at least one percentage point. Most of the major revisions occurred in 2010 and 2011, though Nevada and Utah both had the biggest revisions in 2008 and 2009 (see chart below). Not all the revisions were downward, however. Three states—Iowa, Nevada, and Utah—had revisions that raised their unemployment rates by at least one point. New Mexico and North Dakota had their rates raised by 0.9 points.
Several states had large revisions in both directions. Nevada’s unemployment rate was lowered from its peak but then extended in its duration, creating a plateau of high unemployment rather than a large peak and sharp decline. New Mexico also received a flatter trend, with downward revisions in 2009 and 2010 followed by upward revisions in 2011. Iowa and Utah, and to a smaller degree Montana and South Dakota, had revisions that caused a major spike in unemployment from late 2008 into January 2009. The most extreme of these was Utah. In November 2008 that state’s unemployment rate was lowered by 1.3 points; the next month it was raised by 1.5 points. The new unemployment rate now is charted as having gone from 3.5 in November to 6.8 in December, rather than from 4.8 to 5.3 in the same period. Nevada and Utah are the most extreme examples of revisions and are shown in the following figure, where major revision areas are noted.
The BLS gave no explanation for these revisions. Revisions to unemployment data are common, but the magnitude of this year’s revision is not. In previous years, revised unemployment rates usually moved only a few tenths of a point and very rarely more than a full point. Unemployment data are revised partially based on Census population estimates for the labor force. New data from Census 2010 may have made a difference, as labor force estimates from 2009 were based on growth projections from Census 2000. However, I cannot be certain, as there are many other factors that influence the new unemployment estimates.
Brian Pittelko can be reached at Pittelko@upjohn.org
Tagged In: Unemployment, Disability and Poverty
Who Is Unemployed versus Who Gets UI
Brad R. Watts
Perhaps one of the most common misconceptions about unemployment is in regards to the relationship between being “unemployed” and collecting unemployment insurance (UI) benefits. Many people seem to think that all unemployed persons receive UI or that the unemployment rate is calculated based on benefit recipients. Neither of these things is true. The unemployed include all persons who are seeking a job; however, in order to be eligible to receive UI an individual must meet state requirements, which typically limit eligibility to only those workers who have been laid off from a qualifying job. Workers that quit, are terminated by an employer for cause (such as theft), or are entering the workforce are not eligible.
The reality is that most of the unemployed receive no UI benefits. As the chart below illustrates, the share of the unemployed that are also UI benefit claimants has varied over time, but currently represents less than one-third of all unemployed individuals. During the 2007–2009 recession, UI claimants began to make up a larger share of the unemployed as mass layoffs swept through the workforce. However, since then the UI claimants’ share has fallen as the long-term unemployed (who have exhausted benefits) and new labor force entrants have accounted for a larger portion of the total unemployed.
SOURCE: U.S. Department of Labor, UI program statistics; Bureau of Labor Statistics, labor force statistics from the Current Population Survey. Data are from February of each year.
The requirements of UI also mean there can be large differences in terms of the ages of recipients. As shown in the next chart, older workers represent a larger share of UI recipients than their share of overall employment. Conversely, younger workers, who are more likely to be entering the workforce for the first time, represent over one-fourth of the unemployed but less than one-tenth of all UI recipients.
SOURCE: U.S. Department of Labor, UI program statistics; Bureau of Labor Statistics, labor force statistics from the Current Population Survey. Data are from February 2012.
Brad Watts can be reached at Watts@upjohn.org
Tagged In: Unemployment, Disability and Poverty
More on the 2020 Occupational Outlook
George Erickcek
In a previous blog, I reported that forecasters at the Bureau of Labor Statistics (BLS) see little change in the demand for skilled workers during the next 10 years. Just as today, they predict that 26 percent of the jobs in 2020 will be filled by high school dropouts and more than 40 percent will require no more than a high school diploma. These projections run counter both to other recent studies and to the view of most workforce specialists.
One study that has gained broad attention was released by the Center on Education and the Workforce at Georgetown University in June of 2010. In their report, Help Wanted: Projections of Jobs and Education Requirements through 2018, Anthony P. Carnevale, Nicole Smith, and Jeff Strohl predict that 63 percent of the jobs in 2018 will require postsecondary training completion. This is in sharp contrast to the 32 percent predicted in 2020 by the BLS. Thus, the three researchers claim that the nation will be facing a severe labor shortage of college-educated workers in the future.
Carnevale, Smith, and Strohl argue that the BLS has historically underestimated employers’ demand for workers with postsecondary training and will continue to do so for two reasons:
- The BLS’s forecast holds the education level within occupations constant, which does not reflect the dynamic changes that will occur as businesses demand greater skills for workers in nearly all occupations.
- The BLS determines the educational demand for each occupation by examining recent evidence on the level of education or training required for these occupations, and not by the educational attainment of the current job holders.
Not so fast, say Northeastern University economists Paul E. Harrington and Andrew M. Sum in College Labor Shortages in 2018?, a November 2010 article in the New England Journal of Higher Education. They argue that it is the Georgetown researchers who got it wrong, because they did not consider the fact that many college graduates could be woefully underemployed, working at jobs that do not require their level of training. The Georgetown study, they claim, mistakenly uses the number of college graduates in each occupation as an indicator of skill demand, when for lower-skilled occupations it should be seen as a sign of underemployment. So, in the example used in their report, Harrington and Sum argue that BLS analysts would not include bartenders as an occupation requiring a bachelor’s degree because the skills and training required for the position do not require a BA; however, the Georgetown researchers would because there are a substantial number of bachelor-degreed bartenders.
In an argument this interesting—and, I would say, important—others have quickly weighed in. David Neumark, Hans Johnson, and Marisol Cuellar Mejia, in their August 2011 article “Future Skill Shortages in the U.S. Economy? Sorting Out the Evidence,” suggest that the congestion in the labor market will clear. They believe that the demand for highly educated workers will rise at a rate that is greater than the BLS projects; however, they also see that this increase in demand will be adequately met by the rising education level of future and current workers.
George Erickcek can be reached at Erickcek@upjohn.org.
Tagged In: Education and Training, Employment and Compensation