Don’t worry mom I haven’t been fired (yet)!
We are just making a few changes to our blog which is the last element of Keystone Research Center web infrastructure to be modernized by our super cool Philadelphia based web developer Zivtech. In addition to the Zivtech tune up, we will have more frequent posts from the full complement of wonks at the Keystone Research Center as well as the Pennsylvania Budget and Policy Center. And thus we have decided on a new name Third and State: A progressive take on public policy in Pennsylvania. The Pennsylvania Policy Blog will remain here as an archive but starting February 1st all new content will be at the www.thirdandstate.org so update your favorites and tell your friends.
The party has moved to www.thirdandstate.org!
P.S. Be patient I’m told that internet can be slow to register new websites so there is a chance that www.thirdandstate.org may not be up by the time you read this.
You really only ever need one. Steve Horwitz a professor of economics at St. Lawrence University managed to get an op-ed published in the Philadelphia Inquirer on Wednesday where he repeats the following statistic:
“According to U.S. Treasury data, a whopping 86 percent of households in the bottom fifth in 1979 had climbed out of poverty by 1988.”
In June the Treasury’s Office of Tax Analysis, under the direction of Glen Hubbard, an economist on leave from Columbia, released a report claiming that there is actually huge upward mobility in the U.S. In particular, it claimed that 86 percent of individuals who started in the bottom quintile in 1979 had moved out by 1988, and indeed that an individual who started in the bottom quintile was more likely to end up in the top quintile than to stay where he was.
But this report was based on what we may charitably call a strange procedure. Here’s what Hubbard’s report did: it tracked a group of individuals who paid income taxes in all ten years from 1979 to 1988, and compared their incomes not with each other but with those of the population at large. The restriction to individuals who paid taxes in all years immediately introduced a strong bias toward including only the economically successful; only about half of families paid income taxes in all ten years. This bias toward the successful was apparent in the fact that by the end of the sample period the group contained very few poor people and a lot of affluent ones: indeed, only 7 percent of the sample were in the bottom quintile by the sample’s end, while 28 percent were in the top quintile. More important, by comparing the sample with the population at large rather than with each other, the report essentially treated the normal tendency of earnings to rise with age as representing social mobility. The median age of those whom the study classified as being in the bottom quintile in 1979 was only twenty-two.
Kevin Murphy, a labor economist at the University of Chicago, neatly summed up what the Treasury study had found: “This isn’t your classic income mobility. This is the guy who works in the college bookstore and has a real job by his early thirties.”
In his op-ed Horwitz is trying to claim that work by the Economic Policy Institute is flawed because it fails to examine how the income of individual households changes over time (intragenertional mobility). It is no surprise that a guy who quotes an old and bogus study also hasn’t actually ever read the State of Working America. The 2008/2009 edition has a careful review of the literature on income mobility. The following appears on Page 100 under the heading Switching places..or not: Intragenerational mobility:
“A central question of mobility research is: How far do families move up or down across the income scale over their life span. Of those families who start out at the bottom, middle or top of the income scale, what sahre is still there years later?… Table 2.1 [see above] presents this type of analysis for two 10-year periods: 1984-94 and 1994-2004 (two-year averages are used to control for transitory income fluctuations). The number at the top of the left column (“Lowest”) shows that 55.6% of persons who were in the bottom fifth in 1984 were still there 10 years later. Only 3.3% (the top number in the right column labeled “Highest”) made the long upward trek from the bottom to the top fifth over these years. Summing the first two cells in the first row, (55.6% plus 24.1%) about 80% of the sample started in the bottom fifth in 1984 and ended in the bottom 40% 10 years later. The percent of “stayers” (those who did not move out of the fifth they started out in) are on the diagonal, shown in bold.
Most persons end up close to where they started. In the latter period, for example, of those that started in the fourth fifth in 1994, more than 80% ended up in that same quintile or one quintile higher or lower 10 years later. In both periods, about half stay in the highest fifth.
In fact, and this an important finding from this work, the rate of mobility was remarkably constant over these two time periods. Comparing the fifths between the two panels, a statistically significant difference occurs in only one case: the share that jumped from the bottom fifth to the top fifth was smaller in the second period compared to the first (i.e. 3.3% dow to 0.9%). Comparing overall mobility-the share of persons who made a quintile transition over the decade-is particularly revealing of how static the rate of mobility was between these two periods. In the first period, this share is 60.0%; in the latter period, it is 59.6%.
These data solidly belie any claim that increased mobility has offset rising inequality. Income classes are further apart now than in the past, and families are no more likely to traverse that greater distance.“
The rest of Horwitz’s op-ed attempts to explain that inequality is not a problem because being poor, working or middle class means having a living standard that only kings enjoyed a mere hundred years ago. Once again the Economic Policy Institute:
“Absolute gains in real family income of the type discussed above…matter too, since higher real incomes enable famillies to raise their living standards. But inequality researchers have found that relative positions mean a lot to people. Our well-being, along with our sense of accomplishment, is not simply a matter of what we can afford to buy given our income levels. It is also a matter of how we are faring relative to others from our same generation. Research shows that if they pass us by–if we are downwardly mobile relative to others in our cohort–we expereince economic stress, even if our buying power is up.”
P.S. What is an Austrian economist? They are the intellectual core of the Tea Party movement. Sorry that was mean (but truthful). This link should give you an idea.
Capitolwire reports (paywall)
“House Majority Leader Mike Turzai, R-Allegheny, said there are ways to reform unemployment compensation… Turzai said: “Without a doubt, we have to look at enrollment. … We have to look at what the array of benefits are and how they compare to competing jurisdictions.” He also said he favored a “strong work-search requirement” for unemployment, echoing one of the major points made by Corbett and business organizations.”
Hundreds of thousands of working and middle class Pennsylvanian’s lost a job in the last three years for reasons beyond their control. The chart below shows that Pennsylvania workers that had to use their unemployment insurance in 2009 worked most of the time from 2001 to 2007. This clearly demonstrates that most working and middle class Pennsylvanian’s prefer work to being idle.
An excellent marker of extremism on an issue are reform proposals based on ideology rather than facts on the ground. The work-search requirement referenced in the Capitolwire story was dumped years ago at the insistence of employers because it was too costly to report to the state when a job applicant had inquired about an opening. It is very odd that Harrisburg’s business lobbyists are now seeking to re-impose this costly regulation on the Commonwealth’s employers. Of course maybe they are responding to data that illustrates clearly that the time people in Pennsylvania spend unemployed far exceeds that of other states?
The next figure plots the median duration of unemployment measured in weeks in 2009 against the unemployment rate in 2009 for all 50 states. What you see here is a very strong correlation between the duration of unemployment and the level of unemployment. The more people that are out of work in a state the longer it takes to find a job and thus the longer the period that people remain unemployed. This is why I stress time and time again that the chief challenge in the economy right now is the scarcity of job openings relative to job seekers. Concerns over whether unemployment insurance is a disincentive to find work are just not relevant when their are 4 people competing for each job opening.
Instead of focusing on these facts, far too many conservative politicians are instead attempting to demonize unemployed working and middle class people who through no fault of their own have been laid off. These people want work first because the vast majority of them value work and second because unemployment insurance replaces barely half of their lost income. Anyone claiming that most workers can live comfortably after taking nearly a 50% pay cut probably doesn’t manage their own family finances or earned their money they old fashioned way by inheriting it.
And what about before the recession began, was their a problem of too many Pennsylvania workers remaining unemployed for too long? No! As the next figure illustrates even in good times Pennsylvania does not have a problem with too many people remaining unemployed for long periods of time.
Pennsylvania’s unemployment insurance system preformed pretty well over the last two decades but the Great Recession was just too much for the system to handle and thus we have run short of revenue. Sharon Dietrich of Community Legal Services has (PDF) a reasonable set of reforms to help strengthen the program. Below is her discussion of what to do about the revenue base:
In early 2009, the UC Trust Fund ran out of money, because of high benefit costs as a result of the recession and inadequate revenue. UC benefit costs increased from $2.8 billion in 2008 to a record high $4.8 billion in 2009, a 71% increase. Revenues were not up to this extraordinary demand, especially because the taxable wage base that is the bread and butter of UC financing has not increased from $8,000 since 1984.
Consequently, the state has borrowed more than $3 billion from the federal government to date to continue payment of benefits to the unemployed. Having to borrow money from the federal government to pay UC benefits has consequences. Most notably, beginning in 2011, Pennsylvania employers will have to pay interest on the federal loan, which is anticipated to total $446 million between 2010 and 2012. In addition, they will begin to lose increasing amounts of their FUTA tax credit every year that the federal loan remains unpaid. Finally, employers and employees are paying additional taxes, and unemployment benefits are being reduced, as a result of the triggering of solvency measures in place in the UC Law.
Pennsylvania will have to grapple with determining the solution to the broken financing system for the UC program. The possibilities appear to be tax increases and benefit cuts. Enormous benefit cuts would be needed even to stop federal borrowing, much less to repay the $3 billion debt. UC benefits already replace only 50% of wages at most, so a significant benefit cut would reduce them to a small percentage of lost income – not nearly enough for unemployed families to keep their heads above water.
Moreover, federal extended UC benefits are based on state payments. With the recent announcement of a deal to extend the federal program for an additional 13 months, if Pennsylvania were to cut state benefits, our long-term unemployed would experience a comparable loss of extended benefits paid entirely by the federal government during those 13 months.
Instead, the taxable wage base – the amount of wages on which UC taxes are paid – must be significantly increased. It has not increased from its current level of $8,000 in 26 years. If it had kept pace with statewide wage increases, it would currently be $20,000. Pennsylvania’s $8,000 taxable wage base compares poorly to the other states around the country, where the national average is $12,214. 39 states have a higher taxable wage base, including 14 states that have taxable wage bases over $20,000 (the highest taxable wage base being $36,800, in Washington State). Pennsylvania must come into the mainstream on the level of its taxable wage base to resolve its solvency problems.
Jay Ostrich’s op-ed on the shooting in Tucson is a sad commentary on the state of personal responsibility in the commonwealth. The grim facts are these: a mentally ill young man committed a heinous act of political violence that lead to the death and severe injury of innocent people. An important lesson of this tragedy is that we all have a personal responsibility to not promote violence when engaging the public about our political views. This is a lesson that Ostrich’s own Commonwealth Foundation recently learned when it canceled a fundraiser where donors were to fire rounds into a General Motors car decorated with the signs like “Obamacare”. Such a fundraiser is not illegal nor should it be but it was in bad taste even before the shooting in Tucson. Inexplicably Ostrich misses this lesson and instead attempts to make the tragedy in Tucson about the legitimacy of his political goals. Even in the wake of the tragedy in Tucson no one questions Ostrich’s right to express his views. But we all bear a personal responsibility to not use our freedom to incite and encourage violence. In a healthy society we settle our disagreements at the ballot box and in the courts not with bullets. This Monday we celebrate the memory of Dr. Martin Luther King Jr who in the face of violence and real oppression advocated for non-violent resistance as a means of advancing the cause of freedom. We all bear a weighty responsibility to live up to King’s example.
Jon Geeting of the Lehigh Valley Independent has an atrocious post up on public servants:
“Throughout American history, civil service has been viewed as a low-prestige occupation and Americans have typically viewed the idea of a well-paid professionalized public sector with populist suspicion. That is why we do not have one.”
Ok. Since the end of the Civil War legislation aimed at improving the conditions of work such as limitations on hours of work were first applied to the federal workforce. So there is in fact a long tradition in this country of people expecting the public sector (federal, state and local) to set a good example in the manner in which it conducts its business both in its employment practices and its contracting. From the eight hour working day to equal employment opportunity for women and minorities to the living wage the people generally expect their taxpayer dollars to be used in a humane manner. How do you square these facts with Jon’s armchair interpretation of history? You don’t.
And now onto that last sentence claiming that we don’t have a professionalized public sector. That is a whopper which is impossible to defend. How do you define and systematically measure professionalism? I suspect Jon’s primary evidence is anecdotal. He had a bad experience once. I have had literally hundreds of interactions with federal, state and local public workers and never once would I characterize any of those people as unprofessional. I have attended presentations at academic conferences where the research presented was as good as anything produced in Academia. I have collaborated with public sector workers on research projects and found them to be no different than those in the private sector I have worked with. But my experiences are like Jon’s anecdotal. Does Jon have an international comparison at hand or really any systematic evidence? He doesn’t. He is the blogging equivalent of the angry man writing to the local paper complaining about all those other peoples kids he has to pay for in the public school.
In my experience when people make sweeping claims about any issue they tend to suffer from what I would consider a lack of professionalism – a marked tendency to be unaware of the limits of their own knowledge. Unfortunately Jon is just getting started:
“In the private sector, the market determines pay; in the public sector, politics does.”
Ok. The public sector draws on the same labor market that the private sector does when it competes for workers. Pay too little and you have too few applicants and or too much costly turnover. Pay more and you get more applicants and less turnover. It is true to a point that politics shapes the overall size of the public sector as well as whether compensation keeps pace with inflation. But Jon’s claim that the market is present in one instance and not in the other is just wrong.
Jon goes on to claim that the public sector lacks a human resource function like that in the private sector. I imagine you can find some smaller local governments where this is true but in general it is not. To give just one example. The State of Pennsylvania introduced a new occupation title – Economist. The Civil Service Commission interviewed the departments asking for the new occupation, determined the qualifications and starting salary, developed a four hour written test to screen the applicants, posted the job opening, administered and graded the test and sent the scores for the applicants to the agency where final job interviews were conducted. This is a hiring process that is substantially more rigorous than the process that colleges use to hire new faculty and substantially more rigorous than typical of most private sector firms. So here again Jon’s opinion far outpaces his actual grasp of the facts. But it does in fact get worse :
“On the other hand, the difficulty of firing unproductive workers or rewarding exceptional talent in the public sector should be deeply disturbing to anyone who wants to see more and better public services. There’s nothing progressive about keeping in place workers who perform badly. “
Painful reading. Broadly speaking we have two employment regimes in the United States. Employment at will where with some important exceptions for protected classes of workers (the handicapped, women and minorities) employers are free to fire workers for pretty much any reason under the sun. You ugly, you fired! The other regime is where there is a union and thus where dismissal is regulated by a contract signed by the union and the employer. In general such contracts require employers to have a mutually agreed upon reason for firing a worker. So if a manager thinks you are ugly and wants to fire you they can only do so if they have already negotiated with the union that workers who are ugly and can be demonstrated to be ugly can be fired. The U.S. Chamber of Congress would like you to believe that this means you can’t fire unproductive workers which is in fact completely false. A contract only prevents the dismissal of workers for arbitrary and unsubstantiated reasons.
And in the public sector like in the private sectors workers are in fact terminated for cause. Jon’s claim is extreme and all the more embarrassing that he feels qualified to lecture his audience on what is progressive. To know what is and isn’t progressive you must first fully grasp the limits of your own knowledge and experience.