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Posts from the ‘AIER Research’ Category

AIER Issue Brief: H-1B Visas Have no Impact on Average Wages

How H-1B visa holders impact American wages is hotly debated. Many argue that H-1B workers, the foreign-born, highly skilled, temporary workers that companies can hire for three to six years, drive down American wages. Others argue that H-1B workers actually help increase wages for Americans.

But what if H-1B visa status has less impact on wages than we think?

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Marketplace of Ideas


Money Talks Illustration by Oliver Munday, The New Yorker

GDP grew more than expected last quarter, jobless claims remain low, and one survey-based index says manufacturing activity hit a three-year high in July. Here are a few other stories from the week’s economic news:

  • The verdict on the July jobs report is that it was a “mild disappointment.” Non-farm payroll employment rose by 209,000 last month, below gains of 298,000 in June and 229,000 in May. Since the start of the year, the labor force has grown by an average of 126,000 people per month. Over the same period, job gains have averaged 230,000 per month. If sustained, that difference is enough to keep the unemployment rate falling by more than 0.1 point per month. The unemployment rate did nudge up a bit in July, to 6.2 percent from 6.1 percent, but that follows an outsized 0.6-point drop between March to June. While unemployment is down from a peak of 10.0 percent during the recession, Justin Wolfers, writing for the Upshot, says it is still way too high. Wolfers observes that if you were to line up all the unemployed people in the country, they would stretch from New York to San Francisco. That is a striking visual, but what does it mean for the economy? Following the recession, unemployment peaked at 15 million people. That number is down to 9.7 million now, but it is still higher than the low of 6.8 million prior to the recession. AIER’s Business-Cycle Conditions analysis suggests the economy will strengthen in the second half of the year, which should keep the employment picture improving.

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Spending Less Early in Retirement: Sequence Risk and the Order of Returns

“Early retirement behavior matters most. The first 5-10 years of retirement have an outsized impact on long-term success. Spending less during these years provides a better likelihood of positive outcomes over the retirement horizon.”

From Savings to Income (AIER 2014)

Everyone knows that returns matter, but when you experience those positive and negative returns matters greatly. In other words, the sequence of returns matters.

Let’s say you retire just before a 10-year period of market decline that is followed by a 10-year rise in market value. You might consider the average market return to be fine, but this sequence of returns would actually be quite detrimental to your lifetime retirement income.

On the other hand, let’s say you retire just before a 10-year period of increases in stock market value that is followed by 10 years of falling returns. The average return is the same as the first situation, but because of the different sequence, you’ll be in a much more favorable position.

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The Fallacy of Target Retirement Accumulations

Like many Americans, my 35-year old brother has yet to save anything substantial for retirement. After years of brotherly pestering, I’ve finally convinced him it’s time to start. I figure that with 30 years until age 65, he still has time to accumulate a decent nest egg. As a starting point, we looked at an online retirement calculator. According to the calculator, if he saves $2,000 per year, he could hypothetically have about $200,000 by age 65. The calculation included a chart with a pleasing upward trend, as seen below:

Retirement Calculator

This steady rise in savings is based on historical average returns. What happens, however, if markets lag? Read more

Pretty Brilliant: Women in the Technology Industry

Women in the Tech IndustryVerizon’s recent commercial calls on parents to inspire girls’ minds, encouraging girls to study typically male-dominated fields such as science and technology. The ad finishes, “Isn’t it time we tell her she’s pretty brilliant too?” Well, new data from three tech giants show the time for telling girls they’re brilliant might be coming sooner than later.

Recently, Google, Yahoo, and LinkedIn released data on the gender makeup of their firms. As Kimberly Weisul of Inc. Magazine explained, none of the three are particularly diverse. Women are in the minority of each company’s workforce, and they are in the very small minority of each company’s leadership. However, AIER data suggest that these three companies’ share of female employees is actually higher than the national average.

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Ask a Researcher: Pay Student Loan Debt or Save for Retirement?

College grads often wonder whether to pay down student debt first or to save for retirement. Financially savvy folks recognize the need to save for retirement sooner than later, but they also know the detriment of carrying a large debt burden.

To answer this quantitatively, you must compare your expected rate of return on retirement savings and your student loan interest rate. If you expect to make 8% a year on your retirement portfolio but your student loan interest rate is only 5%, it would be advantageous to maximize your retirement savings and pay the minimum on your student loan debt.

Consider a $10,000 student loan at 5% interest, with a minimum monthly payment of $106.07. We’ll assume you have $300 per month to put towards paying down that loan or investing in a retirement account with an 8% annual return.

If you make the minimum payment on your student loan debt and save the remaining $193.93 for retirement, at the end of 10 years your student loan will be paid off and you will have $35,480 in your retirement account.

If you put all $300 per month toward your student loan debt, your loan will be paid in 3 years, leaving the full $300 to be put toward retirement for the next 7 years. At the end of 10 years, you will have $33,654 in your retirement account.

Even with this sizable difference between the interest rate and annual return, the final balance differs by only about 5%.

There are 3 big problems with this simple answer:

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Why Allowing H1B Spouses to Work May Only Increase the Tech Gender Divide

Ironically, allowing H1B spouses to work in the U.S. might only exacerbate the gender divide in the U.S. computer technology industry. The White House recently released a statement that proposed giving work visas to spouses of H1B visa recipients.

As it stands now, the H1B visa program, or the program that allows high-skilled temporary workers entrance to the U.S., does not provide a work visa for recipients’ spouses. Spouses currently can get a student visa, but unless they are on their own work visa, they legally cannot work.

We have heard that this will make the already highly demanded visa even more desirable, especially for computer technology workers. AIER’s latest Research Brief, H1B Jobs: Filling the Skill Gap, showed that computer technology requests make up the lion’s share (70%) of H1B petitions.

Marital Status

Source: AIER Analysis of Ruggles, Alexander, Genadek, Goeken, Schroeder, and Sobek. Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010.

What will this mean for H1B visa holders? AIER’s analysis from 2010-2012 Census data shows that in the computer technology industry, there are larger shares of H1B men that report being unmarried compared to U.S. citizen men: 74% of H1B men are unmarried, compared to only 6% of U.S. citizen men.

But many H1B females in computer technology are married. 76% of H1B females are married, compared to 58% of U.S. citizen females in that field.

Right now, H1B women have the highest rates of educational attainment in the U.S. computer technology industry (94% have a college degree or higher), but they make up the smallest share of H1B holders in the industry (22%).

It is safe to assume that allowing spouses of H1B visa holders to work will increase the numbers of married applicants. But since the majority of H1B women are already married, this policy might only further exacerbate the gender disparity among H1B visa holders as more men than women apply.


CPI’s History Is Not Just About Bureaucrats

Every month, the Bureau of Labor Statistics releases the Consumer Price Index to a wide range of commentary. Policymakers often debate whether the CPI accurately measures inflation. But you might be interested to know that the history of the CPI is not simply about bureaucrats sitting in an office on the Potomac. In fact, the CPI has its roots in important economic and political events of the late 19th and early 20th century.

The precursor to the CPI was an in-depth report on the 1890 McKinley Tariff, which raised import duties to an astronomical 50 percent. The tariff was meant to protect U.S. industries but in the end hurt consumers in the form of higher prices. Early work measuring price inflation ultimately led to the repeal of the McKinley Tariff to the benefit of the consumer.

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Medicaid Gap Leaves 6 Million Without Affordable Coverage

Free ClinicA significant piece of the Affordable Care Act (ACA) legislation is the Medicaid expansion, a provision that was originally meant to expand eligibility for the public program to include all people in the United States up to 133 percent of the Federal Poverty Level (FPL). This means that all individuals with annual incomes below $15,521 would be eligible for Medicaid, which is essentially free health coverage, minus nominal costs on out-of-pocket expenses.

Historically, Medicaid administration, including rules on eligibility requirements, was drastically different for each state. Therefore the expansion presented a major shift in policy and practice for many states. When the constitutionality of the law was taken to the Supreme Court, the court decided to allow states the decision to expand or opt out of the expansion, while the law itself was upheld. The result was a dead split; 25 states expanded Medicaid and 25 refused.

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Good but not Great: Our View of the March Employment Report

The March Employment Situation showed improvement in hiring and hours worked, reflecting a rebound from weather-distorted data in January and February. There were also upward revisions to the prior month’s jobs numbers, adding an additional 37,000 to payrolls. For the private sector, payrolls rose 192,000 in March, bringing the three-month average to 182,000, just slightly below the 12-month average of 189,000.

On the negative side, hourly wages fell 0.1 percent for the month, putting the year-over-year gains at just 2.2 percent. Faster wage gains are the key to improving consumer confidence and accelerating consumer spending. The aggregate payrolls index, which combines employment, hours, and wages, rose 1.0 percent in March and is up 4.0 percent for the quarter – in line with growth over the past few years. The rise in the payrolls index points to continued moderate growth in personal income, which in turn should support moderate gains in consumer spending.

In total, the report suggests that the first quarter ended with improving, though not great, momentum, and this positive momentum will likely carryover into second quarter GDP growth. These results are consistent with the results of AIER’s on-going business indicators analysis.

However, many of the gauges on the Yellen dashboard – particularly broader measures of unemployment and the number of marginally attached, discouraged, and involuntary part-time employees – remain weak. With the outlook for growth still considered to be below trend, and with inflation measures running below the Fed’s target, the Fed is unlikely to change the course of monetary policy based on this report.