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Posts from the ‘Income’ Category

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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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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.


What’s on Janet Yellen’s Dashboard?

The Federal Reserve’s Federal Open Market Committee (FOMC) this week changed its “forward guidance” on monetary policy, dropping its 6.5 percent unemployment rate “threshold” for considering an increase in the federal funds target rate. Previously, the Fed had said that it would keep its key interest rate target near zero “at least as long as” the unemployment rate remained above 6.5 percent, then “well past the time” it declined below 6.5 percent. The unemployment rate is currently 6.7 percent.

Explaining the move, Chair Janet Yellen said that as the economy comes closer to achieving full employment, the FOMC will have a more finely balanced decision about when and by how much to raise the target for short-term interest rates. So what will the Fed, and Ms. Yellen, be looking at to assess labor market conditions? In her press conference, Ms. Yellen listed a “dashboard” of indicators that she watches to gauge the progress the labor market has made in its recovery from the Great Recession. We have represented those indicators in a series of six charts, so you can get a sense of the trends and lingering troubles Ms. Yellen has her eye on.

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Mixed Signals on the Labor Market?

Labor MarketFor those who look to the labor market as a guide to the overall strength or weakness of the economy, the latest report from the Bureau of Labor Statistics is a confusing read.

Non-farm payroll employment rose by just 113,000 in January after an anemic 75,000 gain in December. For perspective, the average monthly gain in 2013 was 194,000. The weak December number was widely interpreted as a result of bad weather, but that does not seem to be the case in January: During the week the employment data were collected (including January 12), the weather across the country was not as severe compared to normal as it was in December. So many analysts were actually looking for a bounce back in payrolls for January, making up some of the ground lost in December.

Interpreting the latest results, the New York Times reports that “the labor market has been healing more slowly” compared to the overall economy, but that doesn’t seem to square with the speedy decline in the unemployment rate, now at 6.6%, compared to 10.0% at the peak.

Because the unemployment data measure those who are actively seeking a job, it is possible for the jobless rate to decline if people become discouraged and give up looking for work. This is signaled by a drop in the labor force participation rate. But the participation rate actually rose in January, according to the Bureau of Labor Statistics. The further drop in the unemployment rate therefore suggests an actual improvement in labor market conditions.

So which is it? Is the labor market improving, as signaled by the unemployment rate, or is it weakening, as suggested by the payrolls numbers? The two sets of data are derived from different sources—separate surveys of households and “establishments”—so one set of data could be off the mark. But it is also possible that both are right. Here’s why: The unemployment rate is a lagging indicator of economic activity—it tends to rise or fall only after weakening or strengthening occurs in the overall economy. But payrolls are a coincident indicator—changes tend to occur at the same time as shifts in the overall economy’s growth rate. So the recent improvement in the jobless rate suggests the economy strengthened in the recent past, while the weaker payrolls data could be telling us that the economy is starting to slow right now.

Are there any leading indicators of the labor market—data that could give us a heads-up on changes that are about to happen in the economy? The weekly data on initial claims for unemployment insurance benefits fill that role. They tend to be volatile and unreliable on a short-term basis, but we can smooth out that volatility by looking at averages over a few weeks at a time. The latest four-week moving average, at 333,000, is actually down from the 343,000 average for all of last year. This would support a more positive view of the labor market.

What’s the takeaway from all these different signals? We at AIER suggest that you step back from the daily data flow, which can be erratic and unreliable, and look for the underlying trends in economic activity. Our latest Business Cycle Conditions report, which does just that, shows the economy on track for continued improvement this year.

[Photo: Wikipedia/Brian Harrington Spier]

How Close Are You To Being in the 1 Percent?

gatsbylaneThe concept of “the 1 %,” that term used to define America’s top wage earners, has been well covered in the media in the abstract.  An interactive map from the New York Times gives that idea some context and allows users to see where their salaries put them on the percentage scale for a given area.

The map, which can be localized to a state and regional level, allows users to submit their salaries and then shows them what percentage that wage puts them in different parts of the country. For example, a waiter in New York state making $25,000 a year is in the bottom 26 percent of people who live there, while that same figure drops to 17 percent in Minneapolis and jumps to 40 percent in Flint, Michigan.

See what percentages you fall into (and how your salary might be viewed differently in different places) here. 

The Odds of Upward Mobility

Americans’ abilities to increase their incomes over time vary according to a number of factors. Your professional field, level of education, and family background all make a difference. According to a study reported in the New York Times this week, where you live matters too.

Lower-income people living in Southeastern and Midwestern cities like Atlanta, Cincinatti, Raleigh, and Indianapolis had markedly lower chances of moving into the middle class than their peers in cities like New York, Boston, Seattle, Salt Lake City, and Pittsburgh. Researchers believe that the cities with little chance for upward mobility tend to lack economic diversity. Low-income neighborhoods are far from middle-class neighborhoods, leaving people without much money with poorer schools and fewer job opportunities in their areas. Cities with less racial diversity also offer diminished opportunities for children from low-income backgrounds.

The complete study by authors Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez is here. To find out how your own city ranks, check out the Times’ interactive graphics.







The Working Families Flexibility Act: Who Really Benefits?

Rosie the Working Mom RiveterThis week, Congress is slated to vote on the Working Families Flexibility Act–a friendly-sounding bill that could change the way businesses compensate their employees for extra hours worked. The bill would give private employers the option of offering hourly workers comp time instead of overtime. Right now, federal law mandates that hourly employees receive time-and-a-half for every additional hour of labor beyond a 40-hour workweek.

Representative Martha Roby (R-Ala.), who backs the bill, says the new law will be a boon to families with too many responsibilities and too little time. “I understand the time demands on working families, including children’s activities, caring for aging parents or even a spouse’s military deployment,” she said in a statement to the Washington Post. “It only makes sense that our laws governing the workplace catch up to the realities of today’s families.”

But others say that it’s employers, not employees, who’ll win out if the bill passes. In the Huffington Post, economist Eileen Appelbaum argues that replacing overtime with comp time puts workers at a real disadvantage.

The flexibility in this comp time bill would have employees working unpaid overtime hours beyond the 40-hour workweek and accruing as many as 160 hours of compensatory time. A low-paid worker making $10 an hour who accrued that much comp time in lieu of overtime pay would effectively give his or her employer an interest-free loan of $1,600 — equal to a month’s pay. That’s a lot to ask of a worker making about $20,000 a year. Indeed, any worker who accrues 160 hours of comp time will in effect have loaned his or her employer a month’s pay. This same arithmetic provides employers with a powerful incentive to increase workers’ overtime hours. Instead of having to pay time-and-a-half wages when an hourly-paid employee works longer than the standard 40-hour work week, the employer incurs no financial cost at the time the extra hours are worked.

So who’s right? AIER economist Anca Cojoc says that the change could benefit employees–but mainly the ones who already earn a comfortable hourly wage. “It comes down to how much workers make per hour,” she says. “There’s a tradeoff between leisure and labor—which you value more.” Read more

The Best (and Worst) Jobs of 2013

What would H.L. Mencken, Ernie Pyle, and Nellie Bly all have in common if they were alive today? The worst job of 2013, for starters. This week, career website released its annual rankings of 200 common jobs, listing them from best to worst. Landing squarely at the bottom of the heap was the strange, endangered creature commonly known as the newspaper reporter. At the other end of the spectrum, actuaries had the number one job in the nation this year. (Kind of makes sense that people who are good at analyzing risk would pick one of the most secure professions out there, right?)

Drawing largely from Bureau of Labor Statistics data, CareerCast uses four criteria to determine the rankings: stress, work environment, income, and job outlook. This approach leaves out some elements that can play a big role in job satisfaction but are hard to quantify. Personal fulfillment and creative opportunities don’t get factored in, for example, nor does the sense of purpose that often comes with doing work that helps others.

Still, the list offers an interesting jumping-off point for college students trying to decide what to do with the rest of their lives, older people thinking about a career change, and those who are just always up for a chance to question their life choices. A few takeaways from the cream-of-the-crop jobs: If you’re working with technology, money, or people’s bodies, you’re likely to be in good shape. And a few lessons from the bottom: Jobs that involve a lot of manual labor are tough. So is being a writer or an actor–just like your mother always warned you.

To see the top 10 professions of 2013 (and the salaries that come with them), check out our slideshow below. How does your career stack up?

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Next Stop, Easy Street

Lili Furedi: Subway, 1934

New York City has long been home to people who are rich, poor, and everything in between. But in recent years, the city’s income gap has been increasing. A new infographic from The New Yorker illustrates the city’s income disparity by subway stop, using data from the U.S. Census Bureau.

The results offer a striking portrait of how widely wealth varies in the city–sometimes even in the space of a single subway stop. Between Fulton and Chambers on the A/C lines in Lower Manhattan, for example, median household income swings up by $142,265.

To put a personal spin on the data, I checked out my old stomping grounds in Brooklyn. A few years ago, I moved from Windsor Terrace to Prospect Park–two adjacent neighborhoods one subway stop away from one another on the F line. When I did, my rent jumped up by several hundred dollars. No surprise there: Median household income around the 15th St/Windsor Terrace stop, where many teachers, police officers, and firefighters live, is $66,603. In Prospect Park, a neighborhood famous for its high concentration of artisanal dog treats packaged in mason jars, median household income is $104, 432.