Inequality is frequently in the news. A new study puts an interesting spin on this now-familiar topic: rising health costs are a significant reason for wage inequality.
The cost of employer-provided health insurance is a larger share of lower-paid employees’ total compensation than it is for the people higher up in the organization. Since insurance costs have been increasing faster than total compensation, squeezing out pay raises, the nation’s lowest-paid workers feel it most.
For people with earnings at the 30th percentile of all U.S. workers, total compensation, including the cost of employer health insurance as well as actual earnings, increased by just 9 percent in inflation-adjusted dollars between 1992 and 2010, according to data in a new study by Mark Washawsky at George Mason University’s Mercatus Center. Total compensation for high-paid workers at the 95th percentile grew 19 percent.
However, the rapidly rising cost of employer-provided health insurance took a larger bite out of lower-paid workers’ earnings – and out of their take-home pay. Inflation-adjusted earnings at the bottom rose by just 3 percent over the 18-year period, compared with a 17-percent increase at the top.
Washawsky correctly notes that employer-provided health insurance is a form of compensation that is valuable to all workers, regardless of how much they earn. The problem for workers living paycheck to paycheck is that they pay their day-to-day bills out of what’s left in that paycheck. That’s where you’ll find the inequality from rising healthcare costs.
So how should policymakers tackle U.S. inequality? Warshawsky argues that any prescription to reduce wage disparities should “focus on reducing the rate of increase in healthcare costs.”Learn More
It was Gerry Smythe’s final confirmation he had never quite felt at home working in the Oklahoma airplane manufacturing plant. When well-meaning coworkers bought a cake to celebrate his and another person’s retirement, they got Smythe’s name wrong on the sign inviting everyone to the break room.
At age 63, he until recently was one of the nation’s 10 million older Americans working in physically demanding jobs in difficult conditions. He felt worn down by the factory noise, carbon dust, and standing all night on collapsed arches to assemble cabin floor beams for Boeing 777s. His requests for a transfer away from the hard floor never went anywhere, he said.
“It wasn’t really the job – I kinda liked the job,” said Smythe, who retired on May 27. “I didn’t want to stick in that environment in which I was dealing with air pollution and chemicals and decided I’d had enough.”
Now retired, Smythe savors his freedom. He’s playing more golf, has maintained his obsession with the Sunday crossword puzzle, and might volunteer at an animal shelter. But he also admits to something others have learned upon retiring: it’s a lot to get used to.
“You’re transitioning to a new phase of your life, and you’re not sure where to go. It is sorta scary,” he said in a telephone interview on a sizzling summer day at his home in Tulsa.
Everything is up in the air. He likes Tulsa but might move back to Tennessee – he once worked at the Memphis airport – or to Houston, where his mother’s family hails from. Or maybe he’ll find another job. The aviation industry is booming, so a few recruiters have called him. …Learn More
Like the United States, many European countries are concerned about shoring up their pension systems for their aging populations. In 2000, Austria took action by introducing a series of small increases in the earliest age at which workers can begin receiving their federal pensions.
This reform is gradually phasing out early eligibility entirely. Raising the earliest claiming ages, from 60 to 65 for men and from 55 to 60 for women, will cause them to converge, next year, with the pension program’s standard – or “normal” – retirement ages.
Prior to the reform, workers who had signed up for benefits before their normal retirement age received only mild reductions in their monthly benefits. The reform, in addition to gradually raising the early retirement age, exacted a larger penalty on the early claimers, increasing the incentive to continue working.
Austria’s pension changes have provided researchers with a unique natural experiment to see how workers reacted to a delay in their eligibility. A study by economists at the University of Texas at Austin and the Vienna University of Economics and Business, which they will present tomorrow at the NBER Summer Institute, have concluded that the reforms have had a “pronounced” effect. …Learn More
High school students who participated in Boston’s summer jobs program in 2015 work on a public beautification and landscaping project.
It’s a spring rite in Boston. The mayor’s office and private and non-profit employers hustle to get ready for a program employing more than 10,000 inner-city teens for the summer.
A new study of the summer 2015 participants shows that the high school students made remarkable strides, compared with the kids who applied but were not accepted for the limited number of slots available in the program. New York and Chicago have similar, large programs.
The Boston teens, who are mostly either black or Hispanic and from low-income neighborhoods, improved their job readiness, from showing up on time to developing their resume-writing skills, and also boosted their confidence and sense of identity. Perhaps most important, the program increased aspirations, particularly among black males.
Two out of three participants have single parents, and one in three is from immigrant families who do not speak English. While college-bound children of wealthy parents may choose summer camp over a summer job, being idle in the summer can be a big disadvantage for inner-city kids.
“These kids just have less opportunities to develop [job] skills just by growing up in the neighborhoods they do,” said Alicia Modestino, the Federal Reserve Bank of Boston researcher who studied the program. “Fewer people in their lives have a job. They’re living in a neighborhood with fewer job opportunities.” Further, single parents in low-income households often work nights or have multiple jobs and are too pressed for time to help their children develop these skills.
The jobs in Boston’s program are primarily either with private-sector employers – some of the top-tier internships are with major corporations – or with non-profit organizations such as local YMCAs, Sociedad Latina, the Boys and Girls Clubs of Dorchester, and the New England Aquarium. A requirement of the summer program – one of the nation’s oldest – is that each high school student attends sessions in which they learn to write resumes, practice job interviews, and answer questions properly on online applications.
Modestino was surprised that the strongest results in the study came in the category of “social engagement.” For example, her study found a sharp increase in the share of participants reporting they felt they “had a lot to contribute.” …
In this video, Professor James Lubben, founding director of Boston College’s Institute on Aging, discusses numerous research studies showing that people who lack a social network of friends or family are more likely to neglect good health practices and to experience psychological distress, cognitive impairment, the common cold, and even death – “it’s on a par with smoking,” he said.
Seniors become particularly vulnerable to becoming isolated as they decline physically, but isolation then makes them more vulnerable to worsening health.
Social health should “be as important as mental health and as physical health,” said Lubben, who also is a professor of social work here at Boston College.
Summers are a fun and busy time – this video is a reminder that elderly family members and neighbors who aren’t very mobile might need some company or someone to check in on them. Learn More
The economy keeps chugging along, unemployment has been bobbing at or below 5 percent all year, and wages have been creeping up.
Yet anxiety is rising, according to a newly released survey by Northwestern Mutual. In February,
85 percent of Americans said they had “financial anxiety,” particularly about how they would pay for an unexpected emergency or medical bill.
And here’s how financial anxiety affects them:
70 percent say it reduces their “happiness,” their mood, or their ability to pursue their dreams, passions, and interests.
67 percent say it impairs their health.
61 percent say it has a negative effect on their home life.
51 percent say it has a negative effect on their social life.
For more than half, the most popular answer to how financial security would change their lives was: “Peace of mind that I never have to worry about day-to-day expenses.”
Northwestern Mutual summed things up by saying “the levels to which financial anxiety is impacting all corners of people’s lives is extraordinary.”
Pretty strong words for a typically cautious insurance company. Learn More
A small group of researchers at the Center for Retirement Research, which sponsors this blog, produces a large volume of analysis of the nation’s state and local government pension funds.
Their work isn’t typical of the personal finance information that appears in this blog. But it turns a bright light on the financial condition of the pension funds that millions of state and local government workers and retirees rely on. The bottom line, according to these studies, is that while some funds are in poor condition, many more are managing.
The following are short descriptions of the Center’s recent reports, with links to the full reports:
The big picture is updated in the new brief, “The Funding of State and Local Pensions: 2015-2020.” Eight years after the financial crisis, new data have confirmed that pension plan funding stabilized in 2015. And despite poor stock market performance last year, plan funding improved slightly in 2015 under traditional accounting methods. On the other hand, funding is slightly lower under new accounting rules that require the plans’ financial statements to value their investment portfolios at market values.
The appendix in this brief provides funded levels for 160 individual plans in the Center’s public pension database.
“Are Counties Major Players in Public Pension Plans?” The answer in this report is no, with the exceptions of California, Maryland and Virginia, where counties account for about 15 percent of pension assets.
While retiree health plans are quickly disappearing at private employers, they remain prevalent in the public sector. These plans are not fully funded, and their unfunded liabilities are relatively large – equivalent to 28 percent of all liabilities for unfunded public pension plans – according to a March report, “How Big a Burden Are State and Local OPEB Benefits?”
New accounting rules, known as GASB 68, require city pension funds that are joint participants in plans administered by their state, to transfer their net unfunded liabilities from the state’s to the local government’s books. …