Great Depression Holds Lesson for Our Time

Photograph by Lewis Hines, West Virginia 1937

Photograph by Lewis Hines, West Virginia 1937.

The Great Depression, sparked by a devastating collapse in stocks followed by 25 percent unemployment, remains the deepest recession in U.S. history.

A new study laying out the long-term negative impacts to Americans born during that time might be consequential for today’s youngest citizens –  teenagers born during the Great Recession of 2008 and 2009 and toddlers born in the midst of the steep COVID downturn in 2020.

The researchers found that the stresses and financial strains on parents from the Depression’s extraordinarily high unemployment over a protracted period of time did long-term damage to the health and careers of their children that persisted late into their lives. In a separate but related paper, they also found that people exposed to the Depression in utero experienced an acceleration in the aging process after age 75.

“The shock of the Great Depression was massive and everyone, no matter what group they belonged to, was to some extent impacted,” concluded the researchers, Valentina Duque and Lauren Schmitz.

For a whole host of reasons, a parent’s loss of income and joblessness have a huge impact on their children’s development and socioeconomic status, which in turn determine how they will do when they grow up. Prenatal stress on mothers, for example, has been linked to lower earnings for their offspring as adults. In utero stress also contributes to cognitive and behavioral problems late in life.

A father’s financial distress can harm the long-term health of children if the family can’t afford to buy nutritious groceries and quality healthcare or isn’t able to relocate to another part of the country with better job prospects.

To assess the Depression’s impact on health and careers, this study used a survey of older Americans. The researchers identified adults born in the 1930s to analyze how they fared late in their careers based on how severe the Depression was in the state where they were born or lived as young children.

The analysis, using IRS tax records, indicated that the offspring of the Depression’s parents living in states with larger declines in wages earned less throughout their careers – the impact in utero was larger than for the workers exposed to the Depression as young children.

The Depression created other deficiencies too: by the time the people born in more depressed states reached their 50s and early 60s, they were less productive and less attached to the labor force than their counterparts who grew up in states with stronger economies during that difficult time. They also had poorer health, were more often disabled, and had higher mortality due to health problems like diabetes and cardiovascular disease.Learn More

Big COLAs in State Minimum Wages Kick in

During the long and tranquil period for inflation that ended with COVID, 18 states passed legislation requiring employers to pay a minimum wage that automatically increases every year to protect their lowest-income workers from inflation.

With inflation surging to 7 percent in 2021 and running even higher this year, the cost-of-living increases are paying up.

Many state minimum wages are now 1 1/2 to 2 times the federal minimum wage, with another round of increases coming in January 2023. Congress, on the other hand, hasn’t increased the $7.25 hourly federal wage since 2009, widening the disparities between the states that tie their minimum wages to the federal level and the states that routinely raise theirs to keep up with inflation.

The federal minimum wage of $7.25 is in effect in Indiana, Idaho, Iowa, Georgia, Kansas, Kentucky, New Hampshire, North Dakota, Oklahoma, Pennsylvania, Texas, Utah, Wisconsin, and Wyoming. For a full-time worker, that adds up to about $15,000 per year or barely above the federal poverty line, though many employers are paying more to compete for workers in the midst of a labor shortage.

The Economic Policy Institute (EPI) estimates that the value of the federal minimum has fallen 12 percent just in the past two years of unusually high price increases. That’s on top of a decade in which the federal wage was sharply eroded by modest inflation year after year.

“These inflation-driven cuts can snowball quickly,” the EPI said in a recent report. “Faster inflation makes it more important, not less, to raise the federal minimum wage.”

Most of the states with legislation on the books to automatically increase their minimum wages had done so well before COVID supply constraints caused inflation to kick up.

Washington, which began indexing its wage in 2020, has the highest state minimum wage, and it will increase by 8.6 percent increase to $15.74 on Jan. 1. In California, the minimum wage will rise to $15.50 an hour for employers with 25 or fewer workers – a 19 percent increase over a two-year period that will bring them into parity with the wage requirement for larger employers. Many other states have scheduled increases to $15 in the next few years. …Learn More

The Shrinking Middle and Shrinking Wages

Henrietta and Joseph Virchick

Henrietta and Joseph Virchick

My husband likes to tell a story about his father, Joseph Virchick, who was a pipefitter for the Standard Oil refinery in Bayonne, New Jersey, starting in the 1950s. It was a union job – the Teamsters – paying solid middle-class wages that supported his family in an upscale Levitt development with its own swimming pool.

The point here is that this pipefitter with a high school degree lived about as well as his college-educated neighbors who commuted into nearby Manhattan. Virchick and his wife, Henrietta, who also worked, sent all three kids to college. When he retired in the 1980s, they had a pipefitter’s pension to supplement their Social Security.

Today, only 6 percent of private-sector workers are unionized. Something else is going by the wayside along with unions and company pensions: a thriving middle class.

Boston College economist Geoffrey Sanzenbacher argues in his new book that while the U.S. economy, on a per capita basis, has more than doubled in size since 1975, the typical middle-class man’s income, adjusted for inflation, has shrunk by about $2,500, to $60,375 in 2020. (He tracked men’s wages, because the story about women, who flooded into colleges and into the labor force more recently than men, is messier.)

“During a four-decade stretch, middle-class workers lost ground,” Sanzenbacher writes in “The Six Facts that Matter: Understanding Inequality in the United States.”

The same powerful forces that have caused regular workers’ wages to decline also fueled the widening disparities between middle- and lower-paid workers and the people at the top, whose pay has increased since the 1970s. To be sure, lower-paid workers have gained back some of that ground since the pandemic began, and their wages have risen faster than higher-income workers’ pay. But the large inequities persist.

Sanzenbacher blames two things for the eroding middle class: globalization and technology.Learn More

Paid Sick Time Spreading in the COVID Era

The pandemic has done good things for paid sick time.

Today, 77 percent of all employees in the private sector get paid time off for short-term illnesses and preventive medical care. That’s a modest four points higher than in 2019 but at least it’s going in the right direction.

However, coverage remains low at the bottom of the wage scale where workers are much less likely to have any type of employer benefits. Just 55 percent of workers with earnings in the bottom 25 percent of all workers receive paid sick time, according to a 2022 report by the Economic Policy Institute.  Even their coverage has increased – from 47 percent prior to the pandemic – but they’re still trailing far behind everyone else.

The overwhelming majority of public-sector workers and the highest-income employees in the private sector already have paid sick time. Some of the lowest coverage rates are for workers at small private employers like restaurants and local retailers that argue the policies are too costly.

To protect Americans without sick leave from COVID, the Families First Coronavirus Response Act required employers with fewer than 500 workers to pay for it. After the federal mandate expired at the end of 2020, there have been a couple of reasons for the increase among private-sector workers, said Elise Gould, a senior economist at the Economic Policy Institute. …Learn More

Good News on Health Insurance in Pandemic

To paraphrase a U.S. senator in 1977, the moral test of government is how it treats the sick, the poor, and its children. That rings especially true during an historic public health emergency like COVID.

Congress came through with financial relief to blunt the pandemic’s impact, and the money that flowed through the economy provided more Americans with health insurance, while also reducing poverty.

Several newly released U.S. Census reports “show how much vigorous policies can do to prevent poverty and preserve access to health care,” the Center on Budget and Policy Priorities concluded.

The Uninsured. During the pandemic, the share of all adults lacking health insurance declined from 9.2% in 2019 to 8.6% in 2021, reversing the trend of a rising uninsured rate in prior years. The rate dropped as Congress improved access and affordability during COVID by passing large premium reductions for policies purchased on the federal and state exchanges and by requiring states that receive Medicaid funds to expand their coverage of poor and low-income workers during the pandemic.

Congress has extended the premium reductions through 2025, but the federal enhancements to Medicaid are set to expire, leaving states to determine the extent to which they will cover their low-income workers in the future.

The Poor. The COVID aid passed by Congress lifted nearly 14 million Americans out of poverty over the past two years, according to Census. This statistic aligns with earlier research showing the financial assistance was particularly effective in helping low-income workers and people who were struggling financially prior to the pandemic. …Learn More

Suburban ‘Rent Deserts’ are a Problem

Boston, a city of fewer than 1 million people, is surrounded by layers and layers of suburbs linked to the city by subways, ferries, and a commuter rail. The suburbs’ opposition to a new state law requiring them to zone some land for apartments illustrates why U.S. rental housing is scarce and rents have soared.

The sprawling town of Hamilton, with 8,000 residents, told The Boston Globe that rental housing will “destroy the well-being of our community.” Other municipalities warn their schools, infrastructure, and police and fire departments will be overwhelmed by population increases or that they don’t have enough land to accommodate multifamily rental properties.

Not all of Boston’s suburbs are opposed to building more multifamily housing. Before the state law passed, the city of Newton had already started revamping its zoning regulations to encourage more rental properties around transit stops. But three out of four of the 23,000 lots in Newton are currently zoned for single family homes.

Suburban neighborhoods around the country account for more than two-thirds of “rental deserts,” according to a report by Harvard’s Joint Center for Housing Studies. The deserts are mostly white and mostly higher-income, and less than 20 percent of their housing stock is rentals, compared to a range of 50 percent to 80 percent in areas with ample rental properties. Low inventories nationwide have fueled double-digit rent increases from Idaho to Florida.

In the city of Boston, house prices have skyrocketed, so suburbs with mass transit are somewhat more affordable for lower- and middle-income workers who commute downtown to their jobs. But rental deserts, with their “not-in-my-backyard politics” are “a significant factor in limiting opportunities for rental households and for lower-income renters in particular,” the housing center said. …Learn More

Good Riddance Medicare Donut Hole!

Medicare’s donut hole is the bane of existence for retirees with expensive medications.

They will get substantial relief in 2025, when the Inflation Reduction Act, signed by President Biden last week, will cap all retirees’ annual drug copayments at $2,000. Monthly drug plan premiums are not included in this cap.

The cap will effectively eliminate the donut hole that currently requires retirees to pay 25 percent of the cost of their prescription drugs until they reach a threshold amount. The threshold increases every year and hit $7,050 this year.

A relatively small group of about 1.5 million retirees pay more than $2,000 for their prescriptions. But many of them are spending $5,000, $10,000 or more.

“It’s going to be an amazing thing” if the cap is implemented as Congress intended, said Ashlee Zareczny, compliance supervisor for Elite Insurance Partners, a Medicare health insurance broker outside Tampa.

Some of her firm’s retired clients pay so much for their medications that they have to make difficult choices between medications and food or other essential items. People who rely on Social Security “shouldn’t have to make those choices,” Zareczny said.

The cap will apply to all Medicare beneficiaries, whether they get their prescription drug coverage through a Part D plan or Medicare Advantage insurance plan, she said.

Under the current system, insurers that sell Medicare drug plans have a $480 maximum they are permitted to charge for the deductible. After meeting the deductible, retirees make their predetermined copayments under the insurance plan. They enter the donut hole after they spend $4,430 out of pocket, and then they are required to pay 25 percent of the cost of their drugs until they reach a threshold that pushes them into the catastrophic phase of Medicare’s drug coverage.

Once the catastrophic coverage kicks in, however, they are still responsible for 5 percent of the remaining drug costs. In 2024 – a year before the $2,000 cap goes into effect – the new healthcare law will eliminate the 5 percent copay.

The cap on total spending will protect any retiree who develops a medical condition requiring them to take very expensive medications. Currently, there is no limit on how much they may have to spend.

And, Zaraczny said, “They’re not prepared to put forth this money.” …Learn More