Posts Tagged "inequality"

balancing balls

Social Security: Time for an Update?

The option to start Social Security benefits at any age from 62 to 70 – with an actuarial adjustment – is a key feature of the program. However, the adjustments – reductions in the monthly benefit for claiming early and increases for waiting – are decades old and do not reflect improvements in longevity or other important developments over time.

The option to claim early was introduced just over 60 years ago, when Congress set 62 as the program’s earliest eligibility age. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security amendments, which gradually increased the annual “delayed retirement credit” from 3 percent to 8 percent. Also in 1983, reductions for early claiming were changed in tandem with the gradual increase in the full retirement age from 65 to 67.

The goal of actuarial adjustments to the monthly benefits has always been to ensure that retirees with average life expectancy could expect to get the same total lifetime benefits, regardless of when they started. But calculating lifetime benefits requires assumptions about how long people will live and assumptions about interest rates. The current calculations are based on life expectancy and interest rates in the early 1960s or 1980s.

Much has changed since those dates: life expectancy has increased dramatically and interest rates have declined. Longer life expectancy and, to a lesser extent, lower interest rates would each call for a smaller penalty for early claiming and a smaller reward for delaying claiming.

Consider what this means for baby boomers whose full retirement age is 67. Under the current system, if they claim at 62, they receive 70 percent of their age-67 benefit. However, to reflect decades of increasing life spans and falling interest rates, the researchers calculated that the accurate monthly benefit would be 77.5 percent of the age-67 benefit. That is, early claimers are penalized too much.

For workers who delay claiming, a discrepancy also exists between the current and accurate delayed retirement credits, though the difference is smaller since the credit was initially too small. Specifically, workers who wait until 70 to start Social Security today receive 124 percent of the benefit they would’ve gotten at 67, whereas 120 percent of the age-67 benefit would be more accurate. …Learn More

Empty New York Subway

Working from Home: the Next Inequity

An impressive consensus has emerged around the benefits of working from home.

More employers have come to accept the practice after being pleasantly surprised at how productive their employees are. If remote workers were once viewed as insufficiently committed to the company, they no longer feel as marginalized. And people seem to like it – with the notable exception of the mothers juggling Zoom meetings and childcare.

An NBER study out this month estimates that about 20 percent of the workdays in this country, post-pandemic, will be carried out at home. That’s less than half the at-home time that was clocked last year as the pandemic raged but is multiples of the very low levels prior to COVID-19.

There is “little doubt that the stigma associated with [working from home] diminished during the pandemic,” concluded the study, based on a series of surveys last year. This seismic shift in workplace conventions “will stick long after the pandemic ends.”

But a second theme running through this research is just as important: the benefits of telecommuting flow mainly to the more educated, higher-paid labor force.

Work from home perksMore than 50 percent of U.S. workers earning more than $100,000 a year have been allowed to work at home, rather than in the office, giving them more protection from layoffs during the economic shutdowns and from COVID-19. On the other end of the spectrum are lower-paid and minority workers, who have been much more likely to lose their jobs and be exposed to the disease. Just 25 percent of employees earning under $50,000 work at home – and only 10 percent of the lowest-paid workers who didn’t complete high school work.

Yet the desire to work at home is pervasive. Regardless of their income, years of education, or family situation, workers view it as a perk – so much so that most people said they would accept a pay cut if they could work remotely two or three days a week.

Another potential impact on equity in the study is the effect of remote work on commerce in the urban centers. …Learn More

A group of millennials

Black Millennials’ Wealth is Sliding

Black Millennial Figure

It’s still too early to assess the full impact of the COVID-19 downturn on Millennials’ economic fortunes. But Black Millennials had already lost a lot of ground before the pandemic hit their communities hard.

Their wealth in 2019 was just half of what would be expected based on how much wealth their parents’ generation had at the same age.

Other Millennials are also running behind previous generations, but only slightly. And their situations have improved in recent years, while Black Millennials are sliding farther and farther behind.

The Federal Reserve Bank of St. Louis called the situation “alarming” in its new report.

The oldest Millennials are turning 41 this year. But in 2019, the typical Black family born in the 1980s had only $5,000 in their savings accounts, 401(k)s, home equity and other wealth – compared with the roughly $11,000 they would be expected to have based on the previous generation. Hispanic Millennials had $22,000, and whites had $88,000.

Black Millennials are struggling for a few different reasons, said Ana Hernández Kent, a senior researcher for the St. Louis Fed’s Institute for Economic Equity. Homeownership is a major source of wealth for most Americans, but only a third of them own homes – half the rate of their white peers.

Student debt is another big issue, because African-Americans who borrowed money for college either didn’t graduate or used the loans to attend lower-quality for-profit colleges at disproportionate rates. Their college experiences haven’t always translated to earnings that are high enough to justify the debt taken on to pay for an education.

“They’re over-leveraged,” Kent said. “Just over a third of Black Millennials with at least a two-year degree are more likely to say the costs of college are larger than the benefits.” …Learn More

Bars of gold

Billionaires Got Much Richer in Pandemic

In the COVID-19 downturn, this blog has had a steady supply of stories and statistics about the damage being done to low-income and middle-class families.

That’s one perspective on the pandemic. The growing billionaire class is another one.

Top 10 US billionairesSince last March, the nation’s 660 billionaires have added more than $1 trillion to their wealth – a 39 percent increase. Their combined net worth is now $4 trillion, which is nearly double the $2 trillion held by the 165 million Americans in the bottom half, according to the Institute for Policy Studies’ new report.

“It’s a troubling sign that too much of society’s wealth and income is flowing upwards to that small group of people,” Chuck Collins of the Institute for Policy Studies said during an interview on NPR’s Fresh Air.

The institute’s report is based on Forbes magazine’s annual estimates of the net worth of the world’s richest people.

Inequality has always been with us, but economists say it has grown as billionaires’ wealth has hit stratospheric levels.

To be sure, inequality would’ve been worse without the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $500 billion in direct assistance to families last spring prevented a surge in poverty, and the relief bill passed in late December is sending more aid to unemployed and under-employed people who need it.

The billionaires are getting richer for a couple reasons, starting with a surprisingly strong stock market in 2020. Despite the worst public health crisis in a century and a struggling economy, the Standard & Poor’s 500 stock index shot up 18 percent.

But some billionaires were also in the right place at the right time – a pandemic. …Learn More

Man running up the stairs

Economic Opportunity Reduces Disability

Add upward mobility – an individual’s success in surpassing parents’ economic circumstances – to the factors that can keep federal disability payments in check.

A substantial body of academic research has already established that when the economy is growing, unemployed and marginally employed people have better luck on the job market, and their applications for disability insurance start to decline.

But booms and busts aren’t the only influence on disability. A new study finds that economic conditions of a different type – the ability of low-income people to move up the economic ladder – can reduce disability by improving their health. People who earn more money tend to be healthier for a variety of reasons, ranging from access to better medical care to the lower rates of depression and obesity that exist in higher-income populations.

In a recent study, Yale University sociologist Rourke O’Brien used the data from another researcher’s study that mined IRS tax records to find people born in the 1980s to parents whose incomes were at the lower end – the 25th percentile – of the U.S. income distribution. The children were followed into adulthood to see if they earn more or less than their parents did.

It’s very difficult for children in low-income families to improve on their parent’s circumstances, but the odds are better if they grow up in areas with better schools, less inequality, and more two-parent families.

O’Brien’s research found that counties in which young adults earn more, on average, than their parents were less likely to one day report having a disability in U.S. Census surveys and less likely to be receiving disability benefits.

In a more in-depth analysis, the researcher found some evidence that upward mobility also blunts the well-known tendency of rising unemployment to increase disability applications.

Taken together, the findings indicate that whether someone ends up on disability benefits depends, at least in part, on where they grew up. …Learn More

Map of South Central

Examining the Black-White Wealth Gap

The Black Lives Matter protesters have brought renewed attention to the enduring economic inequality that separates Black and white America.

Homeownership is at the heart of this disparity.

For many Americans, their largest source of wealth is the value they have built up in their homes over time. The house is also traditionally the primary way for moderate- and middle-income parents to pass wealth on to their children.

But less than half of African-Americans own homes, and the ones who do have a fraction of the equity whites have due in large part to the nation’s long history of segregated housing, economists say.

Further, the tidal wave of foreclosures a decade ago reduced the already low homeownership in minority communities, which felt the brunt of the housing market collapse. The Black homeownership rate is just 42 percent – 5 percentage points lower than it was in 2000. White homeownership remained stable throughout the crisis and is now around 72 percent, the Urban Institute said.

Home equity is a big part of wealth graphThe upshot of this combination of fewer Black owners and less equity for those who own a house is that the typical African-American worker has $4,400 in home equity, compared with $67,800 for whites. The home equity gap accounts for about half of the Black-white disparity in total wealth.

A web of systemic reasons explain the home equity gap. Black homebuyers have more debt, in part because they are twice as likely to receive a mortgage with a high interest rate as white buyers with comparable incomes. …Learn More

Cars in line at a food back in Austin Texas

Money, Virus Angst Combine for Low-Paid

There’s COVID-19 stress, and then there’s money stress. The combination of the two is becoming too much for many low-income workers to bear.

Two out of three people in families that earn less than $34,000 a year told the U.S. Census Bureau in April that they are “not able to control or stop” their worrying several days a week or more. The feelings are the polar opposite for families earning more than $150,000: two out of three of them said they are not worried at all.

The daily blast of pandemic news has pushed U.S. inequality into the spotlight, exposing the financial pressures low-income Americans are dealing with. Despite the unprecedented $3 trillion in financial assistance passed by Congress, the anxiety was probably a contributing factor in the protests that erupted in dozens of U.S. cities last week.

When governors shut down their economies to control the pandemic, the lowest-income workers – disproportionately African-American and Latino – had barely recovered from the previous recession. Yet nearly half of the increase in incomes for all U.S. families over the past decade has gone to the 1 percent of families with the highest earnings. One glaring example of this disparity is homeownership, which is usually the largest form of wealth by the time people reach retirement age. Homeownership rates across the board declined after the financial crisis, but African-American and Latino rates fell more and are still below 2007 levels.

Low-income workers are now bearing the brunt of the current downturn. Economists estimate the true U.S. unemployment rate could be as high as 20 percent. The layoffs have been concentrated among low-wage workers: nearly 40 percent of people living in households earning less than $40,000 have lost their jobs.

The fundamental challenge of surviving from day to day is evident in the miles-long lines of cars at some U.S. food banks. About a third of Americans are having problems paying for all kinds of essentials – rent, utilities, or food – but the number rises to almost half for African-Americans and Latinos, according to a Kaiser Family Foundation poll in mid-May. Children are being disproportionately impacted by rising food insecurity.

Spotty health care coverage is another layer of stress. Workers on the front lines in nursing homes, meat processing plants and grocery stores are more at risk of contracting COVID-19 but less likely to have health insurance from their employers. They may avoid seeing a doctor, even if they have symptoms, out of fear of being unable to afford the charges. …Learn More