Posts Tagged "inequality"

50 Years of Financial Progress for Women

As the lower-paid sex, women have no shortage of insecurities about their retirement finances.

Only one in five working women feels “very confident” of being able to retire comfortably, the Transamerica Center for Retirement Studies reports in its annual retirement survey. More than half say they don’t earn enough or have too much debt to leave a lot of room for saving. Four in 10 expect to retire after 70 or not at all.

These insecurities probably reflect, to some extent, the poor retirement preparedness of Americans as a whole, not just women. In fact, women have made significant strides over the past half century. A new study documenting their personal and economic progress since the 1970s finds that their financial standing, compared with men, has improved.

Granted, women are still a long way from pay parity. But the improvements in retirement preparedness are impressive because they occurred despite the fact that women have become more independent – they are more likely to be living on their own and supporting themselves. Roughly two-thirds of boomer women born after 1953 either have never married or have been divorced for some part of their adult lives, according to the Center for Retirement Research.

What undergirds their personal and financial independence are college degrees and women’s growing participation in the labor force over five decades.

One in three baby boomer women born in the mid-1950s through the mid-1960s has a college degree – twice that of their mothers who were born during the Great Depression. Armed with the degrees, young boomer women flooded into the labor force. Three-fourths were working between their mid-30s and mid-40s, compared with 57 percent employment in the Depression-era cohort at that age. Men’s labor force participation has been much higher historically but barely changes over time.

Black women have always worked more than White women. But they too increased their labor force participation as they gained more education.

So how has women’s robust participation in the work world bolstered their financial security? …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

The Racial Roots of Retirement Inequality

Financial advisers and retirement experts say the best advice they can give workers to prepare for old age is to save, save, save.

But two young researchers might argue this advice isn’t sensitive to the hurdles that Black and Hispanic workers face when they try to save. At a recent panel discussion, the researchers presented a laundry list of the hurdles, which are harder for minority workers to clear and can be insurmountable.

One disadvantage is widely understood: people of color tend to be in lower-paying jobs overall and disproportionately work in the retail or the food service industries, which have irregular hours, high turnover, and wages that often depend on tips. Many of these jobs do not include employee health and retirement benefits, putting people of color at greater risk than White workers that their retirement income will fall short.

Dania Francis

Dania Francis

But the roots of retirement inequality run deeper and can be seen in the racial differences in intergenerational wealth – whether homeownership or a college education that leads to a good job – said Dania Francis, an economist at the University of Massachusetts Boston and a panelist at the event hosted by the university’s Pension Action Center.

White Americans, Francis said, are in a better position to retire because they receive inheritances at dramatically higher rates than Black and Hispanic Americans. She cited Federal Reserve data from 2010 through 2019: 42 percent of White households within 10 years of retiring had already received or expected to receive an inheritance from their parents.

The inheritance numbers were 14 percent for Black and 11 percent for Hispanic households.

White parents also provide money to their young adult children at higher rates to pay for investments in their future such as college or a down payment on a house, Francis said. And, she added, the lower wages earned by workers of color will also make it harder for them to ever “bridge that gap.”

Taha Choukhmane, an assistant professor at the MIT Sloan School of Management, agreed. But he pointed to the billions of dollars in retirement incentives built into a tax code that also favors White workers and “contributes to inequality.” …Learn More

Research to Look at Work, Retiring by Race

The racial disparities embedded in our work, retirement, and government systems will be front and center at the annual meeting of a national research consortium.

One of the presentations at the online meeting on Aug. 4 and 5 will explore the impact of wealth and income inequality on Black and Latinx workers at a time these populations are rapidly aging. The researchers are concerned with how their decisions about when to retire will impact their economic security.

Growing inequality “point[s] to greater risks of financial insecurity” for future Black and Latinx retirees, the researchers said.

Another paper will address a related topic: the differences, by race and ethnicity, in workers’ levels of knowledge about how Social Security benefits work. Understanding the ins and outs of the federal retirement benefit – and specifically the advantages of delaying retirement to get a larger monthly check – are critical to improving living standards in old age.

Other research will explore an area that hasn’t been well studied: government programs used by non-parental caregivers such as Black grandparents or members of Latinx three-generation households to support the children in their care. The researchers will examine minority and low-income workers’ and retirees’ use of SNAP food stamps, child care subsidies, Temporary Assistance for Needy Families, and various benefit programs overseen by Social Security.

COVID is another topic on the agenda. One study compares the financial impact of the pandemic on early retirement for different income groups with the patterns in the aftermath of the Great Recession more than a decade ago. Another study examines how mortality rates might change in the wake of the pandemic.

Research on many other topics will also be featured, including health insurance, mothers, and longevity. The agenda and information about registration are posted online. Registration is free. …Learn More

The Many Facets of Retirement Inequality

Retirement inequality is a thread running through several articles that have appeared here this year.

One blog that was particularly popular with our readers distinguishes retirees who have enough wealth to maintain the same spending levels throughout retirement from those who will, over time, have to cut back and reduce their standard of living.

The research behind the article – “Health and Wealth Drive Retirees’ Spending” – makes clear that wealth is just one component of a satisfying lifestyle. Even retirees who can afford to maintain their living standard may not be healthy enough to enjoy their money to the fullest. The retirees who have both – health and wealth – are best equipped to maintain their pre-retirement lifestyle.

Homeownership also marks a dividing line between the haves and have-nots. A home is one of retirees’ largest sources of wealth. Although most are hesitant to withdraw home equity, the ones who have equity and tap it to pay medical bills see large, positive health benefits, according to “Using Home Equity Improves Retirees’ Health.”

Pensions are another dividing line. “Retirees with Pensions Slower to Spend 401(k)s” shows the value of having guaranteed income from defined benefit pensions, which are all but extinct outside the public sector. …Learn More

CARES check

COVID Relief Checks Helped Needy the Most

In the pandemic’s early days, the unraveling of economic life was breathtaking. Some 3.3 million Americans filed for jobless benefits in the second week of March 2020. A record 6.6 million joined them the following week.

By April, government checks were starting to land in workers’ bank accounts, bringing the urgent relief Congress intended. The unemployed used the often-substantial assistance – up to $3,400 for a family of four – to cover basic expenses, and the people who were holding on to their jobs saved for possibly difficult days ahead.

New research shows that the benefits of this assistance disproportionately went to those who needed it most: low-income workers and people who had financial problems before COVID hit.

The relief checks “have been more of a lifeline for individuals who were struggling,” the study concluded. “Rather than simply help prevent widening inequality,” the relief “may have helped close the gap.”

Consider the workers who either had great difficulty paying their debts in 2019 or had been spending more than they earned. Thanks to the first round of relief distributed in 2020, both groups saw improvement in three major areas, according to the Dornsife Center for Economic and Social Research at the University of Southern California.

The disadvantaged workers experienced the largest reductions in financial stress and felt more satisfied with their finances. They also felt less financially fragile, reporting that it was easier to come up with $400 in cash for an emergency like a car repair. And their ability to save increased.

The researchers said they couldn’t directly credit the relief checks for these improvements. Another important factor – the enhanced unemployment benefit of $600 per week – was also simultaneously at play. But one analysis in this study did find that the people who had received the checks saw more gains than the workers who were still waiting for their checks when they participated in the Internet survey in April 2020 that the researchers used.

As was widely acknowledged at the time, lower-paid hourly workers suffered the brunt of the pandemic-related layoffs. The researchers found that $60,000 in yearly income was a sort of dividing line: households that earned less benefited more from the government assistance than households that earned over $60,000. The lower-income households were more likely to build up their checking and savings account balances. …Learn More

Mental Health Crisis is an Inequality Problem

The connection between Americans’ socioeconomic status (SES) and their health was established long ago and the evidence keeps piling up.

"Healing: Our Path from Mental Illness to Mental Health" book coverLess-educated, lower-income workers suffer more medical conditions ranging from arthritis to obesity and diabetes. And the increase in life expectancy for less-educated 50-year-olds was, in most cases, roughly 40 percent of the gains for people with higher socioeconomic status between 2006 and 2018.

More recently researchers have connected SES and mental health. The foundations are laid in childhood. In one study, the children and teenagers of parents with more financial stresses – job losses, large debts, divorce, or serious illness – have worse mental health. And COVID has only aggravated the nation’s mental health crisis.

In a new book, Dr. Thomas Insel, former director of the National Institute of Mental Health, is concerned about the impact of inequality.

Mental health in disadvantaged communities “is worse because of the world outside of health care. It’s our housing crisis, our poverty crisis, our racial crisis, our increasing social disparities that weigh heaviest on those in need,” he writes in “Healing: Our Path from Mental Illness to Mental Health.” …Learn More