Tuesday, July 29, 2014

Uncertainty Band For CBO's Projection Of Federal Debt: 2039 Federal Debt As Percent Of GDP Could Be 43 Percent Higher Or A Third Lower

From The Congressional Budget Office, "The Uncertainty of Long-Term Budget Projections" Posted by Jonathan Huntley on July 29, 2014:
In CBO’s analysis, the ranges of variation for the four factors were based on the historical variation in their 25-year averages, as well as on consideration of possible future developments; together, those offer a guide (though admittedly an imperfect one) to the amount of uncertainty that surrounds projections of the factors over the next 25 years.

The budgetary effects of varying the individual factors differ widely. The simulated variations in productivity, interest rates, and Medicare and Medicaid spending have large effects on the budget within 25 years, whereas the simulated variation in mortality rates does not. In particular:

  • In cases in which only one of those factors varies from the values used for the extended baseline, CBO’s projections of federal debt held by the public in 2039 range from about 90 percent of gross domestic product (GDP) to 135 percent, compared with 111 percent under the extended baseline including the economic effects of future fiscal policies.
  • In a case in which all four factors varied simultaneously so as to increase projected deficits, but they vary only half as much as in the individual cases, federal debt held by the public in 2039 would reach about 160 percent of GDP (see the figure below). Conversely, in a case in which all four factors varied in a way that lowered deficits, debt in 2039 would equal 75 percent of GDP, about what it is now.

Those projected levels of debt are all high by historical standards, and a number of them exceed the peak of 106 percent of GDP that the United States reached at the end of 1946.

Factors Affecting Federal Debt Levels
Source: CBO

Wednesday, July 9, 2014

2007 To 2013 Multifactor Productivity Annual Growth Rate Below Longer Term Average: 0.6 Percent Versus 0.9 Percent Annual Growth

From The Bureau of Labor Statistics, Economic News Release, "Multifactor Productivity Trends News Release:"
Multifactor productivity measures the change in output per unit of combined capital and labor input. It is designed to measure the joint influences of technological change, efficiency improvements, returns to scale, reallocation of resources, and other factors on economic growth, allowing for the effects of capital and labor. Multifactor productivity, therefore, differs from labor productivity (output per hour worked) measures that are published quarterly by BLS. Multifactor productivity includes information on capital services, hours worked, and shifts in the composition of labor. Estimates of capital services and labor composition are not included in the quarterly labor productivity measures. Additionally, much of the source data needed to construct multifactor productivity measures are not available quarterly.
Historical trends in the private nonfarm business sector

Multifactor productivity in the private nonfarm business sector grew 0.9 percent annually from 1987 to 2013. (See table A.) For the 2007-2013 period, multifactor productivity grew 0.6 percent on average as combined inputs increased 0.4 percent and output increased 1.0 percent. The increase in combined inputs reflected a decrease in labor input of 0.1 percent combined with a 1.4-percent increase in capital services. In contrast, the 0.9-percent average annual percent change in multifactor productivity from 1987 to 2013 was a result of output growing 2.9 percent and combined inputs increasing 2.0 percent. (See table 1.)

Monday, July 7, 2014

Low-Wage Workers And Low-Income Families Are Not The Same: A Small Percentage Of A Higher Minimum Wage Goes To Poor Families

From The Wall Street Journal, "Who Really Gets the Minimum Wage: Obama's $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level." by David Neumark:
One might think that low-wage workers and low-income families are the same. But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons.

First, many low-wage workers are in higher-income families—workers who are not the primary breadwinners and often contribute a small share of their family's income. Second, some workers in poor families earn higher wages but don't work enough hours. And third, about half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.
Using data from the Current Population Survey for recent years, my graduate student Sam Lundstrom has calculated that if we were to raise the minimum wage to $10.10 nationally, 18% of the benefits of the higher wages (holding employment fixed) would go to poor families. Twenty-nine percent would go to families with incomes three times the poverty level or higher.

What about minimum wages as high as $15 an hour? A higher minimum obviously affects more workers. But because workers at higher wages are even less likely to be in poor families, the targeting only worsens with a higher minimum wage. For example, applying the same calculation as above for a $15 per hour minimum, the share of benefits going to poor families would decline to 12%, and the share to families more than three times the poverty line would increase to 36%. And this does not account for the sizable employment losses that would likely result from such a large minimum-wage increase.