Little-Watched Non-Employment Index Confirms Strength of Job Market Recovery

As the Fed hesitates over the pace of further monetary tightening, some critics say that standard unemployment data from the Bureau of Labor Statistics (BLS) overstate the strength of the recovery. By focusing on the number of employed as a percentage of the labor force, the critics say, the BLS ignores those who have dropped out of the labor force altogether. However, a little-watched indicator from the Richmond Fed, the Non-Employment Index (NEI), suggests that the critics are wrong.

The labor force, which forms the denominator of the standard unemployment rate (also known as U-3), consists of all persons who are working or have actively looked for work in the preceding month. People who want a job, but have stopped working, are omitted from both the numerator and denominator. In a typical month, there are millions of such labor force dropouts, even though they are not reflected in the standard statistics.

In an effort to take at least some of those labor-force drop-outs into account, the BLS publishes a supplementary index known as U-5, which includes discouraged and marginally attached workers in both its numerator and denominator. These groups include all those who want a job and have looked for one within the past year, but not within the past month. Discouraged workers cite their belief that there are no jobs to be found as their reason for not looking for work. Marginally attached workers give other reasons, such as family responsibilities. People who say they want a job but have gone longer than a year without looking for one are not counted in either U-3 or U-5.

Universal Catastrophic Coverage Would Make an Excellent Centerpiece for the Next Round of Healthcare Reform

Republican attempts to reform the U.S. healthcare system have fallen short, yet again. Sen. John McCain, who cast the deciding vote against the last-ditch version of repeal-and-replace put forward by the Senate leadership, told his colleagues,

We must now return to the correct way of legislating and send the bill back to committee, hold hearings, receive input from both sides of the aisle, heed the recommendations of nation’s governors, and produce a bill that finally delivers affordable health care for the American people. We must do the hard work our citizens expect of us and deserve.”

More tinkering won’t do it. It is time to get serious about keeping the promises GOP leaders made at the very outset of the debate over healthcare reform—not just to repeal Obamacare, but to replace it with something that provides “coverage protections and peace of mind for all Americans—regardless of age, income, medical conditions, or circumstances,” while ensuring “more choices, lower costs, and greater control over your health care.” There is no point in making a new push for healthcare reform without putting some bold new ideas on the table. 

Universal catastrophic coverage (UCC) would make an excellent centerpiece for the next round of healthcare reform. In fact, UCC is not even particularly new to the conservative playbook. Respected thinkers like Martin Feldstein, who would go on to serve as Ronald Reagan’s chief economic adviser, promoted the idea already in the 1970s. In 2004, Milton Friedman, then a fellow at the Hoover Institution, also endorsed the concept. UCC would make healthcare affordable, both for the federal budget and for American families. And because it would throw no one off the healthcare roles—not 22 million people, not 2 million, not anyone—it offers a realistic chance of the bipartisanship that polls show both the Republican and Democratic rank and file want.

Climate Change Will (Probably) Not Destroy the Global Economy but That Doesn't Mean We are Out of the Woods

Climate change is on course to do a lot of harm to our planet. That is why concerned economists like myself advocate measures that would at least slow the pace of damage and give us more time to adapt. Paradoxically, though, economists rarely discuss what global warming is likely to do to the economy itself. Will climate change destroy the global economy as it raises sea levels, intensifies extreme weather, and kills our crops? The answer turns out to be more complex than you might think.

It is certainly not as simple as David Wallace-Wells endeavors to make it in his widely read New York Magazine article. In it, Wells describes an uninhabitable earth and a devastated global economy by the end of the century. Here is how he explains the economic consequences of climate change:

The most exciting research on the economics of warming has also come from [Solomon] Hsiang and his colleagues, who are not historians of fossil capitalism but who offer some very bleak analysis of their own: Every degree Celsius of warming costs, on average, 1.2 percent of GDP (an enormous number, considering we count growth in the low single digits as “strong”). This is the sterling work in the field, and their median projection is for a 23 percent loss in per capita earning globally by the end of this century (resulting from changes in agriculture, crime, storms, energy, mortality, and labor.)

Tracing the shape of the probability curve is even scarier: There is a 12 percent chance that climate change will reduce global output by more than 50 percent by 2100, they say, and a 51 percent chance that it lowers per capita GDP by 20 percent or more by then, unless emissions decline. By comparison, the Great Recession lowered global GDP by about 6 percent, in a one-time shock; Hsiang and his colleagues estimate a one-in-eight chance of an ongoing and irreversible effect by the end of the century that is eight times worse.

The scale of that economic devastation is hard to comprehend, but you can start by imagining what the world would look like today with an economy half as big, which would produce only half as much value, generating only half as much to offer the workers of the world.

The problem, however, is that the paper to which Wallace-Wells refers says nothing of the sort. The paper was written by Marshall Burke, Solomon Hsiang, and Edward Miguel, and published in Nature in 2015. The authors do not say that climate change will make the world economy of the future smaller than it is now, but rather, smaller than it would be without climate change. Here is a quote:

[U]nmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality, relative to scenarios without climate change. [Emphasis added.]

Latest Senate Healthcare Bill is a Step Toward Universal Coverage but Not Bold Enough

 Universal health care access is coming to America. As I wrote a few weeks ago, it is time to stop fighting it and make it work. In principle, Republicans agree. After all, from the very start of the repeal-and-replace debate, they have explicitly promised “coverage protections and peace of mind for all Americans.”

The latest version of the Better Care Reconciliation Act (BCRA) takes new steps toward universal access, but it is not yet bold enough. If our Senators only had the courage, they could build on these ideas to craft a plan that would satisfy both conservatives and moderates in their own ranks. Furthermore, it could become a way for the GOP to work together with Democrats, which polls say is what the public wants.  Here is how it could be done.

How Conservatives Could Design a Fair and Efficient Healthcare System if they Took their Time

Senate Republicans fell short in their first attempt to attract fifty votes for their healthcare bill. Small wonder. The Better Care Reconciliation Act (BCRA), as it is called, is remarkable in many ways, but perhaps remarkably of all, it fails  to draw on a large body of conservative reform proposals. As a result, it gives the false impression that only liberals have given any thought to how to design a fair and efficient healthcare system.

Now the Senate’s Republican leaders have a second chance. Instead of rushing something out that isn't much of an improvement, they could use the extra two weeks they’ve given themselves in August for open hearings on healthcare reform. If they did so, they would have a chance to hear day after day of testimony from conservative scholars and policymakers. Here are some key points that testimony would make, if it had a chance to be heard.

Some of that testimony would focus on the top end of the spending curve. As the chart below shows (based on data from the National Institute for Health Care Management Foundation), just 1 percent of the population accounts for 20 percent of all personal healthcare spending, and the top 5 percent of population for half of all spending. Many people in that range suffer from one or more chronic conditions like diabetes, kidney failure, or AIDS that require expensive treatment year after year. Their medical needs are literally uninsurable by traditional standards. They are not just at high risk of needing care, they are certain to need it. And even if an insurer could be persuaded to cover them, an actuarially fair premium would exceed the annual income of all but the very wealthiest among the 

chronically ill.

Unintended Consequences of Healthcare Decentralization

All economic policies have unintended consequences. The decentralization of healthcare finance and policy proposed by congressional Republicans is no exception.

The Better Care Reconciliation Act (BCRA) pending in the Senate would sharply shift responsibility for healthcare toward the states. Some of the biggest changes would come in Medicaid. would sharply cut federal spending, leaving states with the choice of responding by increasing their own contributions to maintain current enrollments, or by reducing coverage. Aside from Medicaid, they would gain the right to redefine the essential services insurance must cover, to experiment with high risk pools, and to change policies toward pre-existing conditions.

A group of GOP senators skeptical of the BCRA have offered a different proposal that would permit even greater diversity in state healthcare policy. The Patient Freedom Act sponsored by Senators Susan Collins (R-ME), Bill Cassidy, MD (R-LA), Shelley Moore Capito (R-WV) and Johnny Isakson (R-GA) would give states three choices: Keep the existing framework of the ACA with most of its federal subsidies, sign up for a new market-oriented system centered on direct contributions to health savings accounts for each individual, or design a new system of their own, with federal approval.

Jobs are No Reason to Quit the Paris Climate Agreement

Donald Trump cited “jobs” no fewer than eighteen times in announcing his plans to withdraw from the Paris climate agreement. Nonsense. Jobs are not a good reason—in fact, they are no reason at all—for that decision.

Let’s start with the fact that the US economy doesn’t really need more jobs. We are already awash in jobs. At the macro level, there is no sign that the Paris accord, in place for over a year now, has hurt the steady growth of employment. Neither has it slowed the decline of unemployment, which reached a 16-year low in May. Take a look at the charts. Do you see a sharp break over the last year, since the agreement was signed? I don’t.

To be sure, the Paris agreement is not yet fully in effect, but markets are forward looking. If employers expected the agreement to put the brakes on growth, they would have been holding off on hiring already. What would be the use of taking on workers you are just going to have to lay off as soon as those onerous regulations come into play? If the charts tell us anything about Paris and the job market, it is not how great the employers expect the effects to be, but how small.

But that’s just the macroeconomic perspective. What about low rates of labor force participation and declining labor mobility? Those are real problems, but they have been around, and growing more serious, since long before the Paris agreement was even in the planning stages. Getting out of Paris will not fix them.