Wednesday, March 28, 2012

Marital Status, the Safety Net and the Recession

Copyright, The New York Times Company

The expanding social safety net is part of the reason that unmarried women who are heads of household have gone back to work more slowly than married women have.

Last week I showed how employment rates fell significantly more during the recession for unmarried (and nonelderly) women who are heads of households than they did for married women.

The first chart below shows how this result is probably not attributable to sharply different layoff rates by marital status, because the number of unmarried women who were in their first month of unemployment, expressed as a ratio to the number of unmarried employed women, changed essentially in parallel with the number of married women in their first month of unemployment.

United States Census Bureau

What seems to be especially different between married and unmarried women is their propensity to be unemployed for long periods. The second chart shows the number of women in their seventh month of unemployment (that is, weeks 27-30). Unemployment this long increases much more among unmarried women.

United States Census Bureau

A similar chart could be drawn for the eighth month, the ninth month and so on. The point is that married and unmarried women enter unemployment at about the same rate, but unmarried women leave it more slowly.

A few readers who commented on last week’s post suggested that unmarried women experience more discrimination than married women do, and that’s why they are slower to return to work.

It would be nice to have more direct evidence on that hypothesis; for now, I note that this is the opposite kind of discrimination than what prevailed during the Great Depression, when married women were often prohibited from working while unmarried women were permitted to work.

Part of the difference in labor-market experiences has to do with the safety net. Many safety-net programs, like the Supplemental Nutrition Assistance Program, which provides food stamps, and Medicaid, base eligibility on family income.

A married woman (and her family) with a husband earning above the poverty line – the vast majority of husbands do so – is ineligible for a number of safety-net programs regardless of whether she’s employed, because her family’s income is above the poverty line regardless of her employment status.

Unmarried household heads, on the other hand, are usually the sole breadwinner for the family, and when their income falls to zero, the household income essentially does, too. For this reason, more unmarried women who are heads of households can expect anti-poverty programs to help them when they are out of work than married women can.

In other words, anti-poverty programs provide significantly more cushion for unmarried women than they do for married women.

An unintended but unavoidable consequence of providing someone a cushion when they are without work is that they are provided with less incentive to get back to work.

By definition, married women have husbands and unmarried women do not, and husbands can many times be a source of support. But husbands can provide more flexible support than government programs do. After all, husbands know their wives better than the government does and thereby do less to discourage women from getting back to work than government benefit rules do.

Note, too, that the safety net expanded during 2008 and 2009 in ways that were more accessible to unmarried women. The Supplemental Nutrition Assistance Program became more generous in a number of ways, and, as noted, it provides less cushion for the average married woman than it does for the average unmarried woman head of household.

For a time, the 2009 American Recovery and Reinvestment Act paid for 65 percent of the health insurance costs for unemployed people, but only if those people could not join a spouse’s health insurance plan. Thus, as the law’s health insurance subsidy appeared and then was phased out, it had different effects on the incentives to get back to work among unmarried people than it did among married people.

A great many unmarried women have been unable to find work through no fault of their own. At the same time, we know that the safety net affects the propensity of people to work.

Unless incentives suddenly stopped mattering during this recession, it appears that the expanding social safety net explains some of the excess nonemployment among unmarried women who are heads of households.

Wednesday, March 21, 2012

Marital Status and the Recession

Copyright, The New York Times Company

Job losses among women during the recent recession exhibit a curious pattern by marital status that is revealing about the importance of labor demand and supply factors.

During the 2008-9 recession, job losses were not equitably shared; employment rates fell more for some groups than others. Not surprisingly, employment changes varied by industry, with the greatest percentage job losses in residential construction and large job losses in manufacturing.

It is also well known that job losses were greater among men than among women – the so-called mancession – largely because men had been more likely to work in the residential construction and manufacturing industries that were hit hardest.

In this way, changes in the patterns of demand help explain why employment changes were different for men than for women. People stopped buying new houses, cars and other items that were disproportionately produced by men, and many times continued buying health care and education that were disproportionately produced by women.

The chart below displays quarterly employment rates separately for married women and unmarried women who were heads of households, both under age 65. Not surprisingly, the latter are somewhat more likely to work because they have no spouse to help provide for the family.

United States Census Bureau

More surprising is that employment rates fell so much more for these unmarried women who were heads of household. Employment per capita fell 4.7 percentage points among them, compared with 1.6 percentage points among married women. The job-loss gap associated with marital status turns out to be as large as the more widely recognized job loss gap associated with gender.

Neither group of women had many members working in construction, so the decline of construction cannot explain these differences. In fact, married women in 2007 were a bit more likely to be working in an industry that would decline thereafter.

An “added-worker effect” has been observed during a number of recessions: more married women worked during a recession than during an expansion because wives sometimes begin work to help replace the income lost by their unemployed husbands.

At first glance, this added-worker effect might seem to explain what is shown in the chart: perhaps married women were laid off at essentially the same rate as unmarried women, but offsetting those layoffs were the wives who started working when their husbands were laid off.

In this way, the added-worker hypothesis is a supply theory, one made possible by the changes in the composition of industry demand that created job losses for men.

But the added-worker effect is much too small to explain the sharply different job-loss rates by marital status. The employment rate among nonelderly married men fell 4 percentage points, to 83 percent from 87 percent. While that is a large decline by historical standards, it still means that roughly 95 percent of wives whose husbands were employed in 2007 had husbands who continued their employment during the recession.

Among the 5 percent of wives who were not so fortunate, roughly two-thirds of them had already been working before the recession and therefore could not react to their husband’s unemployment by starting work.

Estimates of the impact of the added-worker effect are that two or fewer wives who start working for every 100 husbands who become unemployed — and, by definition, none for every 100 husbands who continue to be employed.

The added-worker effect alone might explain why employment rates would fall a tenth of a percentage point more for unmarried women, but not the 3.1 percentage point gap that actually occurred.

Industry factors do not explain why the job market was different for married and unmarried women. Nor do age and schooling. Yet I think the relationship between marital status and job losses is revealing about other demand and supply factors, to which I will turn in next week’s post.

Wednesday, March 14, 2012

How Is the Payroll Tax Cut Doing?

Copyright, The New York Times Company

The payroll tax cut is having the expected labor market effects, but those effects will reverse themselves when the cuts inevitably expire.

Beginning in January 2011, the payroll tax withheld from employee paychecks was temporarily reduced to 4.2 percentage points from 6.2 percentage points. The cut was scheduled to expire at the end of 2011, but Congress has continued it through the end of 2012.

My calculations last year, based on the proposed cut of 3.1 percentage points, suggested that the payroll tax cut “could raise employment by at least a million, albeit the duration of job creation is related to how long the tax cut lasts.”

On a seasonally adjusted basis, payroll employment was 130.2 million at the end of 2010, just before the payroll tax cuts took effect. As of last month, payroll employment was up 2 percent, or 2.5 million, to 132.7 million. The household employment survey tells a similar story. Aggregate hours worked — the product of employment and the length of an average employee’s work — increased almost 3 percent.

Of course, the payroll tax cut was not the only factor affecting the economy since 2010. If nothing else, population growth would have increased employment by about 1.2 million over that time frame. In addition to the increase expected from population growth, payroll employment therefore increased by another 1.3 million since the time that the payroll tax cut went into effect.

During the same period, various parts of the federal government’s 2009 stimulus package expired and state and local governments were, on average, laying off employees. Housing prices also fell somewhat — more than 4 percent according to the Case-Shiller index. One point of view is that government and housing contraction tends to reduce total employment, which makes it even more remarkable that the net result of the payroll tax cut and these contractionary events was an employment increase beyond population growth.

Regardless of the source of the two and a half million new jobs, employment is still millions below where it would have been if employment had grown with population since 2007. But nobody promised that a mere two-percentage-point payroll tax cut would bring the economy back all by itself.

This minirecovery may not last, because the payroll tax cut will eventually expire. When that happens, the payroll tax rate increase by itself will tend to reduce employment by about a million, so that employment can increase further only if population or other sources of economic growth are enough to offset tax-cut expiration.

Wednesday, March 7, 2012

Career Concerns in Chicago

Copyright, The New York Times Company

Chicago has been in the news twice recently, once for being ranked as the most corrupt American city and this week for losing its opportunity to hold the Group of 8 economic summit meeting in May. The economics of the two events are related.

A study at the University of Illinois at Chicago and the University of Illinois Institute of Government and Public Affairs found that Chicago city officials, especially aldermen, were convicted by the federal government for corrupt activities while in office more often than officials in other cities.

It’s been decades since a Chicago mayor has been convicted of a crime while in office. But something has seemed different in that office too, because its holder had been named Richard Daley for 42 of the 56 years from 1955 to 2011 (first Richard J. Daley, then his son Richard M. Daley). It’s also been at least decades since a Chicago mayor sought a higher office.

A promotion tournament is one way that labor economists have suggested that people can be provided incentives to behave well in their jobs, be they in the private or public sector. The idea is that people have an extra reason to do their job well when they expect to be closely evaluated on the occasion of a promotion decision.

Promotions are sometimes a factor in political careers, too. Aldermen sometimes become mayors and mayors governors. Both George W. Bush and Bill Clinton were governors before being elected president. Officials are sometimes criticized for looking toward higher offices, but those aspirations might give them an extra reason to stay away from corruption, lest credible accusations of corruption mar their campaigns.

Many Chicago mayors have not been expected to pursue higher office. Richard J. Daley and Harold Washington died in office. Richard M. Daley retired, and Chicagoans do not expect him to run for governor, senator or president.

The current mayor, Rahm Emanuel, could be different. He is a prominent figure in the national Democratic Party. If, hypothetically, he were building a résumé for governor or another office, that could be good for Chicago. The better Chicago performs while he is mayor, the better his résumé will look.

Indeed, Mayor Emanuel has already involved himself in statewide, national and international interests. He was eager to play host to the G-8; although that was moved to Camp David, Chicago will be the site of a NATO meeting this year.

Mayors often concern themselves with the city’s public school system through high school. Mayor Emanuel has looked a bit presidential in tackling higher education, too.

Thus, while Chicagoans have wondered why their city should endure the hassle of G-8 and NATO meetings, perhaps they should appreciate having a mayor who might have “career concerns.”