Graph of the Day: Public Sector Layoffs are Undermining the Recovery
April was another lackluster month for job growth, according to today’s official report. Only 115,000 new jobs were created last month—a not-unexpected but still disappointing slowdown from December to February, when job growth was averaging 252,000 a month. The unemployment rate fell a tenth of a point to 8.1 percent, primarily because discouraged workers continue to drop out of the labor force. And the number of Americans without a job was essentially unchanged at 12.5 million, nearly half of whom have been unemployed for over six months.
The takeaway, writes economist Jared Bernstein, is that fiscal austerity isn’t working. “It doesn’t work here, it doesn’t work in Europe, it doesn’t work for state and local governments. I’m tempted to ask how many data points we need to recognize this crucial economic truth, but I’m afraid data points don’t have much to do with it.”
And there are plenty of data points. The graph above, of net monthly job growth since 2008, shows how public sector layoffs have created a substantial drag on growth as the economy struggles to take off. While we’re finally back to a net positive number of private sector jobs since the start of 2009, state and local governments have shed over 600,000 workers—12,000 in the past month alone. Nine out of ten of those jobs were in local education, which is down over 200,000 since 2010.
Boosting state and local government employment—especially of public school teachers, whose job it is to educate our children—should be a nonpartisan priority for legislators. But somewhere along the way, collective action became controversial and civic duty became politicized. Many conservative commentators now encourage public sector layoffs in the belief that smaller government is preferable to creating or maintaining government jobs. As if thousands of unemployed teachers will find more socially productive work now that they’re off the taxpayers’ dole.
Sadly, this is the state of the debate. We have the tools to stimulate the economy and get America back on track towards full employment, but half the political establishment is ideologically bound to tax cuts for the rich and dismantling the social safety net. For now, it looks like the economy will have to recover on its own.
Graph of the Day: Has the U.S. Fallen Behind in Higher Education?
Despite having the unfortunate distinction of being the first and only industrialized nation to amass over $1 trillion in outstanding student loan debt, the United States no longer leads the world in college graduates. According to the latest data from the OECD, sixteen countries now have a higher percentage of college graduates than the US, which had arguably the most educated workforce in the world during the postwar years. (The graph below does not include Japan, which also outranks the US.)
In absolute terms, the United States is not producing any fewer graduates than in the past. But as a percentage of the population, our numbers haven’t budged in a generation. Only 41 percent of 25- to 34-year olds held a college degree in 2009, the exact same percentage as their parents. The rest of the world, meanwhile, has surged ahead, leaving us 48th in math and science education, and near the bottom among industrialized countries on international math tests. Compounding the problem is the fact that just 60 percent of undergraduates actually complete their education within six years. The other 40 percent still have to repay their student loans—but with none of the added benefit of the college degree wage premium.
The story is essentially the same for high school graduates. While nine out of ten Americans aged 55 to 64 hold a high school or equivalent degree—far and away the highest percentage in the world—their children and grandchildren have fallen critically behind. Today just 88 percent of 25- to 34-year olds have graduated high school, fewer than ten other OECD countries, including Korea, the Slovak Republic, the Czech Republic, Poland and Slovenia.
It is difficult to draw conclusions from such data. US GDP per capita is higher than all but Norway and Luxembourg among OECD countries, despite its stagnant graduation rates. Germany, another powerhouse economy, also has seen little or no change in its number of high school and college graduates in the last 30 years. And the United States still accounts for over a quarter of the global 25- to 64-year old population with tertiary education—about the same percentage as the next three largest educators combined (China, Japan and the United Kingdom).
Still, these graphs are instructive. America’s economic hegemony in the second half of the 20th century was built on a strong, well-educated middle class, thanks to major investments in higher education like the GI Bill. That commitment has wavered in recent years, as states have cut back their funding for the state and community colleges that educate 75 percent of all US undergraduates, even as the cost of tuition soars. And if a growing number of Americans find themselves financially unable or educationally unprepared to enter higher education, what future can there be for such a middle class? “The net effect,” writes Joel Klein, former Chancellor of the New York City Department of Education, “is that we’re rapidly moving toward two Americas—a wealthy elite, and an increasingly large underclass that lacks the skills to succeed.”
Student Debt and the Middle Class (Part 3)
Part Three of a three-part series on student debt and the middle class. Click here to read Part One and click here to read Part Two.
With the price of a college education rising three times faster than median family income and total student loan debt exceeding $1 trillion, Congress must act quickly to reign in costs if our high-skill labor market is to remain globally competitive. Already, the United States has fallen behind Canada, Japan, and South Korea in the production of college graduates; experts estimate the U.S. must increase postsecondary access and degree production by 4.2 percent annually just to catch up.
The primary obstacle is the cost: a college degree is expensive, and controlling soaring tuition rates won’t be easy. State schools, which educate 75 percent of all undergraduates, including the 42 percent enrolled at community colleges, are largely dependent on government funding to subsidize what is supposed to be a public good. But when the Great Recession forced states to choose between raising taxes and slashing the budget for higher education, the majority of states chose the latter. According to the Delta Cost Project, nearly all public sector tuition increases in 2009 were the result of cost-shifting to replace declining state funding, raising troubling questions for the future sustainability of the entire public education model. At nearly every one of the 2,000 institutions surveyed in Delta’s eleven-year dataset, increased revenues from student tuition were used to offset disappearing subsidies; almost none was spent on the students or the cost of their education.
Both public and private colleges must also find ways to cut costs and increase efficiency. Because student loan money is plentiful—and often guaranteed by the federal government—schools don’t necessarily have an incentive to make tough budgetary choices. Many students readily take on $20,000 or more in debt to pay for an undergraduate degree, making the demand for higher education both high and relatively inelastic (unresponsive to price increases). Research shows that private colleges in particular compete for undergraduates’ dollars by overspending on luxurious athletic facilities and residential amenities, helping students relax while the interest on their loans grows higher and higher. Absent government intervention, it is not clear what might change these market forces, which are pushing colleges in the direction of rising tuition, greater inequality, less efficiency, and higher student debt.
President Obama has advanced several policies that could break that cycle. One proposal would divert federal aid from colleges that raise tuition excessively, and would include performance reviews of schools’ success at enrolling and graduating low-income students, their job placement rates for recent graduates, and students’ ability to repay their loans. At the same time, the president would expand funding for Federal Work Study, Supplemental Education Opportunity Grants, and the Perkins loan program by $10 billion, increasing the incentive for colleges to comply with the new standards. “You can’t assume you’ll just jack up tuition every single year,” Obama told a crowd at the University of Michigan in January. “If you can’t stop tuition going up, your funding from taxpayers will go down. We should push colleges to do better; we should hold them accountable if they don’t.”
Plenty of questions remain. Would the policy punish public colleges that hike tuition rates to compensate for reduced state subsidies? Could the plan end up hurting the low-income students it is designed to help, or lead to even greater disparities in quality between rich and poor institutions? It’s even less clear how the private market for student lending should be reformed. Virtually unlimited private loans ensure broad access to higher education for students willing to take the risk, leaving few incentives for colleges to increase productivity and reduce costs.
The president’s carrot-and-stick approach may increase experimentation and yield results. But in the short term, the fundamental question is whether the public is willing to consider increasing spending on higher education as a matter of civic duty. State tax revenues account for the majority of subsidies for the public and community colleges that educate three-fourths of all U.S. undergraduates. Until congressional legislation reforms the market for higher education, funding these programs remains the surest way for us to sustain the vibrancy of our nation’s middle class and invest in its future.
Student Debt and the Middle Class (Part 2)
Part Two of a three-part series on student debt and the middle class. Click here to read Part One.
A trillion dollars of student loans may not be the next subprime crisis, but it is delaying traditional middle-class aspirations like home ownership. Around one million students will graduate college in debt this spring, with an average $23,000 to be paid off over a period of ten to twenty years; more than enough to discourage young people who might otherwise have taken on a mortgage on their first house.
According to Census data, less than half of those aged 25–34 years old are homeowners today, the lowest percentage since 1999. Despite a brief upsurge in young homeowners signing subprime leases during the heady days of the mid-2000s, on net nearly all of the 11 million unit household growth of the last ten years occurred among older households, while Millennials—children of the Baby Boomers born between 1982 and 2000—are now overwhelmingly choosing to rent or move home with their parents. That’s problematic because first-time buyers are critical to the health of the housing market, which depends on new blood to finance older sellers’ movement into the higher ranges of the market. It’s also a major contributing factor in the continued weakness of the construction sector: single-family housing starts for February were down 12.5 percent from the same time two years ago, while renter-friendly housing was up 197.5 percent.
Although housing prices have fallen by about a third from their 2006 peak, and interest rates are near historic lows, just 9 percent of those aged 29–34 years old got a first-time mortgage from 2009 to 2011, compared to 17 percent a decade earlier. Of course, much of the slowdown in Millennial’s household formation is due to the recession: their employment-to-population is near 45 percent, the lowest it’s been in sixty years, and many of those with jobs are working part-time or at jobs that don’t require a college degree. But a trillion dollars in student loans has added an unprecedented debt overhang to the mix, worsening generational problems such as underemployment and low consumer spending. Those loans will be “a drag on the economy for the foreseeable future,” according to National Association of Consumer Bankruptcy Attorneys vice president John Rao. ”Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect.”
Century Foundation Fellow Dan Alpert also worries that student loans, which act as a tax on future wages, will cost the economy down the road: “Just as during the mortgage crisis, the increases in consumer debt—assuming limited growth over the next few years—is pulling forward consumption from future periods that will not be repeated because of the increased debt load.” Unfortunately, Americans have done a poor job of deleveraging since the recession; total consumer credit has actually increasedabout 9 percent since this time last year. But much of the increase in outstanding consumer credit has been driven by the outsized rise of student loan debt, which last year surpassed total credit card and auto loan debt. Experts believe this confluence of factors—debt overhang, high unemployment, changing patterns of consumer behavior—may lead to a “spending void” that Millennials will be unable to fill as their Baby Boomer parents retire. So while a trillion dollars of student debt may not be enough to topple Wall Street, the impact of Millennial debt on traditional middle-class consumer behavior—purchasing a home, buying a car and starting a family—may be more insidious and long-term than we yet realize.
Student Debt, the Trillion Dollar Threat to the American Middle Class
Part One of a three-part series on student debt and the middle class. Click here to read Part Two and click here to read Part Three.
Although the American love affair with easy credit hit a rough patch during the recession as families delayed the purchase of new cars and ever-larger flat-screen TVs to collectively pay down nearly a trillion dollars in outstanding household debt, one sector of the credit market continued to grow unabated. Total student debt is up over 500 percent since 1999, and is predicted to reach $1 trillion this year, surpassing both total credit card debt and auto loans. By 2020, it could be as high as $1.4 trillion, leading some experts to warnthat student loans “could very well be the next debt bomb for the U.S. economy.”
Not all forecasts are so dire. Moody’s Analytics expects that “despite its rapid growth… student lending is not likely to turn into the next subprime crisis.” That’s because the student loan market is less than one tenth the size of the mortgage market that tanked the economy in 2007. And unlike residential mortgages, 90 percent of student loans are federally guaranteed.
Still, the incredible growth of student debt has sobering implications for the future of the middle class and the U.S. economy. Last year, approximately one million students graduated a four-year college in debt—more than $23,000 on average and nearly $35,000 for those attending a private school. That’s one million young people whose entry into the middle class will be delayed by a decade of debt servicing. Unlike the baby boomers, who spent their 20s and 30s buying homes, creating families and investing in the economy, today’s youth face a trillion dollars in loan repayments, two-thirds of which is held by people under 39. It’s enough to discourage an entire generation.
A weak economy and tough job market have made the situation even worse. Close to 25 percent of recent college graduates are unemployed, up from 19 percent in 2000. Of those employed, less than half work at a job that actually requires a pricey college degree.
The delinquency rate, too, has skyrocketed. Although the number of graduates behind on their payments was initially estimated to be around 10 percent—in line with the delinquency rate for other kinds of debt, like mortgages, car payments and credit cards—a new study by the Federal Reserve Bank of New York puts the true number at 27 percent, far higher than in other sectors of the credit market. As many as 47 percent of student loan borrowers are in deferral or forbearance while they wait for their luck to change.
But it’s not just recent graduates who are struggling to repay their loans. Three-quarters of past due student loan balances—$85 billion in total—now belong to people over thirty, many of whom chose to go back to school and learn new skills during the recession. And while investing in an additional degree typically yields high returns in terms of future wages, a greater debt load also means delaying savings and putting normal patterns of consumption on hold. With close to $700 billion of student debt held by people over the age of 30, it may be a long time before we see middle class consumer behavior return to normal.
Part of the problem is that tuition rates have grown much faster than median family income, a trend that has accelerated in recent years. A lesser known problem, as noted in the Atlantic, is that too few students actually graduate on time, if at all. According to the National Center for Education Statistics, just 60 percent of undergraduates seeking a bachelor’s degree complete their education within six years. The other 40 percent still have to repay their loans—but with none of the added benefit of the college degree wage premium. Creating education policies that encourage these students to graduate on time could go a long way towards lowering the socioeconomic cost of their debt burden.
Simple Solutions to Complex Problems
Via Sarah Kliff, the OECD’s Obesity Update 2012 provides an important example of a complex problem (soaring health care costs) that could be addressed, in part, by a relatively simple solution (healthier diet and exercise).
President Obama has caught plently of flak in the past for similarly modest proposals, like painting roofs white to reduce air conditioning and electricity costs, or keeping car tires properly inflated to improve mileage. Thankfully, that hasn’t stopped the administration from moving ahead with new rules for government-subsidized school meals, which must now include whole grains, reduced fat and salt, and twice as many fruits and vegetables.
It’s a step in the right direction. The OECD estimates that an obese person incurs 25 percent higher medical bills than a person of normal weight in any given year, with obesity responsibile for 5 to 10 percent of all health care expenditures in the United States. And that number should rise by 2020, when the OECD predicts three out of every four Americans will be overweight or obese. So, as employers and families struggle to pay ever-higher premiums, a renewed focus on practical, preventative health policy—like school nutrition regulations—is surely a step in the right direction.
Graph of the Day: The Growing Education Gap Between Rich and Poor (Continued)
New research on the state of U.S. education shows that income inequality has surpassed racial inequality as the single most significant predictor of education outcomes. According to the Russell Sage Foundation, the achievement gap between rich and poor students is now larger than the gap between white and black students—perhaps a watershed moment in the changing discourse on inequality.
Century Foundation Senior Fellow Rick Kahlenberg weighs in on the debate, describing a few of the myriad strategies that TCF and other organizations have proposed to close the socioeconomic achievement gap in education. But I wanted to highlight a few of Rick’s own graphs, from Rewarding Strivers: Helping Low-Income Students Succeed in College, which illustrate a few of the ways in which income inequality critically disadvantages students at the bottom of the income distribution.
Much of the funding for public schools typically comes from local property taxes, leaving poorer districts with significantly lower-quality staff and facilities than wealthier districts. The table above shows how teacher quality drops at high-poverty schools, while the number of students who will grow up to live in poverty skyrockets from 4 percent to one in seven—even when controlling for individual ability and family home environment.
But the disadvantages don’t stop there. Rick’s research for The Century Foundation also indicates that students from the bottom income quartile received zero or negative advantage in the college admissions process, while recruited athletes, minority groups, and legacies enjoyed a significant boost. Leaving aside the issue of athlete and legacy preference, which Rick has argued against forcefully in the past, it is disturbing, in light of this new research, why few schools have adopted programs to encourage economic diversity.
Graph of the Day: For High-Scoring Students, Socioeconomic Status Still Matters
My colleague Greg Anrig continues live-blogging his critique of Charles Murray’s Coming Apart: The State of White America 1960-2010, with a deconstruction of Murray’s claim that top-tier universities perpetuate a genetically superior elite, whose privilege further isolates them from working-class Americans. As Anrig points out, class privilege in higher education is a problem The Century Foundation takes seriously (our own research shows that 74 percent of the students at highly selective colleges come from the richest socioeconomic quartile, while just 3 percent come from the bottom fourth); but Murray’s obsession with genetic explanations (as in his debunked theories about racial intelligence in The Bell Curve) and his conservative ideology blind him to essential facts about the way that class privilege operates in the real world.
The fact is that among high school students who score in the top 25th percentile on standardized tests, socioeconomic background remains the most significant predictor of whether they will go on to earn a college degree. According to a 2010 Century Foundation report, high-scoring students from a poor socioeconomic background were more than 80% less likely to attend a four-year college than their wealthy peers, and five times more likely to attend no college at all. And with the cost of a four-year college education skyrocketing, is it really any wonder that affordability has become a major obstacle for equally intelligent and deserving students? But Murray takes no time to consider whether income inequality–rather than an inevitable, genetic aristocracy of talent–is to blame for this concentration of class privilege. The data below, from the U.S. Department of Education, tell the true story.
Graph of the Day: Half of Schools Fail to Meet “No Child Left Behind” Standards
According to a national report released Thursday, nearly half of America’s public schools fell short of federal standards this year—the highest rate of failure since the controversial No Child Left Behind Act established yearly progress and achievement standards in 2001. The latest survey by the Center on Education Policy identified more than 43,000 schools that did not make “adequate yearly progress” (AYP) toward the law’s requirement that states ensure every student perform at or above grade level by 2014, which most educators believe is an unrealistic, if not impossible, goal.
Because states are allowed to set their own achievement standards under NCLB, the percentage of public schools not making AYP varied wildly from state to state, from about 11 percent in Wisconsin to almost 90 percent in Florida. And part of the increased rate of failure—up 9 percent nationally from 2010—is due to schools that were able to defer mandated increases in achievement until this year. Such discrepancies and loopholes only reinforce the growing consensus among educators and lawmakers that the current version of the law is deficient. “Whether it’s 50%, 80% or 100% of schools being incorrectly labeled as failing, one thing is clear: No Child Left Behind is broken,” said Education Secretary Arne Duncan in a statement last week.
Many conservatives will no doubt seize upon this failure as further evidence that federal policy should provide incentives for privatization, rather than an argument for greater funding of public education. But NCLB was doomed to failure from the beginning by Congress and the Bush administration, who chose to critically underfund the program, and by its poor implementation—not the viability of public education or national standards. And NCLB has been hamstrung all along by its failure to require that urban students be allowed to transfer to suburban schools, which has created a shortage of options outside of conservative’s prefered solution of private-school vouchers.
“The high failure rate under No Child Left Behind suggests that we need better and more accurate measurements of school success,” argues Century Foundation Fellow and education policy expert Richard Kahlenberg. “But to the extent that the failure rates are a genuine reflection of underlying problems in education, we need to move beyond our attempts to make ‘separate but equal’ work and seek creative ways for children of all backgrounds to have a chance to go to high quality, economically integrated schools.”
As Kahlenberg writes in Improving On No Child Left Behind: Getting Education Reform Back on Track, a better constructed version of NCLB would be fully funded, provide coherent national standards and reasonable stakes for students and teachers, and provide “a genuine transfer option for low-income students to attend high-quality, middle-class suburban schools.” Having failed to meet any of those criteria, it is not surprising that the current law has achieved so little success. Let’s not give up on getting it right the second time around.
In Defense of Warren Buffett
By Benjamin Landy
Billionaire investor Warren Buffett became a controversial figure last week, when his provocative op-ed, Stop Coddling the Super-Rich,” landed prominently on the New York Times editorial page. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” Buffett wrote. “ It’s time for our government to get serious about shared sacrifice.” His suggestion, that the government immediately raise taxes on Americans making more than $1 million — and even more so on those making in excess of $10 million — set off a firestorm of criticism from conservatives.
Among the more misguided attacks was a CNN.com opinion piece by Jeffrey Miron, a senior fellow at the Cato Institute and director of undergraduate studies at Harvard University, who outright dismissed the significance of increased government revenues. “The first problem with Buffett’s view,” Miron writes, “is that the number of super-rich is too small for higher rates to make much difference to our budget problems. […] Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue – only about 2% of federal spending.”
Miron is right that $73 billion won’t solve our “budget problems,” which I take to mean our $14.4 trillion national debt. Nobody is arguing that. But that hardly means $73 billion is inconsequential. In order to illustrate just how much money $73 billion is, I did some research to discover some of the things you could buy with that kind of money. The graphic below shows just a few examples.
If you were more militarily inclined, $73 billion could also buy you 16 Nimitz-class nuclear-powered aircraft carriers — the largest and most powerful capital ship in the world — or 1,327 brand new F/A-18 Super Hornets from Boeing. And $73 billion could quintuple NASA’s operating budget, providing enough funds to develop and maintain an international lunar base for the next five years, according to CSIS cost analysis. Less than half that amount would provide safe drinking water for the entire planet, helping save the nearly 6,000 children who die every day from diseases associated with contaminated water supplies.
No matter how you choose to look at it, $73 billion is a lot of money. With all of the problems our country is facing today, can we afford to turn it down?
