Women\'s Unemployment Surpasses Men\'s

For the first time in more than six years, the unemployment rate for adult women (those over age 20), seasonally adjusted, has surpassed that for adult men.

Federal Reserve Bank of St. Louis Women's unemployment rate is in blue, men's in red. Data are seasonally adjusted.

This reversal was first noted by Joan Entmacher, vice president for family economic security at the National Women's Law Center.

During the recessi on, men had borne the brunt of job losses, which were disproportionately in male-dominated industries like construction and manufacturing. Over the course of the recovery that began in mid-2009, however, these sectors have improved a little, while the female-dominated public sector has been shedding workers.

As you can see in the chart above, the unemployment rate for adult men (red line) has fallen sharply since early 2010. That trend is due in part to stronger hiring of men, but also to a more discouraging development: men are dropping out of the labor force in very high numbers.

The unemployment rate for adult women (blue line) never got nearly as high as that for men, but then it has not fallen by much either. Like men, women were leaving the labor force in droves from 2009 to 2011. Women's participation rates appeared to stabilize somewhat last year.

I should note, by the way, that the unemployment rate for male teenagers is still much higher than that of females: 25.9 percent compared with 21.2 percent.

Four Years Later, 28,000 More Jobs

For jobs, the past four years have been a wash.

The December jobs figures out today indicate that there were 725,000 more jobs in the private sector than at the end of 2008 - and 697,000 fewer government jobs. That works into a private-sector gain of 0.6 percent, and a government sector decline of 3.1 percent.

In total, the number of people with jobs is up by 28,000, or 0.02 percent.

How does that compare? It is by far the largest four-year decline in government employment since the 1944-48 term. That decline was caused by the end of World War II; this one was caused largely by budget limitations. The only other post-1948 four-year drop was during Ronald Reagan's first term, when government employment fell 0.6 percent.

Going back to Dwight Eisenhower, there have been only two administrations that turned in a worse performance in private-sector job growth. There were small declines in Eisenhower's first term and in George W. Bush's first term. Mr. Bush's second term posted a scant 1.1 percent gain in private-sector employment - a gain that was wiped out during the first two months of 2009.

Over all, Mr. Obama's first four years narrowly - and preliminarily - escaped being the second four-year presidential term since World War II to suffer net job losses. The first was George W. Bush's first term.

The New York Times

A note on methodology. A month from now the Bureau of Labor Statistics will announce the final benchmark revision for the 12 months through Marc h 2012. The preliminary estimate for that revision was that the economy gained 453,000 more private-sector jobs during the period than was previously reported, and lost 67,000 more government jobs. The calculations in this post incorporate those estimates.

The December figure will of course be revised for the next two months, and then will get a final revision in February 2014. Only then will it be clear whether the past four years had a net gain or loss in jobs.

The Complexities of Comparing Medicare Choices

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

The roughly 50 million Americans covered by the federal Medicare program have a choice of receiving their benefits under the traditional, free-choice, fee-for-service Medicare program or from a private, managed-care Medicare Advantage plan. The private plans have a steadily increasing number of enrollees - currently 13 million, or 27 percent of beneficiaries.

A fundamental question that has engaged health-policy researchers and commentators for some time is whether coverage of Medicare's standard benefit package under Medicare Advantage plans is cheaper or more expensive than it is under traditional fee-for-service Medicare.

The answer is yes.

At the risk of going over ground already covered in Economix and in the scholarly literature on the subject, this answer may warrant some explanation.

The latest round in the debate over the question was begun in August 2012 by Zirui Song, David M. Cutler and Michael E. Chernew in their paper “Potential Consequences of Reforming Medicare Into a Competitive Bidding System.” In that paper, the authors explored how much more above their regular Part B premiums the elderly would have had to pay in 2009 to either a Medicare Advantage plan or to traditional Medicare if the much-debated Ryan-Wyden plan for Medicare had been in place that year.

That plan would have established a Medicare Exchange - a federal version of the insurance exchanges envisaged under the Affordable Care Act - on which Medicare beneficiaries could have chosen among private health plans that would compete with traditional Medicare on the same terms, that is, on the same competitive platform.

Each private plan would have had to offer a benefit package that covered at least the actuarial equivalent of the benefit package provided by the traditional fee-for-service Medicare. Medicare's contribution (or “premium support”) to the full premium for any of these choices, including traditional Medicare, would have been equal to the “second-least-expensive approved plan or fee-for-service Medicare” in the beneficiary's county, whichever was least expensive. That premium support payment would have been adjusted upward for the poor and the sick and downward for the wealthy.

Drs. Song, Cutler and Chernew estimated that on the basis of a national average the second-lowest bids actually submitted by private health plans in the various counties and regions in 2009 were 9 percent below the comparable average per-beneficiary cost of traditional Medicare.

Close to 70 percent of the beneficiaries in 2009 would have had to pay more than their traditional Part B premiums to stay in traditional Medicare. About 90 percent of beneficiaries in private Medicare Advantage p lans in 2009 would have paid more than they actually did in that year.

These figures suggest substantial savings for United States taxpayers, although not for beneficiaries. Mindful of the beneficiaries, the authors ended their paper with reservations about the Ryan-Wyden plan, rather than an enthusiastic endorsement.

In an acerbic comment on that paper, published in The Weekly Standard, James C. Capretta and Yuval Levin saw in the authors' numbers strong support for Ryan-Wyden or similar market-driven plans and sharply took the authors to task for their interpretation of the data.

But so far the Ryan-Wyden plan is only theory. In fact, as is by now widely known, enrollment of Medicare beneficiaries in private Medicare Advantage plans actually has cost taxpayers considerably more than it would have cost had the same beneficiaries stayed in traditional fee-for-service Medicare. A s the Medicare Payment Advisory Commission, or Medpac, observes in its March 2009 report to Congress (see Page 252):

In 2009, payments to MA plans continue to exceed what Medicare would spend for similar beneficiaries in FFS. MA payments per enrollee are projected to be 114 percent of comparable FFS spending in 2009, compared with 113 percent in 2008. This added cost contributes to the worsening long-range financial sustainability of the Medicare program.

These extra payments to Medicare Advantage plans in 2009 have been estimated at $11.4 billion.

How, then, is one to reconcile these contradictory claims over the likely benefits from competitive bidding for Medicare's business by private health pla ns?

The answer can be found in the bureaucratic arrangement enacted as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Remarkably, the Republican authors of that bill in the White House and in the Congress - usually self-proclaimed champions of market-driven competition â€" eschewed that approach in favor of a statutory, administrative algorithm so complex as to defy description within the space of this post (for details see this Commonwealth Fund document).

Most likely, the bureaucratic route was chosen at the behest of private insurers that would have insisted that a truly competitive approach required traditional Medicare to be treated as just another health plan competing with private plans on identical terms. In the process, however, the industry managed to extract from Congress remarkably generous terms.

Under those terms, Medicare's benchmark for a county or region is not based on competitive bids at all but is administratively set with appeal to the average spending per beneficiary in traditional fee-for-service Medicare in the county or region in which a beneficiary resides, albeit with a variety of adjustments that push the resulting county or regional benchmarks considerably above per-beneficiary spending under traditional Medicare. Austin Frakt neatly illustrates the resulting benchmarks graphically.

In this system, the private plans do submit premium bids for a statistically average (“standard”) be neficiary in the relevant county or region, and for Medicare's standard benefit package. These so-called standard bids are the actual bids used in the Song, Cutler and Chernew analysis.

If a Medicare Advantage plan submits for a county or region a standard bid above Medicare's relevant benchmark, the plan is paid by Medicare a “base rate” (for the statistically average beneficiary) equal to that benchmark. It means, of course, that the plan is paid more than the relevant per beneficiary spending under traditional Medicare. The Medicare Advantage plan must then collect the difference between its bid and the benchmark from the enrollee (on top of the Part B premium the enrollee must pay in any event).

Medicare's payment to the plan for a particular enrollee, however, is not just the “base rate.” The actual payment quite properly reflects the individual beneficiary's actuarial risk. That multiplicative adjustment is clearly illustrated in Figure 1 of this Medpac publication, where it is called “CMS-HHS Weight.”

On the other hand, if a Medicare Advantage plan's bid is below Medicare's relevant benchmark, then that plan is paid its bid plus a fixed percentage of the difference between its bid and the benchmark, a so-called rebate. Most of that rebate must be spent by the plan on added benefits not in Medicare's standard benefit package, although some undoubtedly flows into profits.

For 2012, the fixed percentage for the rebates ranges from 67 to 73 percent, depending on a quality rating score. After 2014, the fixed percentages will be 50, 65 and 70 percent, depending on the plan's quality rating.

The table below, a reproduction of Table 12-3 of the March 2012 Medpac Report to Congress, exhibits the nationwide averages of the Medicare benchmarks, the standard bids by plans and the projected payments to plans under this complex “bidding” system. The different types of plans (health maintenance organizations, preferred provider organizations and private fee-for-service plans) were described in an earlier post. Special-needs plans concentrate on patients requiring home care or other special care. Employer plans are offered by particular employers.

Medpac, Medicare Payment Policy, Report to Congress, March 2012

It is seen that all Medicare Advantage plans together and especially H.M.O.'s do appear to bid less on average than per-beneficiary spending under traditional Medicare. That wo uld seem to justify the argument that, on average, under genuine competition Medicare Advantage plans as a group would be cheaper than traditional Medicare.

These differentials - here two percentage points for all Medicare Advantage plans and five percentage points for H.M.O.'s - are a bit misleading, however, because the traditional Medicare spending figures include add-ons that are not part of providing health care to Medicare beneficiaries. Traditional Medicare makes payments for graduate medical education and so-called disproportionate share payments to hospitals that treat a disproportionate share of Medicaid patients or uninsured patients. Private Medicare Advantage plans do not have to make such payments.

There is the additional suspicion that even after risk adjustment, the private Medicare Advantage plans still benefit to some extent from favorable actuarial risk selection.

So the question remains: Is coverage of Medicare's standard benefit package under private Medicare Advantage plans cheaper or more expensive than it is under traditional fee-for-service Medicare?

Readers now know why the correct answer is yes.

Whether Congress will ever have the temerity to foist upon vendors to the Medicare program truly raw price competition remains an open question. Traditionally vendors to government have preferred administered prices, for reasons evident in the table above.

The Supreme Court and the Next Fiscal Cliff

Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The end of the 2012 fiscal cliff drama was largely predictable. Faced with the prospect of large and immediate tax increases, Congress acted to raise income tax rates only on relatively well-off people - and also to allow payroll taxes to increase for all working Americans. The messy compromise raises revenue, although it does not bring our medium-term deficits under control, and it is unlikely to push the economy back into recession.

Unfortunately, the legislation that passed the Senate late on New Year's Eve and the House on Jan. 1 sets up another fiscal-cliff-type experience â€" with a fight over extending the debt ceiling looming in about two months. And the outcome then could well be a significant slowdown in the economy and a struggle that might end up in front of the United States Supreme Court.

About the end of February, the Treasury Department will have exhausted its legal authority to borrow. Congressional authorization will be needed to allow additional federal government debt to be issued; this is the debt ceiling.

The last time the United States came close to hitting the debt ceiling, in summer 2011, a game of chicken was played on Capitol Hill and with the White House â€" with many Congressional Republicans insisting that the debt ceiling would not be extended unless there were matching spending cuts.

This led to the Budget Control Act of 2011, which created the now-infamous sequester mechanism: if politicians could not agree on ways to limit spending (and raise taxes), automatic spending cuts would kick in for both domestic and military programs of the government.

Under the New Year's Day legislation, this sequester was postponed until the end of February.

So the next fiscal cliff includes both hitting the debt ceiling and carrying out the sequester. By itself, the sequester will cause government spending to fall in an arbitrary and inefficient manner. This will slow the economy to some extent.

But the greater danger is that world markets will be plunged into chaos when the debt ceiling is not extended, because this creates the prospect that the United States government wi ll be unable to make payments on its existing obligations unless it breaks the law or makes vast spending cuts.

Using the debt ceiling in budget negotiations is a dangerous and irresponsible tactic. In summer 2011, financial markets were severely strained by the prospect that the United States would not pay its debts. This pushed up yields on risky debt around the world (including in Europe) and caused the stock market to fall almost everywhere.

Yet House Republicans seem willing to play the same card again unless they get large cuts to domestic discretionary spending by the federal government (or perhaps big cuts to Medicare, which is part of what they were asking for in 2012). The Obama administration and most Democrats will refuse to agree. Another showdown will loom.

In think about likely scenarios, you need to assess what the Supreme Court might do if it were to take center stage on the debt ceiling.

While the Tea Party movement is greatly weakened, it may still be strong enough to block any extension of the debt ceiling. If that were the case, an impasse with a great deal of impassioned rhetoric would result.

At the end of the day, the administration would probably break the debt ceiling and take its case to the Supreme Court. While the court's ruling on the constitutionality of the Affordable Care Act was a significant moment in summer 2012, any decision on the debt ceiling would be much more important. We haven't seen a court decision with that kind of potential macroeconomic impact since the 1930s (when the legality of suspending the gold standard was reviewed).

Many legal arguments will be heard, and in the end the Court is likely to be swayed by an assessment of the potential implications. If the government has already broken the debt ceiling, de termining that this is unconstitutional would cause chaos for the United States and the global economy. As in the 1930s, the court would not want to second-guess the macroeconomic decisions of the administration, I hope.

Whatever the Supreme Court outcome, going down that route would create a great deal of uncertainty â€" and is likely to affect some investment and consumption decisions and to slow the economy enough to create a new recession.

For a specific quantitative measure and a great deal of helpful thinking on this issue, I recommend the work of Nicholas Bloom of Stanford University (with Scott R. Baker of Stanford and Steven J. Davis of the University of Chicago) on their general Web site and in their most recent paper, updated this week.

Their Economic Policy Uncertainty Index shows a big spike on the debt ceiling dispute in Aug ust 2011. We will face a comparable or even larger effect in early 2013. So the question for our politicians will be: whom do they think will be blamed for creating such an uncertainty-induced recession?

Based on its experience in 2012, the Obama administration will feel that it does well by standing up to the Republicans on fiscal issues (although some Democrats, of course, wanted to take an even stronger line). I do not see the two sides coming together on spending issues, so I expect a version of the sequester.

The Republicans are obviously divided on fiscal policy and many other issues; one is how extreme they want to be perceived to be relative to mainstream opinion.

Most likely the Tea Party faction will dig in deeply, as it did on Jan. 1, when the fiscal legislation passed the House with support from most Democrats and enough Republicans who were willing to vote with the administration (and the Senate). This is, of course, a sharp contrast to what happened at the start of President Obama's first term, when all the House Republicans, without exception, voted against the fiscal stimulus package.

The Republicans will split, but more of them are likely to side with the Tea Party movement than was the case this week. We are headed directly for another fiscal-cliff confrontation â€" and this one could be much more damaging.

Recommended Reading: How We Made Snow Fall

Happy 2013 everyone!

As last year was winding down, The New York Times published a piece about the avalanche at Tunnel Creek. It impressively mixed the traditional elements of an NYTimes article with some novel multimedia presentation techniques.

You can check out an interview with our colleagues who were responsible for the feature on the Source blog.

Why 49 Is a Magic Number

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

The aggregate amount of regulation is difficult to quantify, but we learn something about it from the number of businesses that choose to have exactly 49 employees.

I noted last week that g overnment regulations are not as easily quantified as taxes and spending, because regulation has no budget and no obvious accounting method. Some laws are not enforced, while others have little impact because people would follow them even without the force of a law. The most useful regulatory budget would put a lot of weight on the laws that actually matter.

The economists Luis Garicano, Claire Lelarge and John Van Reenen are developing a method to quantify the aggregate importance of employer regulations. They note that small employers are naturally more common than medium-size employers, which are themselves more common than large employers.

Moreover, the frequency of employers of various sizes appears in many situations to follow a “power law” of statistics. If you tell these economists how many employers in a given region have, say, 22 employees, the authors can, with the power law, accuratel y predict the number of employers with 23 employees.

The chart below, reproduced from their paper using data on employers in France, shows the number of employers of various sizes. For example, about 10,000 employers in their sample have four employees. Their paper confirms the statistical power law with one glaring deviation: the exceptional number of employers with exactly 49 employees and far fewer with 50 employees (another lesser deviation occurs on the margin between 9 and 10 employees).

Luis Garicano, Claire Lelarge and John Van Reenen, “Firm Size Distortions and the Productivity Distribution: Evidence From France.”

The chart shows a couple of odd patterns at the 50-employee mark. First, there are sharply fewer employees (by more than a factor of two) with exactly 50 employees than with exactly 49 employees. Second, although the number of companies usually falls with the number of employees, there are actually more employers with 49 employees than with 45 employees.

The authors show how this pattern reflects deliberate efforts by employers to stay below the 50-employee threshold where several employment and accounting regulations take effect. For example, they note that French companies employing 50 or more workers are, among other things, obligated “to establish a committee on health, safety and working conditions and train its members,” whereas companies with 49 employees are not. France also has regulations kicking in at employment levels of 10, 11, 20 and 25.

Presumably, companies would not adjust their size to avoid regulations that are not enforced or regulations that require an employer to take actions tha t he already takes. Moreover, mandates that create costs for employers but create nearly equal benefits for employees should not induce companies to change their size, because (barring minimum-wage regulations) employers can pass on the costs of those regulations to their employees in the form of lower cash wages.

The primary reason for size adjustments is regulations that impose costs on an employer significantly higher than the benefits they create for the employees. The larger the net costs, the more company size should deviate from the statistical power law, which is why Professors Garicano, Lelarge and Van Reenen can use their power-law analysis to quantify the private costs of the regulations that kick in at the 50-employee threshold.

This is not to say that the regulations imposed on 50-employee companies are necessarily excessive, because they can create public benefits that more than justify their net costs for an employer and his employees, just as taxes and government spending can. For example, an air-pollution regulation might kick in at 50 employees that creates a significant cost for the employer and little aggregate benefit for his employees but creates a significant benefit for the people of France.

The authors show how, so far, employer sizes in the United States deviate less from the statistical power law, which implies that French regulations kicking in at 50 are more costly (from the point of view of an employer and his employees) than the United States regulations kicking in at that threshold.

But the United States has added some major regulations with its Affordable Care Act and its Dodd-Frank regulations. Beginning this time next year, for example, the Affordable Care Act will put new requirements on businesses with 50 or more full-time employees, whereas businesses with 49 or fewer employees will be exempt. Businesses with fewe r than 26 employees may already be eligible for Affordable Care Act tax credits for providing health insurance, whereas larger businesses are not.

Perhaps we should thank the French for their heavy regulation, as it is already helping us account for the impact of regulation in the United States.

When the Deficit Will Be Fixed

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform â€" Why We Need It and What It Will Take.”

The Holy Grail for budget hawks is the “grand bargain” â€" some combination of tax increases and entitlement reforms that will get the deficit on a sustainable track, permanently. On paper, it always looks simple â€" relatively small adjustments to the growth path of revenues or big spending programs like Medicare or Social Security compound over time into big savings.

The proble m, of course, is getting Congress to act, because of what economists call a time-inconsistency problem. The Congress that raises taxes and cuts benefits will suffer politically, while the benefits of lower deficits will accrue to future Congresses.

Historically, what has moved Congress to enact big deficit-reduction packages was the prospect of quick improvement in terms of inflation, growth and interest rates. Given that deficit reduction today is very unlikely to improve any of these in the near term, deficit hawks lack any real payoff from a grand bargain.

The two problems most likely to result from budget deficits are inflation and high interest rates. Many economists believe that deficits are inherently inflationary; others believe that they inevitably put pressure on the Federal Reserve to “monetize” the debt by, in effect, printing money to pay for it.

High interest rates are even more easily blamed on the defi cit. As Floyd
Norris of The New York Times recently recounted, so-called bond vigilantes terrorized Wall Street in the early 1980s. Economists including Henry Kaufman of Salomon Brothers and Albert Wojnilower of First Boston regularly issued apocalyptic warnings of doom unless drastic action was taken on the deficit immediately.

It was often said that the Treasury's borrowing was crowding out private borrowers from the bond market, because the federal government is not constrained by the amount of interest it is willing to pay. It will pay whatever the market demands to sell all the bonds it has to sell that day. Private borrowers will pull back their borrowing if rates get too costly.

Economists worried that if private companies lacked access to the bond mar ket they would reduce investment in new plants and equipment, which ultimately reduced productivity and economic growth. High interest rates also raised the “hurdle” rate of return, snuffing out investments that in the past would have been profitable.

Some economists disagreed on the mechanism by which deficits affected interest rates. They pointed out that expected inflation automatically raises market interest rates. Generally speaking, a rise of 1 percent in the expected rate of inflation will raise long-term rates by 1 percent.

Those of a more liberal persuasion often contended that the Fed was forced to run a tighter monetary policy when faced with large deficits in order to offset their inflationary effect.

The precise mechanism didn't matter much for policy purposes, because each perspective came back to the idea that deficits had to be reduced to improve the economy. Lower deficits would simultaneously reduce crowding out and inflationary expect ations and give the Fed room to ease monetary policy â€" a virtual trifecta of payoffs.

It's worth remembering just how severe the problem was. According to Mr. Norris, the interest rate on the Treasury's 30-year bond peaked at 15.21 percent on Oct. 26, 1981. That is a rate almost incomprehensibly high given that Treasury bonds are assumed to have zero risk of default. The rate on the 30-year bond today is about 2.8 percent, about half its historical rate.

Even taking into account the fact that inflation was a serious problem in 1981 â€" the consumer price index rose 8.9 percent for the year â€" the “real” component of interest rates was very high. The real interest rate is the market rate minus the expected inflation rate.

With the benefit of hindsight, buying bonds in 1981 was the profit-making opportunity of a lifetime. Just imagine being able to get better than 15 percent a year on an investment for 30 years at zero risk.

Of course, at the tim e bonds were toxic, which is precisely why rates were so high. But as time went by, the deficit improved, inflation collapsed and the Fed eased. But it didn't happen all at once; the process was slow and painful, involving many budget deals that were extremely difficult, politically.

Perhaps the most difficult was the 1990 deal, in which President George H.W. Bush courageously bucked his own party and agreed to a small increase in the top tax rate in order to get spending cuts and tough budget controls that deserve much of the credit for the budget surpluses of t he late 1990s.

Mr. Bush's own party basically turned its back on him, and it cemented for all time the now universally held Republican idea that taxes must never be increased at any time for any reason. Even those Republicans still sane enough to know this is nuts live in fear of a Tea Party challenger in the next primary, underwritten by the vast resources of the Club for Growth, which helped torpedo John Boehner's “Plan B” effort at a “fiscal cliff” deal because it would raise the top tax rate on millionaires.

It is an article of faith to Grover Norquist, of tax pledge fame, that budget deals involving higher taxes are always bad for Republicans.

A new study from the European Central Bank confirms that s ignificant deficit improvement is usually driven by rising interest rates. However, by the time budgetary action occurs the rising cost of interest on the debt tends to overwhelm the adjustment.

According to the Federal Reserve Bank of Cleveland, none of the preconditions that historically are necessary for a significant budget deal are now present. Inflationary expectations continue to fall and real interest rates are very low. Hence, it is impossible for politicians to promise any benefit from large spending cuts or tax increases that would materially improve peoples' lives. The benefits are purely abstract.

This suggests that we are a long way from meaningful legislative action on the deficit.