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Tuesday, February 5, 2013

Are Immigrants Taking Your Job A Primer

Immigration reform is back on the table, reviving debates about whether immigration is good or bad for American-born workers.

There are a lot of competing studies (and pundits) out there, but the general takeaway from conservative and liberal economists is that immigration is good for Americans’ living standards over the long run. That’s because immigrants raise the wages of native-born workers (and also lower the cost of immigrant-dense services like child care and cleaning).

As scholars at the Brookings Institution’s Hamilton Project explained recently, immigrants and native-born workers are generally complements, rather than perfect substitutes: lower-skilled immigrants largely sort into farming and other manual, low-paid jobs that the native-born don’t wantto do, and higher-skilled immigrants provide labor that high-tech companies cannot find enough trained American-born workers.

As a result, immigration creates new job opportunities for the native-born, with some particularly high-profile examples found in Silicon Valley. According to a Kauffman Foundation study, of the engineering and technology companies founded in the United States from 2006 to 2012, 24.3 percent had at least one key founder who was foreign-born. In Silicon Valley alone, this number was 43.9 percent. Even outside of Silicon Valley, entrepreneurship rates are higher for the foreign-born than the native-born, and start-ups are the greatest source of American job growth.

Academic research suggests that, over all, immigrants create modest but positive average wage increases ! from 0.1 percent to 0.6 percent for American workers, according to Michael Greenstone and Adam Looney, both of the Hamilton Project.

There is some disagreement about whether the wage benefits of immigration are evenly distributed among all workers, though.

The chart below was created by the Hamilton Project and is based on this 2008 study. It shows the results of two different economic models designed to estimate the effect that immigration from 1990 to 2006 is likely to have had on wages for American workers (after adjusting for inflation).

Sources: Hamilton Project; Ottaviano and Peri (2008), Table 7; March 2008-9 Current Population Survey, American-Born Ages 25-64; numbers may not add to 100 because of rounding. Sources: Hamilton Project; Ottaviano and Peri (2008), Table 7; March 2008-9 Current Population Survey, American-Born Ages 25-64; numbers may not add to 100 because of rounding.

The purple bars represent estimates based on research by George Borjas and Lawrence Katz, and show that immigration may have lowered the wages of American-born high school dropouts by 4.7 percent and those of college-educated workers by 1.7 percent. The blue bars show the results of a different model, created by Gianmarco I.P. Ottaviano and Giovanni Peri, that finds that all educational groups likely benefited to some small degree.

For more on the history of the debate over how immigration affects wages, I suggest this 2006 article from The New York Times Magazine by Roger Lowenstein.



Are Immigrants Taking Your Job A Primer

Immigration reform is back on the table, reviving debates about whether immigration is good or bad for American-born workers.

There are a lot of competing studies (and pundits) out there, but the general takeaway from conservative and liberal economists is that immigration is good for Americans’ living standards over the long run. That’s because immigrants raise the wages of native-born workers (and also lower the cost of immigrant-dense services like child care and cleaning).

As scholars at the Brookings Institution’s Hamilton Project explained recently, immigrants and native-born workers are generally complements, rather than perfect substitutes: lower-skilled immigrants largely sort into farming and other manual, low-paid jobs that the native-born don’t wantto do, and higher-skilled immigrants provide labor that high-tech companies cannot find enough trained American-born workers.

As a result, immigration creates new job opportunities for the native-born, with some particularly high-profile examples found in Silicon Valley. According to a Kauffman Foundation study, of the engineering and technology companies founded in the United States from 2006 to 2012, 24.3 percent had at least one key founder who was foreign-born. In Silicon Valley alone, this number was 43.9 percent. Even outside of Silicon Valley, entrepreneurship rates are higher for the foreign-born than the native-born, and start-ups are the greatest source of American job growth.

Academic research suggests that, over all, immigrants create modest but positive average wage increases ! from 0.1 percent to 0.6 percent for American workers, according to Michael Greenstone and Adam Looney, both of the Hamilton Project.

There is some disagreement about whether the wage benefits of immigration are evenly distributed among all workers, though.

The chart below was created by the Hamilton Project and is based on this 2008 study. It shows the results of two different economic models designed to estimate the effect that immigration from 1990 to 2006 is likely to have had on wages for American workers (after adjusting for inflation).

Sources: Hamilton Project; Ottaviano and Peri (2008), Table 7; March 2008-9 Current Population Survey, American-Born Ages 25-64; numbers may not add to 100 because of rounding. Sources: Hamilton Project; Ottaviano and Peri (2008), Table 7; March 2008-9 Current Population Survey, American-Born Ages 25-64; numbers may not add to 100 because of rounding.

The purple bars represent estimates based on research by George Borjas and Lawrence Katz, and show that immigration may have lowered the wages of American-born high school dropouts by 4.7 percent and those of college-educated workers by 1.7 percent. The blue bars show the results of a different model, created by Gianmarco I.P. Ottaviano and Giovanni Peri, that finds that all educational groups likely benefited to some small degree.

For more on the history of the debate over how immigration affects wages, I suggest this 2006 article from The New York Times Magazine by Roger Lowenstein.



One Recession Cost Is Lower Social Security Benefits

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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 - Why We Need It and What It Will Take.”

On Sunday, Catherine Rampell of The New York Times reported on the economic difficulties of those in their 50s and early 60s suffering from high unemployment and decimation of their retirement savings by the recession. Many will be forced to take Social Security benefits as soon as they turn age 62. Unfortunately, they may be risking unnecessary poverty in old age as a consequence.

In 2011, 59 percent of those claiming Social Security for the first time were between the ages of 62 and 64, as shown in this figure from a recent Congressional Research Service report.

Social Security Administration, 2012 Annual Statistical Supplement

Historically, the normal retirement age has been 65, but life expectancy has risen over time. In 1940, a man age 65 could expect to live an additional 12.7 years, a woman 14.7 years. Lo! ngevity for men at age 65 increased to 17.6 years by 2009 and for women to 20.3 years, according to the National Center for Health Statistics (see Table 22).

Despite rising longevity, Congress created an option for early retirement at age 62 in 1961. It doesn’t appear that a great deal of thought was given to the long-term consequences of the decision. Contemporary reports say Congress was primarily concerned about unemployment among those approaching age 65 and viewed early retirement as a short-run stimulus measure.

According to C. Eugene Steuerle of the Urban Institute, creation of early retirement for Social Security had the unfortunate effect of changing workers’ expectations about the appropriate age at which to cease working. This has reduced lifetime productivity, taxesand retirement savings because workers spent fewer total years working.

Yet according to the 1962 Social Security Trustees report (see Page 6), the budgetary cost of allowing people to retire at age 62 was zero.

The reason is that workers did not receive full benefits at age 62, but 20 percent less than they would get if they waited until age 65. That was thought to be an actuarially fair adjustment so that whether one retired at age 62 or age 65, one received approximately the same aggregate lifetime Social Security benefits.

As the normal retirement age has increased from age 65 to 67, based on legislation enacted in 1983, the same actuarial adjustment has been made, as shown in the table.
 

Social Security Administration

Thus there is a huge financial price to be paid for drawing Social Security benefits early and an enormous payoff for delaying the decision to claim benefits. Unfortunately, I think many workers have a “use it or lose it” attitude, incorrectly thinking their benefits will be bumped up when they reach the full retirement age or ignorant that their benefits rise when receipt of them is delayed.

The fact is that the lower benefits people get by retiring early continues for their lifetime.

Another cost of taking Social Security before the normal retirement age is limiting the amount of earned income one may receive. Because of something called the earnings test, retirees lose $1 of benefits for every $2 of earnings they receive above $15,120 - equivalent to a 50 percent marginal tax rate on an annual incomebarely above the minimum wage. There is no loss of benefits for those above the normal retirement age.

What many people do not realize is that the same actuarial adjustment shown in the table continues past the normal retirement age. That is, one’s benefits continue to rise every month that one delays taking them until age 70. Those born in 1943 or later receive 8 percent more benefits a year for every year they wait to draw Social Security benefits past the full retirement age. This is called the delayed retirement credit.

People retiring at age 66 this year would get their full benefit. But if they wait until age 70, they would get 32 percent more. Social Security benefits are thus 57 percent higher at age 70 than at age 62.

The delayed retirement credit is an extraordinarily good deal - where else can one get a guaranteed 8 percent annual return! these da! ys The lower interest rates are, the better deal it is.

Many people learn about the delayed retirement credit only after they have chosen to draw Social Security benefits, and they incorrectly believe they cannot go back. In fact, the Social Security Administration allows people to repay the benefits they have received, in effect resetting the clock.

This is not an option for most people, who lack the large lump-sum of cash they would need even if they knew it would pay off. But for someone who has the cash and simply made a mistake in drawing benefits too early, the payoff can be large, according to Laurence Kotlikoff of Boston University.

To be sure, many people in physically demanding jobs need early retirement, and some who are jobless have no choice but to take them the minute they qualify. But many can afford to wait, perhaps to age 70, before drawing Social Security benefits. Those who draw them too early risk extreme poverty in old age if they outlive their savings or are simply missing an easy way of increasing their retirement assets at a time when low interest rates make it hard for people to obtain interest income.



Friday, February 1, 2013

College Is (Still) Worth It

Every week I hear from recent college graduates who question the value of their higher educations. They are indebted, un- or underemployed, and horribly discouraged.

But they would most likely be much, much worse off if they hadn’t gone to college.

That’s partly because their opportunities as the economy recovers will expand exponentially. But even today, they are faring much better than their less educated brethren. According to Friday’s Labor Department report, the unemployment rate for college graduates was just 3.7 percent in January. That is less than half the rate for those with no more than a high school diploma (8.1 percent).

Source: Bureau of Labor Statistics. Source: Bureau of Labor Statistics.

AsI’ve noted before, the wage premium for those with a bachelor’s degree compared to those without one is also growing, particularly when you factor in the fact that college-educated people are more likely to be employed at any given time than less educated workers.

One troubling trend hidden in all of these numbers is that the unemployment rate for those with some college but no degree â€" 7 percent â€" is not that much lower than that for people with no college at all. Given very high dropout rates at the nation’s institutions of higher education, this means that a lot of people are racking up student loan debt without seeing the return that that investment was supposed to bring them.



Comparing Jobs in Recessions and Recoveries

Source: Bureau of Labor Statistics. Source: Bureau of Labor Statistics.

For the 28th straight month, the country added jobs: 157,000 nonfarm payroll jobs in January, to be more precise.

But employment still has a long way to go before returning to its prerecession level.

The chart above shows economic job changes in this last recession and recovery compared with other recent ones; the red line represents the current cycle. Since the downturn began in December 2007, the economy has had a net decline of about 2.3 percent in its nnfarm payroll jobs. And that does not account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the recession.

Getting the economy to 5 percent unemployment within two years â€" a return to the rate that prevailed when the recession began â€" would require job growth of closer to 284,984 a month.

There are now 12.3 million workers looking for work who cannot find it. The tally of those who are underemployed â€" that is, adding in those workers who are part-time but want to be employed full-time, and workers who want to work but are not looking â€" is an even larger 21.4 million.

As bad as all these figures are, it’s worth remembering that job markets in the decade after a financial crisis are always terrible. In fact, layoffs were far worse and lasted much longer in the aftermath of the financial crises that struck, for example, Finland and Sweden in 1991 and Spain in 1977, not to mention the United States during the Great Depression.



A Bad Jobs Report Turns Out to Have Been Wrong

The jobs report for last March was a big disappointment, one that spurred talk of a new recession. Now we learn that report was simply wrong, that March was actually a very good month and that jobs rose much more rapidly in 2012 than we had previously been told.

Last April, with the presidential campaign heating up, the Labor Department reported that its survey of employers showed the economy added only 120,000 jobs in March, far below forecasts. The unemployment rate â€" based on a separate survey of households â€" did decline a bit, to 8.2 percent, but that was widely dismissed as indicating some people gave up looking for work.

From the next day’s Times:

Republicans pounced on the lower than expected payroll numbers, with the party’s front-runner, Mitt Romney, declaring, “This is a weak and very troubling jobs report that shows the employment remains stagnant.” Speaker John A. Boehner and Representative Eric Cantor, the House majority leader, also deplored the numbrs and laid the blame for them at Mr. Obama’s feet.

The report came out on Good Friday, when the stock market was closed, so investors had all weekend to ponder the numbers. They did not like what they saw, and the Dow tumbled on both Monday and Tuesday.

Now we know what really happened in March. On Friday, the Labor Department issued its “benchmark revision” for the 12 months through March 2012. The new numbers are based on far more reliable â€" but slower to arrive â€" counts of the the number of workers for whom unemployment insurance premiums were paid. It turns out 205,000 jobs were added that month.

For all of 2012, we are now told that the average month added 181,000 jobs. A month ago, we were told the average for the year was only 153,000, basically the same as in 2011. With the revisions, we are told that the 2011 average was really 175,000.

At the end of last year, the official figures showed employment had risen 3.7 ! percent from the bottom in Feb. 2010 to the end of 2012. Now that figure is 4.1 percent.

A year from now we will get benchmark revisions for the last nine months of 2012. It is quite possible the 2012 annual average will then rise further, to over 200,000.

A couple of weeks ago, speaking in Hong Kong, Charles Evans, the president of the Chicago Fed, was asked about what would show things were getting better. He replied, according to Reuters, “One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months. We’ve been averaging about 150,000, but it’s been very uneven.”

Turns out the average was a lot higher than the Fed thought. Could that signify we are closer to an end to quantitative easing than we thought



Measuring the \'Quality\' of Health Care

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

“In his writings, an Italian sage says that the best is the enemy of the good,” wrote Voltaire. We have updated that to the common adage, “Let not the perfect become the enemy of the good!”

This dictum came to mind as I read the responses of various Doubting Thomases to my previous post on the quality of health care under the two Medicare options: traditional Medicare and Medicare Advantage.

These readers appear to harbor genuine doubt that quality in health care an ever be properly defined and measured. But what is the alternative â€" just relying on anecdotes and word of mouth, or the assurances from health care providers that they provide the highest quality of health care in the world

It is, to be sure, challenging to measure the quality of any human-service sectors, be it health care, education, the administration of the law or even corporate management. That is why anecdotes and word of mouth remain important signals that attract or repel individuals from particular products or institutions.

But flight once seemed impossible, too, perhaps even after the Wright brothers’ first flight. “No flying machine will ever fly from New York to Paris,” Orville Wright famously said, because “no known motor can run at the requisite speed for four days without stopping.” Wright also offered the thought that “if we worked on the assumption that what is accepted as true really is true, then there! would be little hope for advance.”

The large and growing cadre of clinicians and measurement scientists engaged in measuring quality in health care can find inspiration in aviation. They persist, and they have registered much more progress in recent decades than might be imagined â€" much more, for example, than has been achieved in other human-services sectors, notably education, not to mention what we call the administration of “justice.”

To appreciate the challenge posed by health care, let us review the huge terrain within which quality in health care can be monitored, an issue I touched upon two years ago in connection with “pay for performance.”

In that post, I presented a map of that terrain, reproduced here in modified form to highlight the three distinct though connected production processes in health care, as we economists put it:

(a) the production of halth care (the gray area)
(b) the production of health (the blue area)
(c) the production of human well-being (the pink area)

The ambition of measurement science devoted to quality in health care is to develop reliable and operational measures to monitor each of these production processes. It will be a quest that will last decades, and admittedly has only just begun.

The quality of health care production has naturally attracted most attention.

In th! e health care production process, quality can be monitored on several facets:

- The characteristics of the purchased inputs used in production of health care â€" e.g., the training of health personnel, the sophistication of the equipment supporting health professionals or the degree to which the architecture of facilities encourages or hinders patient-centered health care;

- The structure within which health care production takes place â€" e.g., the degree to which the production of health care is clinically integrated, including the electronic information technology that enhances or hinders that integration;

- The treatment processes for particular medical conditions â€" e.g., degree of adherence to known best clinical practices (expressed in practice guidelines and clinical pathways derived from these guidelines), processes that avoid hospital-generated infections and avoid re-admissions that could have been avoided, and so on;

- The impact of medical interventions on the patients€™ health and well-being in the short and long run, often referred to simply as “outcomes” â€" e.g., survival rates by time periods, functional status, pain and so on;

- And, very important, satisfaction of patients with the treatment processes they have experienced, measured by means of surveys, ideally not administered by providers themselves.

This particular division of quality metrics goes back to a classic paper on the quality of health care published in 1966 by Dr. Avedis Donabedian, a distinguished physician and a towering figure in the field of quality measurement who died in 2000.

A wise thing to say in casual conversation is that “outcome” is all that matters in measuring the quality of health care. Presumably, “outco! me” inc! ludes clinical outcome and patient satisfaction. Experts in quality measurement agree in principle. In practice, however, they warn that “outcome” is a complex metric.

First, clinical outcome usually is multidimensional. It may even involve a trade-off between longevity and quality of life.

Second, as is shown in the next chart, which enlarges the health-production process, health care proper is merely an input in the production of health. To measure strictly the impact of a medical intervention on the patient’s health, one has to control statistically for all of these other health-producing inputs, including the patient’s compliance with, say, prescribed drug therapy, a perennial problem in health care.

Health care proper makes two inputs into the production of health: there may be intervention in the patient’s physiology - e.g., surgery, drug therapy, physical therapy or other direct interventions. But high-quality primary care also includes management-consulting services devisd to help or persuade patients to manage their own health better â€" e.g., counseling on controlling blood pressure through methods besides drug therapy, nutrition, smoking cessation, weight management and so on. Modern metrics of quality monitoring always include a good number of metrics on these consulting services.

Efforts to hold health care providers formally accountable for the quality of their care are rarely one-metric systems. Instead, they resemble a final examination in a college course, with scores on many different questions, each with a relative weight, which are then totaled as a weighted sum to produce the final overall grade.

Quality monitoring I have seen from private insurers â€" e.g., Wellpoint Inc. or Massach! usetts Bl! ue Cross Blue Shield, to name but two â€" usually have scores on all of the several facets of quality enumerated above.

Ideally, it is these weighted sums that should be used in the kind of comparative analyses I mentioned in previous posts, rather than just hospital re-admissions. So far, these weighted aggregate measures have not been readily available to researchers â€" hence their reliance on single metrics on which data are available. One must hope that better data will soon be made available to researchers.