Monday, February 28, 2005

Risk in American Life

Here are some key excerpts from the Gosselin article about increasing risk in American life:
A broad array of protections that families once depended on to shield them from economic turmoil — stable jobs, widely available health coverage, guaranteed pensions, short unemployment spells, long-lasting unemployment benefits and well-funded job training programs — have been scaled back or have vanished altogether.

...Under the banner of the "Ownership Society," the president has proposed a series of new, tax-break-heavy accounts to let families pay for their own retirements, healthcare and job training. He also has called for partially replacing the biggest of the government's protective programs — Social Security — with privately held stock and bond accounts.

Such arrangements might help people build up their personal assets. But the approach also would expose them to even more economic risk than they've already taken on.

...In the early 1970s, the inflation-adjusted incomes of most families in the middle of the economic spectrum bobbed up and down no more than about $6,500 a year, according to statistics generated by the Los Angeles Times in cooperation with researchers at several major universities. These days, those fluctuations have nearly doubled to as much as $13,500, the newspaper's analysis shows.

...Government used to provide substantial help in coping with joblessness. In the mid-1970s, jobless workers could collect up to 15 months of unemployment compensation. By last December, Congress had pared the program to just six months. Additionally, federal legislation in 1978 and 1986 effectively reduced the value of benefits by making them taxable. And state eligibility restrictions imposed in the late 1970s and early '80s shrank the fraction of the workforce entitled to collect benefits from about one-half to a little more than one-third. Of the 8 million people who were unemployed last month, only 2.9 million were collecting benefits.

The minimum wage was once the government's chief means of ensuring that "work pays" — that those willing to head to a job each day would make enough to live on. For decades, Democratic and Republican administrations alike maintained the minimum wage at about half of average hourly earnings in the U.S. But starting in the early 1980s, the minimum wage was allowed to slip. At $5.15, it is now only one-third of average hourly earnings, its lowest level in 50 years.

Washington once sought to help people adjust to global competition, industrial restructuring and technological change by offering job training. Twenty-five years ago, the federal government spent $27.3 billion annually (in 2003 dollars) through the Comprehensive Employment and Training Act, or CETA. Even if one doesn't count CETA's "public service" jobs, which were widely criticized as boondoggles, it was still spending $17.1 billion. By contrast, the government now spends about $4.4 billion on CETA's successor, the Workforce Investment Act. "It's largely a place holder," said Anthony P. Carnevale, an authority on education and training who was appointed to major commissions by presidents Reagan and Clinton. "It gives politicians something to point to but doesn't do much good."

Welfare was created to protect poor women and children, but by the late 1970s a growing chorus of analysts complained that the system had backfired by fostering a culture of dependency. In 1996, President Clinton and a Republican-controlled Congress approved a "work first" law that has cut welfare rolls by one-half and reduced inflation-adjusted welfare spending by at least one-third, or about $10 billion a year. On balance, the changes appear to have benefited people who can find jobs and hold them. But those who can't work or have lost their jobs can often find themselves in far worse shape. Twenty-five years ago in California, a mother of two who depended on welfare collected about $15,000 in cash assistance and food stamps. By last year, a woman in the same circumstances brought in $3,300 less, in inflation-adjusted terms.

...Twenty-five years ago, almost 40% of the nation's private full-time workforce was covered by traditional pensions, under which the employer bears the risks and pays the benefits. That number has fallen to 20%. In the place of pensions have come defined-contribution plans such as 401(k)s, under which an employer may kick in some funds — typically about half what would have been spent previously — but employees alone bear the burden of ensuring that they have enough money to retire on.

A similar shift is underway in health insurance. As recently as 1987, employers provided health coverage for 70% of the nation's working-age population, according to the Employee Benefit Research Institute in Washington. By last year, that had dropped to 63%. The change translates into nearly 18 million people who would have been covered under the old system scrambling to make their own arrangements. What's more, even when employers continue coverage, they increasingly push more of the costs onto employees. Since 2000 alone, employers have raised the premiums their workers must pay by an average of 50%, or about $1,000 a family, according to a recently released study by the Kaiser Family Foundation and the Health Research and Educational Trust.

When it comes to job security, employers have largely broken the bond they had with workers. A late 1980s study by the Conference Board, a business research group, found that 56% of major corporations surveyed agreed that "employees who are loyal to the company and further its business goals deserve an assurance of continued employment." A decade later, that number dropped to just 6%.

As a result, people are increasingly likely to be bounced from their jobs, with ever more severe financial consequences. In 1978, middle-aged men could expect to be with the same employer for 11 years, according to Bureau of Labor Statistics data. That's now down to about 7.5 years. Since the 1970s, the average length of an unemployment spell has risen by 50% to almost 20 weeks. The economic damage done when someone is laid off and his or her job is eliminated also has grown — even for those with college degrees. Princeton University economist Henry S. Farber recently found that college graduates laid off in the early 1980s suffered a 10% decline in income through a combination of forgone pay hikes from the old job and lower wages once back to work. By last year, laid-off college grads were taking a far bigger hit of 30%.

...Risk management tools help health insurers tailor coverage so that they avoid people apt to file lots of claims — or charge them more. Credit card issuers have figured out how to target those most likely to carry large balances and yet still manage to pay. Consultants devise variable pay schemes and flexible work schedules that let companies increase output while minimizing their risk of being stuck with unneeded employees.

...Although the overall economy has become steadier — settling into a pattern of long swells of growth followed by relatively gentle dips — the incomes of working people have been beset by ever-larger fluctuations. Looked at in this way, "we haven't reduced economic risks" at all, said Harvard economist Martin L. Weitzman. "We've simply redistributed them from the economy as a whole to individual households."

...Today, more than 70% of mothers work outside the home, compared with less than 40% in the 1970s. Although women's arrival in the full-time workforce has been driven by forces as disparate as feminism and the triumph of brain jobs over brawn, their influx could hardly have come at a better time for millions of working families. It has provided households with the insurance of a second wage earner in case anything happens to the first.

...The traditional measure of household debt — calculated as a percentage of a family's after-tax income — has climbed from 62% a quarter century ago to almost 120%, according to Federal Reserve statistics. Much of that increase is from the rush of mortgage lending during the last decade. But non-mortgage debt, including credit cards and auto loans, also has risen, from 15% to almost 24% of after-tax income.

...The borrowing boom has already produced one disturbing trend — a sixfold increase in personal bankruptcies since 1980. Bankruptcy filings reached a record 1.625 million last year and were up again through March of this year. Two decades ago, they totaled 288,000.

...Over the last quarter of a century, many safeguards that people once counted on to shield them from financial harm have been weakened or completely lost. These include formal protections such as guaranteed corporate pensions and state and federal unemployment benefits. And they include informal ones, like the loyalty that employers once showed their workers by offering secure jobs with relatively little prospect of long-term layoff. Other cushions that families like the Ryans have relied on, such as the financial stability that comes with a college education, also have eroded.

...Twenty-five years ago, college graduates not only made higher wages than less educated Americans but also enjoyed more income stability. Starting in the late 1970s, however, college-educated families began to experience increasingly large swings in their annual incomes as white-collar workers found themselves whipsawed by corporate downsizing.

The Times' statistics show that for a period in the mid-1990s — about the time that John was fired — the income volatility of college-educated families actually jumped above that of households lacking someone with a college degree.


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