JOBS | Unemployment by Age Group–Two Problems

The story in the New York Times by Floyd Norris this morning, first published yesterday, warns about the unemployment data released this morning by the BLS. He says the unemployment data are complicated:

It is not simply a matter of whether a member of the household was working during the week covered by a monthly survey. Was a person without a job looking for work? If so, that person is counted as unemployed. If not, the person is deemed not to be in the labor force. Further questions are meant to determine if that person was not looking because he or she was discouraged about the chances of finding a job. If so, that person goes into a category that is included in a different indicator of unemployment.

I would like to illustrate his point with a look at a detailed table from today's release by the BLS, which is headlined by a 0.1 percentage point reduction of the unemployment rate to 5.8 percent - good news. The 5.8 percent rate is an average of all age groups. The rate is much lower, barely above 4 percent, for people who are 35 and over. It is much higher for young people under 25. Only for the 25-34 age group is the unemployment rate even a good approximation.

 Chart 1. Household Survey Unemployment Data by Age Group

From Table A-10, Selected unemployment indicators, seasonally adjusted
Age Group	No. unemployed, '000			Unemployment rates, percent
	Oct. 2013	Sept. 2014	Oct. 2014	Oct. 2013	June 2014	July 2014	Aug. 2014	Sept. 2014	Oct. 2014
Total, 16 years and over	11,140	9,262	8,995	7.2	6.1	6.2	6.1	5.9	5.8
16 to 17 years	471	395	459	23.8	23.3	23.1	23.7	20.9	22.2
18 to 19 years	788	741	634	21.1	19.3	18.8	17.8	19.8	16.8
20 to 24 years	1,909	1,785	1,654	12.2	10.5	11.3	10.6	11.4	10.5
25 to 34 years	2,426	2,101	2,126	7.2	6.5	6.6	6.9	6.2	6.2
35 to 44 years	1,857	1,410	1,439	5.7	4.7	4.8	4.8	4.3	4.4
45 to 54 years	2,005	1,401	1,360	5.9	4.2	4.2	4.3	4.1	4.0
55 years and over	1,813	1,332	1,384	5.4	4.4	4.5	4.6	3.9	4.1

What are we to make of this? The article by Floyd Norris points the way to explanations of the data that have policy implications.

The High Unemployment Rate among the Young. In a typical household, the respondent will be an older person, who will be worried about the self-sufficiency and marriage prospects of the younger members of the household. So of course the young people are looking for work. If they are not working, it is because the system is failing them and so they are unemployed.

I believe each household will be very focused on jobs for young members of the family. I therefore think we can trust the data for unemployment among young people.

The problem is that young people need to acquire work habits and skills. The Department of Labor is promoting apprenticeships to bridge the work-habit and skills gap for young people. As I have said before, I think this is a good program.

Questionable Data on the Elderly. For those 55 years and over, however, the issue is not skills but health, fatigue and inertia. Layoffs become permanent because older workers lose their skills during a long period of unemployment.

Respondents to the survey may be more indulgent if grandpa or grandma is unemployed. He or she may have an ailment that prevents them going to work. The savings of the grandparents may be inadequate for a comfortable retirement, but they aren't up to answering advertisements.They may show up under the "long-term unemployed" or "discouraged workers" but most likely they are counted as just not being in the labor force.

So they don't show up as unemployed, but they have valuable knowledge and would take a job if one was offered. What I am thinking is that the unemployment data are understated in the oldest age group and that a program that would parallel apprenticeship for the oldest workers would be useful.

Two public-policy implications of this come to mind:

• To avoid losing large numbers of older workers in a downturn, the Federal Government should subsidize a kurzarbeit program whereby workers are put on shorter weeks rather than some of them being laid off. These preserves worker skills for the uptick in business.
• A pro-active program for matching up skills with employers would be useful, focusing on the special needs of 55+ workers. The National Council on Aging highlights a program of the Taub Foundation that targets this issue.

Gender Differences

It used to be, a year ago, that the unemployment rate was higher for men than women.That number has flipped, and women are slightly more likely to be unemployed - except for the youngest (16-17) and oldest (55+) age groups.

The best predictor of a low unemployment rate is having a spouse in the house. Both men and women with a spouse around have an average unemployment rate below 4 percent,

Chart 2. Household Survey Unemployment Data by Age Group and Gender

Table A-10. Selected unemployment indicators, seasonally adjusted
Characteristic	No. unemployed ('000)			Unemployment rates, Percent
	Oct. 2013	Sept. 2014	Oct. 2014	Oct. 2013	June 2014	July 2014	Aug. 2014	Sept. 2014	Oct. 2014
MEN, 16 years and over	6,171	4,872	4,638	7.5	6.3	6.2	6.2	5.9	5.6
16 to 17 years	224	199	259	23.3	26.6	25.7	25.5	21.4	25.2
18 to 19 years	500	419	312	25.3	21.1	20.5	19.9	22.3	16.5
20 to 24 years	1,111	1,034	842	13.7	11.7	12.5	11.5	12.6	10.3
25 to 34 years	1,360	1,055	1,106	7.5	6.6	6.5	6.6	5.7	6.0
35 to 44 years	998	685	720	5.7	4.5	4.8	4.9	3.9	4.1
45 to 54 years	1,073	715	658	6.0	4.1	3.8	4.3	4.0	3.7
55 years and over	991	725	767	5.6	4.9	4.3	4.4	4.0	4.2
WOMEN, 16 years and over	4,969	4,390	4,358	6.9	5.9	6.2	6.1	6.0	5.9
16 to 17 years	247	196	199	24.2	20.5	20.6	22.0	20.3	19.2
18 to 19 years	288	322	322	16.4	17.5	17.1	15.6	17.3	17.1
20 to 24 years	798	751	812	10.7	9.1	9.8	9.6	10.2	10.7
25 to 34 years	1,066	1,047	1,020	6.9	6.5	6.6	7.2	6.6	6.4
35 to 44 years	859	725	719	5.8	4.9	4.8	4.7	4.9	4.8
45 to 54 years	932	686	701	5.7	4.3	4.6	4.4	4.3	4.4
55 years and over	787	620	595	5.0	4.1	4.6	4.7	3.9	3.7
Married men, spouse present	2,046	1,302	1,360	4.5	3.4	3.4	3.3	2.9	3.0
Married women, spouse present	1,679	1,325	1,298	4.7	3.8	4.0	3.7	3.7	3.6

LEVERAGED LOANS | Again a Threat

Nov. 5, 2014–Junk Bonds used to be the Big Scare for financial regulators. Those are bonds issued based on revenue from risky companies with little collateral.

The bonds pay a higher interest rate, which attracts buyers, but the inherent risks are often misunderstood. It's a financial crisis waiting for the next downturn.

Now the same issues are being raised in connection with Leveraged Loans. The difference between them and Junk Bonds is that Leveraged Loans are sold off privately to pension funds, mutual funds and hedge funds. We know loans now exceed the high point of the last bubble.

Recently the Federal Reserve System and the Comptroller of the Currency have shown concern about the expansion of this market. The average debt-to-revenue of companies obtaining leveraged loans in 2014 so far has risen to a multiple of 4.9, up from 3.9 in 2011.

In other words, the total debt of new borrowers is nearly five times annual revenue (i.e., EBITDA - earnings before interest, taxes, depreciation, amortization).

It gets worse. The loan contracts have been dropping certain protections to the lenders. Of recent leveraged loans, 63 percent lack these protections, up from 25 percent in 2007. In these seemingly small ways does the quality of bank credit deteriorate.

The old Glass-Steagall wall between banking and investment banking matched up bank deposits against either liquid assets or loans subject to review by bank examiners, who have had the power to mark down debt that is substandard, doubtful or loss. Equity and risky debt was matched up with money from "sophisticated" individual investors or financial institutions. The system worked for the next 70 years until banks and non-banks both sought more freedom to do what was done in the 1920s.

Leveraged loans take on the character of investment banking. Smaller corporate borrowers like them. Bank lenders like them. But in the absence of deposit insurance, consumers of bank services would worry deeply about them.  The Glass-Steagall Act traded deposit insurance (which banks wanted) for regulatory constraints (which they did not). The constraints have been eased while taxpayers' liability for deposits - in the form of Treasury and Fed support of the Federal Deposit Insurance Corporation - has continued.

We should be concerned about Leveraged Loans as bank depositors, as taxpayer-guarantors of bank deposits, and as consumers with a stake in stable financial markets.

FINANCIAL EDUCATION | Top U.S. Priority

The cover of the first issue of The Journal of
Financial Education, now on Volume 40. Art
work © 1973 by Brigid Marlin.

The New York Times today has a story on what State Treasurers are doing to educate people in their state about financial matters and help them establish and manage a bank account.

The cost of financial illiteracy is becoming stark as more baby boomers retire. From now till 2030, the people at Pew estimate 10,000 baby-boomer Americans are turning 65 every day.

The new retirees may discover that because of the financial meltdown of 2008 they don't have enough money to retire on. To stretch out withdrawals from their  savings, they may have to stay at their jobs longer than they planned, or sign up for low-paid work with few barriers to entry, like a greeter job at Walmart,

Financial institutions don't make it easy. Incentives for the people who deal with customers are not always structured to give the customer the best deal. The classic case was in 2008 when a retail unit of a financial firm was issuing, and pressing clients to buy, collateralized debt obligations at the same time as traders for the firm's own account were selling them short.

Forty years ago when I was a young professor at Baruch College, City University of New York, I created The Journal of Financial Education to help create a place where new ideas for teaching finance could be discussed. Volume 40 of the journal has just appeared. I couldn't be prouder. The new editors are Richard Fendler and Milind Shrikhande of Georgia State University. The journal is now run by Professor Jean Heck of St. Joseph's University in Philadelphia.

The problem is that finance professors are asked more often to teach about how to make money on Wall Street rather than how to keep Wall Street regulated in favor of the consumer, or how to educate the consumer to maneuver among financial alternatives.

For the past quarter-century we have had the National Endowment for Financial Education to help people manage their money better. It has workshop materials for people who are teaching financial literacy. But at the same time we also have people selling financial products that are riskier than they appear, and a lot of the safeguards against predatory financial-product sellers have been eroded.

America needs to do more on both fronts:

• Return to a tighter financial regulatory environment, back to the system that was put into place by the Glass-Steagall Act in 1933. 
• But the first line of defense against predation is better public understanding of how the financial markets works. We will continue to see millions of people lose their savings in bad investments or not save enough because they didn't plan ahead, until the average level of financial literacy is raised.

Interestingly, financial literacy is rated higher than the United States in Brazil, Mexico and Australia. Pakistan and Indonesia rank at the bottom - see chart!

JOBS | Rep. Tim Bishop and the Suffolk County

When Rep. Bishop was challenged two years ago for a second time by Randy Altschuler, Altschuler distributed tens of thousands of flyers accusing Bishop of having "forced more than 30,000 jobs to leave" Suffolk County.

That grossly erroneous number was based on an improper use of the household survey, which is based on a telephone interview of small sample of households to determine the unemployment rate.

Looking at the correct database, in September 2012, I showed that employment in Suffolk County had increased by 36,300 jobs, a difference of 66,300 jobs from that claimed by Altschuler.

Lee Zeldin, who has challenged Tim Bishop before in 2008, when Barack Obama swept into office, is back again in a different environment. When Zeldin first entered the 2014 race, he said his campaign would be based on economic issues.

In fact, Zeldin has avoided raising economic issues, and for a good reason. The national economy has been perking along to the point where recovery to an unemployment rate of less than 6 percent has finally occurred. Recovery is at a slower rate than anyone predicted, because the depth of the financial stress left in 2008 was greater than anyone knew at the time.

The economies of Suffolk County, Long Island, and Greater New York, have been doing fine, better than most of the rest of New York State and New Jersey.

To his credit, Zeldin has not attempted to argue that Suffolk County has lost jobs. His economic arguments, as outlined in this week's East Hampton Press (p. A5), have instead been drawn from the general ideology of the Tea Party, as follows:

• He opposes raising the Federal minimum wage, on the basis that it would be a burden on some small businesses.
• He argues that Medicaid is being abused and people should be denied the benefits.
• He says the Federal tax code should be simplified to reduce exploration of deductions and exemptions. He favors a flatter tax.
• He wants to cut Federal spending.
• He says he has had 48 new laws passed in Albany during the past four years.
• He voted for repeal of the MTA payroll tax and for a tax credit for New York State craft brewers.

Bishop answers that he is pragmatic and non-ideological, looking for solutions that benefit his constituents:

• He favors a minimum wage of $10.10 by 2016 to keep pace with inflation and help the working poor make ends meet. (The minimum wage and overtime laws have many exemptions based on type of business and type of employee; they reduce the impact on small businesses most concerned about the impact on their costs.)
• He has voted for tax cuts to help small businesses hire U.S. workers, has worked to eliminate tax loopholes to benefit companies outsourcing American jobs and favors tax cuts for the middle class.
• Having opposed efforts to end existing Medicare programs, he supports a guarantee of Medicare and Social Security. 
• He supports Federal spending on infrastructure spending, education and training - he led the fight for the Federal science and technology budget that was threatened and would have eliminated thousands of jobs at the Brookhaven National Lab.
• He is working with the FAA to ensure that a replacement of the air traffic control facility at Westbury is kept on Long Island.

Regardless whether one is a Democrat or a Republican, Tim Bishop has one huge advantage over Lee Zeldin - he has been in Congress since 2003. He knows his way around Washington. Zeldin does not. Bishop has built relationships with other Members of Congress, and has seniority on the committees he is a member of. He can do more for businesses and workers and jobs on the East End of Long Island than his challenger, who will be starting over from scratch.