Goldilocks Jobs

June 9th, 2013

In the long running comedy series “Frasier,” Frasier or Niles would often order a latte  in their local neighborhood bar, being careful to note exactly how they wanted the drink made.  Friday’s employment report was made to order – not too strong so as to hasten the end of the Fed’s latest bond buying program and not so weak as to confirm fears of another summer swoon.

Slowly and inexorably the number of employed trudges up the recovery hill.  The unemployment rate ticked up a scosh to 7.6% as more people tried to find work.  The year over year percent change is still in good territory.

On the not so good side, the percent of the total population that is working is still below the 30 year average of almost 44%.

The unemployment rate of those with a college degree is far below that of the general labor force but is still 50% above the average of the early 2000s.

Student aid loans have passed a trillion dollars (source).  To put that figure in perspective,  student loan debt is about 10% of the $11 trillion in outstanding debt of residential mortgages (source)

Changes in the bankruptcy laws in 2005 exempted student loan debt from bankruptcy.  Over the next decade or so, will the investment in education pay off?  Let’s hope so.  100 years, an 8th grade education became a standard used by employers to winnow job applicants in a tough job environment.  70 years ago, the new standard became a high school education.  For the past 30 years, we have moved to a 4 year degree as the new standard.
We now spend more on defense and more on Medicare that the $500 billion total amount spent by the state and the federal government on K-12 education. (source) Community college educators are painfully aware that many students are simply not prepared to take college courses.  Local communities used to fund 70% of K-12 education.  Thirty years ago, homeowners protested ever rising property taxes to fund K-12 education and, since that time, local funding has dropped below 50%.

If we expect our children to develop the skills for a college education, we are going to have to find an alternative model of funding.  The states have relied on an ever increasing share of Federal funding for K-12 education.  Although the percentage of Federal spending on K-12 is small, less than 10%, the aging Boomer generation will command ever more spending of general tax dollars in addition to the Medicare taxes collected.

The core work force aged 25 – 54 struggled upwards

but the participation rate, the percentage of the population in the labor force, is still weak.

The “total” unemployment rate, which includes those working part time for economic reasons, continues to drift down but is still high.

Understand that this represents over 20 million people, a bit more than the entire population of New York State.  Turn on C-Span sometime and tell me how many committee hearings on jobs there are.  Immigration, federal surveillance and the targeting of conservative groups by the IRS are important matters, yes, but why aren’t politicians in Washington talking about jobs?  There are several reasons: no one has a clue; no clear political advantage to be gained; constituents are not writing letters to their representatives and senators about jobs.

Welcome to the “New Abnormal.”

Readin’, Writin’ and Arithmetic

April 21, 2013

In any lively discussion of public education – its effectiveness, the spending and taxes required – some people bring out their swords, others their shields, and some are armed with both.  Armed only with a crayon, I will examine some of these trends.

Let’s look first at higher education spending.  The National Center for Education Statistics (NCES) at the U.S. Dept of Education reported that real – that is, inflation adjusted – spending per pupil had increased 233% in the past 31 years, an annual growth rate in real dollars of 2.8%.

NCES reports a slower spending growth in K-12 education – 185% in 28 years, or an annual growth rate of 2.2%.

But the annual growth rate during the past decade, 1999 – 2009,  has slowed to just under 2%.

 

When we zoom in on the spending growth during the 1960s and 1970s, we see a real growth rate of 3.6%

What we see in the per pupil data is a gradual slowing down of the real growth rate of spending.  Those who claim that there have been spending cuts in education have not looked at the data.  There have been no cuts in real spending, only reductions in the rate of growth. 

Some decry “austerity” policies recently undertaken in some European countries – the U.K. is an example – claiming that a country pursuing these policies has cut spending.  When we look at the spending data, we find that there have been no decreases in real spending, only in the growth of spending.  This misconception is common and results from a comparison of what we expect and what happens

If we have usually received a wage or salary increase of 3% each year, we come to expect a 3% increase.  If we get a 2% increase this year, it is 33% less than our expections and feels like a cut.  A retiree who has become accustomed to an annual 8% return on her investments, may feel that she has lost money if her investments only gain 5% this year.  It does no good to mention that she has really not lost anything.

Let’s get up in our hot air balloons and travel to California, where the size of its economy puts the state above many  countries.  California has often been the leading edge of trends that spread to the other states.  Ed-Data reports that per pupil spending has flattened since the recession started in 2008.  In real dollars, there has been NO GROWTH in per pupil spending in the past ten years.

Another complaint from teachers is that money is increasingly being spent on administrative costs, not teaching.  In California, teachers still command the lion’s share of spending  – more than 60%.

The proportion of teacher spending has remained relatively constant – above 60% – in the past ten years.

What has been growing?  On a per pupil basis, “Services and Other Operating Expenses” have grown 4% per year, or 1.8% real annual growth,  above the 2.2% annual growth in inflation.  Administration expenses have grown at the same rate of inflation so that real growth has been flat.  However, spending on teacher salaries has declined in real money at an annual rate of .7%.  However, their benefits expenses have grown 1.4% annually in real dollars.  Again, most people do not “feel” the cost of a benefit increase.  The bottom line to most of us is what we bring home.  It does not pay to tell a K-12 teacher that they are actually receiving a slight increase in real total compensation.

In California, as in many states, property taxes are a major component of revenues for K-12 education.  Over the past nine years, revenues from property taxes for education have declined 3% annually in real money.  For each student, there is $500 less money available from property taxes than it would have been if property tax revenues had kept up with inflation.  As a percent of total revenue for K-12 education, property taxes make up a little over 60%.

In 2011-2012, property tax revenues essentially paid teacher salaries.  Ten years ago, the percentage of revenues from property taxes was about 6% higher.

Other State revenues have had to make up for the shortfall in property taxes; the gap is about $1000 per student.  The problem would be even worse if it were not for the slight decline in students for the past 8 years.

While California faces challenges from declining property tax revenues, what about the rest of the country?  Let’s climb back in our data balloon and look at student enrollment throughout the country.  The NCES reports the same slight decline in K-12 enrollment.  However, they estimate a total 6% growth in K-12 enrollment in this decade.

As K-12 enrollment grew by a little more than 1 million in the 2000s, post secondary education enrollment grew by 6 million, or 37%, to over 21 million. (Source http://nces.ed.gov/fastfacts/display.asp?id=98).  The growth rate in older students, those aged 25+ is even faster, rising 42%. In this decade, “NCES projects a rise of 11 percent in enrollments of students under 25, and a rise of 20 percent in enrollments of students 25 and over.”

 The ratio of K-12 students to post-12 students was 28% in 2000; a decade later, it was 38%.  While K-12 enrollment is projected to increase for the rest of the decade, post-12 enrollment is estimated to be much faster.  How do these students pay for college?  The most recent data from NCES is at the start of the recession; I would guess that the need for aid has grown mightily since then. 

Put all of this in the blender: a declining work force (see my blog two weeks ago), a generational swelling of older people retiring, recovering but not robust state and local revenues, and more demand for K-12 AND post secondary education services.  How will politicians react in the midst of so many competing demands for money?

The increasing pressures for money from different segments of the population puts us in the precarious position that we can not afford to go into a recession, an impossible situation since the normal business cycle includes a recession every 7 – 10 years.  Europe is already in recession; China’s growth is still robust but slowing; on Friday, India announced a growth rate below 5%, the weakest in four years; in a hopeful sign, Brazil, the economic powerhouse of South America, is projecting GDP growth over 3%, rising up from an anemic 2.7% growth of the past 5 years.  (World Bank source)

Slackening demand around the world presents challenges for the U.S. economy, problems that a spastic Congress will only worsen. Y’all be careful out there…