Employment of Workers Over Age 55

            In early 2001, when I was 6, my Dad’s company went bankrupt, and he consequently lost his job. Immediately, he began to search for work. The process began with a pack of back hair dye. At the time, my Dad was 58, and believed his age would work against him in his search for employment.

            Fortunately, the U.S. economy prospered during this period. Soon, my Dad got a job with an engineering firm in Cleveland. His successful reentry into the workplace is part of the general increase in employment of older people, attributed by the Wall Street Journal to “changing incentives in Social Security,”  improved health, and a surge in attempts by older people to gain employment after their 401(k) balances were hit by the financial crisis.

              As Social Security incentives changed, workers had more incentive to remain in their jobs as the longer they delayed their retirement, the larger their benefits. According to the SSA, if workers retire before 62, they run the risk of having their benefits reduced by up to 30%. As people respond to incentives, this factor, among others contributed to raising rates of older people remaining in the work force.  Similarly, employers have made cuts to retiree health insurance to reduce input costs to production. This lead workers to strive towards working past 65, when they would qualify for Medicare.  

            Also mentioned by the WSJ article in the rise in employment of those over age 55 was a general increase in the American workers’ life span by 3.5 years since 1980. This situation created an increase in supply of older workers. As the economy suffered, businesses began to see to benefits of hiring and retaining older workers, creating a rise in demand for them. The primary reason for this was the reduced labor cost of workers over 55 coupled with with no harm to efficiency through hiring them, according to the NY Times.

            Perhaps most influential in the rate of older workers work place was the financial crisis hitting their 401(k)’s. Once again, my Dad is in this set of people. Before the crash, he had planned to retire, like many, at 65 to qualify for Medicare. Regrettably, the financial crisis set back these plans. He had to make a decision at the margin, and decide whether to carry on with his plans, or retire at an older age. At an opportunity cost of additional years of work, he decided to push his retirement back to when I graduate.

            These factors laid the groundwork for what we see in the economy today- higher unemployment in those under age 55 than older people actively seeking work. However, though there has been a comparative rise in the employment of older people, today’s economy does not necessarily suit their best interests, as those who do lose their jobs struggle more than the average worker to regain employment, and their 401(k) balances continue to experience anemic growth.

            

President Obama's American Jobs Act

            Last Thursday, I watched with my family as President Obama announced the American Jobs Act to the public. The AJA is a plan to boost infrastructure, the construction jobs associated with it, and jobs for teachers and firefighters. Further, it provides for significant tax cuts for hiring new workers, especially the long term unemployed, or raising wages. Additionally, the AJA would cut payroll taxes and give a payroll tax holiday of up to $50 million if a company hires new workers or increases employee salaries. This initiative would be effective under the economic principal “people respond to incentives.” These provisions geared towards small businesses stimulate aggregate demand as consumers experience a rise in income. Like we learned in class, a rise in income increases demand.  Of course, as we’ve also learned in class, “There’s no such thing as a free lunch.” Somehow, these measures must be paid for. As a Wall Street Journal article published today notes, costs incurred by the AJA will be covered by:

§  “Limit on itemized deductions ($200,000 individuals, $250,000 families)

§  Carried interest would be treated as "ordinary income" rather than at capital-gains rate

§  Oil- and gas-company tax breaks

§  Corporate-jet depreciation would change”

         It is important to note that these measures cover costs of $447 billion and also garner an additional 20 billion, according to White House Budget Director Jack Lew.

        As the product of a middle class upbringing, I believe in itemized deductions for the upper class, and therefore support the first measure for covering costs of the Jobs Bill. Warren Buffet recently addressed the injustice of the fact that he, a billionaire, pays less in taxes than his secretary. I agree with Buffet. The upper class, those who can afford it, should have a greater share in the burden. Most notably, this measure alone will raise $400 billion according to Bloomberg Business and Financial News.

       Next, President Obama attacks carried interest, defined as “the share of profits taken by hedge fund managers” by Forbes Magazine. In laymen’s terms, this provision imposes heftier taxation on hedge funds. Whereas before hedge fund managers were able to game the system, lessening their costs by treating carried interest at a favorable capital gains rate (intended to be used to encourage long term investment, but exploited by hedge funds), and incurring a tax rate of 15%, they now are subject to treat carried interests as “ordinary income” raising their taxes to 35%.   

      Third, the president plans to cut Oil and Gas Company tax breaks. For years these companies have used loopholes to pay nearly nothing in taxes. President Obama posed an important question; "Do we keep tax loopholes for oil companies, or do we put teachers back to work?" As we know, the real cost of something is what you must give up to get it. Ultimately by sacrificing subsidies to Big Oil in order to boost jobs for teachers, construction workers, and firefighters, we will experience an increase in income and helping the ailing economy.

       The last measure restricts tax breaks for owners of corporate jets. Opponents of this measure have argued it would hurt jobs connected with aircraft design and construction, but any job losses in this sector are outweighed by job gains elsewhere, especially in Obama’s infrastructure initiative.

http://www.huffingtonpost.com/2011/09/08/obama-jobs-speech-text-video_n_954705.html

 http://content.usatoday.com/communities/theoval/post/2011/09/obama-wants-to-pay-for-jobs-bill-by-eliminating-tax-breaks/1

http://www.forbes.com/sites/deanzerbe/2011/09/12/obamas-ideas-to-pay-for-jobs-bill-are-unlikely-to-fly-with-congress/

http://www.bloomberg.com/news/2011-09-12/carried-interest-to-help-pay-for-jobs-bill.html

http://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/economic_stimulus/index.html

http://online.wsj.com/article/SB10001424053111904353504576566802250477510.html

Is it all worth it?

                David Wessel writes in The Wall Street Journal “Osama bin Laden vowed to bleed America ‘to the point of bankruptcy.’” He goes on to contend “September 11 did not…trigger a wrenching recession.” I disagree with his assertion. He himself notes “The attacks led to Afghanistan and Iraq…wars.” It is because of this statement that I find myself with a contrasting view.            

                The United State’s wars in Iraq and Afghanistan contribute to rising oil prices, and these spiking oil prices increase inflation (Bateman, 2010). This is proven by evidence from the Washington Post; “Before the 2003 U.S. invasion of [Iraq], oil cost less and $25 per gallon… the war changed that equation.” Rising oil prices and subsequent inflation lessen amounts of disposable income, causing harm to aggregate demand.

                Diverting money from equally important endeavors to fighting wars in Iraq and Afghanistan has had an astounding opportunity cost according to Alternet News Orgainization.  Research conducted by Alternet found that “for every $1 billion spent on a combination of education, healthcare, energy conservation and infrastructure investments creates between 50 and 100 percent more jobs than the same money going to Iraq.”

                Though I disagree with Wessel’s contention that the wars have had a negligible effect of the economy, I agree with his views of war expenditures as excessive. A basic economic principal we’ve learned in class is that “Resources should be used as efficiently as possible to achieve society’s goals.” While I recognize the need to protect U.S. citizens, fighting against an elusive enemy in Afghanistan and implementing a democratic government in Iraq at the current time is unwise. This is especially true for the war in Afghanistan, where it is evidenced by Politifact that there are only 25-30 members of Al Qaeda left. Another article from Alternet concludes Al Qaeda has left Afghanistan, and is now based largely in Yemen.  Though some U.S. military presence is needed in Iraq and Afghanistan for the foreseeable future, a drawdown, in my opinion, is reasonable.  

                Like the individual, the government has unlimited wants, but limited resources. Resources are now being spent in a manner unwise and shortsighted. To conclude, I look towards the principal of marginal analysis. The impact of continued overspending in our foreign occupations has a negligible improvement on the safety of U.S. citizens, as Al Qaeda is very nearly absent from where troops are based in Afghanistan. Further, there never were WMDs in Iraq, according to a CIA assessment, and Saddam Hussein’s regime has been toppled. Funds are being diverted from healthcare, education, energy conservation and infrastructure, and inflation is rising, all contributing to a lack in economic growth. Because the costs of our spending in wars in Iraq and Afghanistan outweigh the benefits, I would answer Wessel’s final questions, “Was it all worth it? Are we really that much safer?” with a resounding ‘No.’