Posted by: Josh Lehner | August 19, 2021

Aid to Households in Oregon (Graph of the Week)

One of the main goals of federal policy at the start of the pandemic was to ensure households were kept afloat financially. The primary ways policy has been able to do this was through enhanced unemployment insurance benefits and recovery rebates. But as one of our advisors points out there were a number of other items as well including rent assistance, eviction and foreclosures moratoriums, student loan deferrals, the new child tax credit and the like. While those may be on a smaller scale, they all work toward improving household cash flow and overall finances. From a high level perspective, these federal policies have more than achieved their goal. Incomes are higher today than before the pandemic. Of course these policies all were, or are temporary. The rebates are over, UI ends in a couple of weeks, and the others are scheduled to end in a few months, although policymakers are looking to extend the CTC on its own merits and not as any sort of pandemic assistance. The good news is underlying incomes absent the direct federal aid have recovered as well.

When talking about the economy, and labor supply our office always highlights the strong household finances. We make sure to mention that it is not just unemployment insurance boosting incomes and potentially holding back some workers today, but rather you need to take a look at the overall picture. That’s one reason we do not expect a flood of job applicants the week after enhanced UI ends, even if UI is a big piece, probably the biggest, to the overall labor supply puzzle.

Case in point is this edition of the Graph of the Week. Since the start of the pandemic, recovery rebates have added about $13 billion to Oregonian incomes, and unemployment insurance about $11 billion based on the latest data from the BEA and our office’s estimates. Combined these represent an 11 percent boost to incomes over the past 18 months*.

While it looks like this chart is getting left on the cutting room floor of our forecast document next week, I wanted to make sure it was shared here on the blog as it makes a compelling visual of the impact of federal policy during the pandemic.

* 2019 statewide income was $224 billion, so (13+11)/224 = .11

Posted by: Josh Lehner | August 17, 2021

Oregon Employment, July 2021

This morning our friends over at the Oregon Employment Department released the July employment report. I think their headline says it all: Oregon’s Unemployment Rate Drops to 5.2% in July as Oregon Adds 20,000 Jobs. It was a banner report. Since it’s been a couple months since our last nuts and bolts summary, let’s do a rapid-fire run through five charts and end with a few comments on the potential impact of the Delta variant.

First, the big 20,000 monthly job gains is huge. It means Oregon has recovered 70% of its initial pandemic job losses. Today employment remains 4.4%, or 86,000 jobs below where we were in February 2020, but progress is ongoing and much faster than in recent cycles. The latest data comes in a smidge above our office’s most recent forecast, but in line with expectations. (Note that our next forecast comes out next Wednesday, August 25th.)

Second, given the nature of the pandemic and its economic impact on in-person service industries, low-wage sectors continue to be disproportionately affected. The good news is the recover is ongoing. Leisure and Hospitality added more than 7,000 jobs last month on a seasonally-adjusted basis, although the sector is still down about 20% from pre-pandemic levels. While the total number of leisure jobs will reach historic highs in the years ahead, our office has made some downward adjustments on a per capita basis, as discussed previously. Higher-wage jobs today are boosted, in part, due to their greater ability to work remotely and therefore are less disrupted by the pandemic itself.

Third, in July the largest sector increases were in local government. A lot of this nationally had to deal with seasonal factors related to education where this summer school districts did not lay off their normal amount of workers as their employment counts are already down during the pandemic with online learning and the like. I suspect this is happening in part in the Oregon data. Just a reminder that local government employment is down roughly the same as the private sector, in large part due to the pandemic. Education is down as districts use fewer substitutes, bus drivers, and nutrition workers with online learning. Public sector leisure and hospitality (zoos, community centers, etc) are down due to the virus and health restrictions. Tribal employment is down a larger percentage likely due to the leisure and hospitality (casinos and hotels) components. Here is our office’s tracking chart based on the latest detailed data which goes through March.

Fourth, speaking of education and counter to the conventional wisdom, the data continue to point to the lack of in-person schooling not being a macroeconomic constraint. No doubt it is a micro constraint for impacted families, but at the top line it is hard to see any real impacts when it comes to basic statistics like do you have a job yes or no. For example, here in Oregon the unemployment rate for women is lower than for men. A more accurate look can be found in economist Jed Kolko’s updated analysis that finds employment rates for moms are now outperforming women without children nationally. These findings are surprising to some and do run counter to the conventional wisdom. The good macro and micro news is that students will return to the classroom and to college campuses next month. This will boost the direct number of education jobs and any lingering indirect effects on parental labor force participation.

Fifth, the number of unemployed Oregonians continues to decline as jobs increase. The same is true for the number of Oregonians receiving unemployment insurance benefits. As our office has stated in the past, the number of jobs, the number of unemployed Oregonians, and the number of folks receiving UI are all moving together. This does not mean job growth could not be faster absent the enhanced benefits, but it also does not mean there is a large pool of potential workers who are not responsive to ongoing labor market dynamics. Another item to note is that the number of Oregonians who are not in the labor force — not actively looking for work — due specifically to the pandemic also continues to decline.

Finally, our office is increasingly asked about the impacts of the Delta variant given the surging cases and hospitalizations in Oregon. On one hand, what really moves the economic needle are shutdowns. More stringent health restrictions are not currently in place nor have been announced. Of course given the state of the pandemic that could change. On the other hand, there will likely be some pullback in consumer demand for certain in-person activities, be it air travel, bowling alleys, movie theaters, or the like. Given household income is strong and the stockpile of excess savings remains, any slowdown in spending today will probably be pushed forward into future months when the state of the pandemic improves. Any weaker growth in the near-term will likely result in stronger growth in the medium-term. It will be more of a shift in timing of consumer spending, rather than altering the overall trajectory.

In you check out our office’s COVID tracking page you will see that in the past week we are seeing the slightest declines in video lottery sales and OpenTable seated diners as the Delta variant surged. Nationally the number of air passengers is dropping as well (we don’t have real-time Oregon data here). Last week was the first really massive week of cases and hospitalizations, or massive enough to really grab the public’s attention it seems. As such, I’m interested to see how it impacts Oregonian behavior this week. Will it continue to be modest, or will we see larger declines in certain activities? We will have a better idea next Monday or Tuesday when the data is available.

Posted by: Josh Lehner | August 11, 2021

Why Job Openings are through the Roof

We know job openings are at record levels both nationally and here in Oregon.

The question is why are they so high? At the most basic level the answer is consumer demand is strong and firms are trying to get back to pre-COVID staffing to meet that demand. As simple as that sounds, it’s actually pretty unusual. It’s certainly different than the experiences of the past two recessions which were long-lasting, and had a clear lack of demand. It took years for consumers to return and firms to staff up. Today we know incomes are strong and pent-up demand is very real.

Even as that explanation is concise and sufficient to explain what ‘s going on, I can’t stop there. I’ve been trying to figure out how all the other factors today are impacting job openings. I’m using the accommodation and food service industry as an example below to show how some of these things impact the number of job openings, but this really applies to to all industries.

First, there is considerable amounts of churn in leisure and hospitality. Over the course of a year, roughly 60% of jobs are so-called stable jobs. That means the sector sees 40% turnover. That works out to the average business needing to fill one position every 2 months just due to industry churn and keeping total employment steady. You’ll note that the total job openings in 2019 were larger than this, I think in large part because you don’t advertise fractions of a position! (It could be part-time, but you need a whole person to fill it on a part-time basis). Plus the industry was growing, so needed more workers to expand on top of the churn.

Second, that normal churn is harder to fill today. Quits are up as workers take better opportunities with different firms, meaning there are now more open positions to fill. Plus labor supply is lower, meaning the number of people who would normally cycle into one of those vacant positions over the course of the year is lower as well. That increases openings as it takes longer to fill them. Combined these factors increase job openings by about 65% relative to that normal industry churn. That’s a huge number!

Third, there is the overall employment hole that firms are looking to fill and get all the way back to pre-COVID levels, if not higher. This is an even larger number.

Overall you will see that the current number of job openings are roughly in the same ballpark, or in the middle of those last couple of calculations. It’s clearly not a perfect calculation that scales exactly to what the data tell us, but is indicative and has been helpful for me to think through. The good news is consumer demand is there, allowing the overall economy and firms to try and get back to pre-pandemic levels faster than in recent cycles. And while that clearly is happening, it is challenging in a supply-constrained economy.

Posted by: Josh Lehner | August 10, 2021

Manufacturing Wages: It’s about the Career Path

The labor market is tighter than you think, not just for bars and restaurants as they try to staff back up but pretty much across the board in terms of industries and occupations. An interesting piece of the discussion continues to be the trades, where surging wages in leisure and hospitality now put upward pressure on lower-wage jobs throughout the entire economy in order for firms to attract and retain workers. These lower-wage jobs include many manufacturing positions.

Our office has written quite a bit over the years when it comes to manufacturing wages, the shifting nature of work within manufacturing, young adults entering into the trades HERE and HERE and the like. But today I wanted to share something I’ve been using more lately when talking with manufacturers and workforce development folks. We don’t have perfect data here but I hope the point is clear, or at least clear enough.

Starting wages for production jobs — the manufacturing jobs that actually do the manufacturing — really aren’t that much higher than in restaurants. Pre-COVID here in Oregon the hourly wages were about $1 (12%) higher. That’s not nothing, but at the same time is not a huge wage premium. The bigger boost to income is really seen among experienced workers. The median production worker in Oregon brought home $15-20,000 more than the median food preparation worker did, once you account for hourly wage, hours worked per week, and weeks worked per year, all of which are higher in manufacturing than in food service. Take home pay was nearly double at $38,400 versus $19,600 (+$18,800 or +96%). And in practical terms that pay difference is massive. It is equivalent to being able to spend an additional $470 per month on rent (using the imperfect 30% of income metric), with more available for food, vacations, and the like.

Now, in a tight labor market attracting and retaining workers is a huge challenge, so what I’ve told folks in the trades is to highlight the career path and earnings in the years ahead. That said, with the quickly rising wages in leisure and hospitality, entry level wages in manufacturing need to rise as well. Even mid-career wages will need to increase to be competitive. Pre-COVID median hourly wages in production jobs were $18-20 depending on the subsector, and even as low as $15 in food manufacturing. With starting wages in fast food approaching those levels, there is increased competition for workers.

Our office has heard from a few local firms saying this is starting to be an issue and when competing in more of a global or national market, it could make them less cost competitive. That is a worry and a challenge given the global manufacturing dynamics of recent decades. However given the strong sales environment today, now is a better time to pass along those cost increases to customers as they can better afford them without sapping demand at the same time. Looking at the wages, and the production and supply chain costs, these increases are happening. Crucially productivity has risen during the pandemic, meaning firms are producing more with relatively fewer workers, which also better allows them to pay those higher wages needed to attract and retain talent.

Two final notes:

The chart above only shows hourly wages, but we know the total compensation package is better in manufacturing as well. According to the 2019 Employer-Provided Benefits survey from the Oregon Employment Department, manufacturers offer medical, dental, and vision insurance at twice the rate as the leisure and hospitality industry.

While the hours worked piece is huge in financial terms, it can cut both ways. We know manufacturing employees essentially work 40 hour weeks (on average) while leisure and hospitality is more like 25 hours. However some people do prefer the greater flexibility of part-time work, and/or non-standard hours. The more ridged nature of full-time work does not fit the needs of some workers.

Bottom Line: Finding and keeping workers is a huge challenge for businesses today. While I am a labor supply optimist, it’s not like labor is going to suddenly become widely available this fall. I just don’t think it will remain depressed indefinitely. As a result, firms are adjusting the levers they can both in terms of financial (wages, benefits, hours) and non-pecuniary (flexible schedules, work from home etc).

Posted by: Josh Lehner | August 4, 2021

In Search of Structural Changes in the Labor Market

Clearly the pandemic has upended our lives in many ways. We’ve changed some of our behaviors and formed new habits over the past year and a half. After the pandemic wanes, some of these adjustments will stick and some will not. Even as we cannot say for certain today which will or will not stick, let’s take a look at two possibilities that are at the forefront of a lot people’s minds.

First, while I am a labor supply optimist, that does not mean there are not some underlying changes in the workforce, and in the service sector in particular. The New York Times had an interesting podcast yesterday where they talked with a few business owners and a handful of former restaurant employees about what the past year has been like. It’s not hard data, but in the midst of everything going on, anecdotes are helpful.

In short the business owners have struggled to fill job openings and largely blame the federal government and the enhanced unemployment insurance benefits for that. The workers, on the other hand, acknowledge that UI is keeping them afloat financially and are not currently willing to jump right back into jobs that are physically demanding, underappreciated by both their bosses and the customers, and pay low wages. Many former workers say they have taken the past year to improve their health (better sleep and eating habits, more exercise), and are looking for jobs with better working conditions like regular schedules, paid breaks, and the like. Research has shown some job switching into retail, warehousing, and even the postal service as mentioned by the former Portland restaurant worker on the NYT podcast.

What do I think is going on? I believe everything in the above paragraph is true. Many service industry jobs are physically demand, underappreciated, and underpaid. That’s been the case for a long time. The pandemic and the federal aid that has kept household incomes strong, has better allowed workers to assess these conditions and reevaluate what they want to do, if they so choose. I do not believe that the enhanced UI is a problem problem, and to the extent it is, it is temporary and was purposefully designed to keep households afloat during the pandemic. But we have to acknowledge it is a labor supply constraint. Within low-wage jobs, workers who qualify for UI are seeing wage replacement noticeably higher than 100%. Depending upon your assumptions, it is 130-150% wage replacement for the typical restaurant employee. Now that excludes tips, and the fact that wages have risen noticeably lately makes the opportunity costs of not working today different, but still, it’s a clear piece of the puzzle.

Ultimately where our office lands on this today is we have made some structural changes to labor within the leisure and hospitality industry. On a population-adjusted basis we have lowered our forecast for leisure and hospitality employment by about 7%. Now, the total number of jobs increase over time, reaching historic highs in level terms, but they never fully regain their pre-pandemic peak on a per capita basis. Obviously it is hard to know today what the right adjustment is and as we learn more our office will adjust our forecast further. But between shifts in business practices when it comes to not cleaning hotel rooms every single day, to more counter service and QR codes at restaurants, plus some share of the workforce looking for jobs in other industries, some downward adjustment to the labor outlook is needed.

The second potential change relates to working from home. Numerous surveys show that workers like working from home and do not want to return to the office full time. A new report from Upwork even goes so far as to show that a sizable share of workers are willing to take a pay cut to stay remote, and even become freelancers in order to do so.

Here the real question continues to be where does remote work ultimately land. Is it a couple days a week or 100% remote? That’s what’s going to matter the most and we just don’t know yet. For now our office is of the opinion it will generally be a day or three a week instead of fully remote. Case in point, the share of workers who say they are telecommuting during the pandemic continues to decline. Now, this still represents an increase from pre-pandemic rates. We do not believe everyone is going back to a full five days a week office environment, but the fully remote shares are likely to remain relatively low overall. Such changes still can have some big implications for downtowns, commercial real estate and restaurants that rely on the lunch crowd, etc, but in general most of us will return to the office in the months ahead. And keep in mind that working from home is only something that about 1 in 3 jobs can realistically do in the first place. See our previous report on working from home for more details.

The other implication of the Upwork report is something to keep an eye on and frankly could bring about larger economic changes. We know business formation is up, which is encouraging for future economic and productivity growth. But it is up even more among new companies without “planned wages” — basically the self-employed. This could be white collar freelancers, but could also include broader increases in rideshare or food delivery or other on-demand type jobs in addition to more traditional side hustles and Saturday Market type ventures. Furthermore, while not seen in the U.S. data but we do here in Oregon, at least in the unbenchmarked data, the number of self-employed is running noticeably ahead of the payroll employment data.

Overall, I am a bit more skeptical of some of these broader potential changes in the economy. I generally need to see it in the hard numbers rather than relying on anecdotes. But we have to recognize that the pandemic has upended our lives in many different ways. The changes we have made in the past 18 months, and in those still to come will stick to varying degrees. Some shifts, like more e-commerce, strong home sales and even retirements, are really just accelerating these longer-term structural changes that were already occurring. In general I would place working from home in that group as well, however to the extent it is fully remote and/or an increase in freelancing and the like, that would be a new structural change in the labor market and overall economy. As always, our office will continue to monitor the data and adjust our outlook accordingly.

Posted by: Josh Lehner | July 23, 2021

Educational Attainment Disparities (Graph of the Week)

Happy Friday! I’m working on a larger project and in the midst of doing it, created the following chart to help visualize the data. Honestly it’s a bit of a Rorschach test when it comes to the intersection of educational attainment with age, sex, and race and ethnicity. Before this gets buried, or rather embedded into the larger analysis, I wanted to elevate it be the latest edition of the Graph of the Week. So many possibilities, opportunities, and historical inequities can be seen here. Have a good weekend.

Posted by: Josh Lehner | July 20, 2021

Labor Supply Optimism

The labor market is tight. Firms are looking to fill record job openings and the number of available workers is lower than before the pandemic. The acute severity of these dynamics will persist for a few more months, but come late fall they should lessen some. But even then labor supply will merely rebound to roughly where it was pre-COVID. As such it’s important to keep in mind that the labor market will remain tight, largely due to demographics. Labor will not be abundantly available come the winter, just as it wasn’t in 2018 or 2019.

There are two main reasons I am a labor supply optimist. The first is we, as humans, like to do things. We like to feel productive, to receive feedback and affirmation. Of course when we don’t get this at our jobs, it creates its own challenges, which is something I think we’re seeing with our front-line service workers during the pandemic.

The second reason is at a base level we all need to pay the bills. To do this, the vast majority of us need to work to earn a paycheck. Given the current strong incomes and excess savings, there are fewer people who need to work today, but will again in the near future. My best guess is this will not happen immediately after UI expires in early September but rather a couple of months later as the savings is spent down.

This cycle is different. We know that. But one of the stories we told ourselves about the last cycle was labor would only return with jobs were more plentiful and paid better. Clearly this was not happening in the aftermath of the financial crisis but over the second half of last decade these dynamics did play out. I do think a similar pattern can be seen this cycle, but on a much accelerated time line.

First, job opportunities are already plentiful. Businesses are looking to fill a record number of vacancies. These vacancies are exacerbated, or increased more than expected, by a higher number of quits and retirements. Remember every time a worker retires or quits, it leaves an opening that needs to be filled. Furthermore, the lower participation rates during the pandemic means the normal industry churn and therefore the number of openings is exacerbated as well. Even so I think it is fair to say that given strong consumer demand, businesses are trying to staff back up and expand even more if they could find the workers. Labor demand is not holding back the economy, unlike a decade ago. This is encouraging!

Second, the jobs are paying higher wages today. This is different than last cycle as well. Wage growth, especially in the low-wage industries is rising quickly. Firms are competing more on price to attract and retain workers. This is a necessary condition to see strong labor supply. See our previous deep dive into wage growth for more.

OK, so how is this actually going in terms of the labor market? I would argue pretty well overall, but not perfectly. We are currently recovering much faster than recent cycles, but it is possible that we could recover even faster if not for the things temporarily holding back labor supply.

When it comes to those labor supply constraints the first (and only) one folks want to talk about is the enhanced unemployment insurance benefits. The average UI check in Oregon is equal to 100% wage replacement as of a couple months ago. That is a disincentive for some workers. The replacement rate is higher for some low-wage workers, especially those working part-time as the $300/week federal plus up is a lump sum given to all who qualify.

Two things.

One, the improvements in the labor market mirror the patterns seen in continuing UI claims. They are moving together. That said it does not mean that without UI the recovery couldn’t be faster. It also means there is not this giant pool of potential labor that is immune to the broader labor market changes. They may not be working but they are paying attention and responding to the job opportunities and higher pay.

Two, I argue it’s not just UI but the overall strong household income that matters most today. UI is a part of that. But remember that the recovery rebates in aggregate are the same size as UI. It’s just one was disbursed three times while the other trickles out a little bit every week. Additionally, underlying income growth absent federal aid is also strong, see our previous report for more on income trends during the pandemic. Finally, the new child tax credit will further strengthen household incomes today as well.

Bottom Line: Demographics will weigh on labor supply for the next decade. However among prime working-age Americans I am a labor supply optimist. Possibly even about teenagers as well.

Jobs are already plentiful and wages have leveled up. This cycle is different, and the accelerated labor market dynamics are proof of that. Once the temporary constraints of the pandemic ease, which will take months, not weeks, workers will return in greater numbers. That said firms will still find it challenging to attract and retain workers. Underlying increases in wages and benefits will continue.

Posted by: Josh Lehner | July 15, 2021

Understanding the Child Tax Credit in Oregon

This morning the new, enhanced Child Tax Credits began appearing in people’s bank accounts. In a nutshell, by increasing the CTC amount and converting it to a monthly disbursement to families, has the potential to impact not only families and society, but also the macroeconomy. It certainly feels like this policy has been under the radar. I think this is for two reasons. First, we’re still in a pandemic which has altered our lives considerably in the past year. We have been preoccupied with that. Second, the enhanced CTC is only going to about 1 in 4 households (I get 23% in Oregon, 25% nationally when I crunch some rough numbers). As such, it is a targeted policy looking to reduce child poverty and increase the finances of low- and moderate-income households with young children. Additionally the policy looks like it will reduce racial income gaps, and could also impact labor force participation among some parents who work part-time.

Now there are at least two big challenges with the CTC that remain. One is that right now the monthly disbursements are only slated to last until December. Federal policymakers are discussing extending them, but without further legislation, they will end relatively soon. A temporary improvement in finances for young families is great, to any broader changes are unlikely. The second challenge is getting the payments to eligible households. Nearly half of households with kids in poverty do not file tax returns as they do not meet the threshold requirements. So CTC disbursements through the IRS means outreach to eligible households is even more important. After all you cannot cut child poverty considerably if those in need to not receive the payments!

Our office detailed the enhanced CTC back in April. Given the importance of the policy and the potential impacts, I am reupping the post and copying it below for those looking to learn more about the specifics, and some of the avenues in which we are likely to see impacts. What follows is an edited version of our previous work.

Included in the American Rescue Plan Act were some significant changes to the child tax credit for 2021. While some policymakers are looking to make these changes permanent, at this point they are for just 2021 only. These changes include an increase in eligibility, an increase in the size of the credit, and switching from a one-time credit every year when filing tax returns to periodic (monthly) payments directly to families. Each of these changes is noteworthy by itself and what follows takes a look at the implications here in Oregon.

First, the financial benefit for Oregon families is significant. The previous credit was for $2,000 per child less than 17 years old. The new credit is for children under 18 years old. For kids under 6 the amount is increased to $3,600 while those 6-17 years old it is increased to $3,000. Importantly the credit is also now fully refundable, allowing lower income families to receive the full amount unlike in years past.

Roughly, these changes increase Oregonian after-tax income by $1 billion or so. Building an analysis off of Census data, like our office does here, gets us $1 billion while sharing down the federal budget cost gets us more like $1.3 billion in Oregon.

Overall about 85% of Oregon families — defined as a related child and adult — will receive the enhanced credit due to the income limits of $75,000 filing single, $150,000 married filing jointly. For most families, the increase is right around $2,000 relative to the old credit. Broadly speaking the easiest way to think about this is the credit increased from $2,000 to $3,000 for most kids and the average family has two kids. There’s more nuance here based on expanded eligibility and the age of the kids but overall it mostly seems to even out to around $2,000 for most eligible households.

The enhanced child tax credit is a progressive policy, as seen in the chart below. Yes, it is a fairly flat, evenly distributed $2,000 for most families, however the boost in after-tax income this provides is much larger for lower-income households. For example, the median household with kids earns around $85,000 per year. They will receive a 2.6% boost in income from the enhanced child tax credit. However for households in poverty the boost is more like 5, 10, 15% or more. Researchers at Columbia University estimate that the enhanced credit will reduce U.S. child poverty by 45%, and by 46% here in Oregon. (Note that the chart below does not factor in the increased refundability.)

Additionally the enhanced credit will lessen racial and ethnic income disparities as well. This is for at least two reasons. Yes, Black, Indigenous, and People of Color in Oregon generally earn less money than their white, not Hispanic peers. However younger generations are also more diverse than older cohorts in the state. So young families are more likely to be diverse, and also earn less money because one parent may stay home to look after the kids and even those that are working are more likely to earn less income because s/he is still relatively early in her/his career.

Specifically what this analysis shows is that households with white, not Hispanic kids account for 66% of aggregate family income. However such households account for 59% of the increase in the credit. Put another way, households with BIPOC children account for 34% of income but will receive 41% of the increased credit. These relative changes are not drastically different, but boosting family-friendly policies do work to lessen racial and ethnic disparities.

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Second, while the overall boost to after-tax income is great for families, the switch to periodic payments has big implications as well. The IRS just announced they are expecting to begin monthly payments in July. Families will get half of the credit on their tax return when they file in April 2022, but the other half will be in direct payments from July through December 2021. As such, starting this summer, parents will begin receiving $250 or $300 per month per child, depending upon the child’s age.

As the Sightline Institute summarized last year, cash benefits offer flexibility for recipients that allows them to better spend on the things they need instead of being tied to specific products or categories. Additionally, monthly payments also better allow households to build the money into their regular budget and plan better financially then relying upon a large, one-time payment that is intertwined with everything else on a tax return. (Note this was part of the rationale with Make Work Pay, the Obama era payroll tax cut designed to boost household incomes coming out of the financial crisis.)

Third, the enhanced credit is being administered by the IRS. The IRS has a lot of recent experience dispersing the recovery rebates during the pandemic, which works quite well for the majority of households. However, that means it works well for those who file tax returns. If your family is a non-filer, usually because your income is below the filing threshold, signing up to receive the enhanced credit and monthly payments creates administrative hurdles. As the People’s Policy Project points out (H/T Michael Andersen), BIPOC families and those in poverty are much more likely to be non-filers. It’s based on a very small sample size here in Oregon, but we do get a question once a year about tax filing status from the household survey. As seen in the chart below, families in poverty are much less likely to file taxes, which means receiving the enhanced benefits requires more outreach and paperwork. This is something to keep an eye on in terms of policy effectiveness. The enhanced credit can only reduce poverty and boost family incomes to the extent that those eligible actually receive it.

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Fourth and finally there may be some broader societal responses should such a policy be made permanent. We know childhood poverty impacts outcomes as an adult. For example, growing up in concentrated poverty is particularly bad for economic mobility. Should we see greater economic mobility in the decades ahead, that would be great news overall.

That said, recent discussions about unintended consequences tend to focus more on how parents will respond should they receive larger government benefits. Specifically will labor supply decline, leaving comparatively fewer available workers?

In short the answer is maybe. Some past research found that married spouses do work less when benefits increase. This is presumably an indication that one spouse was the primary earner and the other one worked to augment their incomes. The need to work a few hours on the side is lessened when benefits increase.

However, brand new research finds that the reforms and enhancements that Canada did a few years ago has not led to reduced labor supply, at least among single moms. Overall the Canadian reforms look a lot like the current 2021 child tax credit in the U.S., primarily a $3,000 child allowance that is paid out monthly. The linked paper above finds that the reforms did lead to a reduction in child poverty, an increase in after-tax income for parents, and no impact on labor supply. The focus on labor was primarily comparing employment among single moms and single women without kids. As such, it does not rule out any married spouse responses, but overall the findings are quite strong in terms of the policy outcomes.

Bottom Line: The enhanced child tax credit for 2021 will provide a noticeable boost to family incomes in Oregon and across the country. Based on the available data, and a similar Canadian policy, childhood poverty is set to decline in 2021. It is important to keep in mind that public policies can create unintended consequences. At some point there is a tradeoff between the generosity of government programs and earned income. But we also know that forcing children into poverty so that their parents have to work isn’t a great baseline either. A key question is where do we draw that line? Better yet how do we design programs to avoid fiscal cliffs, and high marginal tax rates as households move up in the income distribution? Monitoring the socio-economic outcomes from policy changes, and then adjusting those policies as needed is paramount. However to really analyze such changes, the enhanced child tax credit, or something of its ilk, needs to last more than a single year.

Posted by: Josh Lehner | July 9, 2021

No Permanent Damage Expected

Happy Friday! Just a couple of charts from our latest forecast. The good news is our office is not expecting any long-run, permanent damage this cycle, unlike recent experiences. Despite the supply constraints, this expansion will be quicker, and more complete than recent cycles. In the aftermath of each of the past two recessions, there was a big downgrade to the economic outlook, relative to pre-recession expectations. We never regained the old trend line. The economy was on a lower, and slower path. But not this time. We expect employment to come close to regaining the old trajectory — the out years will ultimately depend on migration flows in the years ahead. And we know incomes are up today, but expect as the federal aid fades, growth will slow but remain a bit stronger than we forecasted pre-pandemic. These underlying dynamics — plus asset markets and corporate profits — are the key reason why our forecasts for state revenue are likewise higher than they were a year and a half ago.

Posted by: Josh Lehner | July 2, 2021

Oregon Income is Strong

This morning we received the national June jobs report. Another very strong month for job gains, and ongoing wage increases. It is encouraging to see these dynamics continue to play out as the labor market recovers from the pandemic. Our office’s forecast has front-loaded the growth this cycle due to the income and spending dynamics, however the risks in a supply-constrained economy are for slower gains and a little bit higher inflation unless the supply side can ramp up quicker and productivity accelerates further. With that said, let’s dig a bit into the latest income data.

First, just to reiterate, the reason the underlying economic outlook is so bright is this chart. Households have around $2.5 trillion in excess savings, much of it just sitting in bank accounts ready to be spent should they want to. Our advisors indicate that retail deposits in local banks and credit unions show the same patterns locally. Of course the strong incomes are due to the federal policy response. The stated goal with the recovery rebates and enhanced unemployment insurance benefits was to make households financially whole during a global pandemic. At the macro level, a job well done. When you combine the strong income numbers with reduced spending due to both public health restrictions and fearful consumers, it paints a very robust picture of household balance sheets moving forward.

OK, let’s dig into the Oregon numbers now. The next chart shows total personal income in Oregon across recent business cycles. Clearly this cycle is different. Even as the temporary federal aid fades, income is expected to be stronger than in the recent long-lasting, demand-driven cycles following the dotcom and housing busts. Note that the solid lines represent actual data, and the dotted lines are our office’s forecast.

Given we know much of the strong incomes today are due to that federal aid, let’s take a look at the underlying income trends in the economy. Given we went through such a deep recession a year ago, the fact these underlying incomes have bounced back so quickly is a testament to the nature of the shock, and the resiliency of the economy. It should also be noted that we cannot account for the indirect effects of the federal aid as well, as without that the rebound would not be as swift either. Note that this chart also strips out our estimates of the impact of PPP loans for small businesses which do show up in the nonfarm proprietors income numbers.

Speaking of proprietors income, the impacts from the PPP are huge — however imperfect the program may be in terms of the rollout and the paperwork. See our office’s previous look at the first round of PPP by industry and county in the state. More importantly, see our dive into the relatively few business closures we have seen during the pandemic and why that is also an encouraging trend for the overall outlook.

Finally, let’s look at wages in Oregon. Given we still have such a large jobs hole in the labor market, the fact total wages have rebounded this strongly is remarkable. Encouragingly, as we recently detailed, these wage gains are not just an artifact of industry composition, but mostly due to strong, underlying wage growth for workers. This pattern is expected to continue given the bright economic outlook, and a labor market that is tighter than you might think.

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