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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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March 30, 2017


Bad Debt Is Bad for Your Health

The amount of debt held by U.S. households grew steadily during the 2000s, with some leveling off after the recession. However, the level of debt remains elevated relative to the turn of the century, a fact easily seen by examining changes in debt held by individuals from 2000 to 2015 (the blue line in the chart below).

Not only is the amount of debt elevated for U.S. households, but the proportion of delinquent household debt has also fluctuated significantly, as the red line in the above chart depicts.

The amount of debt that is severely delinquent (90 days or more past due) peaked during the last recession and remains above prerecession levels. The Federal Reserve Bank of New York reports  these measures of financial health quarterly.

In a recent working paper, we demonstrate a potential causal link between these fluctuations in delinquency and mortality. (A recent Atlanta Fed podcast episode  also discussed our findings.) By isolating unanticipated variations in debt and delinquency not caused by worsening health, we show that carrying debt—and delinquent debt in particular—has an adverse effect on mortality rates.

Our results suggest that the decline in the quality of debt portfolios during the Great Recession was associated with an additional 5.7 deaths per 100,000 people, or just over 12,000 additional deaths each year during the worst part of the recession (a calculation based on census population estimates found here). To put this rate in perspective, in 2014 the death rate from homicides was 5.0 per 100,000 people, and motor vehicle accidents caused 10.7 deaths per 100,000 people.

It is well understood that an individual experiencing a large and unexpected decline in health can encounter financial difficulties, and that this sort of event is a major cause of personal bankruptcy. Our findings suggest that significant unexpected financial problems can themselves lead to worse health outcomes. This link between delinquent debt and health outcomes provides more reason for public policy discussions to take seriously the nexus between financial well-being and public health.

March 30, 2017 in Economic conditions, Monetary Policy | Permalink

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March 20, 2017


Working for Yourself, Some of the Time

Self-employment as a person's primary labor market activity has become much less commonplace in the United States (for example, see the analysis here and here ). This is a potentially important development, as less self-employment may indicate a decline in overall labor market mobility, business dynamism, and entrepreneurial activity (for example, see the evidence and arguments outlined here ).

Recessions can be particularly bad for self-employment, with reduced opportunities for potential business entrants as well as greater difficulty in keeping an existing business going (see here for some evidence on this). However, the rate of self-employment has been drifting lower over a long period, suggesting other factors are also playing a role in the decision to enter and exit self-employment.

One especially troubling development is the decline in the rate of self-employment for those in high-skill service providing jobs (management, professional, and technical services)—the people you might expect to be particularly entrepreneurial. For example, for workers aged 25 to 54 years old, the self-employment rate has declined from 13 percent in 1996 to 9 percent in 2016, and for those 55 years of age or older, the rate has dropped from 27 percent to 19 percent (using data from the Current Population Survey).

Not only are people in high-skill service jobs less likely to be self-employed than in the past, those who are self-employed are also less likely to be working full-time. The fraction usually working full-time has decreased from about 79 percent in 1996 to 74 percent in 2016. (The full-time rate for comparable private sector wage and salary earners has remained relatively stable at around 88 percent.) One possible explanation for the decline in hours worked is the last recession's lingering effects, which made it harder to generate enough work to maintain full-time hours. Another possibility is that more of the self-employed are choosing to work part-time.

It turns out that both explanations have played a role. The following chart shows the percent of part-time self-employment in high-skill service jobs. The blue lines are for unincorporated businesses and the green lines are for incorporated businesses. In order to distinguish cyclical and noncyclical effects, the chart shows the part-time rate for those who want to work full-time but aren't because of slack business conditions or their inability to find more work (part-time for economic reasons, or PTER), and those who work part-time for other reasons (part-time for noneconomic reasons, or PTNER).

In the chart, I classify someone as self-employed when that person's main job is working for profit or fees in his or her own business (and hence it does not capture people whose primary employment is a wage and salary job but are also working for themselves on the side). The self-employed could be sole proprietors or own their business in partnership with others, and the business may assume any of several legal forms, including incorporation. The chart pertains to the private sector, excluding agriculture, and part-time is usually working less than 35 hours a week.

On the cyclical side, the PTER rates (the dotted lines) rose during the last recession and have been slowly moving back toward prerecession levels as the economy has strengthened. In contrast, the PTNER rates (the solid lines) have moved higher since the end of the recession, continuing a longer-term trend. Choosing to work part-time has been playing an increasingly important role in reducing full-time self-employment in high-skill jobs. Note that there is not an obvious long-term trend toward greater PTNER for those self-employed in middle- or low-skill jobs (not shown).

Shifting demographics is one important factor contributing to the decline in average hours worked. In particular, the PTNER rate for older self-employed is much higher than for younger self-employed, and older workers are a growing share of part-time self-employed, a fact that reflects the aging of the workforce overall. (For more on the self-employment of older individuals, see here .) The net result is a rise in the fraction of self-employed choosing to work part-time. The higher rate of PTNER for the older self-employed appears to be mostly because of issues specific to retirement, such as working fewer hours to avoid exceeding social security limits on earnings.

The last recession and a relatively tepid economic recovery reduced the hours that some self-employed people have been able to work because of economic conditions. However, there has also been a longer-term reduction in how many hours other self-employed people (especially those in occupations requiring greater education and generating greater hourly earnings) choose to work. This increased propensity to work only part-time in their business is another factor weighing on overall entrepreneurial activity.

March 20, 2017 in Employment, Labor Markets, Unemployment, Wage Growth | Permalink

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Walmart has killed most self employment opportunities. On wonders where that particular effect shows in the data.

Posted by: John | March 21, 2017 at 12:56 AM

One reason why high skilled people are skewing away from self-employment is healthcare. High skills usually means high incomes relative to the rest of the population. Even with high incomes though, buying an individual healthcare policy is expensive. And although the ACA passed, it largely excludes people with high incomes from any form of financial assistance in paying the premiums. So essentially, if you have any sort of medical issues whatsoever (or think you might eventually have them), you'll find yourself wanting employer coverage if you're a high skilled worker. It's the reason why I don't break free from my employer to become a contractor: $50 a paycheck towards my premiums vs. $800+ a month with no subsidies if I buy it myself on the marketplace. No brainer, since I have a chronic condition requiring constant medication.

Posted by: Dave | March 21, 2017 at 01:25 PM

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March 02, 2017


Gauging Firm Optimism in a Time of Transition

Recent consumer sentiment index measures have hit postrecession highs, but there is evidence of significant differences in respondents' views on the new administration's economic policies. As Richard Curtin, chief economist for the Michigan Survey of Consumers, states:

When asked to describe any recent news that they had heard about the economy, 30% spontaneously mentioned some favorable aspect of Trump's policies, and 29% unfavorably referred to Trump's economic policies. Thus a total of nearly six-in-ten consumers made a positive or negative mention of government policies...never before have these spontaneous references to economic policies had such a large impact on the Sentiment Index: a difference of 37 Index points between those that referred to favorable and unfavorable policies.

It seems clear that government policies are holding sway over consumers' economic outlook. But what about firms? Are they being affected similarly? Are there any firm characteristics that might predict their view? And how might this view change over time?

To begin exploring these questions, we've adopted a series of "optimism" questions to be asked periodically as part of the Atlanta Fed's Business Inflation Expectations Survey's special question series. The optimism questions are based on those that have appeared in the Duke CFO Global Business Outlook survey since 2002, available quarterly. (The next set of results from the CFO survey will appear in March.)

We first put these questions to our business inflation expectations (BIE) panel in November 2016 . The survey period coincided with the week of the U.S. presidential election, allowing us to observe any pre- and post-election changes. We found that firms were more optimistic about their own firm's financial prospects than about the economy as a whole. This finding held for all sectors and firm size categories (chart 1).

In addition, we found no statistical difference in the pre- and post-election measures, as chart 2 shows. (For the stat aficionados among you, we mean that we found no statistical difference at the 95 percent level of confidence.)

We were curious how our firms' optimism might have evolved since the election, so we repeated the questions last month  (February 6–10).

Among firms responding in both November and February (approximately 82 percent of respondents), the overall level of optimism increased, on average (chart 3). This increase in optimism is statistically significant and was seen across firms of all sizes and sector types (goods producers and service providers).

The question remains: what is the upshot of this increased optimism? Are firms adjusting their capital investment and employment plans to accommodate this more optimistic outlook? The data should answer these questions in the coming months, but in the meantime, we will continue to monitor the evolution of business optimism.

March 2, 2017 in Books, Business Inflation Expectations, Economic conditions, Economic Growth and Development, Forecasts, Inflation Expectations, Saving, Capital, and Investment, Small Business | Permalink

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