Jane the Actuary General Interest

Forbes post, “It’s ‘America Saves Week’ – Should You Have A Savings Account?”

Originally published at Forbes.com on February 25, 2020.

It’s America Saves Week, an initiative to, yes, promote savings. Yesterday’s theme was “save automatically” and today’s theme is “save with a plan.” A variety of banks and community groups are on board with promoting savings.

But — can we be honest about something?

I’m so old that . . .

when I got my first “grown-up” bank accounts, after leaving grad school and the university credit union, we were persuaded to get a separate savings account, in addition to the checking account, with the lure of a higher interest rate.

You laugh, but it was true. I even looked it up in our old financial records.

The interest rate on that first bank statement was 1.60% for the checking account, and 2.81% for the savings account.

In our most recent bank statement, the savings account likewise earns more interest than the checking account, four times as much, in fact.

Yes, the savings account earns 0.04% and the checking account, 0.01%.

Now, to be sure, we bank at a large national bank, and enjoy the conveniences it offers. Higher rates still exist on online banks, but, of course, without the convenience. And even smaller “neighborhood” banks don’t offer a magic formula for higher rates: to take a few local examples, offering rates of 0.01%, 0.05%, or 0.15%.

Now, at the same time, our first mortgage had an interest rate, if I remember correctly, of 8.5%. The current rate at Quicken Loans is 3.625% for a 30 year fixed mortgage. That’s made monthly payments far more affordable for homebuyers. And this is all a part of a larger macroeconomic picture.

Beyond which, of course, savvy savers don’t leave their money in a savings account, but move it to investments of one sort or another, whether directly in the stock market, or in bonds, or mutual funds or the like, leaving in their bank accounts only as much cash as seems necessary for liquidity purposes.

But traditional savings accounts have long been a sort of “training wheels” for saving and investing, a way not just to build up a balance but build up that intuitive recognition that accounts grow with interest. (Folks, when I wrote about the importance of paying off debt before building retirement savings balances, round about this time last year, some of my twitter followers engaged in a discussion about investing, and many of them struggled with concepts around compound interest.)

And, in fact, a recent survey found that 45% of respondents said they have no money in a savings account — but in that same survey, when asked where they save (that is, “store most of their savings”), only 29% said they had no savings at all, 33% used a savings account, and the rest gave answers such as saving directly within their checking account.

So is there a reason to maintain a separate “savings” account even in these days of low interest, or even to have multiple such accounts for different purposes?

The concept of “mental accounting” says yes — or, rather, maybe. It’s intuitively easier to save (whether for a specific objective or just generally for emergency/rainy-day purposes) if the money leaves your checking account for a separate bucket. Financial advice site NerdWallet’s Amber Murakami-Fester even recommends two separate funds, one for general rainy-day needs (e.g., a home repair bill) and the other for more serious emergencies such as a job loss.

“Many people throw extra money into a single savings account and pull from it whenever their checking account balance runs low, [financial planner James] Kinney says.

“[Financial planner Laura] Scharr-Bykowsky calls this the ‘savings blob.’

“’It doesn’t really have a purpose,” she says. “You just dip into it whenever. . . .’

“When real emergencies strike, your general savings account may prove insufficient. You might then turn to expensive ways of borrowing money, such as credit cards or home equity lines of credit.

“Separating savings into buckets of rainy day funds and an emergency fund has an additional benefit: You’ll be far less likely to tap those reserves for purposes other than what they’re meant for.

“That’s due to a phenomenon in behavioral economics called mental accounting, Scharr-Bykowsky says. People tend to stop spending on one category when they know the money in that bucket is gone, even if other funds are available. Making clear savings categories for future expenses means you’ll hesitate before using the medical expense fund on a new phone.”

(At the same time, however, mental accounting has a downside, as explained in Richard Thaler’s book behavioral economics Nudge:

“The sanctity of these accounts can lead to seemingly bizarre behavior, such as simultaneously borrowing and lending at very different rates. David Gross and Nick Souleles found that the typical household in their sample had more than $5,000 in liquid assets (typically in savings accounts earning less than 5 percent a year) and nearly $3,000 in credit card balances, carrying a typical interest rate of 18 percent or more.”)

What it boils down to is this: saving for the future — for retirement, for a rainy day, for a goal of whatever sort — is still important. But with the loss of meaningful interest earnings on ordinary savings accounts, we’ve lost what was once a very useful tailwind in the effort to boost savings.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest

What is a “public option”? Wrestling with the question.

https://pixabay.com/photos/mail-truck-mail-clerk-mailman-3248139/

This started out as a Forbes article draft.  It got too long.  I decided that, in the end, what I really ought to do, is write the whole darned thing, then shrink the retirement-related bits down for Forbes.

Once upon a time, in my neck of the woods, at least, if you wanted to enroll your child in swimming lessons, you went to the local public swimming pool.  Sure, you could also sign him up at the Y, but that was a bit out of the way, though you were vaguely aware that some people drove that distance.  The lessons were taught by high schoolers, the pool was cold, and at the lower skill levels, the kids spent one-sixth their time working on the skill with the teacher’s direct supervision and the remaining five-sixths of the time waiting at the edge while the remaining kids had their turn.  It was a cheap price because of the subsidies from tax revenue, but nothing to write home about.

Now, around here, due to the magic of private enterprise, competitors have sprung up: Chicago Swim School, Goldfish Swim School, British Swim School, to name those in closest proximity.  They cost more, but their lesson plans even for the youngest children focus on learning to float right away, rather than using kickboards, learning “bobs” and playing games.  They have much more individual attention and their teachers are adults rather than teens.

At the same time, there have long been multiple fitness centers in the neighborhood, at a wide range of prices, but now the local park district is getting into the game with a remodel of its indoor pool facility to add a second story with a fitness center component.  The pricing is a bit higher than such chains as the local LA Fitness (though with a discount for couples and families — eligibility age for children not provided), not to mention the bargain-basement Fitness 19 or Planet Fitness, but lower than the more upscale locations such as the NCH Wellness Center.  Is there value for the money?  It remains to be seen in terms of the final product, though one of the ways they’ve been pitching it, from the early days when they envisioned just a few treadmills,  is an opportunity for Mom or Dad to exercise while their children are at swim lessons, swim team, or open swim.

Is the rise of competitor private-sector swim lesson schools a sign that the park district is not providing a quality “product”?

Is it appropriate for the park district to introduce a competing “product” in the fitness-center market?

And what the heck does this have to do with retirement?

A new book, The Public Option:  How to Expand Freedom, Increase Opportunity, and Promote Equality, by Ganesh Sitaraman and Anne L. Alstott, says this has everything to do with retirement, because they believe that expanding “public options” is the way to greater well-being for all Americans.

But the book defines “public option” generously, to encompass essentially all government services now in existence or hypothetically implemented in the future.  They write,

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Jane the Actuary General Interest

Will “Fair Maps” Produce “Fair Representation”? There’s Another Way

https://commons.wikimedia.org/wiki/File:University_at_Buffalo_voting_booth.jpg; public domain

Back long enough ago that it almost seems to be ancient history (but was actually just 2016), a group of reformist organizations attempted, via a petition drive, to put on the ballot an amendment to the Illinois constitution to take the drawing of legislative district borders out of the hands of politicians, who have had a horrific track record of gerrymandering, and into a bipartisan commission.  The effort failed because the state Supreme Court ruled that it didn’t meet the criteria for topics which are, by the provisions of the constitution itself, amendable by means of citizen initiative — a decision which had all the earmarks of Supreme Court justices themselves being corruptly influenced by the same machine that wanted no changes, but which may have been legitimate.  Now, an organization called CHANGE Illinois (yes, the “CHANGE” part is a cringeworthy acronym) is trying again, this time by lobbying the legislators themselves and calling upon them to support a bill to place the reform on the November ballot.

Is the proposed amendment the right way forward?  Maybe.  It requires a bipartisan commission, with members selected jointly by both the Chief Justice of the state Supreme Court and the highest-ranking member of another party, seven each from the two major parties and two from outside those two parties.  It does not require districts that are compact or that represent communities with common interest, except as a priority of lesser priority than representation of minority groups — and the requirement to “not discriminate against or in favor of any political party or individual” is last of nine priority items.

But this proposal still seems like wishful thinking, in its belief that the Supreme Court is comprised of high-minded people who will appoint people just as equally high-minded.  And it doesn’t solve one of the complaints that increasingly crops up about districts, even absent ill intent: that differences in the way voters of the different political parties are distributed means that a map that’s perfectly “fair,” with compact districts drawn to reflect local communities and interests, and drawn without regard to political party, can end up producing what some fair-map-ers call an “efficiency gap.”  (See this 2015 Washington Post “Wonkblog” article, or this Quanta Magazine explainer.)  And there are clear demographic differences:  cities are very densely packed with Democrats, and Republicans are more widely dispersed.

Let’s play around with this some.  For convenience (yes, you laugh), I’ll label the parties the Red Party and the Blue Party.

Imagine that half the districts are populated with an even distribution of 55% Red Party voters and 45% Blue Party voters, and the other half are inhabited exclusively by Blue Party voters.

The Red Party would take 50% of the seats with only 27.5% of voters.

Imagine that 75% of the districts are populated with 55% Red, 45% Blue voters, and the other 25% are 100% Blue Party.

The Red Party gets 75% of the seats with only 41.25% of the vote.

Imagine that all districts are 51% Red Party, 49% Blue Party.

The Red Party gets 100% of the seats and the Blue Party gets no representation.

Could the unfairness to the Blue Party be solved by “fair maps”?  Not really.  Proposals to overcome this inevitably end up producing gerrymandering rather than avoiding it, with such creations as, well, each of Illinois’ First, Second, and Third Congressional Districts, which comprise enough of a solid city Democratic core to guarantee the election of a Democrat, and the remainder of the district sweeping suburban areas to limit the electoral success of Republicans.

But here’s what would solve it:  a hybrid legislative system, such as Germany’s “mixed member proportional representation” or “additional member system.”  Here’s how it works:

At each election, voters make two choices:  they vote for a candidate, and they vote for a party.  In each district, the candidate with the most votes wins.  But that’s not the end of the story: the proportion of votes for each party nationwide (or in each state, for a state election) is also tallied, and additional legislators from each party are added in the proportions needed to balance the legislature as a whole.

For example, if the results of the baseline by-district election were that 60 Red Party and 40 Blue Party candidates won, but the actual vote, by party, was that 50% of the voters across the state supported each party, then 20 extra Blue Party members would be added, from a list of potential legislators supplied by the parties, to total 60 members from each party and a 50% representation.  They would then serve as “at large” members.

Is this system ideal?  On the one hand, it would give more power to the political parties, which might not be on everyone’s wishlist, at least not for those who prefer for party primaries to serve merely as winnowing mechanisms.  But on the other hand, it would enable, at the state level at least, the viability of third parties, who would be just as eligible for at-large members as the major parties, and in a state that’s beset by bipartisan corruption, that would be a crucial additional benefit.

So if we’re going to have an amendment, why not be all-in on transformative change, rather than placing our hopes on a half-measure?

Jane the Actuary General Interest

The State of the State is Not So Great (An Illinois Rant)

moving van
https://commons.wikimedia.org/wiki/File:U-Haul_moving_van_Elm_Street_Montpelier_VT_August_2017.jpg; Artaxerxes [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]
Yes, Illinois Gov. JB Pritzker gave his “state of the state” speech today, and, a year into his term, it’s no surprise that he’s celebrating — and it’s no surprise that I’m skeptical.

What does he say?  Let’s take a look.

Today the Illinois economy supports 6.2 million jobs. This is the most jobs on record for our state, and we now have the lowest unemployment rate in history. . . . Over the past year, Illinois has reduced its unemployment rate more than ALL of the top twenty most populated states in the nation — and more than our Midwestern peers.

Note that phrasing — “reduced . . . more.”  Illinois’s current unemployment rate is 3.7%.  That’s above-average, in a 5-way tie for 31st.  Michigan’s is higher, yes, at 3.9, and Ohio at 4.2.  But Wisconsin is at 3.4, Missouri 3.3, Indiana 3.2, and Iowa 2.7.

237 Illinois businesses from all over the state made Inc Magazine’s List of Fastest Growing Businesses in the Nation.

That’s not all that spectacular in a ranking of 5000 companies; Illinois’s population works out to 3.9% of the total population of the US, and we have 4.7% of the fastest-growing businesses.  Yay, I guess?

Illinois is the second-largest producer of computer science degrees in the nation, accounting for nearly 10 percent of all computer science degrees awarded in the entire United States.

Yes, the University of Illinois is highly ranked in this field, and has actively recruited international (Chinese) students to pay full-price tuition.

Pritzker trumpets the “balanced” budget (however precarious that balance is, relying as it does on one time gambling and pot license fees) and the infrastructure bill (laden with the inevitable pork for Democratic legislators to “give” to their constituents).

He touts apprenticeships — though not as a general program but insofar as public works projects will be required to include, ahem, “diverse employees” (that is, code for underrepresented minorities).

He boasts that pot legalization will “result in 63,000 new jobs” (ugh, again – if these are new jobs rather than newly-legal jobs, then does that mean the state is banking on more people taking up using pot, rather than merely coming out from the black market?), and new “tax revenue from the residents of Wisconsin, Missouri, Iowa and Indiana” (more ugh – it’s in bad taste to plan on enticing out-of-staters to come here to buy produces illegal in their home state).

Pritzker praises the restoration of driver’s licenses for those with unpaid parking tickets and fines, which is worthy enough.  He makes the same claim of having gotten a start on fixing pensions based on two small changes which promise “free money” rather than tough sacrifices.

He praises himself for more changes:

We raised the minimum wage, advanced equal pay for women and minorities, provided millions of Illinoisans relief from high interest on consumer debt, and expanded health care to tens of thousands more people across the state.

Of these, it remains to be seen how rural areas will cope with a high minimum wage. I don’t recall offhand what Pritzker did in furtherance of equal pay (maybe one of those laws that prospective employers can’t ask for past salary history?), I am guessing that the interest relief was an under-the-radar interest rate cap, and I’m puzzled by the healthcare expansion since Medicaid was expanded some years ago with Obamacare.

Working with Senator Andy Manar, we capped out-of-pocket insulin costs at $100 for a 30-day supply so that no one in Illinois has to decide between buying food and paying for the medicine they need to stay alive.

Er, make that, “no one with a diagnosis of diabetes” . . .

We expanded insurance coverage for mammograms and reproductive health.

This is Pritzker’s only reference to his abortion expansion law, in which insurance companies are required to cover abortion.  “Reproductive health,” my a**.  The mammograms bit is, from memory, a matter of requring that insurance companies cover follow-up testing for mammograms without cost-sharing.  Which is fine enough but every insurance coverage mandate boosts premiums, and it’s really not right for legislators to pat themselves on the back as if they’ve made a real difference when they’re just shifting costs in a politically popular way for certain favored ailments.

We stopped bad-mouthing the state and started passing laws that make Illinois more attractive for businesses and jobs. Working across the aisle, we brought tax relief for 300,000 small businesses through the phase out of the corporate franchise tax. And we laid the groundwork for new high-paying tech jobs by opening new business incubators, by incentivizing the building of new data centers, and by investing $100 million in a University of Illinois and University of Chicago partnership that will make Illinois the quantum computing capital of the world.

This is what bugs me:  Pritzker repeatedly makes the claim that what was wrong with Illinois in the past, and what prevented businesses from investing here, was that we were “bad-mouthing the state.”   And then it’s back to the same-old same-old: special tax treatment (“phase out of the corporate franchise tax” . . . “incentivizing the building of new data centers”) and more government spending (“clean energy legislation” which, to my knowledge, consists of some combination of state subsidies and mandates for solar and wind generation, and $100 million based on Pritzker’s say-so).

But at the same time, it is commendable that he spent a significant amount of time addressing corruption, in light of the guilty plea yesterday of former state Senator Martin Sandoval.

And now we have to work together to confront a scourge that has been plaguing our political system for far too long. We must root out the purveyors of greed and corruption — in both parties — whose presence infects the bloodstream of government. It’s no longer enough to sit idle while under-the-table deals, extortion, or bribery persist. Protecting that culture or tolerating it is no longer acceptable. We must take urgent action to restore the public’s trust in our government.

But then he says,

That’s why we need to pass real, lasting ethics reform this legislative session.

But Sandoval and all the other crooks were not engaged in shady, unethical-but-not-illegal actions.  They were actual crooks.  And he addresses that —

Change needs to happen. And much of this change needs to happen outside of the scope of legislation. It’s about how we, as public officials, conduct ourselves in private that also matters.

But this is after a long digression into his commitment to diversity, which leaves me quite skeptical as to whether he really “gets” it or whether he thinks it’s simply time for other groups to have a turn helping themselves to the spoils.

The bottom line for me — and admittedly my opinion counts for squat — is that, because of years upon years of literal corruption as well as indifference to fiscal prudence, Pritzker, as well as, really, any Illinois politician, has a very high threshold to cross to prove that they are working to further the well-being of the people of Illinois, rather than enriching their own pocketbook or making happy the interest groups who have enabled their election, and that they are adequately evaluating the consequences of their plans rather than convincing themselves that liberally spending money is the path to prosperity.

I don’t see anything yet that shows he has earned that trust.  Not the “found money” gimmicks of pot and gambling expansion.  Not the so-called “fair tax” in which, rather than calling for everyone to shoulder increased taxes, he promises that “the rich” will pay for everything, including a (trivial) tax cut for the rest of us.  And certainly not the “infrastructure” giveaways.

So there you have it.  Do you trust Pritzker, or, really, anyone in Illinois government?

Jane the Actuary General Interest

Forbes post, “Is This Strike Three For ‘Scandinavian Family Policies Will Give Us Goldilocks-Level Fertility Rates’?”

Originally published at Forbes.com on October 3, 2019.

 

What do I mean by “Goldilocks-level fertility rates”? Simply put, a stable, replacement-level (or thereabouts) fertility rate that ensures a sustainable balance between workers and retirees.

Earlier this week I wrote about the inexplicable decade-long drop in fertility rates in Finland. Back in August, I profiled Sweden, which has had swings in fertility rates at points when new family-benefit legislation motivated couples to have children earlier than otherwise.

To round out this little Nordic excursion, let’s look at Norway.

A little over a decade ago, in 2006, the BBC had this to say:

“Inger Sethov works for Norway’s second largest oil and gas company, Hydro. She is pregnant with her second baby. Five-year-old Lea will have a little brother or sister in June.

“For Inger and her partner Pierre, having children was never a difficult choice.

“’I’m entitled to 12 months off work with 80% pay, or 10 months with full pay. My husband is entitled to take almost all of that leave instead of me, and he must take at least four weeks out.’

“’Economic considerations never even crossed our minds when we decided to have children. It’s just not an issue. Of course that makes it easier for women to have more babies, it gives you an enormous freedom,” said Ms Sethov. . . .

“The paid leave is guaranteed by the National Insurance Act, and dates back to 1956. Because the leave is financed through taxes, employers don’t lose out financially when people take out their parental leave.

“The present system of 10 or 12 months leave with 100% or 80% pay was introduced in 1993. Since then, the fertility rate has been a steady 1.8 – higher than most European countries.”

So let’s take a look at Norway’s fertility rate.

First, here’s Finland, Sweden, and Norway, since we looked at the first two in my prior article.

(Nit-picky comment: Sweden, Norway, and Denmark are the three Scandinavian countries. Finland is in fact not Scandinavian, but is included along with Iceland in a larger grouping of Nordic countries. Why am I not discussing Denmark? Because they’re not as interesting.)

(Data for years prior to 2017 is taken from the World Bank database; for the most recent years, see my prior Finland and Sweden articles as well as 2018 and 2019 reporting on prior year’s Norwegian rates.)

Looking at recent years, and excluding Sweden, we have:

What’s noteworthy here?

First, something missing: the boost to parental leave benefits in 1993 appears to have had no effect on fertility rates.

Second, after an early-2000s small drop-off, rates rose considerably, from 1.75 to 1.98 between 2002 and 2008.

What happened in 2002? Of note, the child benefit system, cash payments to parents of all children under 18, was established (or significantly modified) in 2002. Did this boost enthusiasm for childbearing?

In any event, the fertility rate peaked in 2008. Not only has it been on the decline since then, but the 2018 rate of 1.56 is the lowest Norwegian fertility has ever been.

What’s going on? The Norwegian site News In English reports no consensus explanation, only citing speculation that women are increasingly spending more years in school. This seems an unlikely explanation for such a dramatic drop in a single decade. In the United States, the tumbling birth rate has been blamed on poor economic conditions, but Norway’s oil wealth continues to bring it prosperity, as evidenced by its exceptionally low unemployment rate.

An analysis of the fertility rates by immigration status suggests a promising clue: rates for immigrant women, while higher than for native-born Norwegians, have been dropping considerably: from 2.29 in 2010 down to 1.87 in 2018. This works as an explanation in the U.S., with respect to Hispanic women. But there are so few immigrants in Norway that this only brings the fertility rate up by a level of 0.07, not enough of an effect for that group’s decline to drive the larger decline.

Here’s an insight from an article in Science Norway (reprinted from KILDEN Information and News About Gender Research in Norway): according to researcher Eirin Pedersen at the University of Oslo, the generous welfare state and the norm that women work and place their children in childcare centers is only part of the explanation for Norway’s (at the time, comparatively-higher-than-elsewhere) birth rate); she says,

“The welfare state has an impact on our culture. A German colleague pointed out the following to me: in Scandinavia, it is hard to imagine the possibility of living The Good Life without children. This is not necessarily the case in the rest of Europe” (emphasis mine).

And, given that the pattern is the same for Norway and Finland, let’s pull Finland back in, via a 2018 article by demographer Lyman Stone, “Feminism as the New Natalism: Can Progressive Policies Halt Falling Fertility?” Citing available research, he reports that paid leave programs, no matter how generous, have only scant effect on fertility rates. What he notes is that the cultural value that “The Good Life involves having children” has changed;

“Desired fertility has plummeted in Finland, and the limited data for Sweden suggests a similar trend may be ongoing. . . . This helps explain what’s happening. In Finland and perhaps also Sweden, fertility is falling because, since the recession, something is changing with cultural values for Finns and Swedes: women simply want fewer kids. This isn’t a long-running Nordic trait, but something fairly new.”

(The Finnish data showing a drop in ideal fertility from 2.6 in 2006 or so to 2.1 in 2015, is based on a study specific to Finland; the Eurobarometer study collects data about all of Europe but was last conducted in 2011.)

Of course, that leaves unanswered the question: why would Nordic culture have changed in the past decade? And what does that say about cultural preferences for children more broadly speaking?

And none of this invalidates programs of universal childcare or paid family leave; but it does call into question the claims that it’s a win-win in producing both ideal gender equality standards and fertility rates.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest

Forbes post, “Why Has Finland’s Fertility Rate Collapsed – And Are There Lessons For Us?”

Originally published at Forbes.com on October 1, 2019.

 

This is, I admit, a headline I simply stumbled upon in looking for something else: “Statistics Finland unveils bleak population forecast – population to start decline in 2031“ from today’s edition of the English-language Helsinki Times.

“Not a single Finnish province will record more births than deaths 15 years from now unless the birth rate rebounds from its current record-low level, indicates a much anticipated population forecast published on Monday by Statistics Finland.”

As a reminder, this is Finland we’re talking about, not a country that ordinarily appears in discussions about ultra-low fertility rates. This isn’t Italy or Japan.

This is Finland, named the happiest country in the world in a 2019 ranking – and was #1 in 2018 as well, #5 in 2017 and 2016, #6 in 2015, #7 in 2013 (there was no 2014 report), according to the World Happiness Report researchers, who combine both objective and subjective measures of well-being and life satisfaction.

And Finland has generous levels of parental leave provision:

Maternity leave begins between 50 to 30 working days before the due date, and lasts for 105 working days, during which time Kela, the Finnish Social Security agency, pays a “maternity allowance.” Fathers can take paternity leave for a maximum of 54 working days and receive a “paternity allowance”; 18 of these days can be taken at the same time as the mother. Then “parental leave” continues for a further 158 days.

After parental leave benefits end, a parent can stay at home, unpaid but with job protection, until the child’s third birthday, and receive a “child home care allowance.” Or parents can choose a daycare center and receive subsidies based on income, paying nothing for low-income families and up to a maximum of EUR 290 for one child, per month, for higher-income families.

What’s not to like?

But yet, here’s the development of the fertility rate over the past decade (according to “Steep decline in the birth rate continued” at Statistics Finland and “The decline in the birth rate is reflected in the population development of areas” for the estimated 2019 rate):

or, in graphical form,

What happened here?

Regular readers will recall that in August I profiled the declining Swedish fertility rate, and in the course of my reading I learned that its extreme cyclicality is attributed to the effects of certain parental leave and other policies causing parents to speed up births temporarily. Putting Sweden and Finland side-by-side (with somewhat less recent data) shows that Finland has been much more stable in its fertility rates, but has collapsed over this past decade.

Is this due to a poor economy? Finland’s unemployment rate rose from a relative low of 7.7% in 2012 to a post-recession high of 9.4% in 2015 but has been declining since then, and now stands at a level of 6.7%, nearly again equal to its pre-recession low of 6.4% in 2008 – which itself is as low as its been since the end of the Cold War. The country’s real GDP growth rate had likewise dropped in the same timeframe, but then recovered and has only slowed slightly since then.

In an interview, Finnish Prime Minister Antti Rinne commented on the decline:

“’It’s a fact that parenthood has substantially reduced the pensions of women. Women’s careers and income development are the key issues we have to tackle to make sure those who are able and willing to start a family can do so. These are major issues,’ he commented.

“Another area in need of development are services, according to him.

“’I’m concerned that maybe we’re not focusing on the right things if we’re not developing the services of families with children. We have to construct the entire service network in a way that families with children feel that they are supported,’ he underlined.”

Do Finnish families feel that the benefits available to them are insufficient? Would a look into the finer points of the system reveal perceptions that the parental leave benefits are inadequate, or that there are waiting lists for daycare slots? Yet there does not appear to have been a worsening of conditions that needs to be rectified, so it’s hard to see this as a cause of this decline. What’s more, Finland was deemed to be the 4th most gender-equal country on the globe, according to the World Economic Forum’s analysis, behind only – you guessed it, Iceland, Norway and Sweden (Denmark, oddly, comes in at only 13).

Now, maybe the Finnish birth rate will perk up again unexpectedly, and perhaps this will turn out to have been a statistical fluke all along. But, as with Sweden, it calls into question the conventional wisdom that the path to replacement-level fertility rates is a combination of gender equality and generous social welfare provision.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest

From The Mailbag: Some Replies to Readers On Retirement, Taxation, And Inequality

from https://pixabay.com/en/writing-postcard-letter-pen-hands-923404/; public domain

Let’s start with this:  hoo, boy, my recent articles on Bernie Sanders and Elizabeth Warren have generated a lot of comments — and, to be honest with you, I’m a bit more accustomed to preaching to the choir (“we need to deal with Illinois’ pension debt!” “you bet!”) in the articles I write.  But it seems appropriate to address some of the issues you all have raised, yet to do it in this side platform because it really has nothing to do with retirement.

The primary response I’ve gotten goes along these lines, roughly paraphrased:  “corporations and the wealthy have been ****ing over middle America for too long.  If taking control of corporations (via board seat requirements) and confiscating wealth from the wealthy is what it takes to restore fairness, then we should do this.  Heck, we should do this, just because the wealthy don’t deserve their money, regardless.”

And there are a lot of really complex issues here about which I do not claim a heck of a lot of expertise.  I can think about them.  So can you.  I can dig up data and play around with it, and probably have a better shot of interpreting other folks’ data analysis than the average reader, simply from more experience with data and a certain amount of background knowledge on social insurance programs and history.  But I am also well aware that the human desire to prove what you want to prove makes it tempting to discard as outliers data that counters your point and welcome into the fold shaky data that proves what you want to say.

But look, we’ve got a couple distinct questions:

Just how bad is income inequality and has it worsened over time?  If that’s the case, is it because the poor have gotten poorer or merely that the poor have not experienced the same level of income growth as the rich?

How does it compare to Europe?  – Or, more specifically, how do the lives of poor Americans and the lives of poor Europeans differ?  (Noting that poor Europeans in 2019 are often hidden from view, as immigrants.)

What are the causes?  And — most importantly — what solutions are available that won’t do more harm than good and that don’t perpetrate their own sort of injustice?

So, having said that, let’s start with the data.  This all comes from the BLS.gov site, and the Labor Force Statistics from the Current Populatioon Survey, where you can choose ready-made tables or drill down to specific tables.  Most of these are in current dollars, not inflation adjusted, so they require a further step of using the CPI to adjust for inflation (the CPI-U is the standard database used), and all of this can be downloaded into excel.  (Are there experts who have put this data together already?  I’m sure there are, but sometimes there’s something to be said for doing it yourself.)

So:

Chart 1, Median earnings, adjusted for inflation, since 1979.  Yes, that’s as early as this table goes.

Median earnings
Median earnings, 1979-2019, adjusted for inflation, from BLS data

What do you notice?

Me, I notice that men’s earnings dropped considerably from 1979 to the early 80s (or, since these were high-inflation years, failed to keep up with inflation), dropped even more in the early 90s, then recovered somewhat and stagnated until the last half-decade.  Again, these are median inflation-adjusted earnings, specifically Constant (1982-1984) dollar adjusted to CPI-U, for median usual weekly earnings of workers employed full-time, ages 16 years and over.  For women, wages rose consistently except for late-80s/early-90s and again from the mid-00s to the mid-10s.

But what about different economic classes?  Here the data only exists since 2000, but still tells a useful story.

Chart 2, 1st decile earnings, full-time workers, 2000 – 2019, adjusted for inflation.  (The 1st decile means the earnings of the individual who earns more than exactly 10% of all full-time workers.  When split out by sex, this is the male worker earning more than 10% of all full-time male workers, and the female worker likewise.)

1st decile earnings
1st decile earnings, 2000-2019, from BLS data.

Again, this is only from 2000, so we can’t see the nefarious actions of corporations during the Clinton era.  (Yes, that’s snark.)  Women’s earnings bounced around, men’s more clearly dropped, then both recovered, with a dramatic rise for men, beginning in 2012 and 2014 respectively.  And, yes, there is still a pronounced gender gap, and I would have liked to have drilled down to a split among different ages at the decile level.  But that level of gradation doesn’t exist.

In any event, let’s move on.

Chart 3, 1st quartile earnings, full-time workers, 2000 – 2019, adjusted for inflation. 

1st quartile earnings
1st quartile earnings, 2000-2019

Here, women’s wage growth, however modest, is clearly more consistent, while the same decline-and-recovery is apparent for men.

Chart 4, 3rd quartile earnings, full-time workers, 2000 – 2019, adjusted for inflation.  Yes, this means the workers who earn more than 75% of everyone else.

3rd quartile earnings
3rd quartile earnings, 2000 – 2019, BLS data

And Chart 5, 9th decile, that is, those who earn more than 90% of everyone else.

9th decile earnings
9th decile earnings, 2000 – 2019, BLS data

But of course, it’s hard to make too much out from these individual charts.  Let’s put it all together:

Chart 6, Change in earnings since 2000, for 5 earnings levels.

Change in Earnings
Change in Earnings since 2000, from BLS data

This is our bottom-line graph, isn’t it?  Yes, 2000 is an artificial starting point, just because that’s the first year of data and that was before the dot-com bubble burst, and it would interesting to see this for a longer period, but, let’s face it, the consistent claim is that the injustice perpetrated on Middle America is reasonably new.  And we do see that the very lowest income category had a drop in income before finally recovering, and the very top category has done pretty well.  But what do we do with this information?

(And, no, I’m not going to have much patience for “this data is misleading because, even if wages kept pace with inflation, they still wouldn’t be keeping up with the cost of tuition and childcare” because the CPI includes all of this.)

And now I’ll indulge in some idle speculation.

What is it that makes the United States different than Europe?

Yes, of course, the simplistic answer is “they have a generous social insurance system and we don’t.”

But let’s go back a bit further:

First –

until, let’s face it, relatively recently in the grand scheme of things, the way they dealt with their poor people was by exporting them, no differently than is the case in Central America right now.  And the US (along with a few other countries, such as Argentina) were the recipients of the poor, who came in waves, and, to be sure, not from every such European country.  (French emigrants went to French Canada; the Netherlands, with its history of having been middle-class ever since its early urbanization around the textile industry in the Middle Ages, never really seemed to need to send immigrants anywhere.)

Somewhere along the way there was even a study that hypothesized that it was the more individualistic members of a society who immigrated, based on an analysis of names of Swedish leavers and stayers’ children, during their late 19th/early 20th century period of mass emigration; those who emigrated were more likely to have or have named their children, oddball names, which (unlike some communities in the US where everyone wants distinctive names) was at the time, a sign of individualism.

Which means that the emigration process strengthened social cohesion, and in the end a socially cohesive nation is one that’s more willing to collectively tax themselves more for social insurance/social assistance benefits.

And I should think it goes without saying that social cohesion in the United States is frayed.  I discussed social cohesion in a Forbes article back in March about public pensions, and the fact that the lack of trust in politicians complicates efforts to reform pensions, but it, of course, complicates a great many things.  And we won’t get the level of social cohesion we need for a more generous social welfare system to function as it should, merely by attempting to direct the collective anger of Americans of all ethnicities, religions, and social classes at the wealthy.

Second –

globalization is a big deal.  It does mean that the poorest segment of our population (which incidentally is not a fixed group of people but also changing as people claw their way out and more people immigrate in) has been adversely affected by the movement of manufacturing overseas.  (And, yes, also by stiffer competition for low-skilled jobs than was the case in the 1950s, before we re-opened the immigration floodgates.)  I am not going to dig up the data now but I do believe this has been demonstrated statistically in a reasonably credible way.  Globalization also means that, insofar as top earners are not just part of the U.S. elite, but the global elite, their earnings have outpaced the rest of us.

At the same time, globalization has been a force that has brought incredible numbers of people in Third World countries out of deep, deep poverty.  Yes, it was likewise hoped that economic prosperity would bring about political freedom in places like China, rather than that country becoming ever more repressive, but — look, I am not old enough to have been around at the time of Mao’s famine, but I am old enough for “think of all the starving children in China” to have been the cliché instruction to children who won’t eat what’s on their plate.

Am I saying:  eh, it’s a fair trade-off because for every working-class American made poorer, X number of people elsewhere climbed out of poverty?  I guess it comes out that way, but my point is really to put everything in its larger context.

So what’s the answer?  That’s where I reach the limits of my own expertise.  But I at least wanted to address the issue with readers.