What Could Possibly Be Wrong With Hudson Yards?

This is a repost from Forbes. 
 
Image credit: Getty
 

An intriguing bronze-shawarma-Eiffel-Tower-thingy now sits atop the active West Side train yards in Manhattan. The platform has internal air-conditioning to keep the pansy and other plant roots from frying from the hot trains coming in and out of New York from Long Island. Hudson Yards also sports a snazzy theater space called The Shed and an upscale, white marble shopping mall, as well as many condos and offices, all sitting in a space that used to be fetid air. It's amazing, really. 

There are a lot of economic and morale-boosting benefits promised by Hudson Yards, which beautified a particularly avoidable part of town. However, where there are benefits, there are costs. And whether a project is worthy is known only when the benefits running on one side of the ledger are compared with the costs along the other side.

How much did New York City pay for Hudson Yards? To answer this thorny question, I asked researchers Bridget Fisher and Flávia Leite (my colleagues at The New School), co-authors of the research report, “The Cost of Hudson Yards Redevelopment Project.

Tell me about the size of Hudson Yards and how it has transformed Midtown.

In short, Hudson Yards is huge. For most of its recent history, the 360-acre area to the west of Midtown was home to commercial and light industrial uses and 28 acres of open-air rail yards owned by the MTA. In 2005, the city rezoned the area and laid the financial groundwork to transform the low-density manufacturing area into a high-density, mixed-use district. 

Today, the area is what New York Magazine calls a “billionaire’s fantasy city” and the New York Times calls a “supersized suburban-style office park.” It is home to super-tall luxury skyscrapers housing office tenants such as Coach and Wells Fargo, a mall housing retail tenants such as Neiman Marcus, Dior and Chanel, and a $475 million city-sponsored arts center. Luxury residential buildings have also grown in the area, with the average apartment costs at $4,300 per month and two-bedroom condos at 35 Hudson Yards starting at $5 million.

It has been said that Hudson Yards is “self-financing?” What is meant by that?

In 2005, Mayor Michael Bloomberg assured city residents that infrastructure needed to attract private development could be built without bearing the costs by using a version of tax increment financing, or “TIF.” Projects using revenue bonds in a TIF-type financing structure are described as “self-financing” based on the theory that designated revenues generated by a development will pay back the costs. However, Hudson Yards shows that the theory often doesn’t reflect the reality when projects are implemented. The city ended up spending an additional $2.2 billion in taxpayer dollars on the Hudson Yards project.  

So if Hudson Yards is not “self-financed,” who paid for it?

The choice to use a “self-financing” structure connected the debt issued for the infrastructure costs to the revenues generated by private development in the area. However, the plan for Hudson Yards did not allocate important risks associated with megaprojects, and taxpayers were left footing the bill if and when these materialized—which they did, at a cost of $2.2 billion. This total includes $369 million in debt costs, $400 million in cost overruns and spillovers, and a loss of $1.4 billion in revenue due to tax breaks to commercial and residential developers. 

Will Hudson Yards’ shopping, office space and condos actually add more business to the city, as stated by the city and project stakeholders?

It is still too soon to tell. However, the Bloomberg Administration’s central argument for the development of Hudson Yards was the need to build office stock to reverse New York City’s dwindling share of the region’s demand for commercial office space. But so far, we see that rather than bringing in new office businesses from outside the city, 90 percent of Hudson Yards commercial tenants have come from Midtown. More research is necessary to determine the full economic effects. 

How will we know if the $2.2 billion in costs to taxpayers are worth the benefits?

Hudson Yards will continue to develop over time. And clearly, at such a size, the project will affect the city’s bottom line. While it is sure to generate revenues for the city, in an age of increasing inequality, we must take full responsibility for how our public dollars are spent, including who benefits, who pays, and what public interest is served. The valuable lesson we can learn from Hudson Yards is to ask these important equity questions before the project is implemented, especially when all New Yorkers bear the costs.

Social Security Needs More Revenue, Not Cuts

This is a repost from Forbes. 
 
uncaptioned

GETTY 

There is no way to get to anything resembling a secure retirement system without expanding Social Security. We also need to fix the broken employer-based retirement system, but fixing pensions and expanding Social Security are not substitutes. A comprehensive retirement security bill needs both. Let’s start with Social Security. 

Social Security is a social insurance program. Workers and employers pay premiums to insure against disability and death. What's more, the system is progressive. Social Security recognizes that low-income workers need a higher replacement rate—that is, a higher share of retirement income relative to non-retirement income—than high-income people. This is because wealthier recipients use Social Security as a base for their retirement, which they supplement with assets and pensions. Social Security is not enough by itself to maintain living standards and stay above poverty

But even with their higher replacement rates, low-income retirees can hardly get by. Consider lifelong low earners, who made around $10 an hour or about $20,000 per year—say, the person who stocked shelves at the drugstore before they got a better job at Home Depot. An excellent paper from Boston College’s Center for Retirement Research shows that for these low earners, the actual Social Security replacement rate is currently about 69%. Low-income workers can barely live on their earnings while they are working. Having them live on 69% of their low incomes in retirement (about $14,000 a year) is not just difficult—it is poverty. 

Contrary to those who argue otherwise, the fact is that even low-income workers need a supplement to Social Security to stay out of de facto poverty. Yet the share of pre-retirement earnings replaced by Social Security has steadily fallen since the 1980s because of Medicare premiums increasing and benefit cuts stemming from the increasing in the full retirement age from 65 to 67. Higher income workers need about 70-80% replacement rates in retirement (they generally don’t need 100% because their tax rate and savings rates will decrease in retirement). But the average actual replacement rate for a middle-class worker is about 39%, and for the highest earners 31%.

And these replacement rates are achieved only if we do something to boost Social Security revenues just to pay for these promised benefits to achieve these replacement rates. If we fully fund Social Security, but do nothing to help workers supplement Social Security, the number of poor or near-poor people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million. In the next 12 years, 40% of middle-class older workers will be poor and near-poor elders. Even workers who don’t fall into poverty will suffer downward mobility.

Of course, the picture is much darker if we fail to raise Social Security revenues and automatic benefit reductions occur. The hypothetical is sobering to consider: your benefits are cut 25%; you move in with your adult children; your 80-year-old neighbor skips dinner. Elderly poverty is already a pressing issue; it will grow even faster if we don’t raise revenues to pay promised Social Security benefits. 

This hypothetical can be avoided, however. Rep. John Larson (D-CT) and others are sponsoring the Social Security 2100 Act. The bill solves the math problem that without more revenue Social Security benefits for the median retired household will be cut by a quarter and replacement rates will fall by one-fifth in 2034.

The Urban Institute has an excellent paper on how to make Social Security solvent. The Larson bill uses a combination of these methods and follows the basic principle in Public Finance 101—keep taxes low and expand the base. 

Raising The Social Security Retirement Age Hurts Everyone

This is a repost from Forbes. 
 
uncaptioned

GETTY

 

Every year policymakers present ideas to ensure the full funding of Social Security long into the future. One of the most commonly repeated of these proposals is to raise the age at which retirees receive their full benefits, which is currently slated to be 67 for those born after 1960. But raising the Social Security retirement age for “full” benefits leaves workers with two bad choices: working longer or living on reduced monthly benefits for the rest of their lives because raising the retirement age cuts benefits.

Advocates of the idea usually justify raising the retirement age by the fact that lifespans are rising and Social Security has to cover more years, so people should work longer. But raising the normal Social Security retirement age from 67 to, say, 68 (some even propose 76!) has little to do with working longer. The policy cuts Social Security benefits across the board.

Some of us are living longer, but not all

The under-examined and often breezy justification to raise the retirement age is that since we are living longer we should work longer. But that isn’t true for everyone. It is a well-established modern American trend that most of the longevity gains have gone to the top.

In a recent study published in the Journal of the American Medical Association, economist Raj Chetty and coauthors Michael Stepner and Sarah Abraham compiled 1.4 billion data points on individual lifespans and came to a sobering conclusion: “Between 2001 and 2014, life expectancy increased by 2.34 years for men and 2.91 years for women in the top 5% of the income distribution, but by only 0.32 years for men and 0.04 years for women in the bottom 5%.” Moreover, the authors found a nearly 15-year gap in life expectancy between the richest 1% and the poorest 1% of men (the gap was 10 years for women).

As Brookings economist Gary Burtless says regarding the “we-are-all-living-longer” justification: “This argument would be more convincing if increases in life expectancy were spread evenly across the workforce. They are not.”

Raising the Social Security retirement age targets black and low-income workers

Raising the Social Security retirement age is especially harmful to black and low-wage workershttps://blogs.forbes.com/assets/images/tweet_quote_span.png"); display: inline-block; position: relative; top: 2px; left: 2px; width: 18px; height: 15px; background-repeat: no-repeat no-repeat;">—as our new technical study finds. The reason why raising the full Social Security retirement age disproportionately impacts low-wage workers and black workers (regardless of income) is that they are unlikely to live long enough to make them whole, that is, to make up for the forgone benefits by living longer. Black and lower-middle class workers are also more likely to have physically demanding jobs, so the years they do live past claim age are likely to be spent with physical limitations.

espite small slight increases in longevity, black workers and women have not enjoyed boosts in “workability”—that is, the ability to work without causing significant deterioration of health. Between 1992 and 2014, our study found, older men and white workers enjoyed reductions (though slight) in physical job demands. This was not true for older black workers. Older women actually faced greater physical demands at work; in part, that's because old women are increasingly assisting even older women in personal and home health care.

Lifting the retirement age hurts everyone 

If you aren’t black or low-wage, don’t be lulled into thinking that increasing the Social Security full retirement age won’t adversely affect you. Increasing the official full-benefit claim age is equivalent to an across-the-board cut in Social Security benefits. Raising the FRA leaves workers with two bad choices: working longer or living on reduced monthly benefits for the rest of their lives.

The ongoing increase in the full retirement age from 65 to 67 years is equivalent to a 13% cut in benefits. Raising the full retirement age to 70 would cut another 20% of overall benefits.

Being laid off, pushed out, or deemed hard-to-hire also challenge older workers. Urban Institute economist Richard Johnson finds that more than half of older workers are involuntarily retired. As Johnson's colleagues have found, even if older workers with low incomes look for work, they may lack the skills to get the jobs. This makes hollow the advice to work longer to make up for lower Social Security benefits. The uncomfortable conclusion of labor economists is that raising the retirement age could hurt middle- and low-wage workers, as well as workers who have the bad luck to find their skills become outdated.

What to do? Instead of cutting Social Security benefits, retirement policy makers should consider raising more revenue for Social Security and modernizing the 401(k) and IRA systems to match the future of work.

The Rich Have More Of Everything -- Including Lifespan

Medical Monitor with different rates and curves.


I spend a bit of time each month looking at death tables. I don't really like it, but I have to—it’s my job as a pension scholar to understand which demographic traits are associated with higher mortality. Recently I came across a report from the Social Security Administration actuary’s office comparing differences in death rates among people with different incomes. Bottom line finding: Low income workers still die sooner—a lot sooner—than high income people.

As you might expect, higher incomes are associated with lower mortality rates and lower incomes are associated with higher mortality rates. More surprising, however, is the finding that social class-based longevity gaps have not really budged over the past two decades. Though we are all the same at birth, the cumulative effects of social division on the human lifespan causes low income workers to die sooner. These effects have not improved much since the longevity gap among retirees was highlighted by the Social Security Administration 12 years ago. The class gap in lifespan is not new—but its persistence is.

The report is pretty technical, and it spends a lot of time trying to figure out which Social Security beneficiaries are poor, middle class, and high income. This is more complicated than you would think. Actuaries have to make sure they don’t classify people who are in and out of Social Security as a life-long low-wage workers—for example, teachers who live in states that don't include them in Social Security, and whose official Social Security earnings are low from some non-teaching job they had as teenager.

Researchers express differences in life expectancy using “relative mortality ratios.” Males in the lowest group, with earnings of about $12,000 per year, have a relative mortality ratio of 1.30, meaning their odds of dying in the next year are 30% higher than the average male retired worker.

On the other hand, someone in the maximum earning group, with about average income over $250,000*, has a ratio of 0.70, meaning their chance of death in the next year is 30% less than average and less than half that of the lowest income group. Not only do CEOs earn more than 361 times the average worker in their firm earns, they also live longer just because they have income.

The good news (I am being wry) is that at older ages, there is less of a difference in relative mortality ratios among the income groups, because the healthiest individuals in each group live longer and the advantages associated with higher earnings diminish over time. At age 118 we are totally equal—we're all dead! And that's how long we have to wait to close the socioeconomic life expectancy gap.

Relative Mortality Ratios for Retired Men:

How much more likely a member of the group dies than the average retired man (minus 100)

Earnings group and estimated average annual pay Death rate relative to the average
Very low earner ($12,000) 130%
Low earner ($36,000) 123%
Medium earner ($68,000) 111%
High earner ($84,000)  92%
Maximum earner (about $250,00)  70%

Source: Table 13—2015 Relative Mortality Ratios by Age Group for Retired-Worker Beneficiaries Percentages; page 22 from SSA study, "Mortality by Career-Average Earnings Level" by Tiffany Bosley, Michael Morris, and Karen Glenn.

*Note: Maximum earners earn more than the Social Security cap; in 2017, the maximum wage subject to the Social Security tax was $127,200. The Social Security Administration wage statistics show that about 6% of earners earn more than $125,000, with incomes rising exponentially after that, so I pegged the average salary at about $250,000. 

10+ Years of No Wage Growth: The Role of Alternative Jobs and Gig Work

2019 Q1 Status of Older Workers Report

Screen Shot 2020 01 09 at 4.26.03 PM

  • Lagging Wages: Older-worker wage growth is minimal and lags behind prime-age wage growth.
  • Loss of Bargaining Power: Older workers increasingly resort to precarious alternative work, eroding their bargaining power and impacting other older workers' wages. 
  • Policy Recommendations: Congress and the President should create an Older Workers' Bureau, Guaranteed Retirement Accounts, and expanded Social Security to protect older workers.

Download the full report here
*Arrows next to "Older Workers at a Glance" statistics reflect the change from the previous quarter's data. 
Stagnant Wages


Alternative Work Suppresses Wages

One development suppressing wage growth for older workers is the proliferation of alternative work arrangements [AWAs], including on-call work, employment in contract firms, temporary agency work, independent contracting, and gig work (classified as “electronically mediated employment”). The share of workers ages 55 to 75 who reported working in an AWA increased from 15.4% in 2005 to 24.4% in 2015. And from 2005 to 2015, 94% of net employment growth took place in alternative work arrangements (Katz and Kreuger 2016).

Both Katz and Krueger (2016) and an equivalent Bureau of Labor Statistics survey conducted in 2017 show that workers over 55 are three times more likely than workers under 35, and twice as likely as workers ages 35-54, to be in AWAs.

The common image of alternative work is of independent contractors: successful, self-employed workers who control their own work schedules and intensity levels. However, independent contractors comprise a shrinking minority of people in AWAs.

Most workers in alternative arrangements lack the ability to bargain over the terms of their employment. Gig workers often find their jobs through electronically mediated platforms which explicitly prevent bargaining over wages. On-call workers have limited control over their schedules. Moreover, a quarter of on-call workers are on zero-hours contracts, meaning they must be ready to come to work at any time but are not guaranteed any hours - and thus not guaranteed to earn a wage. In addition, the Economic Policy Institute estimates that between 10-20% of employers skirt labor protections to cut costs by misclassifying traditional employees as independent contractors.

Independent contractors, on-call, gig, temp agency and contract firm jobs all share the lack of an internal labor market. In the past, firms promoted from within and provided on-the-job training to their employees. Unions supported internal labor markets to lessen the number of entry-level jobs, ensuring that promotion ladders and training programs continued to provide workers with a path to regular raises and promotions. With the erosion of unions, internal labor markets and training programs have disintegrated. Instead of using entry-level jobs as a tool to find future prime talent, firms now hire top talent from outside, expecting workers to acquire necessary skills on their own. A growing share of low-skilled jobs are handled by contract firms and temp agencies. With no path to promotion or wage increases, labor economists call these trends the fissuring of the workplace.

While some older workers cite flexibility and autonomy as reasons for taking on alternative work, they are outnumbered 2-to-1 by those who cite financial or labor market reasons. Four in 10 older workers have no retirement savings, including one-third of workers in the top 10% of earners. Inability to retire erodes workers’ bargaining power (see ReLab's working paper, "Why American Older Workers Have Lost Bargaining Power"). Moreover, older workers face age discrimination in the labor market; older workers who are fired or laid off spend twice as long looking for work as their younger counterparts. The fissuring of the workplace permits firms to exploit older workers’ desperation through lower wage offers. Bottom line: Eroding bargaining power among some older workers can impact other older workers’ wages. Older workers’ willingness to take on precarious alternative work is a signal to employers that they do not have to raise wages.

Policy Recommendations

1. Older Workers Bureau:
The time has come to devote special attention to the increasing vulnerability of older workers. To protect older workers from exploitation, the U.S. Department of Labor should create an Older Worker’s Bureau, similar to the creation of the Women’s Bureau in 1920 to protect women in the labor market.

2. Guaranteed Retirement Accounts and Social Security Expansion:
Working longer is not an antidote to inadequate retirement savings for most workers, especially those in low-paying AWAs. While a small number – 2% – of older workers cite alternative work as a way of making ends meet until they can retire, low wages and lack of access to retirement plan coverage on the job mean older workers taking on these jobs have little ability to save.

All workers deserve to have a choice between work and retirement at older ages. Increased Social Security benefits and the creation of Guaranteed Retirement Accounts (GRAs) would allow all Americans access to a secure retirement. GRAs are a proposal for universal individual accounts funded by employer and employee contributions throughout a worker’s career and a refundable tax credit. With GRAs, workers can accumulate the savings they need to retire, rather than be forced into precarious, low-paying, alternative arrangements. Moreover, if older workers could choose retirement over bad jobs, employers would be compelled to offer better pay and offer traditional employment to those choosing to extend their careers.



Unemployment Rates

The headline unemployment rate (U-3) for workers ages 55 remained at 2.9% this quarter (from January to March), which represents no change from last quarter. ReLab’s U-7 figure includes everyone in headline unemployment, plus marginally attached and discouraged workers, involuntary part-time workers, and the involuntarily retired (those who say they want a job but have not looked in over a year). U-7 increased from 6.5% to 6.8% in the last three months. The share of jobless older workers who reported spending more than 39 weeks looking for work in the first quarter was 42%.



Low-Paying Jobs

Older workers are increasingly employed in low-wage jobs. If nothing changes, Bureau of Labor Statistics projections indicate older women will be disproportionately working low-wage personal and home health care jobs (1.3 million jobs projected to be added between 2016 and 2026). Older women are predicted to constitute 37% of these care jobs and only 14% of the entire labor force in 2026. Just 7% of personal and home health care aides are union members, and 24% earn less than $15/hour. Overall, 13% of college-educated, full-time older workers reported earnings of less than $15/hour in the last quarter, down one percentage point from the previous quarter.



Retirement Coverage

Workplace retirement plan coverage remained low in 2018 at just 44%. Growth in alternative work arrangements is partly to blame, since AWAs almost never offer retirement coverage.


 


Suggested Citation: Retirement Equity Lab. (2019). “10+ Years of No Wage Growth: The Role of Alternative Jobs and Gig Work.” Status of Older Workers Report Series. New York, NY. Schwartz Center for Economic Policy Analysis at The New School for Social Research.