Thursday, October 17, 2013
New York Times: Aging, Taxes and the State of the Labor Market, by Casey B. Mulligan (University of Chicago, Department of Economics):
Both aging and taxes will prevent the usual labor market metrics from getting back to their pre-recession levels. ...
Economists disagree about many things, but they seem to agree with the basic idea that the lack of recovery is partly attributable to population aging, and that policy makers cannot stop the aging process. ...
But aging is not the only change affecting labor supply. Marginal tax rates have increased five percentage points since 2007 and will increase another five percentage points over the next 15 months, a trend attributed especially to expansions in health and other safety net programs. By 2015, a typical worker will keep only half of the value created by employment, compared with 60 percent kept before the recession.
Economists have traditionally recognized that a 17 percent reduction in the reward to working (from keeping 60 to keeping 50) would significantly contract the labor market, and do so at least as much as the 2 percent that the aging of the baby boom does. Yet this time many economists are reluctant to acknowledge marginal tax rate increases, even though marginal tax rates affect labor supply in many of the same ways that aging does.
Perhaps the economists who are silent about marginal tax rate hikes are worried that acknowledging the new rates would overshadow their well-intentioned origins: helping the poor, the unemployed and people without health insurance.
(Hat Tip: Mike Talbert.)