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Monday, March 26, 2012

Selected Characteristics of Private and Public Sector Workers


Gerald Mayer
Analyst in Labor Policy

An issue for Congress and state and local governments is whether the pay and benefits of public workers are comparable to those of workers in the private sector. In addition, policymakers are looking at the pay and benefits of public sector employees as a way to reduce budget deficits.

From 1955 to 2011, employment in the private sector increased by 65.5 million jobs (from 43.7 million to 109.3 million), while the number of jobs in the public sector (including federal, state, and local governments) grew by 15.1 million (from 7.0 million to 22.1 million). Since 1975, however, the percentage of all jobs that are in the public sector has fallen from 19.2% to 16.8%.

Union coverage has declined in both the private and public sectors. But, the decline has been greater in the private sector. In 2009, for the first time, a majority of employees covered by a collective bargaining agreement were employed in the public sector. Private sector workers who are covered by a collective bargaining agreement are generally paid higher wages and receive more or better benefits than workers who are not covered by a union contract. In the federal government, except for the Postal Service and some smaller agencies, employees do not bargain over wages.

Differences in the characteristics of full-time workers in the private and public sectors that may affect their relative pay and benefits include the following: 

         Age. Workers in the public sector are older, on average, than private sector workers. In 2011, 52.1% of full-time public sector workers were between the ages of 45 and 64, compared to 42.8% of full-time private sector workers. Federal workers are older than employees of state and local governments. In 2011, 55.8% of federal workers were between the ages of 45 and 64, compared to 51.9% of state employees and 50.8% of employees of local governments. Workers who have more years of work experience may earn more than workers with less experience. 
         Education. On average, public sector employees have more years of education than private sector workers. In 2011, 53.7% of workers in the public sector had a bachelor’s, advanced, or professional degree, compared to 34.0% of private sector workers. Generally, workers with more education earn more than workers with less education. 
         Occupation. A larger share of public sector workers than private sector workers are employed in “management, professional, and related occupations.” In 2011, 56.3% of public sector workers and 37.1% of private sector workers were employed in these occupations. Workers in management and professional occupations generally earn more than workers in other occupations. Comparisons in the compensation of private and public sector workers that use broad occupational categories may miss differences between detailed occupations. But, many detailed occupations are concentrated in either the private or public sectors. Many detailed occupations may require similar skills, however. 
         Union coverage. In almost all major occupational categories, union coverage is higher in the public sector than in the private sector. .

Date of Report: March 14, 2012
Number of Pages: 32
Order Number: R41897
Price: $29.95

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Changing the Federal Reserve’s Mandate: An Economic Analysis

Marc Labonte
Specialist in Macroeconomic Policy

The Federal Reserve’s (Fed’s) current statutory mandate calls for it to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Some economists have argued that this mandate should be replaced with a single mandate of price stability. Often the proposal for a single mandate is paired with a more specific proposal that the Fed should adopt an inflation target. Under an inflation target, the goal of monetary policy would be to achieve an explicit, numerical target or range for some measure of price inflation. Inflation targets could be required by Congress or voluntarily adopted by the Fed as a way to pursue price stability, or a single mandate could be adopted without an inflation target. Alternatively, an inflation target could be adopted under the current mandate. In January 2012, the Fed voluntarily introduced a “longer-run goal for inflation” of 2%, which some might consider an inflation target.

In the 112th Congress, H.R. 4180 and H.R. 245 would strike the goal of maximum employment from the mandate, leaving a single goal of price stability. H.R. 4180 also requires the Fed to adopt an inflation target; H.R. 245 does not. Were a single mandate to be adopted in the United States, it would follow an international trend that has seen many foreign central banks adopt single mandates or inflation targets in recent decades.

Arguments made in favor of a price stability mandate are that it would better ensure that inflation was low and stable; increase predictability of monetary policy for financial markets; narrow the potential to pursue monetary policies with short-term political benefits but long-term costs; remove statutory goals that the Fed has no control over in the long run; limit policy discretion; and increase transparency, oversight, accountability, and credibility. Defenders of the current mandate argue that the Fed has already delivered low and stable inflation for the past two decades, unemployment is a valid statutory goal since it is influenced by monetary policy in the short run, and discretion is desirable to respond to unforeseen economic shocks. A case could also be made that changing the mandate alone would not significantly alter policymaking, because Fed discretion, transparency, oversight, and credibility are mostly influenced by other factors, such as the Fed’s political independence.

Discontent with the Fed’s performance in recent years has led to calls for legislative change. It is not clear that a single mandate would have altered its performance, however. Some of the criticisms, including lax regulation of banks and mortgages and “bailouts” of “too big to fail” firms, were authorized by statute unrelated to the Fed’s monetary policy mandate. The criticism that the Fed was responsible for the depth and length of the recession arguably leads to the prescription that monetary policy should have been more stimulative; it does not follow that more stimulus would have been pursued under a single mandate. Whether or not the Fed allowed the housing bubble to inflate, it is not clear that a single mandate would have changed matters since the housing bubble did not result in indisputably higher inflation. Some economists believe that the Fed’s recent policy of “quantitative easing” (large-scale asset purchases) will result in high inflation. Inflation has not increased to date, but even if these economists are correct, the Fed has discretion to pursue policies it believes are consistent with its mandate. It has argued that quantitative easing was necessary to maintain price stability by avoiding price deflation, and it could still make this argument under a single mandate.

This report discusses a number of implementation issues surrounding an inflation target. These include what rate of inflation to target, what inflation measure to use, whether to set a point target or range, and what penalties to impose if a target is missed.



Date of Report: March 13, 2012
Number of Pages: 26
Order Number: R41656
Price: $29.95

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Unemployment: Issues in the 112th Congress


Jane G. Gravelle
Senior Specialist in Economic Policy

Thomas L. Hungerford
Specialist in Public Finance

Linda Levine
Specialist in Labor Economics


The longest and deepest recession since the Great Depression ended and an expansion began in June 2009. Although output began to grow in the third quarter of 2009, the labor market was weak in 2010, with the unemployment rate averaging 9.6% for the year. Despite showing greater improvement toward the end of 2011, the unemployment rate averaged a still high 8.9% for the year. The labor market has continued to slowly strengthen in 2012, with the unemployment rate in January and February measuring 8.3%.

Several policy steps were taken after the economy entered the Great Recession, including stimulus bills in 2008 (P.L. 110-185) and 2009 (P.L. 111-5), an unprecedented expansion in direct assistance to the financial sector by the Federal Reserve, and the Troubled Asset Relief Program (TARP; P.L. 110-343). In December 2010, P.L. 111-312 extended the 2001 and 2003 “Bush” income tax cuts through 2012 as well as other expiring tax provisions and emergency unemployment benefits through 2011. The Tax Relief, Unemployment Reauthorization, and Job Creation Act also cut the payroll tax by two percentage points until the end of 2011.

Continued high unemployment has led to concerns about the need for additional policies to promote job creation. The President proposed a stimulus package in September 2011—the American Jobs Act—which was introduced by request in the House (H.R. 12) and Senate (S. 1549). The two percentage point payroll tax cut that was due to expire at the end of 2011 was extended into early 2012 as part of the Temporary Payroll Tax Cut Continuation Act (P.L. 112- 78). As agreed to by a conference committee in February 2012, the Middle Class Tax Relief and Job Creation Act (P.L. 112-96) includes among its provisions extending the payroll tax cut and emergency unemployment benefits through 2012.

This report considers three policy issues: whether to take additional measures to increase jobs, what measures might be most effective, and how job creation proposals should be financed. Most proposals discussed as part of a potential additional macroeconomic jobs bill are traditional fiscal stimulus policies. Their objective is to increase total spending in the economy (aggregate demand) either through direct government spending on programs or by providing funds to others that they will spend (through tax cuts, transfer payments, and aid to state and local governments). Proposals for employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs.

To be effective, fiscal stimulus is generally deficit financed. Although a stimulus measure could be paid for by cutting other spending or raising other taxes, these financing options will offset the stimulative effects on aggregate demand. It is possible to choose a deficit-neutral package of tax and spending changes that would stimulate aggregate demand if some types of measures induce more spending per dollar of cost than others, but such an effect would likely not be very large. The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. If such an effective stimulus package could be designed, it would have the advantage of not exacerbating the challenges of a growing debt.



Date of Report: March 13, 2012
Number of Pages: 16
Order Number: R41578
Price: $29.95

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Friday, March 23, 2012

Block Grants: Perspectives and Controversies


Robert Jay Dilger
Senior Specialist in American National Government

Eugene Boyd
Analyst in Federalism and Economic Development Policy


Block grants are a form of grant-in-aid that the federal government uses to provide state and local governments a specified amount of funding to assist them in addressing broad purposes, such as community development, social services, public health, or law enforcement.

Block grant advocates argue that block grants increase government efficiency and program effectiveness by redistributing power and accountability through decentralization and partial devolution of decision-making authority from the federal government to state and local governments. Advocates also view them as a means to reduce the federal deficit. For example, on April 5, 2011, Representative Paul Ryan, chair of the House Committee on the Budget, recommended that the federal share of Medicaid be converted into a block grant “tailored to meet each state’s needs” as a means to “improve the health-care safety net for low-income Americans” and to “save $750 billion over 10 years.”

Block grant critics argue that block grants can undermine the achievement of national objectives and can be used as a “backdoor” means to reduce government spending on domestic issues. They also argue that the decentralized nature of block grants makes it difficult to measure block grant performance and to hold state and local government officials accountable for their decisions.

Block grants, which have been a part of the American federal system since 1966, are one of three general types of grants-in-aid programs: categorical grants, block grants, and general revenue sharing. These grants differ along three dimensions: the range of federal control over who receives the grant; the range of recipient discretion concerning aided activities; and the type, number, detail, and scope of grant program conditions.

Categorical grants can be used only for a specifically aided program and usually are limited to narrowly defined activities; legislation generally details the program’s parameters and specifies the types of funded activities. There are four types of categorical grants: project categorical grants, formula-project categorical grants, formula categorical grants, and open-end reimbursement categorical grants.

Project categorical grants and general revenue sharing represent the ends of a continuum on the three dimensions differentiating grant types, with block grants being at the mid-point. However, there is some overlap among grant types in the middle of the continuum. For example, some block grants have characteristics normally associated with formula categorical grants. This overlap, and the variation in characteristics among block grants, helps to explain why there is some disagreement concerning precisely what is a block grant, and how many of them exist.

This report provides an overview of the six grant types, provides criteria for defining a block grant and uses those criteria to provide a list of current block grants, examines competing perspectives concerning the use of block grants versus other grant mechanisms to achieve national goals, provides an historical overview of the role of block grants in American federalism, and examines recent changes to existing block grants and proposals to create new ones.



Date of Report: March
13, 2012
Number of Pages:
23
Order Number: R
40486
Price: $29.95

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New Markets Tax Credit: An Introduction


Donald J. Marples
Section Research Manager

The New Markets Tax Credit (NMTC) is a non-refundable tax credit intended to encourage private capital investment in eligible, impoverished, low-income communities. NMTCs are allocated by the Community Development Financial Institutions Fund (CDFI), a bureau within the United States Department of the Treasury, under a competitive application process. Investors who make qualified equity investments reduce their federal income tax liability by claiming the credit. The NMTC program, enacted in 2000, is currently authorized to allocate $33 billion through the end of 2011. To date, the CDFI has exhausted through 664 awards totaling $33 billion in NMTC’s allocation authority.

The 111th Congress extended and modified the NMTC program authorization. The American Recovery and Reinvestment Tax Act of 2009, P.L. 111-5, increased the NMTC allocation for 2008 and 2009 to $5 billion from $3.5 billion. Further, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended the NMTC authorization through 2011 at $3.5 billion per year.

In the 112th Congress H.R. 2655 and H.R. 3224 would both extend the NMTC through 2016 with allocation authority of $5 billion $10 billion, respectively.



Date of Report: March 7, 2012
Number of Pages: 11
Order Number: RL34402
Price: $29.95

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