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- Policy Reform Work
Our projects are designed to empower policy makers to create positive change. With a focus on collaboration and outreach, we provide original, standards-based research on key policy issues.
SCEPA joined with the Economic Policy Institute on Capitol Hill to brief congressional staff and policy experts on tax expenditures, or incentives given through the tax code without scrutiny by Congress.
SCEPA economists are working on the prospects for a more progressive economic order to emerge from the shock of the recession. They have published papers and documents that place current events in a longer-term context as well as policy proposals to deal with short-term concerns. They are also documenting the emerging discussion of how the discipline of economics is reacting to the Great Recession and the questioning of conventional economic analysis.
Lance Taylor, a SCEPA Faculty Fellow, presents an overview of his new book, Maynard’s Revenge, in a Google Tech Talk.
The book, published this November by Harvard University Press, is a timely analysis of mainstream macroeconomics, posing the need for a more useful and realistic economic analysis that can provide a better understanding of the ongoing global financial and economic crisis.
The government spends $143 billion through tax breaks in an effort to expand pension coverage and security. Yet, over half of the American workforce does not have a pension. Retirement insecurity hurts business plans, workers’ lives and retiree well-being. Reform is needed.
SCEPA’s Guaranteeing Retirement Income Project, sponsored by the Rockefeller Foundation and in collaboration with Demos and the Economic Policy Institute, has a plan to guarantee safe and secure retirement income for all Americans.
The July unemployment rate for workers over 55 is 3.7%, an increase of 0.2 percentage points from last month. Although unemployment is low, older workers’ earnings have not increased since the end of the Great Recession in June 2009. As we discussed last month, this indicates a weak labor market.
For most workers, this reflects a continuation of the labor market conditions they experienced over their working lives. Between 1979 and 2015, increasing wage inequality contributed to wage stagnation for workers aged 25-54. Over this period, average real earnings increased by 1.4% a year for men in the top 10% of the income distribution, but only increased by 0.1% a year for the remaining 90% of men.
Wage stagnation makes it harder for workers of all ages to start or increase saving for retirement. Without a raise, workers can only increase saving by reducing their current level of consumption.
Reflecting the many challenges workers face when saving for retirement, our analysis of Survey of Consumer Finances data shows that only 52.4% of working households ages 55-64 have any type of retirement savings plan. For those households participating in a 401(k) plan, the median retirement account balance is a mere $111,000.
Guaranteed Retirement Accounts (GRAs) will ensure that workers’ sacrifices are rewarded. Fees are kept to a minimum, ensuring that workers benefit from investment returns. And at retirement, workers will receive a guaranteed lifetime income rather than having to gamble on not outliving their savings.
SCEPA Economist Willi Semmler was appointed Senior Research Associate at the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria. Semmler will work with IIASA on models of economic growth under environmental constraints. IIASA is an international scientific institute conducting research on global environmental, economic, technological, and social change and advising policymakers around the globe. Their recent work includes contributing to the Intergovernmental Panel on Climate Change and the United Nations' Sustainable Development Goals.
Semmler is director of SCEPA's project on the Economics of Climate Change and author of the Oxford Handbook on the Macroeconomics of Global Warming with Lucas Bernard.
SCEPA’s Retirement Equity Lab (ReLab) released three new policy briefs, funded by the National Endowment for Financial Education (NEFE), documenting the systemic failure of the current retirement savings system, even for those who use it as intended.
- 401(k) Plans: A Failed Experiment
The financial wealth of individuals who participate in a 401(k) plan and are nearing retirement age (55 to 64) falls far short of the levels necessary to maintain their standard of living in retirement. This is true for households at all income levels.
- Household Economic Shocks Increase Retirement Wealth Inequality
Low-income households are both more likely to experience shocks - such as job loss or ill-health - and also more likely to make early withdrawals from their retirement accounts in response. As a result, pre-retirement withdrawals exacerbate retirement inequality by increasing the likelihood that low-income workers will not have adequate income in retirement. Read Money Magazine’s coverage of this paper by Dan Kadlec, “How to Overcome ‘Income Shocks’ that Wreck Retirement Security.”
- Policies to Reduce Retirement Plan Leakages
If households are permitted to use retirement savings to buffer pre-retirement shocks, the system will fail to achieve its goal of financing post-retirement consumption. But in a voluntary system, a prohibition on pre-retirement withdrawals may discourage participation. A prohibition on pre-retirement withdrawals should therefore be accompanied by a contribution mandate.
Taken together, these briefs identify the need for a change in retirement policy. The Guaranteed Retirement Account (GRA) is an example of a comprehensive policy proposal that is both mandatory and prohibits pre-retirement withdrawals. This plan would create federal retirement accounts that guarantee principal and an annual rate of return and provide annuities as an add on to Social Security.