There’s more to fear than fear itself: Jacob Hacker holds forth on “the great risk shift”

Jacob Hacker, author of The Great Risk Shift, at an event sponsored by MassINC in Boston, March 28 2007.

This morning Bostonians had the opportunity to listen to Jacob Hacker, a political science professor at Yale University, whose main contribution so far is his book “The Great Risk Shift”. The book’s full title is “The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement–And How You Can Fight Back.” It was my intention to read the book before listening to Dr. Hacker, but I wasn’t able to secure a copy at the library and why risk the $20 on a book I haven’t read? (I’m surprised the publisher didn’t name the book “Assault – How the Great Risk Shift undermined work, family, retirement, healthcare, and changed the world”)

If one wanted to be dramatic one could say that “the great risk shift” as an issue is a gathering storm, but it’s probably more accurate to say it is a daily grind. If I understand the professor correctly, “the great risk shift” is a major reason for why many people* feel a lot of uncertainty and even stress over their economic prospects, in spite of what various economic indicators show. It’s similar to the downbeat feeling that I have called the “say what?” economy”.

As the exhaustive subtitle of the book suggests, the pillars of “the great risk shift” are jobs, families, retirement, and health care, with the two latter being the most important.

On the jobs and families fronts, workers face more income volatility and higher levels of debt. Long-term unemployment rate has been drifting upwards, and growing numbers of workers are falling out of the workforce altogether. One economic consequence has been a dramatic increase in bankruptcies.

In health care, “the great risk shift” consists mainly of employers offering fewer employees health plans and contributing less to the health plans they do offer. The financial consequences of these changes are quite notable at the household level since a good family plan will cost you $1,000 a month or more (a figure that doesn’t include co-pays and other expenses).

When it comes to retirement, defined-contributions plans have crowded out defined-benefits plans, another shift of risk from employers (and ultimately government, when the underfunded pension funds go bust) to employees. Alternatively, one could say that it represents a shift from plans underfunded by employers to plans underfunded by employees. The result of the shift is that retirement income will be much less certain for future retirees than for current ones (or just as certain, but much smaller).

Dr. Hacker argued that more Americans value income security more highly than income opportunity, a circumstance that would suggest a political rationale for increasing household income and wealth security.

After the professor was done with his speech a group of panelists commented and to some extent critiqued, questioned or expanded his thesis.

Panelist Thomas Keane made the quite indisputable observation that the people weren’t exactly free from angst and worrying in the 1970′s and early the 1980′s, back when companies carried more of the risk they have since dumped on their employees. In fact, one could argue that Western economies back then suffered from stagnation back then partly because so little risk was assumed by individuals and so much shouldered by companies and government. Margaret Thatcher, easily the greatest of post-War statesmen, had to clean up an economy beset by a high-degree of economic security for households (of course, the reality is that economic security is fairly illusionary no matter who assumes the bulk of risk). For a taste of 1980, check out this Time Magazine article by a George Tabor.

One shift that nobody even hinted at is the tremendous demographic shift America has experienced over the last 40 years. 40 years ago America had 200 million inhabitants, 85% of whom were white and less than 4% were immigrants. Today, America has 300 million people, only 65% of whom are white, and immigrants making up 14% or 15% of the population. Immigration has indisputably contributed to growing income inequality and I think it has also contributed to income volatility. It has, at any rate, no doubt contributed to social disruption.

However, I don’t mean to dismiss Dr. Hacker’s research. As I mentioned above, I share his basic view that there are problems with the American economy that go beyond the top-line unemployment rate, the average hourly wage for private non-supervisory workers, productivity growth and what not. It’s not obvious to me, in part no doubt because I haven’t read his book, that he has developed the proper framework in which to analyze the data, but I look forward to learning what his continued research will yield.

Finally, here’s something to think about when one ponders the use of collective resources. The event with Dr. Hacker was scheduled for 8-10 am. I arrived two minutes early and rather Teutonically imagined that things would get going by 8.05, or 8.10 at the latest, after which time I’d glare with contempt at latecomers. Instead the first 22 minutes were spent with people milling about and engaging in idle small talk over coffee and muffins while more people stumbled in one by one, almost manana style, and then another 10 minutes were spent on introducing the introducer, and introducing the speaker, and finally Dr. Hacker spent another few minutes setting up his speech and winning over the audience with the required dose of self-deprecating jokes, before he addressed the matters at hand. More than quarter of the allotted resource of time was squandered, in other words.

* Yes, that’s a weasel phrase, but I use it only because I don’t remember the exact numbers on the professor’s slide.

Transcript.

Thursday morning update: Here re som examples from tody’s Boston Globe of “the great risk shift:” Mass. foreclosure filings set record for 2d month.

Fidelity to end employee pension plan – that’s Fidelity moving from defined-benefits to 401(k) plus health savings.

Circuit City laying off its highest-paid salespeople. Quoting from the article:

Circuit City Stores Inc., the second-largest US electronics retailer after Best Buy Co., fired 3,400 of its highest-paid salespeople and will hire replacements willing to work for less.

The company said it’s eliminating jobs that paid “well above” market rates. Those who were fired can apply for the lower pay jobs, a company spokesman said yesterday. He declined to give the wages of the fired workers or the new hires.

Here’s how the company puts it:

The company has completed a wage management initiative that will result in the separation of approximately 3,400 store Associates. The separations, which are occurring today, focused on Associates who were paid well above the market-based salary range for their role. New Associates will be hired for these positions and compensated at the current market range for the job.

Via Darren Garnick at Boston Herald’s Working Stiff blog.