Archive for Andy Kiersz

The unemployed may never come back. Here’s what that means for the economy.

Woman in factory
  • The US economy has had a strange comeback, where overall output is back to its pre-recession level but employment is still low.
  • That means we're selling as much stuff as we were in 2019 but with almost 6 million fewer workers.
  • Workers could stay sidelined and we'll keep making more with less, or they'll come back to a more productive economy that could boom for years.
  • See more stories on Insider's business page.

The US economy has been on a rampage all summer, with growth, consumer demand, wage growth, and job openings all at historically high levels as the country reopened.

But there's a strange divide in the recovery, and how it works itself out could define the rest of the decade. There's a split between the recovery of GDP and employment. The first is recovering much faster than the latter.

Both total economic output, as measured by real gross domestic product, and the number of Americans with jobs plummeted last spring, and both have spent the last year sharply recovering.

Real GDP recently surpassed its pre-pandemic peak, but as of July there are still about 5.7 million fewer employees on payrolls in the US than there were in February 2020.

That means the US economy is making and selling as much stuff as it was in 2019, but with nearly 6 million fewer workers. This suggests a big increase in productivity.

If those gains hold up, there are two very different paths forward from here: Workers might stay on the sidelines and output will keep modestly growing, with a permanently smaller labor force, or those workers could return to fuel a more productive economy than most developed countries like the US have seen in decades.

Doing more with less

One possibility is that we could maintain the productivity gains seen during the pandemic with a permanently smaller workforce.

Economics blogger Kevin Drum made some back-of-the-envelope calculations, estimating that by the end of 2022, output would be roughly where it would have been without the pandemic, but with only about 3.5 million more employed Americans than we have now. (Drum used the CBO's estimates for what potential GDP could look like, while extrapolating out from the productivity growth over the last several months.)

Economist Robert Gordon, who specializes in studying long-run trends in productivity and economic growth, shared similar thoughts with UCLA Anderson economist Leo Feler in a February podcast. This was a big deal in the economics community, as Gordon is a famous pessimist when it comes to productivity.

Gordon noted that a lot of the productivity growth over the last year came from high-income, high-productivity workers who can do their jobs from home without all the expenses and trappings of commutes and office buildings.

If those trends continue, Gordon predicted you could see a dampening of productivity growth across the broader economy as sectors like commercial real estate and public transportation struggle in an environment where office buildings in downtown business districts remain empty.

Doing more with more

There's another possible future, however. If productivity growth sustains and the US returns to pre-pandemic employment trends, that could turbocharge overall economic growth for years to come.

Bloomberg columnist Conor Sen made his own back-of-the-envelope calculations along those lines. The US could actually see 7% annual GDP growth over the next couple years, he wrote, much higher than most estimates.

Sen assumed a return to pre-pandemic employment trends by the end of 2022 - adding back all of the 5.7 million lost jobs, plus the jobs that would have been added to the economy without the disruptions of the last year - as well as ongoing productivity growth as businesses invest in automation and other technologies.

This also seems to be the goal of President Joe Biden and the Democrats' proposed economic policies. Both the $1 trillion bipartisan infrastructure bill and the likely party-line $3.5 trillion reconciliation bill are full of proposals to boost productivity through investments in better physical infrastructure and to make it easier for Americans to return to the workforce through initiatives like improved access to child care. If there is such a thing as "Bidenomics," it's the doing-more-with-more approach of this scenario.

This all depends on whether or not workers come back

These are the extreme ends of a spectrum, and the economy could well end up somewhere in the middle, with modest-to-fast gains in both employment and growth. But a lot will depend on just how many workers come back.

Even though the US has been adding jobs at a stunning pace through the summer, labor force participation remains quite a bit lower than it did before the pandemic. Many older Americans have likely permanently retired, and many workers may be waiting on the sidelines because of ongoing concerns about the pandemic and uncertainty around schools reopening.

If job openings are enticing enough to bring in those sidelined workers, we could see an economic boom. If they aren't, or if the productivity gains we've seen over the last year represent a permanent dislocation of a lot of pre-pandemic jobs, we could have a more productive but smaller workforce.

It all comes down to just how much growth workers - and employers - want out of the economy.

Read the original article on Business Insider

The economy’s hot vax summer is going strong

miami beach spring break 2017
Hot vax summer applies to the economy too.
  • July's jobs report showed that the US added nearly a million jobs last month.
  • Wages and consumer demand have also shown strong growth this summer.
  • The economic reopening has been booming for several months, so hot vax summer was on when the Delta variant spiked.
  • See more stories on Insider's business page.

After a year of pandemic lockdowns, America was looking forward to a "hot vax summer" as inoculation against the coronavirus and reopening coalesced into an economic boom.

That narrative was questioned in late July and early August, as the surging Delta variant of the coronavirus suddenly raised fears of going back into lockdown. The economic data is clear, though: Hot vax summer is very real.

Data throughout the summer has showed a boom in employment, consumer demand, and wage growth. While there have been a few snags caused by supply shortages, and the Delta variant raises big questions for the rest of the summer and the fall, so far the recovery has been impressively fast. Friday's jobs report is the cherry on the proverbial ice-cream sundae.

Here's the best of all the good news coming out of the US's hot economy.

Jobs are coming back fast

The labor market is hot. After losing over 22 million jobs in March and April 2020, the economy has been adding jobs back at a steady clip. Friday's jobs report showed that the US added 943,000 jobs in July, and revisions to previous data showed that June actually saw nearly as many: 938,000 jobs, revised significantly upward from the initial read.

While there are still about 5.7 million fewer Americans on payrolls than in February 2020, at the current average rate over the last three months, all those jobs will be recovered by February of next year:

Even accounting for the jobs that would have been created in the economy following the pre-pandemic trend, the labor market should be back on track by next summer, Indeed economist Nick Bunker wrote on Twitter.

Those job gains happened across nearly all industries, with the hard-hit restaurant and hotel sector adding another 380,000 jobs last month.

Americans are getting paid more

The July jobs report also showed that workers are seeing big raises as employers raise wages to attract and keep employees amid the labor market boom.

Average wages among all private-sector workers rose 4.0% between July 2020 and July 2021, a much faster pace than the pre-pandemic average year-over-year growth rate of 3.1% in 2019.

Restaurant and hotel workers saw an astonishing 9.6% increase in wages over the year. That's consistent with another recently published measure of wage growth, which showed a record-high 2.8% increase in leisure and hospitality wages between the first and second quarter of this year alone.

Another measure of personal income released last week by the Bureau of Economic Analysis showed that aggregate wages and salaries paid out rose 10% between June 2020 and June 2021, another sign of both rapidly increasing employment and higher wages.

Of course, inflation has eaten into some of those gains. Prices have been increasing at a fast clip over the last few months, but the overall uptick in wages is still a sign of a booming labor market.

Overall economic activity is growing at its fastest rate in 18 years

The Bureau of Economic Analysis also recently reported that real GDP for the US - a broad measure of all market-based economic activity in the country - grew at a 6.5% annualized rate in the second quarter. While that's lower than the 8.5% growth expected by economists, it's still the fastest rate since 2003, with the crucial exception of the massive bounce back in the third quarter of 2020 after the initial pandemic shock.

A look inside that GDP report shows even more strength than the headline number suggests. Personal consumption expenditures grew at a wild 11.8% annualized rate in the second quarter, as Americans spent the early part of the summer shopping, traveling, and going out to restaurants at a much higher rate.

The labor market is quickly recovering, and so is overall economic output.

Still, inflation and the Delta variant threaten

While the economy has been booming so far this summer, there are of course a few potential snags. Inflation has been running hot over the last few months, fueled by the massive increases in demand as well as supply chain issues for things like computer chips and cars. However, it's likely that those rising price pressures will subside as the economy gets back to normal.

Another threat is the rising number of COVID-19 cases in the US, fueled by the extremely contagious Delta variant. If consumers and employers become wary of new threats of infection or potential lockdowns, economic activity could slow down through the rest of the summer and into the fall. However, the extent of the variant's effects on the economy remains to be seen, and it's possible that the underlying strength seen above could carry through.

The American economy's hot vax summer has been not only real, but a historically impressive boom.

Read the original article on Business Insider

America is the land of unequal opportunity. These 13 maps show how class, education, and health inequities all intersect – with nonwhite, rural areas hit especially hard.

maps look the same overlay
A composite map overlaying median household income, poverty, disability rates, and broadband internet access. Some parts of the country face many interlocking struggles.
  • Inequities in America literally overlap.
  • Disparities in health, income, education - they all map onto the same areas.
  • Many of the hardest-hit areas are nonwhite and rural.
  • See more stories on Insider's business page.

At Insider, we make a lot of maps. And in my years of making dozens upon dozens of maps illustrating different aspects of American economic, social, and political life, I've noticed that many of them look strikingly similar. Maybe you've seen the pattern, too.

The coasts and other big cities are wealthy, healthy, and well-educated. But many rural areas, particularly in the South, face overlapping crises tied to economic, health, and social factors.

This mapmaking is part of what researchers call "economic geography," or the study of how factors like business and personal wealth vary from place to place. It helps us understand how the places people live materially affect their lives.

It can show lots of things. In many parts of the country, decades of underinvestment have led to broad swaths of the map with low household incomes, high poverty rates, less education, poor health outcomes, and even a lack of access to services like high-speed internet. And all of these things intertwine.

Many of these areas are deeply rural. Big cities and their suburbs, especially on the affluent coasts, enjoy robust economies and their benefits, while many more sparsely populated areas remain economically marginalized. Many, but not all, of the hard-hit areas in the following maps have large populations of color, showing another dimension of the ongoing racial inequities we face.

Read on to see how many of America's problems overlap.

In much of the US, it's harder for children to climb the economic ladder

Maps help bust myths.

One example: A major part of the American Dream is seeing one's children end up better off than you were. That dream is not equally attainable across the US.

The above map, using data from a 2014 study, shows where in the national income distribution the average child whose parents are at the bottom quarter of that distribution ends up. That kind of mobility is much lower across the rural Southeast than in other parts of the country, with children there ending up landing in a similar spot in the income distribution as their parents.

As we'll see later, these areas also have lower incomes and higher poverty. This map suggests these problems can carry on from generation to generation.

The share of adults with a degree is much higher in big cities and college towns.

Educational attainment is key to a thriving economy. College-educated Americans are more likely to be employed than workers with just a high school diploma, and wages for employed college grads tend to be higher than for nongrads.

And so, this map showing the share of adults 25 and over with a bachelor's degree or higher largely follows similar trends like economic outcomes.

The northeast corridor and West Coast have highly educated populations, while much smaller shares of the populations in Appalachia and the Deep South hold a bachelor's degree.

One exception in this map are several small counties with college towns in the South and Midwest with highly educated populations, such as Champaign County, Illinois; Lafayette County, Mississippi; and Story County, Iowa.

Another place where the urban-rural divide is clear is home values.

A big part of building wealth for US families is in homeownership, and this too shows big regional differences.

The coasts and large cities and their suburbs stand out for their sky-high home values. Parts of the Mountain West and Hawaii also have high median home values, while most of the rural parts of the continental US are much lower.

That difference in the value of owner-occupied homes can reflect other inequities. For many American families, the houses they live in are their largest financial assets. As of the fourth quarter of 2020, real estate made up the largest component of wealth for the bottom 90% of families.

Families living in places where real estate is less valuable could have a harder time building wealth than those who can invest in more rapidly appreciating homes.

Median household income tends to be much higher in big cities and their suburbs than in rural areas.

There are clear differences in household incomes across counties. On the one hand, the highly urbanized Northeastern corner stretching from Boston to Washington, DC, tends to be relatively affluent. So are the big cities on the West Coast, along with big inland metropolises like Chicago, Dallas, and Denver.

 

On the other hand, several largely rural areas have much lower incomes. There's a stretch of low-income counties across the South, running from the Carolinas through Georgia and Alabama into the Mississippi delta. There's a similar swath in West Virginia, southern Ohio, and Kentucky. Other rural areas with low incomes include parts of central South Dakota, New Mexico, and Arizona. 

As we'll see throughout the rest of the maps, that basic economic disparity shows itself across many dimensions of American life.

Poverty follows a very similar pattern to income, unsurprisingly.

Widespread poverty is another tragic sign of the lack of equal opportunity available to Americans living in different places.

The share of people in poverty appears like a photo negative of median household income. Similar bands of high poverty cross the Deep South and Appalachia, overlapping areas with lower family incomes.

Other notable areas with high poverty rates include central South Dakota, parts of rural New Mexico and Arizona, and northern Alaska.

There were pockets of high unemployment before the pandemic in many of the same places.

One big factor in the economic divide is the number of job opportunities available in the region. Many of the same counties with low incomes and high poverty rates also suffer from persistently high unemployment.

While unemployment was very low across the US before the COVID-19 pandemic, rates were higher in Appalachia, the Mississippi valley between Louisiana and Alabama, and Alaska than in much of the rest of the country.

The income, poverty, and unemployment maps together show that there are large parts of the US that do not offer robust economic opportunities to their residents, like Appalachia and parts of the Deep South.

That partly reflects a nationwide urban-rural divide: A 2019 study by the Federal Reserve Bank of St. Louis found that counties in metro areas tended to have slightly higher economic growth than rural areas.

But the areas we're looking at fare worse on these metrics than even other rural areas, like much of the Great Plains states.

The share of people without health insurance varies by state, with those that adopted Obamacare's Medicaid expansion tending to have higher insurance rates than those that didn't.

Access to healthcare is another key part of surviving and thriving in modern life, and it too shows regional divides.

State borders are much more visible on this map than on many others in this series. The share of the population without health insurance is much lower in states that adopted the Medicaid expansion provided for by the Affordable Care Act than in states that didn't — compare uninsurance rates in Medicaid-expanding Louisiana and Arkansas to neighboring states like Texas, Missouri, and Mississippi, which all declined the expansion.

Still, within states, we can see similar divides between urban and rural counties. Many counties in southern and western Texas have high uninsurance rates, as do counties in central South Dakota and northern Alaska.

The economic disparities also show up in people's health.

Health outcomes and access to healthcare are also unequally distributed across the country. Serious health problems tend to be more common in some parts of the country than others.

The share of residents with at least one disability was relatively low in the Northeast corridor and along the California coast. Meanwhile, disability rates were much higher in several Southern states, as well as in other rural areas.

Rural access to healthcare is an ongoing problem in the US. According to the Centers for Disease Control and Prevention, "rural Americans are more likely to die from heart disease, cancer, unintentional injury, chronic lower respiratory disease, and stroke than their urban counterparts."

Even broadband internet access shows a similar pattern.

America's infrastructure, which provides a framework for economic success, is also geographically very uneven.

The share of households with a broadband internet subscription is much lower in rural counties in Appalachia, southern Texas, the Deep South, rural New Mexico, and central South Dakota than in many other parts of the country. Meanwhile, high-speed internet is nearly ubiquitous in big cities and on the coasts.

Broadband expansion is a key part of President Joe Biden's infrastructure plan, with $100 billion allocated to expanding internet access across the country. In the 21st century, high-speed internet access is an essential part of life and business, and places that lack wide access to broadband will suffer reduced opportunities.

Across US history, the types of inequities across class lines we've been looking at have been intimately tied up with racial inequities.

Many of the areas with poor outcomes we've seen in previous maps are also majority nonwhite. This map begins by looking at majority-Black counties.

As the above map shows, many of the counties with the largest Black populations fall along the same swath of Southern states that have had the worst economic, educational, and health outcomes. 

This should not be surprising — the legacy of slavery and segregation continue to this day, with racial inequalities persisting across a variety of metrics. Those ongoing inequities and racial wounds show up when comparing outcomes across the US.

Similarly, some areas with large Latino populations in the Southwest had high poverty rates and low incomes.

Many largely Latino areas also overlap with the socioeconomic problems throughout the series.

The majority-Latino southern part of Texas along the Rio Grande border with Mexico also had low health-insurance rates, even among counties in that non-Medicaid-expanding state. The region also had low access to high-speed internet.

Other areas with large Latino populations, like southern California and the Miami metro area, had better socioeconomic outcomes.

Areas with large American Indian and Alaska Native populations also face similar problems.

The history of American Indians in the US has more than its share of tragedy, from the devastation wrought from diseases brought from Europe to forced relocations. As these maps suggest, inequities persist to this day.

Central South Dakota, western New Mexico, eastern Arizona, and Alaska all have large American Indian or Alaska Native populations. Those counties also tend to have low median household incomes and high poverty.

 

Some predominantly white areas also face serious challenges.

The other region that shows up as struggling across most of our maps runs through Appalachia, with several counties in eastern Kentucky and western West Virginia struggling across economic, educational, and health lines. This map shows the share of white residents in each county that falls below the poverty line.

Appalachia has historically been somewhat poorer than many other parts of the US. In recent years, it's been one of the epicenters of the opioid crisis that has torn through American communities.

Place matters, and it shows how many of America's problems and inequities are interconnected.
maps look the same overlay
A composite map overlaying median household income, poverty, disability rates, and broadband internet access. Some parts of the country face many interlocking struggles.

This composite map, which overlays median household income, poverty, disability rates, and broadband internet access, shows the extent to which the same places in the country struggle with all these issues.

Understanding the overlap between economic, health, educational, and other disparities is a crucial step to solving those inequities. Seeing how they interact with one another, as in the maps above, can help with that understanding.

 

Read the original article on Business Insider

Trump’s delay in signing the stimulus bill could keep $5.9 billion from unemployed Americans

trump wind
Donald Trump.
  • President Donald Trump finally signed the $900 billion COVID-19 relief bill nearly a week after it was passed by Congress.
  • The delay means that unemployed Americans have already missed a week of the $300 supplemental unemployment insurance the bill provides.
  • With nearly 20 million Americans receiving some form of unemployment benefits as of early December, that would add up to almost $6 billion in foregone payments.
  • Visit Business Insider's homepage for more stories.

On Sunday, President Donald Trump finally signed the $900 billion COVID-19 relief package and $1.4 trillion omnibus package funding the government and avoiding a shutdown.

While many of the new law's provisions will help support individual, businesses, and communities across America, Trump's delay in signing the bill for nearly a week after it was passed by Congress is likely to be very costly for Americans receiving unemployment benefits.

Insider calculated how much, and it's quite a few billion.

Different kinds of funding

First, we need to consider the pipes through which this stimulus actually gets to people. 

One of the provisions in the relief package is a weekly $300 supplement to unemployment insurance, similar to the $600 weekly additional pay for unemployed workers included in the CARES Act in the spring and early summer.

The just-passed bill included an 11-week extension of the $300 supplemental payments, running through March 14, 2021. But because of Trump's delay in signing the bill into law, the first week of those payments has been missed, leaving millions of Americans without that initial $300 payment.

The supplemental payments go out to unemployed Americans receiving benefits from traditional state-run unemployment programs, as well as two federal programs implemented in the CARES Act. The Pandemic Emergency Unemployment Compensation (PEUC) program provides unemployment benefits to workers who have exceeded their normal state unemployment benefits, while the Pandemic Unemployment Assistance (PUA) program supports workers who would typically not be covered by traditional unemployment, like gig workers and workers directly affected by the pandemic.

As of the week ending December 5, the most recent data available from the Labor Department, about 5.5 million Americans were receiving traditional unemployment, 9.3 million were receiving checks from the PUA program, and 4.8 million were receiving pandemic emergency unemployment compensation.

The cost a week makes

All together, about 19.5 million Americans were receiving benefits from one of those three programs, and thus missed out on last week's $300 supplemental pay that they would have received if Trump had signed the legislation by Saturday. That represents about $5.9 billion in total supplemental unemployment insurance that wasn't paid out, assuming roughly similar numbers of Americans receiving benefits last week.

Although, as noted above, the supplemental $300 benefit was originally intended to run for 11 weeks, the missing week now effectively means that only 10 weeks of the extra money will be paid out, since the benefit is scheduled to end on March 14. Per The New York Times, it remains unclear whether or not states will be able to retroactively pay that money, with Labor Department guidance coming in the near future.

That could be just the start of problems caused by the delay - the PEUC and PUA programs were also slated to expire last week under the CARES Act, and were extended in the new bill. The Washington Post wrote that the delay in signing the bill could lead to further slowdowns in states implementing those extended programs, putting benefits for millions of Americans at risk.

Read the original article on Business Insider

Trump’s delay in signing the stimulus bill could keep $5.9 billion from unemployed Americans

trump wind
Donald Trump.
  • President Donald Trump finally signed the $900 billion COVID-19 relief bill nearly a week after it was passed by Congress.
  • The delay means that unemployed Americans have already missed a week of the $300 supplemental unemployment insurance the bill provides.
  • With nearly 20 million Americans receiving some form of unemployment benefits as of early December, that would add up to almost $6 billion in foregone payments.
  • Visit Business Insider's homepage for more stories.

On Sunday, President Donald Trump finally signed the $900 billion COVID-19 relief package and $1.4 trillion omnibus package funding the government and avoiding a shutdown.

While many of the new law's provisions will help support individual, businesses, and communities across America, Trump's delay in signing the bill for nearly a week after it was passed by Congress is likely to be very costly for Americans receiving unemployment benefits.

Insider calculated how much, and it's quite a few billion.

Different kinds of funding

First, we need to consider the pipes through which this stimulus actually gets to people. 

One of the provisions in the relief package is a weekly $300 supplement to unemployment insurance, similar to the $600 weekly additional pay for unemployed workers included in the CARES Act in the spring and early summer.

The just-passed bill included an 11-week extension of the $300 supplemental payments, running through March 14, 2021. But because of Trump's delay in signing the bill into law, the first week of those payments has been missed, leaving millions of Americans without that initial $300 payment.

The supplemental payments go out to unemployed Americans receiving benefits from traditional state-run unemployment programs, as well as two federal programs implemented in the CARES Act. The Pandemic Emergency Unemployment Compensation (PEUC) program provides unemployment benefits to workers who have exceeded their normal state unemployment benefits, while the Pandemic Unemployment Assistance (PUA) program supports workers who would typically not be covered by traditional unemployment, like gig workers and workers directly affected by the pandemic.

As of the week ending December 5, the most recent data available from the Labor Department, about 5.5 million Americans were receiving traditional unemployment, 9.3 million were receiving checks from the PUA program, and 4.8 million were receiving pandemic emergency unemployment compensation.

The cost a week makes

All together, about 19.5 million Americans were receiving benefits from one of those three programs, and thus missed out on last week's $300 supplemental pay that they would have received if Trump had signed the legislation by Saturday. That represents about $5.9 billion in total supplemental unemployment insurance that wasn't paid out, assuming roughly similar numbers of Americans receiving benefits last week.

Although, as noted above, the supplemental $300 benefit was originally intended to run for 11 weeks, the missing week now effectively means that only 10 weeks of the extra money will be paid out, since the benefit is scheduled to end on March 14. Per The New York Times, it remains unclear whether or not states will be able to retroactively pay that money, with Labor Department guidance coming in the near future.

That could be just the start of problems caused by the delay - the PEUC and PUA programs were also slated to expire last week under the CARES Act, and were extended in the new bill. The Washington Post wrote that the delay in signing the bill could lead to further slowdowns in states implementing those extended programs, putting benefits for millions of Americans at risk.

Read the original article on Business Insider

This map shows how much the $600 stimulus check is worth in every state

New York City
$600 at the national average price level translates into just $516 in New York State, after adjusting for cost-of-living.

Over the weekend, Congress finally came to an agreement on a new stimulus package intended to fight the ongoing economic turmoil stemming from the coronavirus pandemic. One of the major features of the bill, which is expected to see a vote late Monday, is a $600 direct payment to most adults in the US, along with an extra $600 per child to families.

Of course, $600 will go a lot further in some parts of the country than others.

The US Bureau of Economic Analysis recently released its latest cost-of-living estimates across US as of 2019. These "regional price parities" show how expensive goods and services are in different states, relative to the national average.

We can use the regional price parities to get an idea of how much $600 is actually worth to consumers in each state. The BEA releases price parities every year, indexed to a national average of 100, with values for a state below 100 indicating a lower cost of living than the national average and values higher than 100 meaning more expensive than average goods and services.

In 2019, the most recent year for which data is available, New York State had a regional price parity of 116.3, meaning that prices in the state tended to be about 16.3% higher than average. Given that, $600 at the national average price level would be worth just $516 in the Empire State.

Meanwhile, Arkansas had a regional price parity of 84.7, meaning that prices in that state were about 15.3% lower than the national average. So, a $600 stimulus check at the national average price would be worth $708 in Arkansas after this cost-of-living adjustment.

Following the same logic, this map shows how far a $600 stimulus check would go in each state. Hover over a state to see the regional-price-parity-adjusted value of $600 in that state:

 

Read the original article on Business Insider

NBA Finals MVP LeBron James made $37 million last year — and that’s a steal

lebron james
  • LeBron James, the Finals MVP, is one of the greatest basketball players of all time.
  • However, the NBA's salary cap rules mean he typically earns less than other mega-star athletes.
  • European soccer leagues lack a salary cap, and both Lionel Messi and Cristiano Ronaldo made far more last year than James.
  • Visit Business Insider's homepage for more stories.

LeBron James led the LA Lakers to an NBA championship on Sunday night, marking his fourth championship and first since joining the Lakers in 2018.

The Lakers' victory adds to the age-old debate on whether James should be considered the greatest basketball player of all time. And with that debate also comes the question of whether he is being paid like the potential GOAT.

On Monday, The Wall Street Journal's Ben Cohen made the argument that James represents a "market inefficiency" in the NBA. While he made over $37 million in salary over the last year, the NBA's salary cap rules mean that this is effectively around the most a team can play a player, even a once-in-a-generation talent like James, and a fair market valuation without the cap would suggest a much higher rate of pay.

To get a quick sense of how James' pay stacks up, we compared his salary to those of comparable mega-star athletes:

James' $37.4 million was slightly above the Los Angeles Angels' Mike Trout's annual average pay of $35.8 million, according to CBS Sports, but he was below the other athletes we looked at. Kansas City Chiefs quarterback Patrick Mahomes signed a contract this year with an average annual payout of about $45 million, according to the NFL.

Unlike the NBA, European soccer leagues do not have a salary cap, which shows up in the enormous salaries for Barcelona's Lionel Messi and Juventus' Cristiano Ronaldo, as reported by Forbes. These are arguably the strongest comparison for James — Messi and Ronaldo are arguably the two best soccer players of their generation, and their importance to their teams is similar to James' crucial role in the NBA. It's not hard to imagine a capless NBA resulting in a $70-90 million per year payout to James.

Before the modern salary cap went into effect, Michael Jordan, the leading competitor with James for the title of greatest NBA player of all time, earned a career high of $33.1 million in the 1997-1998 season, according to Spotrac. Adjusting by the most commonly used measure of inflation, that would be worth about $53 million in 2020 dollars, or about 40% larger than James' salary.

There are a lot of complicated factors in trying to figure out what James is "really" worth. Our comparison above cuts across leagues and sports with very different salary rules and team structures. While Mike Trout is an incredible baseball player, he's only up to bat a relative handful of times in a given game, while James could be involved in nearly every play.

The soccer superstars made roughly double what James did, but the economics of the NBA are very different than European soccer.

Further, any counterfactual about what the NBA would look like without a salary cap would imply a very different league with very different incentives for teams and GMs, meaning any attempt at estimating a market value in that world would be highly speculative.

While $37 million in a year is an extremely high rate of compensation, it may not be as much as King James would be worth in a different world.

Read the original article on Business Insider

Even the lowest-paid workers in America have a higher tax bill than Trump

Donald Trump phone
President Donald Trump.

On Sunday, The New York Times released a bombshell report on President Donald Trump's tax returns over the past two decades. Among the many stunning revelations was that Trump, a self-described billionaire and real-estate mogul, paid just $750 in federal income taxes in 2016 and again in 2017.

Business Insider estimated that workers making just under $18,000 a year would have paid a similar amount of income tax as the president did, based on listings of tax brackets for 2016 and 2017 by the Tax Foundation, an independent tax-policy nonprofit.

Estimating a normal worker's income taxes

To keep things simple, we'll consider a single worker with no children in our calculations.

Our hypothetical worker is using the standard deduction, which means they aren't itemizing various specialized deductions and tax breaks for things like interest paid on a mortgage or charitable donations.

We also assume they took the standard personal exemption, which was another tool in the tax code to reduce taxable income based on the number of dependents in the filer's household; it was removed under the 2017 Tax Cuts and Jobs Act.

According to the Tax Foundation, the standard deduction for a single filer in 2016 was $6,300, and the personal exemption was $4,050. That means our hypothetical taxpayer could deduct $10,350 from their actual income when calculating their taxable income in 2016.

In 2016, the lowest tax bracket covered taxable income under $9,275 for single filers, according to the Tax Foundation, and that income was taxed at a rate of 10%.

Putting all this together, a single filer in 2016 taking the standard deduction and personal exemption who made $17,850 would have had a taxable income of $7,500 and thus would have owed $750 in income taxes, equal to what Trump reportedly paid.

A similar calculation using the standard deduction, the personal exemption, and tax brackets from 2017 suggests a taxpayer who made $17,900 would have owed $750 that year.

The overwhelming majority of Americans working full time make much more than $17,900 and thus would have owed more than $750 in federal income taxes, under our above assumptions.

Most Americans make much more than $17,900

According to the Bureau of Labor Statistics, the median salary as of May 2017 for gaming dealers, who run gambling games in businesses such as casinos, was $19,820, the lowest reported annual median wage among occupations in the BLS database.

With the 2017 standard deduction and personal exemption, a typical gaming dealer would have owed $947.

Fast-food-prep and serving workers had a median annual wage of $20,180, leading to an estimated tax bill of just over $1,000.

Business Insider's Joseph Zeballos-Roig reported that Trump's tax bill was lower than that of Americans making as little as $20,000 a year.

A similar calculation shows that a married couple filing jointly, taking the standard deduction and two personal exemptions, and earning $28,200 in 2016 and $28,300 in 2017 would have had an income-tax bill of $750.

This calculation covers only the federal income tax. Most workers and business owners pay many other taxes, like the payroll taxes that support Social Security and Medicare. Indeed, the Trump Organization lawyer Alan Garten told The Times that Trump had paid "tens of millions of dollars in personal taxes" since 2015, though The Times noted that this did not directly address Trump's income-tax payments.

This is also, of course, a very simplified calculation. The tax code is enormously complex, and there are plenty of other caveats — deductions other than the standard deduction, or tax credits like the earned-income tax credit — that could make things more complicated for our hypothetical taxpayer.

Read The New York Times' full report »

Read the original article on Business Insider