Time to dispel some economic myths

Quite a few dubious economic theses are floating around Washington these days. Such myths often affect public thinking and possibly alter economic policy.

Here are four myths worth addressing:

Myth No. 1: The Social Security system faces a severe crisis.

If you define "crisis" as something that may happen decades in the future, perhaps it is.

The Social Security Administration says that the system will not be able to pay full benefits to retirees starting in 2041. Those reduced benefits, however, will have greater purchasing power than what retirees get today. The Congressional Budget Office says this "crisis" point won't be reached until 2052. The most optimistic projection of the Social Security Administration itself sees no crisis ahead at all - and that cheerful forecast of the system's revenues and expenses has proved mostly right in recent decades.

Most projections of economic affairs far into the future are suspect. A former chief economist of Citibank kept a collection of long-term projections of the economy. Usually the forecasts sounded silly five or 10 years down the road.

Myth No. 2: Immigrants, legal or illegal, take the hard jobs that native-born Americans won't do.

Nonsense, says Dean Baker, co-director of the Center for Economic and Policy Research (CEPR) in Washington. If business paid them enough, he argues, native-born Americans would do the work many less-educated immigrants do.

In fact, US citizens fill most dirty or dangerous jobs that pay well - unionized coal miners, city sewer workers, and risky lumberjack jobs, for example.

Low-paying jobs that are mostly filled by immigrants include farm and yard workers, building custodians, and meatpackers. In the 1970s and earlier, slaughterhouse workers were primarily US citizens. But since then, the pay and benefits have declined enormously in real terms. Managers, seeking low-cost labor to boost profits, now hire many immigrants.

If wages in jobs now dominated by immigrants were raised, say from $6.50 an hour to perhaps $12 or $15, some jobs and business activities "would be priced out of the market," Mr. Baker notes. More householders would rake their own leaves. More vegetables might be grown in Mexico or Chile.

But certain jobs couldn't flee the country. Janitors living in El Salvador can't clean a Boston building. Transportation difficulties and costs would probably hinder putting a meatpacking plant in Mexico.

As it is, the inflow of immigrants in the past five years - half of them illegal - has been the highest in history, according to Steven Camarota, research director at the Center for Immigration Studies in Washington.

These immigrants are finding work because native-born Americans like to get jobs done cheaply, or they believe that their fellow citizens won't do the jobs. This view affects policy as the nation enters another debate over immigration.

Baker notes that doctors and lawyers, with more political clout than low-wage workers, manage to have limits put on the number of immigrants in their occupations. Thus their professional incomes are not depressed by foreigners.

Myth No. 3: Women are increasingly opting out of the labor force when they have children.

The media have been running stories citing individual examples of highly educated mothers quitting their jobs to look after their kids, suggesting a pattern. But economic data provides no evidence of such a trend, figures Heather Boushey, another CEPR economist.

It's still true that women with children at home are less likely to be in the labor force than are women who don't have children. But this gap is closing. In 1984, women aged 25 to 44 with children at home were 20.7 percentage points less likely to have a paid job than women without children. In 2004, that percentage had dropped to 8.2.

In other words, more mothers are opting into, rather than out of, the labor force.

Myth No. 4: US workers aren't up to the demands of today's jobs. Many lack the skills and education needed.

Last month, a survey of US manufacturers found "a widening gap between the dwindling supply of skilled workers in America and the growing technical demands of the modern manufacturing workplace," declared John Engler, president of the National Association of Manufacturers. "It is essential that America close this skills gap if we are to maintain our edge in the global marketplace."

That concern, says Michael Handel, a sociologist at Northeastern University in Boston, has been "a frequent refrain" in recent decades. Similar fears have been expressed about a shortage of engineers and scientists. President Bush's education policies assume the quality of schools has been sliding. Federal Reserve Chairman Alan Greenspan talks of the need for US workers to improve their skills and training.

Yet productivity in the US has been rising relatively fast. And Professor Handel points out that education levels have gradually risen. In the early 1960s, nearly half of all Americans had dropped out of high school, and nearly one-third of all young adults. Today both figures are under 15 percent.

Moreover, 30 percent of young workers have completed four years of college today, up from 15 percent four decades ago. Another 20 percent of young workers have one or more years of college.

Handel, of course, approves of Americans acquiring more skills and education. "But it is too easy to make dire predictions," he says.