Within the investment banking world, it’s quite common to presume that student loan debt is putting downward pressure on economic growth.

And the concern is not just for short-run economic conditions.  Rather, a graver concern is on the long-term effect student loan debt could have on the competitiveness of the American economy for generations to come.

These concerns, though, may just be another case of crisis-freude, rather than causing real economic problems.

The Student Loan Picture

Before looking at student loan per capita and employment growth figures, here’s a look at the universe of the student loans, based on data from the New York Federal Reserve.

Overall, since 2003, student loans debt is up about 381%, from $241 billion to about $1.157 trillion at the end of 2014.

Interestingly, the growth in student loan debt has consistently risen, without much of a business cycle.

Student Loans

Student Loan Picture on a Per Capita Basis by State

The broad picture provides an interesting view, although it leaves out some more detailed information. The following graphic inspects student loan debt per capita by state.

Interestingly, the political entity with the highest student loan debt per capita is Washington, D.C. at $11,260.

In 2014, the four other members of the top 5 highest indebted graduates (and non-graduates) include Georgia ($5,640), Minnesota ($5,550), Maryland ($5,480), and Ohio ($5,320).

The five states with the lowest student loan debt per capita include Hawaii ($3,010), Nevada ($3,180), Wyoming ($3,290), New Mexico ($3,550), and Utah ($3,620).

On the whole, the average student loan debt per capita was $4,335 in 2013 and $4,568 in 2014.

Student Loan Debt per Capita by State

Employment Growth Picture

Addressing next the employment picture, here’s a look at average year-over-year employment growth by state in 2013 and 2014.

The figure is sorted by average growth in 2014.

Interestingly, businesses in North Dakota grew the fastest at 3.9%, followed by Nevada (3.4%), Colorado (3.3%), Florida (3.2%), and Texas (3.1%).

The bottom end includes West Virginia (-0.4%), Virginia (0.5%), Maine (0.5%), Alaska (0.5%), and New Jersey (0.7%).

Average Employment Growth, 2013 and 2014

What’s the Relationship between Student Loan Debt and Employment Growth

Now with employment growth and student loan debt addressed, what’s the relationship between the two?

If the conventional wisdom is correct, then there should be a negative relationship, meaning that states with higher student loan debt per capita should have lower employment growth, and lower student loan debt per capita should have higher employment growth.

The first graphic shows the relationship in 2013. The second graphic shows the relationship in 2014.

Is there any connection? Interestingly, they are completely unrelated.

This implies, at least based on the correlations presented, that student loan debt per capita is not causing slower or higher employment growth.

Employment Growth and Student Loans per Capita, 2013

Employment Growth and Student Loans per Capita, 2014

Conclusion

Although many pundits and investment bankers presume that student loan debt is slowing economic growth, there doesn’t appear to be any relationship between the two.

In empirics, the correlation between student loan debt per capita and employment growth is virtually zero, suggesting that student loan debt probably isn’t having much impact on U.S. labor market.

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Investment bankers are typically interested in broad policy issues like the minimum wage as it affects economic growth, which in turn affects investment banking conditions. Some of the most contentious debates among economists centers on how much harm the minimum wage causes to individuals in so-called low wage industries.

With the recent release of the Bureau of Labor Statistics’ (BLS) job numbers by state for 2014, now is probably a good time to review what job growth did in states that imposed higher minimum wage rates compared to states that left things up to the employer and employee.

Minimum Wage Rates by State

Before addressing what kind (or if) there’s been a connection between higher minimum wage rates and missing employment, here’s a look at what minimum wage rates have been by state since 1980.

Among just states, as of now, the state of Washington has the highest minimum wage rate at $9.47 per hour. If one throws Washington D.C. into the mix, D.C. has the highest imposed minimum wage rate at $9.50 per hour. Overall, 29 states and Washington D.C. have minimum wage rates above the federal minimum wage rate of $7.25 per hour.

(Please note that the following graphic is not meant to be decipherable by state, but rather presented solely to show that a number of changes have occurred over the years.)

Minimum Wage Strings

New Rates Coming Up

One interesting observation in the previous graphic is the seasonality in newly imposed minimum wage increases. States generally don’t impose higher minimum wage rates until economic times are good or are improving (thus the jump in 2014).

In addition to the hiked rates in 2014, a number of new minimum wage increases are slated for 2015, 2016, and beyond. The list includes scheduled increases in Alaska, Arkansas, California, Connecticut, Delaware, D.C., Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New York, Vermont, and West Virginia.

More details on upcoming increases are available here.

Retail Sales Growth

The second component of this study is employment growth.  Of the industry’s most likely affected by higher minimum wage rates is the retail sector.

Here’s a look by state according to whether a state increased or decreased its minimum wage rate. It’s tough to see a strong variance, although there is a small difference. As one would expect, retail employment grew 0.71% in states that did not impose higher minimum wage rates and 0.66% in states that did impose higher minimum wage rates.

On total employment growth of around 2.5 million, the difference between the two would indicate that there’s about 38,000 jobs missing because of the higher minimum wage.

The result is not statistically significant, but the next section finds significance.

Retail 1.fw

Connection Between Minimum Wage Rates and Retail Sales Employment Growth Acceleration

The finding that perhaps 38,000 jobs might be missing in 2014 due to a higher minimum wage rates was only weak, and not statistically significant. Rather than testing “growth,” which is the year-over-year change in employment, the effect most likely showed up in “acceleration” or “deceleration”. Essentially, acceleration or deceleration relate to how the year-over-year growth rate is changing, rather than total jobs. Usually, financial signals show up here first.

Here’s a look at what happened to the change in year-over-year growth according to whether a state hiked its minimum wage. Interestingly, the effect is much larger.

States that left things as is – i.e. did not impose higher minimum wage rates – saw retail employment accelerate, meaning job growth got stronger.  The acceleration is +0.6%. In contrast, states that hiked their minimum wage rates saw retail sales employment decelerate, meaning job growth got weaker.  The deceleration is -1.4%.

Minimum wage 2.fw

Conclusion

Overall, states that imposed higher minimum wage rates in 2014 saw employment growth in the retail sector decelerate, by 1.4%. In contrast, states that left things as is saw retail sales growth accelerate, by about 06% on average. The difference equates to about 38,000 jobs missing from minimum wage-hiking states.

It is, of course, too early to make a complete judgment on the extent of missing jobs due to higher minimum wage rates.  With that said, early evidence points towards a reasonably strong negative effect on retail sales employment.

 

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On the first Friday of every month, the U.S. Bureau of Labor Statistics (BLS) gives us their take of employment growth overall and by broad industrial groups.  Friday’s top line growth figure came in at +126K in net new jobs for the month of March.

Although the top line figure is the most influential on market performance, the industry details provide an interesting insight into where jobs are showing up and how quickly the economy is recovering in various sectors.

A Month over Month Look at Employment Growth by Industry

First, here is where U.S. jobs have come from through the first three months of 2015. Interestingly, the largest job growth area is still Education & Health, up 137K.

The other members of the top five growing industries (by broad classification) include Trade, Transportation, and Utilities (128K), Leisure and Hospitality (107K), Professional and Business Services (102K), and Retail Trade (94K).

In the middle of the pack is Finance, up 34K through the first three months of 2015.

Employment Growth in 2015 by Sector

On a Percentage Growth Basis

The absolute growth figures can sometimes be misleading because of the sizes of the various industries.  Here’s a look at year-to-date (YTD) percentage growth difference. When viewing the growth numbers from this perspective, some shifting occurs.

On top is Construction, up 1.10%.  The remaining members of the top five include Leisure & Hospitality (up 0.72%), Education & Health Services (up 0.63%), Retail Trade (up 0.60%), and Natural Resources (up 0.56%).

Down towards the bottom of the list is Finance, up 0.42%.

Percentage Employment Growth in 2015 by Sector

A Broader Perspective: Industry Job Growth Since the Recession

The fact that Finance is currently an average to slightly below average industry begs the question – when will Finance see its employment boom? The following is a broader view, looking at where job growth has come from since the onset and recovery from the 2008 global recession.

The graph is labeled by business cycle peak year, with each colored line being the the year in which a peak occured. The horizontal axis is the number of months into the recovery. The vertical axis is the percentage change in employment (cumulative) since January 2008. As shown, the Finance industry is still 2% below where it was in January 2008, which is lower than what many other industries have experienced.

What does this suggest?

This suggests at least two things. First, Finance has little downside in terms of employment growth. Second, a boom is likely still on the horizon for the Finance industry.  (When the boom will materialize is still up for debate, but one thing is more certain, a boom will eventually materialize).

Financial Employment from Peak

Conclusion

Overall, employment in the financial industry appears poised for strong growth after a few years of sub-par job creation. If the early indications of 2015 are indicative of the remainder of the year, investment banking and the other big sectors of the financial industry could be headed for a banner year.

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Looking at Disposable Income Across the Globe

March 30, 2015

The high point of economic development (at least according to some secular economists) is the availability of disposable income for the average citizen. How do the figures look recently? A Global Geographic View The first view is a geographic view of the numbers (the chart is interactive). The countries with the lowest average monthly disposable income are […]

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Could Non-Performing Loans Be the Next Trigger?

March 16, 2015

Moreso than ever before, the world has been financialized. The increased financialization means that loans and other borrowing instruments are quite important to economic growth. Within this vein, some interesting trends have emerged over the past few years. Non-Performing Loans The following is a look at countries with non-performing loans above 6.6% of their total loans […]

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The First Half of the 21st Century-the Debt Era?

March 2, 2015

Fifty years from now, when economists debate the major themes of the first half of the 21st century, could the first half be known as the debt era? Debt to GDP Here’s a map of the global debt to GDP landscape. Perhaps completely unsurprising to seasoned professionals in the investment banking world, the map shows the […]

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Employment and GDP Growth by US President

February 16, 2015

Unless you willingly prefer to ignore reality, you likely know that politics is intricately connected with the investment banking world. Let’s take a look at employment growth by U.S. president since 1948. Unsurprisingly, employment growth expanded the strongest during the Clinton and Reagan administrations. Employment Growth During the Clinton administration, employment grew by a little over 20 […]

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