Heller-Hurwicz Economics Institute publishes policy briefs to translate and communicate policy relevant economic research to a broad audience. Together, they showcase the breadth of research conducted in connection to the Institute. Contributors include faculty, alumni, advisory board members and other experts affiliated with the Institute.
For more than a quarter century, the U.S. social safety net has been designed to nudge indigent heads of households onto payrolls. But in the case of welfare participants, the short-term virtues of joining the paid labor force may undermine their children’s long-term success in life. At a cost to the next generation – and to society, at large. The latest research by Joseph Mullins, U of M assistant professor of economics, suggests the cash payment “safety net” needs a major overhaul to maximize its role as an investment in children. Read the full policy brief.
Decades of research clearly show substantial public and private benefits of early childhood education. But translating those findings into well-funded public programs to nurture children from the womb to age 4 has proven a greater challenge. A recent Heller-Hurwicz roundtable on transforming limited trials into widespread public policy illustrated the promise and problems of selling early childhood education to political leaders. Read the policy brief highlighting research by the panelists.
This brief summarizes the policy analysis results of our previous three briefs. The reform considered here addresses governance through a structure to bring predictability (not stability) to pension contributions and retirement income. The idea of predictable, but not fixed, contributions and retirement income lies behind the fiscally solvent public pension systems such as Wisconsin and South Dakota. Read this policy analysis summary.
In this brief, we consider the impact of closing the DB plan on the remaining three constituencies: retirees, current public employees and taxpayers. Read more about Current Workers and Retirees.
This brief continues our analysis of public pension policy through the lens of the lifecycle model. We build on our previous brief by assuming (for illustrative purposes) that the plan is closed. We then explore the impact on future generations of unfunded pension liabilities. Read more about Public Pensions and Future Generations.
In this brief, we evaluate public pension policy tradeoffs in terms of their impact on economic welfare of newly hired public employees. We examine a hypothetical policy change: switching new employees from the existing Defined Benefit pension system to a Defined Contribution
system. In our example, wage increases of between 11% and 14% make the new hire indifferent between the legacy DB system and a DC system, contingent on the COLA policy. Read more about comparing DB and DC plans.
The pension funds in South Dakota and Wisconsin have long track records of fiscal solvency. They have achieved this by maintaining contributions to the pension system, and by incorporating a degree of rules-based benefit flexibility. These steps were facilitated by a legislative commitment to full funding. The experiences of these states offer important lessons for would-be pension reformers. Read more about good pension fund governance.
In June of 2016, voters in the United Kingdom decided to leave the European Union, a decision popularly known as Brexit. This dissolution meant that trade costs would rise and multinational firms of the United Kingdom and European Union would no longer enjoy free movement of capital across each other's borders. Professor Ellen McGrattan and Minnesota alumna Andrea Waddle apply a multi-country dynamic general equilibrium model to estimate the impact of higher trade costs and capital restrictions on foreign investment, production, and welfare in the United Kingdom and beyond. Read about their findings.
Low levels of interest rates have rekindled interest in using Pension Obligation Bonds (POBs) as a tool to resolve funding challenges for US public pension plans. Our analysis suggests that under current governance, POBs only resolve funding challenges over the short term.
Furthermore, under our assumptions both taxpayer and beneficiary economic welfare is adversely affected by POBs. Hence, unless bond issuance is accompanied by structural changes in governance, they are a bad idea. Read more about why pension obligation bonds are a bad idea.
This brief shows how pension reform without a change in the rules-of-the-road is doomed to failure. For public pensions, policymakers can influence three main variables: the rate of contributions, the target return on investments, and the level of benefits. As distinct from other pension systems, policymakers are able to choose levels for these variables without explicit reference to market pricing. This ability, coupled with governance rules that require short-term balanced budgets, almost guarantee weak pension finances. Read more about revisiting why pension reform is so hard.