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The great gap in Americans’ post-work lives

A new report by the Pew Charitable Trusts raises troubling questions about Americans’ retirement prospects.

Many will enter their golden years with reduced financial security because they don’t have pensions or 401(k) plans. The lack of such cushions underscores the decline of the middle class, but the situation reflects other fault lines in U.S. society as well. For example, the study found disproportionately low access to retirement plans in areas with many small employers and in regions with many Latino or low-income workers.

The Pew study of 104 metropolitan areas found that more than 40 percent of full-time workers have neither a pension nor a 401(k). Workers in the Grand Rapids, Mich., area had the highest rate of access to retirement plans (71 percent), while those in the McAllen, Texas, area had the lowest (23 percent).

Researchers underscored the importance of getting workers to set aside money for retirement, if only through non-employer initiatives such as the U.S. Treasury Department’s no-risk myRA savings program, which invests participants’ money in Treasury securities. Of course, this is no replacement for the defined benefit plan that employers have largely abandoned or the 401(k) programs to which many companies now contribute instead.

Lower rates of retirement security portend more reliance on government aid programs. That means we all pay for income — and pension — inequality. Policymakers concerned with their communities’ livability and economic health should make retirement security a priority.

Pittsburgh Post-Gazette, May 31

Japan’s tax delay should spur Abe to action

Japanese Prime Minister Shinzo Abe’s reported postponement of a planned sales tax hike will surely be popular and is perfectly defensible. For it to be truly effective, however, Abe will have to make some harder decisions.

The prime minister originally vowed not to backtrack on the tax hike — already delayed once — unless Japan faced a Lehman-style crisis. Although no such crisis appears imminent, the Japanese economy remains weak. Prices are falling again, and growth remains sluggish despite the Bank of Japan’s huge and increasingly unconventional monetary easing program. Rather than driving Japanese consumers to spend, the prospect of higher taxes seems to be encouraging them to save up.

The last two sales tax increases, separated by 17 years, both tipped an economy that looked to be recovering back into recession. There’s little reason to think a third wouldn’t do the same. It’s unlikely that a fragile global economy will have recovered enough by next spring, when the hike was to have taken effect, to offset a major drop in demand at home.

Abe’s reported plan for as much as 10 trillion yen (nearly $91 billion) in new spending is smart as well. After driving rates into negative territory, with mixed results, the BOJ doesn’t have much room to maneuver. If the stimulus money is directed at day-care programs and other measures that benefit younger workers, rather than simply more roads and bridges, it could help boost productivity and the number of women in the workforce.

Japan’s debt levels, while dizzyingly high, should be manageable for now given extraordinarily low rates. The government could ease some worries by looking harder for other ways to start bringing down the deficit.

Still, delaying the tax hike only postpones some pain. It won’t do much to alter Japan’s low-growth, low-inflation future. In recent months, a lack of urgency appears to have sapped whatever momentum existed for Abe’s structural reforms. The Trans-Pacific Partnership, meant in part as a wedge to crack open some of Japan’s most ossified sectors, has been stalled by politics in Washington.

Abe needs to regain the narrative. If his Liberal Democratic Party does well as expected in July’s upper-house elections, he should revive serious efforts at privatization and deregulating labor and product markets. He should look again at ways to increase desperately needed immigration and to put more pressure on companies to raise wages.

This is a familiar refrain. Unlike with the sales tax, though, further delay is unwise.

Bloomberg View

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