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A Sisyphean Savings Task

Economic Trends


The rock boomers must roll

Eavesdrop on baby boomers these days, and you'll hear talk of graying hair, bifocals--and mutual funds. Their aging is expected to have an economic bright side: As boomers swell the ranks of the middle aged, they could step up their woefully low savings rate. Indeed, some forecasters predict a demographic bonanza that could boost prices of stocks and other assets to further records.

But those forecasts "run afoul of simple arithmetic," warns economist Ed McKelvey of Goldman, Sachs & Co. The glacial pace of demographic change will make it hard for the personal savings rate to rise from its current 4.5%.

Look at the numbers. Over the next 10 years, the middle aged--those 45 to 64, who tend to save more than other age groups--will grow from 28% of the population to almost 35%. And since they'll be in their peak earning years, boomers' share of national income will rise by 8.1 percentage points--"a seismic upheaval," McKelvey says.

But even with that added income, middle-aged boomers would have to save three times the national average--15% of their income--to raise the overall rate by just one percentage point. In fact, the Labor Dept. reports that 45-to-64-year-olds save about 10%, a tad less than the rate for 35- to 44-year-olds.

The net: At best, demographic changes will add $27.6 billion to annual personal savings by 2005 (chart). Working against that uncertain progress is a another, more likely demographic trend that will bring down savings: rising demand for health care among the aging. Higher spending on Medicare and Medicaid is projected to push federal government spending ever higher, raising the deficit from $164 billion in 1995 to $376 billion in 2005. For every extra dime the boomers tuck away, Uncle Sam will borrow 76 cents. That's hardly the formula for a high-savings economy.BY MIKE MCNAMEEReturn to top

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The proof is in performance

Critics of affirmative action charge that it means companies hire less qualified female and minority workers--and pay a price in poorer performance. New research says they're half-right.

Michigan State University economists Harry Holzer and David Neumark surveyed 800 employers in Atlanta, Boston, Detroit, and Los Angeles between June, 1992, and May, 1994. Each company was asked about its most recent hire. The economists asked about job requirements--especially the education needed--and how well the successful candidate met them.

Some 45% of respondents said affirmative action played a role in their latest hire. And it had a clear effect: White women and black and Hispanic males benefited when affirmative action was used in hiring (chart).

Holzer and Neumark also found that minority workers hired under affirmative action tended to be less well qualified: They had less education than whites hired at similar companies and less than the jobs' stated requirements. Black males hired at affirmative-action companies, for example, had 1.4 years less schooling than white males hired at such companies.

In the workplace, however, the disparities didn't matter much. After some job experience, female and minority workers hired under affirmative action had the same performance ratings as white males. Critics of affirmative action, the economists say, "focus too narrowly on one or two easily observable measures of qualification," and not on "the most important measure--job performance."BY MIKE MCNAMEEReturn to top

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