438,000 jobs have been lost in the first half of 2008.  The June employment report posted the sixth straight month of net job losses, with 62,000 jobs lost in June.  Since December 2007 a net total of 438,000 jobs have been lost. Excluding the government sector, there have been more than half a million jobs lost since the November peak in employment, bringing private employment back to April 2007 levels.  The construction and manufacturing sectors continue to suffer along with the employment services industry, which shed nearly 60,000 jobs this month alone.

Initial jobless claims top 400,000.  The number of initial claims for unemployment insurance totaled 404,000 for the week ending June 28, raising the 4-week moving average to over 390,000 claims.  (See Chart) The average now exceeds the number recorded when the U.S. economy last dipped into recession in March 2001.  The number of unemployed has risen by 952,000 from June 2007.

Real wages are lower than they were in 2007.  According to the Bureau of Labor Statistics, nominal weekly private sector earnings grew by 0.3 percent in June following a month of almost no growth in May.  Nominal weekly earnings are now 2.8 percent above their June 2007 level.  Through May -- the most recent month for which data are available -- consumer prices increased about 4 percent above the level of the previous year.  Assuming that this price trend has continued through June, real weekly earnings are down by about 1.2 percent compared to a year ago.  This means that the current average weekly paycheck can purchase a smaller quantity of goods and services than it would a year ago.

Over the last three decades the retirement benefit system in the U.S. has experienced dramatic change.  Historically, those private and public sector employers providing retirement benefits offered their employees defined benefit pension plans -- frequently in the form of annuity payments based upon the employee’s salary and tenure upon retirement.  However between 1975 and 2005 the share of private sector workers covered by defined benefit plans declined from 88 percent to 33 percent.   (See Snapshot) About 43 percent of private sector workers now participate in defined contribution plans, under which some combination of employee and employer contributions is used to purchase a portfolio of financial assets to provide retirement income.  Employees must manage their retirement portfolios, and there is no guaranteed stream of income.

The picture for public sector employees is remarkably different.  While the fraction of state and local public sector employees with defined benefit plans has declined since 1975, coverage is still at 92 percent. 

There are, however, signs that public sector employers may not continue to offer defined benefit plans in the future.  A few states offer defined contribution or other types of plans as the primary retirement instrument. For example, two states, Alaska and Michigan, and the District of Columbia offer defined contribution plans as their primary plans for general public employees. Two states, Indiana and Oregon, offer primary plans with both defined benefit and defined contribution components. One state, Nebraska, offers a cash balance defined benefit plan as its primary plan. Colorado, Florida, Montana, North Dakota, Ohio, South Carolina, Vermont and Washington also offer defined contribution plans (or combined plans) as optional alternative to their primary plans.

Moreover, there are signs of stress in existing defined benefit plans. Currently, most state and local government pension plans have enough invested resources to pay out the required benefits for the next several decades. However, many state and local governments have recently scaled back their contribution amounts, raising concerns about their funded ratios (invested assets to future liabilities) and whether they are shifting costs to future generations.

The structure of the public sector retirement system raises important policy questions.  Proponents of defined contribution plans suggest that they reduce direct costs to employers, and give employees more control of their economic future.  Proponents of defined benefit plans respond that defined benefit plans offer more retirement security, since defined contribution plans shift asset allocation decisions from professional fund managers to individual employees, resulting in poorer investment performance. Proponents also note that defined benefit plans provide a pool of “patient money” to long-term investment opportunities such as venture capital, leading to job creation and the promotion of new industries and technologies. Defined benefit plans may also be a powerful lure for recruiting and retaining talented employees, particularly for public sector employers seeking to compete against the private sector for hiring.

These issues will be examined at the Joint Economic Committee hearing this week on public pensions and the need to strengthen retirement security and economic growth. Senator Robert Casey (D-PA) will preside.