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The new national minimum wage law contains a provision for the, "Work Opportunity Tax Credit," which allows a tax credit to firms which hire low-income people and others who work a minimum duration.

• An eligible worker has to be in one of seven categories -- including welfare or food stamp recipients, "at risk" youths or ex-convicts.

• The credit for hiring an adult would be up to 35 percent of the first $6,000 in first-year wages, or the same percent on the first $3,000 for a teen-ager holding a summer job.

• Minimum time on the job for an adult is 180 days or 400 hours, and it is 20 days or 120 hours for a teen.

The new law is an updated version of the Targeted Jobs Tax Credit program which went into effect in 1978 and expired in 1994.

• An evaluation of that program by the General Accounting Office found that low-income workers who were eligible for the program but did not participate in it had similar income gains as those who took part.

• But nonparticipating workers with no prior experience had average quarterly earnings of only $298 -- compared to $830 for those who participated.

• According to some supporters, the program did help many low-income people get a first rung on the career ladder.

States are now trying similar employer-incentive programs. So far, experts say, gains have been modest. Source: Carl F. Horowitz, "Pay Businesses to Hire the Poor?" Investor's Business Daily, October 1, 1996.

More than a million households will file for bankruptcy this year despite low unemployment and a relatively strong economy. Critics say that bankruptcy reform laws in the 1970s made bankruptcy more convenient -- and that the laws should be tightened.

• The bankruptcy filing rate this year will be eight times higher than during the Great Depression -- with one household in every 100 going the bankruptcy route.

• The households will receive an average of $11,000 in forgiveness -- while the average bill-paying family will pay $100 extra in higher prices and interest to cover those losses.

• A Visa survey found that 29 percent of filers complain they are "overextended," 17 percent cite health problems, 15 percent name job problems, 12 percent say divorce is the reason -- and 6 percent say they just can't stand bill collectors.

• Non-mortgage consumer lending has jumped 44 percent in three years -- with the average household owing $12,500 in such debt.

Experts say the problem is most acute among households making $50,000 to $100,000 annually, making it one of consumer attitudes rather than dire economic straits.

Supposedly, those filing under Chapter 7 of the federal bankruptcy code have to liquidate their assets. However:

• They can keep pension plan money and $50,000 equity in their homes.

• Most keep their cars as well.

• And in 90 days they are released from other consumer debt -- and most find they are creditworthy again.

• But those filing under Chapter 13 -- which calls for repaying creditors -- must turn over their income to a trustee and live on an allowance for up to five years, prompting 70 percent of filers to choose Chapter 7.

Congress has created a National Bankruptcy Review Commission which will hold hearings next month and report recommendations for possible changes in the law by next fall.

Source: Editorial, "Too-Easy Bankruptcy Laws Give Abusers a Free Ride," USA Today, October 4, 1996.

Critics have been working overtime to discredit Ronald Reagan's record. For instance, Alan Blinder of Princeton, whom Bill Clinton appointed to the Federal Reserve Board, has written that the economy grew so rapidly between 1983 and 1990 because the nation was snapping back from a deep recession, not due to Reagan's policies.

Blinder claims that each percentage point of unemployment costs the economy 2 percentage points of real growth. Therefore, the 4.1 percentage point decline in unemployment from 9.6 percent in 1983 to 5.5 percent in 1990 accounts for 8.2 percent percentage points of total growth in real gross domestic product. Blinder then subtracted this cyclical growth to find the underlying growth rate, lowering the average annual growth rate between 1983 and 1990 from 3.5 percent to 2.4 percent -- comparable to Clinton's record.

But this argument falsely presupposes that unemployment is independent of the GDP growth rate. And if we apply the same method to the Clinton era:

• Between the 4th quarter of 1992 and the 2nd quarter of 1996, real GDP grew 2.6 percent per year.

• But over that same period the unemployment rate fell by 1.9 percentage points, from 7.3 percent to 5.4 percent.

• Therefore, using Blinder's rule of thumb, the decline in unemployment alone accounts for 3.8 percent of total GDP growth.

Subtracting it out, as Blinder did, drops the underlying average annual growth rate to a minuscule 1.5 percent per year under Clinton.

The 1990-91 recession was comparable to the 1981-82 recession, with real GDP declining by a total of 2 percent in the former and 2.8 percent in the latter. By contrast, real GDP declined by 1.6 percent during the 1960-61 recession and 3.6 percent during the 1973-75 recession.

In short, this focus on the business cycle is nothing but a smokescreen to divert attention away from Clinton's poor record on growth.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), Washington Times, October 7, 1996.

For more on tax cuts and growth, see Bruce Bartlett's study at http://www.ncpa.org/bg/bg140/bg140.html

Economists are debating one another over the role of low unemployment in triggering a higher inflation rate. Historically, economists believed that low rates of unemployment led workers to demand higher wages -- which raised the costs of production. These higher costs were then passed along to consumers in the form of higher prices for goods and services -- producing inflation.

The theory that if unemployment falls below a certain level inflation takes off is termed "Nairu": "nonaccelerating inflation rate of unemployment."

Now a good many economists are questioning the validity of this theory.

• Most proponents of he theory thought that Nairu was 6 percent.

• But unemployment has not exceeded 6 percent for the past two years, and now stands at 5.2 percent -- with little sign of inflation, except for food and energy prices.

Northwestern University economist Robert Eisner says it is true that when unemployment raises above that "natural" 6 percent rate, inflation does, indeed, fall. But often when it goes below that rate, inflation also falls. One reason may be that when business is good, firms hesitate to raise prices -- fearful of inviting new competitors into their markets.

Most economists do see signs that wages are now on the rise.

• Total labor costs rose 2.9 percent in the second quarter of this year, and 2.7 percent in the first quarter -- compared to a year earlier.

• Although third quarter data are not yet available, figures for average hourly earnings suggest that wages will rise again.

Economist James Coons, of the Huntington National Bank in Columbus, cites some other factors stabilizing costs.

• Current wage gains, he says, stem from higher productivity and better-paid jobs.

• Low and predictable inflation forces businesses to control costs.

• His research shows that in any given year between 1960 and 1994 when the economy exceeded 3 percent real gross domestic product growth, inflation averaged 3.7 percent -- and 4.6 percent the next year.

• When the economy grew slower than 3 percent, inflation averaged 6 percent -- dropping to 5.1 percent the year after.

First Chicago-NBD Bank economist Diane Swonk says that wage gains are strongest in Western states where jobless rates are much higher than in the Midwest and Plains states -- where jobless rates have been around 4.5 percent for the past 18 months.

Some economists cite factors such as global competition, waning union power, the threat of restructuring and the plunge in computer prices to explain the relative stability of wages.

Source: Anna J. Bray, "Do More Jobs Cause Inflation?" Investor's Business Daily, October 7, 1996.

A country cannot boost its output, employment and standard of living by lowering its currency's value, says economist Steve H. Hanke of Johns Hopkins University, because the fiscal and monetary policies required to weaken a currency will also depress the incentive to increase domestic output.

• A currency usually falls in value compared to other countries' money when marginal tax rates on capital and labor are increased, government spending increases and/or when monetary policy is loosened -- accelerating inflation.

• These policies reduce private investment returns, productivity, output and net capital inflows.

• The more a currency is depreciated, the slower the economy grows, concludes a study of 42 countries from 1992 to 1995 by John Tatom of the Union Bank of Switzerland.

On the other hand, a currency usually appreciates when prudent monetary and fiscal policies have improved the outlook for inflation, investment, productivity, output and net capital inflows -- leading to higher real GDP growth.

Yet governments and international agencies claim that depreciation is beneficial and a strong currency leads to economic stagnation.

• The Organization for Economic Cooperation and Development says that depreciating a currency will boost a country's competitiveness and stimulate economic growth and employment.

• It reports that European countries that have let their currencies depreciate since 1992 have witnessed higher income and employment growth.

• The International Monetary Fund argues that a rising real exchange rate can lead to stagnation, while a depreciating currency fosters growth.

This is a strange idea, says Hanke, since the IMF was established in 1944 to discourage devaluation and promote stability in the relative value (exchange rates) of different currencies.

Source: Steve H. Hanke, "Beware of Conventional Wisdom," Forbes, October 21, 1996.

Opponents of President Reagan's tax cuts were elated when they discovered a sharp drop in savings rates immediately following the tax cuts. It wasn't until the Reagan tax cuts and Federal Reserve Board Chairman Paul Volcker's tight money policies of the 1980s took full effect that savings rose to earlier highs. In fact, the Reagan era saw the longest sustained increase in savings (properly measured) of the past seven administrations.

National savings and financial wealth are two very different economic concepts.

• The government measures savings as that portion of income that people don't consume, simply income minus consumption.

• Wealth, on the other hand, is usually measured by the real increase in household net worth at current market prices.

To illustrate the difference, imagine two people.

• The first earns $100,000 in a given year and consumes the entire amount -- which, by government standards, means zero savings.

• But this person started the year with an investment portfolio worth $500,000 and, by savvy investments or pure luck, wound up with $2.5 million -- an increase of $2 million in wealth, which would not be measured as savings by the government.

• Person number two also earns $100,000, consumes $50,000, saves $50,000, then loses it through disastrous investments -- which the government would also measure as zero saved.

But when savings are measured as the total market value of household net wealth, we see that:

• After President Kennedy's tax cuts, savings were very high.

• President Johnson's 1967 tax surcharge and expensive Great Society programs wreaked havoc on the nation's savings rate.

• Nixon's doubling of the capital gains tax rate, devaluation of the dollar, 10 percent import surcharge, and wage and price controls drove the average true savings rate below zero for a number of years.

• President Ford's 5 percent tax surcharge also kept savings low. In 1978, with California's Prop. 13 and the federal capital gains tax rate reductions, savings took off sharply.

But savings fell once again, after Reagan left office and Presidents Bush and Clinton raised taxes. Tax cut proponents say that presidential candidate Dole's tax plan has the capacity to lift savings rates once again -- thus spurring capital investment, technological innovations and job creation.

Source: Arthur B. Laffer (Laffer, Canto & Associates), "Creating Wealth, Not Just 'Savings,' " Wall Street Journal, October 15, 1996.

For more information on Taxes and Growth, visit the NCPA's Tax page at http://www.ncpa.org/pi/taxes/tax2.html

The current overall unemployment rate is low by recent historical standards, but this figure may not give a true picture of the health of the economy, says former U.S. Treasury official Bruce Bartlett.

The unemployment rate is a lagging indicator of economic activity. That means that it tends not to rise until after the beginning of an economic downturn and does not fall until well after the end of a recession. For example:

• Although the last recession officially ended in March 1991, unemployment continued to rise, hitting 7.3 percent on election day in 1992.

• Conversely, the cycle of expansion that began long before Bill Clinton took office has pushed unemployment down to 5.2 percent in September.

Yet the median duration of unemployment -- the time people are unemployed before they find jobs -- has improved little in the last four years (see figure), when it is usually falling at this stage of an economic expansion. Other signs of distress in the labor markets:

• The small number of people voluntarily leaving jobs for better ones suggests that people fear they won't find new jobs or are having difficulty finding better jobs.

• The growth of private sector jobs has fallen in each of the last five months, from 346,000 in May to just 41,000 in September.

• Some 5.2 million workers have left the labor force entirely and are no longer counted as unemployed -- many of them are so-called "discouraged workers."

• Also, 7.8 million workers now hold more than one job.

Bartlett notes that if one takes the unemployment rate and adds to it those working part-time for economic reasons plus all discouraged workers, it raises the unemployment rate to 9 percent.

Source: Bruce R. Bartlett (senior fellow, National Center for Policy Analysis), "Labor Market Torpor," Washington Times, October 21, 1996.

The growth of productivity has slowed and income inequality has widened several times in modern industrial history, say two economists, and they actually are signs of progress.

Economists Jeremy Greenwood of the University of Rochester and Mehmet Yorukoglu of the University of Chicago argue that the process of adopting new technologies initially causes a decline in productivity and an increase in inequality of incomes.

They say that the spread of computer technologies is the latest example:

• Labor productivity rose steeply from the mid-1950s to 1974, when it began a modest decline.

• In 1974, investment in information technology -- such as computers and data processing --began a dramatic increase that continues to this day.

• And since 1974, there has been a steep decline in the price of information technology.

The economists say that changing to a new technology often causes productivity to decline, because of the cost of learning to use the new machines. This puts a premium on those who quickly learn the new skills, widening the gap between the incomes of the skilled and the unskilled.

For example, this happened after 1770, with the mechanization of manufacturing due to Watt's steam engine and complementary inventions. Thus, the price of spun cotton fell two-thirds by 1841, and the price of wrought iron fell 36 percent between 1801 and 1815 -- even though the general level of prices rose 50 percent between 1770 and 1815. In the United States, the per capita stock of equipment grew just 0.7 percent per year until 1815; then annual growth quadrupled to 2.8 percent between 1815 and 1860.

According to columnist George F. Will, it has been estimated that since the Second World War 60 percent of U.S. economic growth has derived from the introduction of increasingly efficient equipment, the most important of which have been computers.

Along with increased efficiency, the new information technologies reward those talented in using them, encouraging other people to invest time and money in increasing their skills. Although this increases the inequality of incomes, it benefits all of society.

Source: George F. Will, "Healthy Inequality," Newsweek, October 28, 1996.

For more information on the Economy, visit Policy Digest archives at http://www.ncpa.org/bothside/economy.html

After correcting for a statistical error, the Labor Department's Bureau of Labor Statistics now says that the rate of layoffs in the workforce in the middle of the decade remained roughly the same as in the early 1990s. However, the numbers of people who said they had lost a job increased in the middle of the decade.

The original report appeared to show that both the rate and numbers of layoffs had declined in the past few years. BLS agreed to correct the flaw after it was pointed out by Princeton University researcher Henry Farber.

• Some 8 percent of the labor force identified themselves as having involuntarily lost a job from 1993 through 1995 -- compared with 8.2 percent in the 1991 through 1993 survey.

• Those figures remain far above those reported under the Reagan administration in the mid-to-late 1980s -- when the rate of layoffs dropped as low as 5.5 percent.

• About 9.4 million people lost jobs from 1993 through 1995 -- compared with 9.2 million in the 1991 through 1993 period.

While the Clinton administration seized the original numbers to claim that the worst of the layoffs had passed, the Chairman of his Council of Economic Advisers, Joseph E. Stiglitz, responded to the less favorable new numbers by challenging their statistical validity.

Source: Richard W. Stevenson, "Revised Data Show Layoff Rate Constant in 1990s," New York Times, October 26, 1996.