May 22, 2018

Shedding Light on Our Economic and Financial Lives

Jeff Larrimore, Alex Durante, Kimberly Kreiss, Ellen Merry, Christina Park, and Claudia Sahm

One way to find out how someone is doing is to simply ask them. If you then want to understand the full range of experience, you have to ask many people, all across the country and from various walks of life. Each year the Federal Reserve does just that with the Survey of Household Economics and Decisionmaking ("SHED"). In November and December of 2017, we interviewed over 12,000 individuals, representative of all adults in the United States, about their economic and financial lives. Here we discuss the responses on three important economic issues: the role of economic conditions in the opioid epidemic, jobs with irregular schedules as a potential barrier to full employment, and how low rates of geographic mobility may relate to family support networks. See our full report, for many more findings on income, work, emergency expenses, higher education, student loans, and retirement savings.

Local Economic Conditions and the Opioid Epidemic

The sharp rise in opioid addiction and overdoses is a subject of national concern, so the 2017 SHED added a question on opioids to explore links to economic well-being.1 One hypothesis, advanced by academics Anne Case and Angus Deaton, is that a long-standing decline in economic opportunities was an important driver of the current opioid epidemic (2017).2 They refer to these as "deaths of despair." Yet, the existing evidence on the role of economic conditions is mixed. For example, Christopher Ruhm (2018) has argued against this hypothesis, using geographic variation in economic outcomes, such as employment and house prices, and opioid-related deaths.3 Similarly, Janet Currie, Jonas Jin, and Molly Schnell (2018) find no clear causal relationship between local employment rates and opioid prescription rates.4 This year's survey attempts to shed light on the debate by linking individual-level exposure to opioid addiction with subjective assessments of local and national economic conditions. There are large differences in exposure to the opioid epidemic by race and ethnicity and smaller differences by economic conditions.

To measure exposure to the opioid epidemic in our survey, individuals report if they "personally know someone who has been addicted to opioids or prescription painkillers."5 This question does not ask specifically about illicit drug use or about an individual's own use of opioids, since individuals might be hesitant to report such behaviors in a survey. By this measure, about one-fifth of adults have been personally exposed to the opioid epidemic. White adults, regardless of education level, are about twice as likely to be personally exposed to opioid addiction as black or Hispanic adults (figure 1).6

Figure 1: Whites more likely than blacks or Hispanics to personally know someone addicted to opioids

To investigate the "deaths of despair" hypothesis, figure 2 compares individuals' assessments of local and national economic conditions by their exposure to the opioid epidemic. Adults who have been personally exposed to the opioid epidemic have somewhat less favorable assessments of economic conditions than those who have not been exposed. Among whites, the gap in perceptions of economic conditions by opioid exposure is larger. However, local unemployment rates are similar in the neighborhoods where those exposed to opioids live and where those not exposed live.7 Subjective assessments of economic conditions do show more support for the "deaths of despair" hypothesis than objective outcomes, like local unemployment. Even so, more than half of adults exposed to opioid addiction say that their local economy is good or excellent. Altogether, this analysis suggests that we need to look beyond economic conditions to understand the roots of the current opioid epidemic.

Figure 2: Self-assessment of economic conditions somewhat less favorable among those personally exposed to opioid epidemic

Irregular Work Schedules and Preferences for Stable Pay

Irregular work schedules, with varying hours from week to week, give employers the ability to match their workforce to shifts in customer demand and other changes in business conditions. Yet work schedules set by employers on short notice may cause financial strain, particularly for low-income workers. In the U.S. Financial Diaries, an ethnographic study of over 200 low- and moderate-income families by Jonathan Morduch and Rachel Schneider, monthly swings in income, even by modest amounts, and unpredictable work hours frequently led to an inability to pay expenses.8 In addition, unpredictable hours may make it difficult for part-time workers to take on additional jobs and increase their family income.

In the survey, more than one-third of non-retirees working part time for economic reasons in 2017 have an irregular work schedule set by their employer (figure 3). One-quarter of non-retired individuals working part time for non-economic reasons, and 12 percent of full-time workers, have such a schedule. This means that many of the part-time workers who would potentially work more hours (and thus are not currently at their full employment) also face the challenge of unpredictable hours. As another sign of differences in employees' status, 3 in 10 of those working part time for economic reasons received a raise in the past year versus more than half of full-time workers who received a raise.

Figure 3: Workers part-time for economic reasons more likely to have irregular schedules and less likely to get a raise

Some individuals may be more willing to take on unpredictable hours than others. For example, those with a cushion of savings, fewer fixed expenses, or a greater flexibility, in general, may be willing to exchange stable hours for higher pay or other job characteristics. A hypothetical job choice in the survey suggests that those who actually work irregular hours set by their employers are somewhat more tolerant of varying income than those who actually work regular hours (figure 4). Even with this relationship between actual and hypothetical job choices, it is striking how few individuals would choose the higher pay, varying income job. Only when the varying job pays a lot more, do a majority of non-retirees choose it over the stable-income job. In an experimental setting, Alexandre Mas and Amanda Pallais (2016) found that workers were willing to give up one-fifth of their weekly wages to avoid a work schedule set by their employer with a week's advance notice.9

Figure 4: Majority would choose varying job over stable job only when it would pay a lot more

Geographic Mobility, Neighborhood Characteristics, and Family Support

Over the past several decades, the rate at which Americans move—both short distances within states and longer distances across the country—has steadily fallen. This reduction in geographic mobility also fits within a pattern of less job switching, more generally, or reduced labor market fluidity, as documented by Molloy and coauthors (2016).10 While the reasons for reduced geographic mobility remain an open question among researchers, evidence is mounting on the importance of local communities on individuals' economic outcomes. As one recent example, Chetty and coauthors (2014) have shown that upward income mobility from one generation to the next varies widely across the country and even within a single metro area.11 This year's survey can also be used to study geographic mobility and to pair it with subjective assessments.

In order to gain insight into geographic mobility, respondents are asked to provide their location when they started high school, which can then be mapped against their current place of residence.12 The distance in miles between the ZIP code where individuals currently live and the ZIP code where they were living in high school is calculated for each survey respondent.13 As figure 5 shows, almost 3 in 10 adults (ages 22 and older) still live in the same ZIP code as where they started high school, and nearly half live within 10 miles. Those who have moved farther away from home are split fairly evenly between distances of 11 to 75 miles, 76 to 500 miles, and more than 500 miles.

Figure 5: Almost half of adults live within 10 miles of where they lived in high school

A major predictor of whether individuals move away from their hometown is their level of education. Three-fifths of adults with a bachelor's degree live more than 10 miles away from where they grew up, versus two-fifths of those who have a high school degree or less. Those who move also have greater levels of income, which is consistent both with their higher education levels and with moving to seek out better economic opportunities.

An additional reason to move away from home would be to live in a community that better fits an individual's preferences and needs than the community that his or her parents had chosen for themselves. While the majority of adults are satisfied with the overall quality of their current neighborhood, those who have moved away from where they grew up are more satisfied with their neighborhood and their housing than those who stayed close to home (figure 6).

Figure 6: Those who have moved more than 10 miles away from home are more satisfied with their neighborhood

According to a study by the Pew Research Center (2008), family ties are one of the main reasons that people are reluctant to move away from their hometown.14 Likewise, this year's survey shows a similar pattern. Among young adults, in particular, these family ties often come with important financial support. Forty-one percent of young adults (ages 22 to 29) living within 10 miles of where they went to high school either receive financial support from outside their home or are living with others without paying rent (figure 7). Young adults who have moved further away are less likely to receive such support. Financial support from others also declines with age, particularly for those living close to home. These data highlight how family ties and financial support are linked with mobility decisions as individuals enter adulthood.

Figure 7: Young adults who stay close to home much more likely to receive financial support from family and friends than those who move further away