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Yahoo
25-05-2025
- Business
- Yahoo
The Era of Thrash
'It almost feels like we're trying to rebuild everything from scratch,' Michael Wieder told me. The company he co-founded, Lalo, sells sleekly designed baby gear, much of it made in China. In his first weeks in office, Donald Trump increased the tariff rate on most of the company's imported goods by 20 percentage points. In April, he jacked the rate up to 145 percent. Lalo had to stop bringing in products from overseas: Paying the tariff could have bankrupted the company. Trump dropped the rate down to 30 percent this month, but Wieder anticipates falling sales and a year of disruption. Ask any corporate executive or entrepreneur about the past five months, and they will tell you a story like Wieder's. Companies are struggling with unstable tariff rates, bond-market swings, canceled federal contracts, rising import costs, and visa challenges. They're unsure about the economic outlook. They're unsure about tax rates. They're unsure about borrowing costs. Last week, Moody's downgraded American debt, meaning it has less confidence in the country's growth and capacity to manage its deficits. This is a year of chaos, so dramatic in its upheaval that it sometimes obscures how weird things have been, and for how long. Over the past half decade, businesses have contended with a pandemic, a recession, an inflationary spiral, and a trade war. They have negotiated swift changes in consumer behavior and input prices and interest rates, as well as significant shifts in policy more broadly, from Joe Biden's New Deal Lite to Donald Trump's autarkic austerity. John Lettieri, the president of the Economic Innovation Group, a Washington-based think tank, calls it 'the era of thrash.' The American economy has weathered that chaos. Despite reams of studies indicating that uncertainty dampens investment and slows growth, today corporate profits are high, the jobless rate is low, productivity has climbed, and new businesses are blossoming. But that resilience may be wearing off, and we may have reached the end of our ability to withstand the disruptions. Is this spell of uncertainty so unusual? Even after talking with a dozen business owners and experts in recent weeks, I came away unsure. A lot seemed to have happened since COVID. Then again, reciting five years of major events might feel like singing the lyrics to 'We Didn't Start the Fire' regardless of which five years you picked. As it turns out, economists have ways of measuring uncertainty, by looking at newspaper coverage, stock-market gyrations, and corporate communications. Those measures show that, sure enough, the first half of the 2020s has proved remarkably unstable and destabilizing. 'We've been through a period of elevated uncertainty,' Steven Davis, of the Stanford Institute for Economic Policy Research, told me. Right now, we are in 'a big surge, relative to what was already a higher-than-average base.' Economists also have ways of measuring the impact of such periods on businesses and the economy writ large. Uncertainty about a country's growth path reduces consumption and investment, depressing industrial production. Uncertainty about inflation reduces bank lending, cutting down on business expansion and formation. Uncertainty about tariffs weakens supply chains and limits the number of businesses joining a market. The economies of countries with stable policy environments tend to grow faster than those of unstable countries. Given that research, you'd think that the past five years would have been dull ones for entrepreneurship and growth. The opposite is true. Americans are forming roughly a million more businesses a year now than they were before the pandemic, despite higher borrowing costs. Corporate profits are fatter than they were before the pandemic. Stock prices—a measure of investor optimism about future earnings—have been volatile, but are up 96 percent over the past five years. 'My biggest takeaway from the last five years of a one-after-another series of different kinds of shocks and uncertainties is an appreciation for the astonishing resilience of the U.S. economy,' Lettieri told me, a note of awe in his voice. Business experts pointed to a few reasons that the chaos leading up to 2025 did not strangle investment or damage growth. For some firms, the coronavirus crisis provided an opportunity by disrupting stodgy markets and upending consumer behavior. Lalo, for instance, benefited from the surge in interest in ordering online, which let it compete with big-box stores that otherwise might have boxed it out. (Now chains such as Target carry the brand.) The pandemic 'played to our benefit,' Wieder told me, and the company managed to navigate the surge in inflation and borrowing costs that followed it. That was, in large part, because the broader governmental response to the pandemic proved to be such a boon for firms and individuals. The Federal Reserve pushed borrowing costs to close to zero. The Trump and Biden administrations spent roughly $4 trillion on support to families and companies, canceling student loans, sending out checks, covering payroll, supporting the parents of young children, and shoring up the coffers of state and local governments. Even as interest rates rose, the private-credit markets remained robust. 'It's easier to absorb an uncertainty shock when underlying economic conditions are strong than when they're weak,' Davis said. From 2020 to 2024, the underlying economy proved notably strong. Today's uncertainty is far more intense and widespread than many businesses anticipated. Wieder and his co-founder had braced for some turbulence when Trump reclaimed the White House. They assumed tariffs on Chinese imports would rise, increasing costs on young families—even if goods like strollers and car seats were excluded from tariffs, as they were during Trump's first term. They hoped to preempt consumer sticker shock by lowering prices in advance. 'It was a really big bet for us,' Wieder said. 'We were protecting our consumer and trying to get ahead of it.' But there was no getting ahead of what followed. The economy is more vulnerable and less resilient than it was a couple of years ago. Interest rates are higher, personal-debt levels have climbed, job growth is slowing, and inflation remains an issue. 'A lot of lending was made during a time of very easy credit,' Diane Swonk, the chief economist at the accounting firm KPMG, told me. 'Now many of those businesses and consumers are being squeezed. Loans that were once renewed easily are now being denied or subjected to far stricter standards.' The political instability of the country, whipsawing between two polarized parties, has also left businesses shaky. And now the White House is proactively destabilizing the policy environment, ignoring court orders and usurping Congress's authority over spending. When it comes to tariffs, the Trump administration is making 'arbitrary executive decisions that are in some cases probably unlawful, and perhaps even unconstitutional,' Davis noted. During the pandemic, the country had a democratic government that made reasonable choices in response to a horrific tragedy. Now it has a more and more despotic government making bad choices for no reason. The past five years didn't prepare us for this. Article originally published at The Atlantic
Atlantic
25-05-2025
- Business
- Atlantic
The Era of Thrash
'It almost feels like we're trying to rebuild everything from scratch,' Michael Wieder told me. The company he co-founded, Lalo, sells sleekly designed baby gear, much of it made in China. In his first weeks in office, Donald Trump increased the tariff rate on most of the company's imported goods by 20 percentage points. In April, he jacked the rate up to 145 percent. Lalo had to stop bringing in products from overseas: Paying the tariff could have bankrupted the company. Trump dropped the rate down to 30 percent this month, but Wieder anticipates falling sales and a year of disruption. Ask any corporate executive or entrepreneur about the past five months, and they will tell you a story like Wieder's. Companies are struggling with unstable tariff rates, bond-market swings, canceled federal contracts, rising import costs, and visa challenges. They're unsure about the economic outlook. They're unsure about tax rates. They're unsure about borrowing costs. Last week, Moody's downgraded American debt, meaning it has less confidence in the country's growth and capacity to manage its deficits. This is a year of chaos, so dramatic in its upheaval that it sometimes obscures how weird things have been, and for how long. Over the past half decade, businesses have contended with a pandemic, a recession, an inflationary spiral, and a trade war. They have negotiated swift changes in consumer behavior and input prices and interest rates, as well as significant shifts in policy more broadly, from Joe Biden's New Deal Lite to Donald Trump's autarkic austerity. John Lettieri, the president of the Economic Innovation Group, a Washington-based think tank, calls it 'the era of thrash.' The American economy has weathered that chaos. Despite reams of studies indicating that uncertainty dampens investment and slows growth, today corporate profits are high, the jobless rate is low, productivity has climbed, and new businesses are blossoming. But that resilience may be wearing off, and we may have reached the end of our ability to withstand the disruptions. Is this spell of uncertainty so unusual? Even after talking with a dozen business owners and experts in recent weeks, I came away unsure. A lot seemed to have happened since COVID. Then again, reciting five years of major events might feel like singing the lyrics to 'We Didn't Start the Fire' regardless of which five years you picked. As it turns out, economists have ways of measuring uncertainty, by looking at newspaper coverage, stock-market gyrations, and corporate communications. Those measures show that, sure enough, the first half of the 2020s has proved remarkably unstable and destabilizing. 'We've been through a period of elevated uncertainty,' Steven Davis, of the Stanford Institute for Economic Policy Research, told me. Right now, we are in 'a big surge, relative to what was already a higher-than-average base.' Economists also have ways of measuring the impact of such periods on businesses and the economy writ large. Uncertainty about a country's growth path reduces consumption and investment, depressing industrial production. Uncertainty about inflation reduces bank lending, cutting down on business expansion and formation. Uncertainty about tariffs weakens supply chains and limits the number of businesses joining a market. The economies of countries with stable policy environments tend to grow faster than those of unstable countries. Given that research, you'd think that the past five years would have been dull ones for entrepreneurship and growth. The opposite is true. Americans are forming roughly a million more businesses a year now than they were before the pandemic, despite higher borrowing costs. Corporate profits are fatter than they were before the pandemic. Stock prices—a measure of investor optimism about future earnings—have been volatile, but are up 96 percent over the past five years. 'My biggest takeaway from the last five years of a one-after-another series of different kinds of shocks and uncertainties is an appreciation for the astonishing resilience of the U.S. economy,' Lettieri told me, a note of awe in his voice. Business experts pointed to a few reasons that the chaos leading up to 2025 did not strangle investment or damage growth. For some firms, the coronavirus crisis provided an opportunity by disrupting stodgy markets and upending consumer behavior. Lalo, for instance, benefited from the surge in interest in ordering online, which let it compete with big-box stores that otherwise might have boxed it out. (Now chains such as Target carry the brand.) The pandemic 'played to our benefit,' Wieder told me, and the company managed to navigate the surge in inflation and borrowing costs that followed it. That was, in large part, because the broader governmental response to the pandemic proved to be such a boon for firms and individuals. The Federal Reserve pushed borrowing costs to close to zero. The Trump and Biden administrations spent roughly $4 trillion on support to families and companies, canceling student loans, sending out checks, covering payroll, supporting the parents of young children, and shoring up the coffers of state and local governments. Even as interest rates rose, the private-credit markets remained robust. 'It's easier to absorb an uncertainty shock when underlying economic conditions are strong than when they're weak,' Davis said. From 2020 to 2024, the underlying economy proved notably strong. Today's uncertainty is far more intense and widespread than many businesses anticipated. Wieder and his co-founder had braced for some turbulence when Trump reclaimed the White House. They assumed tariffs on Chinese imports would rise, increasing costs on young families—even if goods like strollers and car seats were excluded from tariffs, as they were during Trump's first term. They hoped to preempt consumer sticker shock by lowering prices in advance. 'It was a really big bet for us,' Wieder said. 'We were protecting our consumer and trying to get ahead of it.' But there was no getting ahead of what followed. The economy is more vulnerable and less resilient than it was a couple of years ago. Interest rates are higher, personal-debt levels have climbed, job growth is slowing, and inflation remains an issue. 'A lot of lending was made during a time of very easy credit,' Diane Swonk, the chief economist at the accounting firm KPMG, told me. 'Now many of those businesses and consumers are being squeezed. Loans that were once renewed easily are now being denied or subjected to far stricter standards.' The political instability of the country, whipsawing between two polarized parties, has also left businesses shaky. And now the White House is proactively destabilizing the policy environment, ignoring court orders and usurping Congress's authority over spending. When it comes to tariffs, the Trump administration is making 'arbitrary executive decisions that are in some cases probably unlawful, and perhaps even unconstitutional,' Davis noted. During the pandemic, the country had a democratic government that made reasonable choices in response to a horrific tragedy. Now it has a more and more despotic government making bad choices for no reason. The past five years didn't prepare us for this.
Yahoo
19-05-2025
- Business
- Yahoo
Coalition wants DeSantis to veto bill expanding scope of noncompete agreements
(Via New York State Bar Association) While several states have imposed bans on noncompete agreements, the Florida Legislature went the opposite way during its recent session and made it easier for employers to impose these agreements on workers. That's prompted a coalition of organizations and law professors to ask Gov. Ron DeSantis to veto the measure (HB 1219) — known as the CHOICE Act — when it reaches his desk. The name stands for Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth. The bill would allow an employer to restrict an employee from taking competitive employment for up to four years, through either a 'garden-leave' provision or a noncompete agreement. Any company with employees who are 'reasonably expected' to earn more than twice the annual mean wage of the county in which the business is located can subject workers to noncompete agreements. It would also apply to independent contractors and out-of-state employees. The proposal is strongly opposed by the Economic Innovation Group, which along with more than a dozen law professors sent a letter to the governor last week, calling upon him to veto it. 'The CHOICE Act would codify one of the most anti-innovative, anti-startup, and anti-worker policies to be found anywhere in the country,' said John Lettieri, president and CEO of the organization, in a written statement. 'While dozens of other states are enacting limitations on the use of noncompete agreements, this legislation would take Florida in the opposite direction – locking in talent, stifling wage growth, and undermining efforts to build a cutting-edge ecosystem in the Sunshine State.' Under the bill, if a company uses a properly drafted noncompete or garden-leave agreement, Florida courts would have to issue preliminary injunctions to stop a former employee from working for a competitor unless the employee can convince the court otherwise. Employers and employees would need to provide advance notice of up to, but no more than, four years before terminating the employment or contractor relationship. During a committee stop in the Senate, Jacksonville Democratic Sen. Tracie Davis noted that most noncompete agreements last between one and two years. She asked Northeast Florida GOP Sen. Tom Leek (the bill sponsor) why the state should bind workers for four years. Leek referenced moves made by the Federal Trade Commission last year to adopt a comprehensive ban on new noncompetes with all workers, including senior executives. A federal judge in Texas overturned the ban in August. 'Florida is poised to become one of the finance capitals of the world,' Leek said at the time. 'And if we want to attract those kinds of clean, high-paying jobs, you have to provide those businesses protection on the investment that they're making and their employees.' A noncompete lasting for four years would be the longest of any state in the country, according to the Economic Innovation Group. 'There is an abundance of economic research demonstrating that the strict enforcement of noncompete agreements sharply reduces employee wages, the quality and quantity of new patents, and jobs created by new businesses,' the coalition writes in the letter to DeSantis. 'The CHOICE Act would accelerate these economically harmful trends by enacting the following changes to state noncompete law for exactly the type of workers Florida aims to attract to grow its middle class.' While that alliance is urging the governor to veto the bill, some well-heeled supporters of DeSantis support it. Among those are Citadel, the Miami hedge fund and financial services company, according to Bloomberg. Citadel is led by Ken Griffin, a well-known GOP megadonor and financial backer to DeSantis who gave $12 million last year to Keep Florida Clean, the political committee formed to oppose the failed constitutional amendment aimed to legalize recreational cannabis for adults 21 and over. SUPPORT: YOU MAKE OUR WORK POSSIBLE
Asia Times
19-05-2025
- Business
- Asia Times
The statistical truth about American stagnation
A week ago I wrote a post arguing that globalization didn't hollow out the American middle class (as many people believe): After I wrote the post, John Lettieri of the Economic Innovation Group wrote a great thread that strongly supports my argument. He showed that the timing of America's wage stagnation — roughly, 1973 through 1994 — just didn't line up well with the era of globalization that began with NAFTA in 1994. In fact, American wages started growing again right after NAFTA was passed. Source: John Lettieri In fact, wage growth since NAFTA has been almost as strong as in the decades after World War 2! Now, I think this might be too simple of a story. Although there was a lot of noise and political hand-wringing over NAFTA, most Americans probably don't think it was competition from Mexico that hollowed out the US middle class — they think it was China. And while economists think NAFTA hurt some specific manufacturing industries in a few specific places, they generally conclude that it helped most Americans; it's the China Shock, after China's entry into the WTO in 2001, that many economists think was overall harmful to the working class. And if you add the China Shock to Lettieri's timeline, you see that by some measures — but not by others — there's a second, shorter era of wage stagnation that lines up with it pretty well. I've modified Lettieri's charts to show the China Shock: Source: John Lettieri, modified by Noah Smith You can see that median wages flatten out between 2003 and 2015, while average hourly earnings of production and nonsupervisory workers continue to rise. Obviously, the Great Recession is the biggest factor after 2007 (and many economists believe the China Shock only lasted through 2007). But there's a good argument that Chinese competition did hold American wages down for a few years in the 2000s. And in case you were wondering, here's the breakdown for men and women: Source: John Lettieri, modified by Noah Smith And Lettieri has more charts showing that the story looks the same for the working class as it does for the middle class. So I think the story is more nuanced than Lettieri makes it out to be. The surge in middle-class and working-class wages in the late 1990s might have come in spite of some small headwinds from NAFTA, and the China Shock might have exerted a drag on American wages during the 2000s. But the much bigger story that these charts tell is that the biggest wage stagnation in modern American history came before the era of globalization — roughly from 1973 through 1994. What was the cause of that epic stagnation? In macroeconomics, it's very hard to isolate cause and effect, since there are so many things going on at the same time. The decades between 1973 and 1994 featured two oil shocks, major inflation, two big changes in the global monetary regime, multiple major recessions, changes in trade deficits and imports, and plenty more. So much was going on that it's possible that the wage stagnation was just a series of negative shocks that lasted for a long time — 'just one damn thing after another', as the saying goes. But as a first pass, we can look at some of the theories of why that stagnation happened, and see if they match up with the timeline. Part of the stagnation in wages was due to rising inequality. If we look at average versus median hourly compensation (which includes benefits like health insurance and retirement matching contributions), we see that the average stagnated less than the median: Sources: EPI, Fred But you can still clearly see that from the early 1970s through the mid-1990s, the average value stagnated as well. This suggests that there was something systemic going on — it wasn't just the middle class getting hit. Part of that 'something' was a productivity stagnation. If you look at average hourly compensation versus average labor productivity (output per hour worked), you see a modest divergence, but the productivity slowdown from the early 1970s until the mid 1990s is clearly visible, and it exactly lines up with the stagnation in wages : Nobody knows exactly why productivity slowed down for two decades, but in my opinion, the leading candidate explanation is that the oil shock of 1973 inaugurated an era of energy scarcity that forced industrial economies to shift away from energy-intensive growth. Is it also possible that the same underlying shifts that made productivity slow down during those two decades also caused inequality to rise, and labor's share of income to fall from 63% to 61% over the exact same period? It seems plausible, because the timing lines up so perfectly. But I don't know of a good theory as to how a technological shift could cause all of these things at once. One common theory is that in the 1970s and 1980s, American industrial policy — including trade policy — stopped favoring manufacturing and started favoring the financial sector. This is, for example, the thesis of Judith Stein's 'Pivotal Decade: How the United States Traded Factories for Finance in the Seventies.' But if you look at the growth of the finance industry as a share of the US economy, it's a more or less unbroken rise from the end of WW2 through the turn of the century: Source: Greenwood & Scharfstein (2013) And if you look at financial profits, these actually fell as a share of the total in the 1970s before surging in the 1980s and again in the late 90s and early 00s: Source: James Kwak The timing here doesn't really line up. There's no clear measure of financialization that coincides specifically with the early 1970s through the mid-1990s. The explosion of finance profits in the 1980s might explain part of the wage stagnation, if it came via financiers putting pressure on companies to suppress wages. But that can't explain the wage stagnation in the 1970s, nor the re-acceleration in the late 90s and early 00s (when financial profits exploded but wages did well). A lot of research suggests that unions drive down economic inequality (though researchers disagree on exactly how big the effect is). Farber et al. (2021) write: US income inequality has varied inversely with union density over the past hundred years…We develop a new source of microdata on union membership dating back to 1936, survey data primarily from Gallup (N ≈ 980,000), to examine the long-run relationship between unions and inequality…Using distributional decompositions, time-series regressions, state-year regressions, as well as a new instrumental-variable strategy based on the 1935 legalization of unions and the World-War- II era War Labor Board, we find consistent evidence that unions reduce inequality, explaining a significant share of the dramatic fall in inequality between the mid-1930s and late 1940s. Here's a picture of that relationship: Source: Joe Nocera As we saw above, wage inequality — the divergence between average and median compensation — was responsible for part of the stagnation in middle-class wages, though not all of it. But the timing doesn't seem to fit here either. As you can see from that chart, unions have been in decline since the mid-1950s. The decline was a bit faster in the 1980s, which might slightly help explain wage stagnation in that decade. But overall, it's been pretty smooth. That doesn't match up with the 20-year wage stagnation that started in the early 70s and ended in the mid 90s. The chart of real wages for production and nonsupervisory workers shows a dramatic slowdown from around 1973-1994. But a chart of nominal wages for those same workers — i.e. the actual number of dollars they earned per hour — shows no such slowdown, except maybe a very gentle flattening in the 1980s: The difference, of course, is inflation. From around 1973 to 1983, prices increased at rapid rates: The smoothness of nominal wage growth raises the possibility that nominal wage growth is very sticky — that workers are able to negotiate about the same number of additional dollars from year to year, despite big changes in the purchasing power of a dollar. Again, the timing here doesn't line up with the era of wage stagnation. But I suppose it might explain the first half of it. Finally, we're back to trade and globalization. Certainly, Americans worried a lot about competition from European and Japanese companies, especially in the early 1980s. The Japanese and European auto and machine tool industries really did put American companies under intense competitive pressure starting in the 1970s. But it's very hard to see this effect in the aggregate statistics. Import penetration rose in the 1970s, but flatlined in the 1980s and early 1990s: Source: World Bank As for the trade deficit, that was zero in the 1970s and then had a brief but temporary surge in the 1980s: Recall that the current account deficit is almost exactly the same as the trade deficit. Some people I talk to seem to think that wage stagnation began as a result of the abolition of the Bretton Woods currency system in 1971-73. But that change, which ended the US dollar's role as the world's official reserve currency, caused the US dollar to depreciate, which made US exports more competitive and actually discouraged imports. The dollar then surged again in the early 80s and collapsed in the late 80s after the Plaza Accord (an agreement to weaken the dollar): Source: Bloomberg And the Japanese yen strengthened more or less steadily against the dollar during the entire period of wage stagnation. So trade with Europe and Japan just doesn't line up with the wage stagnation in terms of timing, either. If you think overall import penetration is the key measure of globalization, then maybe trade had an effect in the 1970s; if you think trade deficits are a better measure, then maybe trade had an effect in the 1990s. But then the trade deficit and imports both surged in the late 1990s, which is when the wage stagnation ended. In any case, we're left with a bit of a mystery. The only macro trend that lines up very neatly with the great wage stagnation of 1973-1994 is the productivity slowdown, but there's no good theory explaining how that could explain all of the wage stagnation, since productivity rose more than wages. Meanwhile, de-unionization, financialization, inflation, and trade with Europe and Japan can at best explain only some sub-periods of the wage stagnation — not the whole thing. In fact, the great wage stagnation might have been from a patchwork of causes — first inflation and a surge of imports in the 70s, then accelerated de-unionization and financialization and the collapse of exports in the 1980s, with the productivity stagnation playing a corrosive role the whole time. But we should always be suspicious of complex, multi-factorial explanations for trend breaks on a chart. That wage stagnation started and ended suddenly enough that it cries out for a simple story. We just don't have one yet. Update: Some people have been asking me if the wage stagnation of 1973-1994 might have been caused by the mass entry of women into the US workforce. Here's the employment rate (also called the 'employment-population ratio') for American women: You can see that the first part of the timing doesn't line up here. When the wage stagnation began, American women had already been entering the workforce at a steady clip for 25 years. (The labor force participation rate for women looks much the same). Also, empirical evidence suggests at most a small effect of female labor supply on male wages — and if you look at the breakdown for men and women, you see that the stagnation for men was worse than for women over 1973-1994. And theoretically speaking, women's mass entry into the workforce shouldn't produce an overall decline in wages. Just like immigration or a baby boom, women's entry into the workforce is both a positive labor supply shock and also a positive labor demand shock at the same time — when women earn more, they spend most of what they earn, on things that require labor to produce.1 So we shouldn't expect the addition of women to the workforce to hold down wages. Thus, this theory also doesn't line up with the timing of the stagnation, and it's not clear why we would expect it to be a major factor in the first place. This article was first published on Noah Smith's Noahpinion Substack and is republished with kind permission. Become a Noahopinion subscriber here.
Yahoo
17-04-2025
- Business
- Yahoo
Bipartisan bill would create retirement plans for those with no 401(k)
A shrinking but persistent share of America's workforce lacks access to employer-provided retirement plans, research shows. Now, a bipartisan bill introduced in Congress earlier this month looks to close that access gap. The Retirement Savings for Americans Act (RSAA), introduced by Republican Rep. Lloyd Smucker of Pennsylvania, would create a new program called the American Worker Retirement Plan. The tax-advantaged retirement savings accounts, similar to the federal government's Thrift Savings Plan, would be for workers who currently lack access to workplace retirement accounts. If enacted, the RSAA would enable the federal government to match contributions of up to 5% for low- and middle-income workers — comprising a 1% non-elective contribution and a 4% safe harbor match — with the match gradually phasing out at the median income level. READ MORE: Maximizing IRAs, 401(k)s in a fast-shifting retirement space This marks the third time that the RSAA has been introduced to Congress. Democratic Sen. John Hickenlooper of Colorado first introduced the bill in 2022, and did so again in 2023 along with Republican Sen. Thom Tillis of North Carolina. Roughly 69 million workers, 55.5% of the U.S. workforce, lacked access to employer-provided retirement plans in 2021, according to an analysis of Bureau of Labor Statistics data conducted by the Economic Innovation Group, a bipartisan public policy organization. Secure 2.0 helped expand access to 401(k)s for some part-time workers, but experts say it falls short of addressing the larger gaps in access. Financial advisors say that 401(k)s and other employer-provided accounts are powerful tools for retirement planning. However, research shows that access to such accounts is disproportionately limited in rural and low-income populations. READ MORE: Forget the 4% rule: Why fixed-rate retirement withdrawals fall short A new study from the Economic Innovation Group found that half of Americans in rural areas lack access to a retirement savings plan through their employer, compared to 41% in urban areas. After accounting for differences in things like education, income and company size, researchers found that a typical rural worker is 13% less likely to have access to an employer-provided retirement plan than an equivalent urban worker. As a result, rural workers have nearly half the average retirement savings of urban workers, data shows. Factors like income, the industry a person works in and the size of their company can go a long way toward shrinking the access gap between urban and rural workers, researchers found. Income played one of the most influential roles in determining access to an employer-provided retirement plan. Holding all other factors constant, rural workers in the highest income decile actually have greater retirement plan access than their urban counterparts. The industry in which a person works plays a similar role. The entertainment, accommodation and food services industries have the lowest rates of retirement plan access, while the finance, insurance and real estate industries have the best access. Among workers in these "best plan access" industries, the urban-rural divide shrinks from 13 percentage points down to just 2 percentage points. Still, there's no doubt that "living in a rural area is generally associated with having restricted access to retirement savings plans for many different kinds of workers," the researchers wrote. The Economic Innovation Group has lobbied for the RSAA, arguing that while the "legislation would benefit workers everywhere, our findings suggest that the access and incentives provided by RSAA would disproportionately benefit rural workers." But short of major policy changes, what can be done to improve retirement savings for workers who lack access to employer-provided plans? According to financial advisors, quite a lot. Retirement planning without access to retirement accounts like 401(k)s is far from ideal, but financial advisors say it's still possible. "Not having access to a 401(k) plan doesn't really mean you can't build a solid retirement plan," said Chuck Cavanaugh, head of financial planning for Citi U.S. Consumer Wealth Management. "It just means you have to get a little creative and proactive." READ MORE: Crafting the perfect retirement portfolio: A financial advisor's dilemma For most workers, saving for retirement without a 401(k) means opening a traditional or Roth IRA. These accounts offer many of the same benefits as 401(k)s, but advisors say they also have one major drawback: contribution limits. After a worker maxes out their annual IRA contributions, advisors point to a few other strategies they can use to help clients maximize their retirement savings. "If someone owns a small business, they can open a SEP IRA or a SIMPLE IRA," said Margaret Doviak, founder of DM Wealth Management in Norman, Oklahoma. "If they have employees, a SIMPLE will likely create less funding liability with higher deferral limits than an IRA." SIMPLE IRAs strike a middle ground in terms of retirement account contribution limits, allowing employees, sole proprietors and self-employed workers to contribute up to $16,500 a year. Annuities and whole life insurance policies can also be useful retirement savings vehicles for clients who lack access to employer-provided accounts, but their use cases are not as broadly applicable as simple investment accounts like an IRA, advisors say. "401k plans are just one of many ways to save and invest for retirement," said Nancy Listiawan, founder of Vera Wealth in Pasadena, California. "What matters most isn't the specific investment vehicle, but rather your consistent saving habits and discipline over time."
