Which came first?

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The economy is weak. Unemployment numbers are staggering.Business is bad. Pessimism has replaced optimism. And this is alltwo years after the Great Recession supposedly ended. Like everyother industry, the economy is taking its toll on the brokerbusiness.

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Take this for example: Employee Benefit Research Institutestatistics show that the recession had significantly affectedhealth coverage of workers in various job categories. “During arecession, some employers will drop coverage, some will increasethe worker share of the premium, and some may change eligibilityrequirements,” the EBRI report says. “Structural changes in theeconomy during a recession, such as the substitution of part-timeworkers for full-time workers, reduce the number of workerseligible for health benefits.

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This reflects the fact that while unemployment is rising, anincreasing share of workers may decline coverage for a number ofreasons.” “Employee benefits are not immune from fluctuations inthe economy. When employers are tightening belts, brokers andcarriers feel the pinch,” says Alan Katz, principal of the AlanKatz Group and past president of the National Association of HealthUnderwriters.

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To CAP OR NOT TO CAP
Tightening budgets issuch an issue that lawmakers are in heavy debate about whether ornot to cap the nation's spending level. U.S. Sens. Bob Corker,R-Tenn., and Claire McCaskill, D-Mo., have introduced theCommitment to American Prosperity Act, which would phase in hardcaps on government spending over a 10-year period and imposesequestration, or an automatic spending cut, if the caps werebreached. But not everyone is keen on the cap.

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In two studies, Economic Policy Institute experts say theCAP act could severely harm both the social safety net whichmillions of Americans rely on, and the economy, especially duringdownturns like the Great Recession. “Spending caps are much betterrhetorically than they would be in practice,” says Rebecca Thiess,policy analyst at EPI. “Rhetorically they sound very reasonable andresponsible; [but] in practice they would decimate what governmentcan spend on really important programs.” One such program is SocialSecurity. 

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In one EPI study about unbalanced budgeting, the institute foundthat the CAP act could severely harm Social Security, finding thatacross-the-board cuts would reduce Social Security outlays by 13.6percent by 2021. If cuts were triggered by sequestration, outlayscould fall 16.4 percent by 2021.

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In both scenarios, these cuts could lead to major benefit cuts,as well as job losses in the hundreds of thousands. Additionally, the EPIreports, national health care expenditures are considerably highertoday than over 1970–2008, and health care costs are expected tokeep growing faster than the economy.

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Along with rising economy-wide health care costs will comerising costs for Medicare, Medicaid, the Childrens' HealthInsurance Program, and the health care exchange subsidies to beestablished in 2014 under the Affordable Care Act. TheCongressional Budget Office projects that federal spending onhealth care will rise from 5.6 percent today to 7.7 percent by 2022(when the cap proposed in the CAP Act would be fully phased in),and rise further to almost 11 percent by 2035. And the debt limituncertainty is taking its toll on employers too, not justlawmakers.

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President Barack Obama says the uncertainty over whetherlawmakers will raise the nation's debt limit is keeping businessesfrom hiring. The economy generated only 18,000 net jobs in June,the fewest in nine months, shattering assumptions the economy willrebound in the second half of the year.

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And the unemployment rate rose to 9.2 percent, the highest rate of theyear. In general, unemployment has topped 8 percent for 29 months,the longest streak since the 1930s. And the numbers aren't puttinganyone at ease.

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BYE, BYE, OPTIMISM
After the economicreport was released July 8, stocks plunged. The Dow Jonesindustrial average fell 132 points in the first hour of trading.Broader indexes also declined. The numbers speak for themselves:Businesses added just 57,000 jobs in June—the fewest in more than ayear.

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Governments cut 39,000 jobs. Over the past eight months,federal, state and local governments have cut a combined 238,000positions. Companies have pulled back on hiring after adding anaverage of 215,000 jobs per month from February through April. Theeconomy typically needs to add 125,000 jobs per month just to keepup with population growth.

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And at least twice that many jobs are needed to bring down theunemployment rate. Not surprisingly, Republicans and GOPpresidential hopefuls are using the dismal report to slam Obama'seconomic agenda. But perhaps more surprisingly is the fact thatyoung people—the very ones who voted for “change” under Obama inrecord numbers in 2008—are also questioning their hero's economicpolicy and their own future's fortune.

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Generation Opportunity, a nonpartisan, nonprofit youth-outreachgroup, compiled polling data showing decayed economic confidenceamong the so-called millennials (ages 18-29): More than half saythat the United States is seriously on the wrong track, and asimilar number say they are not optimistic about the nation'seconomic future. More than half also assert that they're notconfident that the country will be the global economic leader in 10years.

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More than three-quarters say that, given the current state ofthe economy, they have delayed or will delay buying a home, payingdown student debt, obtaining more education, saving for retirement,changing jobs or cities, getting married, or making some othermajor life decision. People need real solutions, not more rhetoric,says Generation Opportunity President Paul Conway.

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“As they continue to look for work and new opportunities to useall their talents — they expect those who they elected to do theirjobs and fully address the debt, decrease federal spending andregulation and create an economic environment where individualshave the freedom to pursue their dreams,” Conway says.

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JOB GROWTH? WHAT JOB GROWTH?
According toresearch from McKinsey & Co., it will take the UnitedStates until 2016 to replace the 7 million jobs that were lostduring the 2008-09 recession. And to gain full employment—findingwork for the unemployed and accommodating the 15 million Americansexpected to enter the labor force this decade—the U.S. economy mustcreate 21 million jobs by 2020.

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A return to full employment will occur in only the “mostoptimistic job growth scenario,” according to the McKinsey GlobalInstitute's report, “An economy that works: Job creation andAmerica's future.” “Progress on four dimensions will be essentialfor reviving the U.S. job creation machine,” report authorssay.

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Those dimensions are: developing the U.S. workforces' skill tobetter match what employers are looking for; expanding U.S.workers' share of global economic growth by attracting foreigninvestment and spurring exports; reviving the nation's spark bysupporting emerging industries, ensuring more of them scale up inthe United States, and reviving new business start-ups; andspeeding up regulatory decision-making that blocks businessexpansion and new investment.

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McKinsey analyzed the causes of slow job creation in the periodbefore the recession and during the recovery and the implicationsof these forces for future job growth. They surveyed 2,000 businessleaders as well as more than 100 business executives, public-sectorleaders, educators and other experts on U.S. labor markets. TheU.S. workforce will continue to grow until 2020, McKinsey finds,but under current trends, many workers will not have the rightskills or education for available jobs.

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Their analysis suggests a shortage of up to 1.5 million workerswith bachelor's degrees (or higher) in 2020. At the same time,nearly 6 million Americans that don't have a high school diplomawill likely be without a job. Technology is changing the nature ofwork: Jobs are being disaggregated into tasks, work is becomingvirtual and firms are relying on temporary and contract labor.“These trends offer new opportunities for creating jobs in theUnited States, a trend that some companies do not fullyappreciate,” the McKinsey report says.

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Some 58 percent of employers say they will hire more temporaryand part-time workers. Additionally, six sectors—health care,business services, leisure and hospitality, retail, constructionand manufacturing—will be most important for job growth potential.Today, they account for 66 percent of employment, but are projectedto account for 85 percent of new jobs created through the end ofthe decade.

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SO WHAT'S TO WORRYABOUT?
“Business succession planning or agency saleswill likely also be affected by this murky environment,” says BrianRobertson, executive vice president of Fringe Benefit Group. “Howwill agents get the most for their business when they are ready tosell? Or how do they bring their next generation into an everchanging benefits world?” And with less people employed, that meansless business for brokers.

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But there's always some good news to fall back on. “When theeconomy expands so do the number of employers adding benefits,”Katz says. “Since the worst of recession is most likely behind us,producers should see their business recover, too.”

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