Yes, $11 million per job is possible, and a record

I posted on August 29 that it appeared that Sempra Energy had received $55 million in federal tax credits and Nevada incentives for a solar generation facility in Boulder City, Nevada, to just create five jobs. I wondered if this were even possible.

In the course of working to update a table of the largest incentives in the U.S. for an academic article, my research assistant found a website of Department of Energy loan and loan guarantee programs that shows how many jobs each recipient was expected to create. It turns out that solar generator Fotowatio Renewable Ventures, Inc., which received a $45.6 million loan guarantee, will create just four jobs. Granite Reliable's wind generation facility, which received a $135.8 million loan guarantee, will create just six jobs. Note that a loan guarantee does not have a subsidy value equal to its face value, but much less: essentially it is equivalent to what it would cost to obtain such a guarantee on the open market, but that is difficult to determine. I will not attempt this calculation here.

But these figures show that Sempra could indeed just create just five jobs for its Copper Mountain solar generation project, especially since it was adjacent to an existing facility. Thus, it appears that Sempra's subsidy package really does come to $11 million per job. To the best of my knowledge, this is the first time a project has cracked $10 million per job. Obviously, energy is the point of this subsidy, not jobs, but it is still an amazing number. Using a different measure called aid intensity, we find that the subsidy equaled 39% of the $141 million cost of the facility. That is a high intensity, but hardly off the charts. A comparison with aid intensities in the European Union would be useful, and I hope to be able to do that soon.

Update: Sempra Energy, the recipient of this subsidy, has one campaign contribution show up on the Open Secrets website for the 2008, 2010, or 2012 election cycles: $2500 to the San Diego County Republican Central Committee . Nevada Governor Sandoval was there for the ribbon cutting, since Nevada state and local governments contributed $12 million in subsidies for this project.

Historical Notes on Class Warfare

"This is not class warfare. It's math," President Obama said on Monday. There is an important element of truth to this but, as Paul Krugman points out, there has been an "actual class war that has taken place over the past 30 years — namely class warfare for the rich against the middle class." He points to four major elements to this: tax cuts for the rich; a decline in the inflation-adjusted minimum wage (which peaked in 1968 at $10.04 in 2010 dollars); union-busting; and the deregulation of financial markets.

In fact, the war on the middle class goes back even further than that, before President Reagan's crushing of the air traffic controllers' strike, even before he came into office. Douglas Fraser, President of the United Auto Workers, identified a "one-sided class war" in 1978, when he resigned from the "Labor-Management Group" that unofficially advised President Carter. I want to quote at length from this letter, because many of the issues he pointed to then are still with us today.

I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war today in this country—a war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society. The leaders of industry, commerce and finance in the United States have broken and discarded the fragile, unwritten compact previously existing during a past period of growth and progress....

 The latest breakdown in our relationship is also perhaps the most serious. The fight waged by the business community against that Labor Law Reform bill stands as the most vicious, unfair attack upon the labor movement in more than 30 years. Corporate leaders knew it was not the "power grab by Big Labor" that they portrayed it to be. Instead, it became an extremely moderate, fair piece of legislation that only corporate outlaws would have had need to fear. Labor law reform itself would not have organized a single worker. Rather, it would have begun to limit the ability of certain rogue employers to keep workers from choosing democratically to be represented by unions through employer delay and outright violation of existing labor law....

This is, of course, a good description of the state of labor relations today. At the time, one major example Fraser had in mind was J.P. Stevens, a textile maker and serial National Labor Relations Act violator. The movie "Norma Rae," for which Sallie Field won "Best Actress" in 1979, depicts the struggle against Stevens.

We are presently locked in battle with corporate interests on the Humphrey-Hawkins full employment bill. We were at odds on improvements in the minimum wage, on Social Security financing, and virtually every other piece of legislation presented to the Congress recently....Even the very foundations of America's democratic process are threatened by the new approach of the business elite. No democratic country in the world has lower rates of voter participation than the U.S., except Botswana. Moreover, our voting participation is class-skewed—about 50 percent more of the affluent vote than workers and 90 percent to 300 percent more of the rich vote than the poor, the black, the young and the Hispanic. Yet business groups regularly finance politicians, referenda and legislative battles to continue barriers to citizen participation in elections. In Ohio, for example, many corporations in the Fortune 500 furnished the money to repeal fair and democratic voter registration.

Examples of the latter today are too numerous to mention them all. But we obviously have the Koch brothers financing conservatives all over the country, with restrictions on the right to vote proposed or passed in states like South Carolina, North Carolina, Maine, Wisconsin, and others. Class war from the right is alive and well, but now it challenges science and math as well as labor and the middle class.

Wooing of Electrolux by Memphis Highlights Flaws of Economic Development Subsidies

The Commercial Appeal in Memphis has just published a great series on the subsidized relocation of Electrolux from a suburb of Montreal to Memphis. Electrolux is closing a 1,300-worker facility in L'Assomption, Quebec, and has pledged to create 1,240 jobs in Memphis, receiving a subsidy package worth at least $188.3 million for the $190 million plant there. Electrolux is getting almost $200 million to destroy 60 jobs in North America. Even if we only think about Memphis, we are looking at an "aid intensity" of 99% of the investment or $152,000 per job.

This is a bad deal on its face, even if Electrolux were not cutting 1,300 unionized jobs elsewhere. One way to see this is to understand that $152,000 per job is within the range that automobile assembly plants typically receive in incentives. It is unlikely that this oven plant has nearly the possibility of spurring co-location from suppliers that an auto plant does. Moreover, auto plants pay more, and they do not receive subsidies equal to 99% of the investment, but more like 33%. Plants is Mississippi, Alabama, Texas, and Georgia all fell in this range since 1999; only Tennessee paid more (46% of the investment, about $225,000 per job), for Volkswagen in Chattanooga. These numbers were calculated along with data I presented in my book, Investment Incentives and the Global Competition for Capital. 

It gets worse. As the paper relates, this subsidy package was negotiated in secret, and the full amount of the incentives were not disclosed to the public; even now, the newspaper has been unable to obtain all the details that likely will add to the cost.

In addition, the state agreed to a clause in the deal that prevents it from getting its money back if Electrolux fails to deliver on the 1,240 jobs or closes. More and more states are using such "clawback" provisions in incentive deals; even Tennessee has such a clause in its contract with Volkswagen. However, since that 2008 agreement, the state has not included clawbacks in deals with Hemlock Semiconductor and Wacker Chemie, according to the newspaper.

According to another story in the series, the workers in Quebec, who were represented by the International Association of Machinists union, earned the equivalent of $18.92 per hour, whereas the workers in Memphis will earn $14.65 per hour. So Electrolux was able to get rid of 60 workers, cut the wages of the jobs they kept by more than $4 per hour, get a more central distribution location, and a free factory courtesy of state and local governments in Tennessee. At a minimum.

To top it off, we have the requisite commissioned studies showing how well Memphis and Tennessee will do if the plant employs 1,240 people for 15 years. One of the reports did not even analyze the costs at all.

Let's review all the things wrong with this deal: Negotiated in secrecy, check. Bad cost-benefit analysis, check. Overpaid relative to what other states have paid for better projects, check. No money-back guarantee, check. Job piracy, check.

One booster of the deal complained that no one was writing about how great this deal could be if there were six or 17 suppliers in five years. But a worker losing his job in Quebec asked what Electrolux would do if Mexican officials offered a big incentive package along with a wage rate that is currently about $2.18 per hour.

What do you think? See the poll to the side.

Boeing in South Carolina: Huge Subsidies, and a Labor Dispute

Boeing's decision to add an assembly line for its new Dreamliner aircraft in South Carolina has touched off a firestorm of controversy. The first facility, on Boeing's home of Washington state, received the country's largest-ever package of state and local incentives, totaling $160 million a year for 20 years, a nominal value of $3.2 billion that I calculated to have a present value of just shy of $2 billion. The World Trade Organization (WTO) ruled in January that this subsidy violated the terms of the 1994 Agreement on Subsidies and Countervailing Measures, but that decision is now under appeal.

Meanwhile, South Carolina has given Boeing a package thought to be worth over $900 million  to open a new assembly line for the Dreamliner. The European Union will no doubt bring a complaint against this subsidy at the WTO and, in all likelihood, again will win.

The biggest battle over the South Carolina assembly line erupted when Boeing CEO Jim Albaugh said that the decision had been motivated by strikes at its facilities in Washington (http://motherjones.com/kevin-drum/2011/09/quote-day-boeing-vs-nlrb, h/t Matt Yglesias). This was a no-no: the National Labor Relations Act protects workers who exercise their rights to form a union or to strike from retaliation by the company. One obvious reading of Albaugh's statement is that he was admitting that the company broke the law. Therefore, it is not surprising that the National Labor Relations Board (NLRB) filed a complaint against Boeing.

Whether the NLRB will win its case is less certain. How is it “retaliation” if no workers in Washington lose their job and 5,000 more union workers there get jobs? As labor law professor Jeffrey Hirsch explains, it comes down to intent: the NLRB will use the statements of Albaugh and other Boeing officials against them, while Boeing will argue that the decision was not motivated by retaliation, but was purely an economic decision. The first hearing in the case is scheduled for later this month, and then we will see what an administrative law judge rules.

In the meantime, though, Congressional Republicans have been in an uproar, with the House passing a bill yesterday that would prohibit the NLRB from ordering the relocation of workers. While this bill is unlikely to go anywhere in the Senate, it is interesting that Boeing itself has “remained on the sidelines,” as The Hill  put it yesterday.

Whatever the outcome of the labor dispute, it's clear that we have yet another example of a gigantic subsidy for a mobile company that can well afford to make the investment on its own. Regardless of whether the subsidies violate WTO rules (and I think they do), they take money from average taxpayers to give Boeing at a time when many states, including South Carolina, face severe deficits.

ACA Works for Young Adults as Planned; Percentage of Uninsured Hispanics also Falls

On Tuesday, the Census Bureau released its annual report on income, poverty, and health insurance for the year 2010. Based on surveys at approximately 100,000 addresses conducted primarily in March 2011, the Current Population Survey Annual Social and Economic Supplement found that the number of uninsured in the U.S. rose by 919,000, from 49.0 to 49.9 million (see Table 8). (Note that this reflects a downward revision in the estimate for uninsured in 2009.) There were two bright spots in the data, however, for young adults and Hispanics.

On September 23, 2010, one of the most significant early provisions of the Affordable Care Act (ACA) went into effect, allowing young adults to stay on their parents' insurance until they turned 26 years old. The Census Bureau report shows that this provision was used by a substantial number of people. Since this provision affected 19-25 year olds, the report broke out the data separately for this age group: 393,000 fewer of them were uninsured in 2010 than in 2009, with the percentage uninsured falling from 31.4% to 29.7%; both of these changes were statistically significant. This shows that the Affordable Care Act worked precisely as planned for young adults.

In addition, the percentage of uninsured Hispanics fell by a statistically significant 0.9 percentage points, from 31.6% to 30.7%, between 2009 and 2010. While the fall in the number uninsured was small (110,000) and statistically not significant, when combined with an increase in the Hispanic population of over 1 million, the percentage change was substantial. The report does not speculate on the reason more Hispanics were insured. Indeed, despite the fact that the poverty rate increased among Hispanics by 1.3 percentage points (Table 4), the number of Hispanics insured under every category of insurance, private and public, increased between 2009 and 2010. For example, almost 900,000 more Hispanics had insurance through their employers, even as non-Hispanic whites had a drop of 1.9 million receiving insurance through their employers (Table C-2).

Despite this improvement, Hispanics were by far the ethnic group most likely to suffer being uninsured. Their rate of 30.7% uninsured compares unfavorably with blacks (20.8%), Asians (18.1%), and non-Hispanic whites (11.7%).

Given the fact that the uninsurance rate among 19-25 year olds is still almost 30%, there would seem to be a good possibility that we will see even more improvement here after this fall's annual enrollment periods, thanks to the ACA.

Employment to Population Ratio a Better Predictor of Uninsurance than Unemployment Rate

Commenter David Littleboy at The Incidental Economist, where my unemployment/jobs post was linked, makes the good point that the employment to population ratio might be a better predictor of uninsurance than the unemployment rate. Over the period covered by the Gallup surveys I reference (2008-June 2011), the data bear him out. The employment/population ratio falls over the entire period, and the uninsured rate rises the whole period. Not only that, the employment/population ratio catches the big one-month rise in uninsurance between May and June found in Gallup's polling.

That said, he doesn't disagree that adding jobs is our best short-term method for insuring more people until the ACA's individual mandate comes into effect in 2014.

I've got no problems with finding the best possible measure for things we're interested in. And it gives me an idea for a better measure of states' employment performance since the recession began...

Increase in Uninsured Rate Shows Need for Action on Jobs

“Gallup: Uninsured Have Increased Under Obama and Since Obamacare Was Enacted,” blares the headline at CNSnews and a number of other conservative sites that picked up the story (thanks to a non-blogger friend for pointing me to this). The implication is that Obama and the Affordable Care Act have failed, though the article is careful to point out that the mandate does not come into effect until 2014. Indeed, the article makes no claims to explaining why this happened.

As two Gallup surveys show, 14.8% of adults were uninsured in 2008, 16.2% in 2009, 16.4% in 2010, and 16.8% in the first half of 2011. In fact, the results in June had to have been dreadful, because Gallup's January-May polling only gave a 2011 figure of 16.6%, and June results pushed the figure to 16.8%.

Similar, but less quickly reported, numbers come from the Census Bureau. As reported by the Kaiser Family Foundation in September 2010, the uninsured rate for all Americans was 15.4% in 2008 and 16.7% in 2009. Since the percentage of children uninsured in both years was about 10%, this implies even higher uninsured rates for adults than Gallup found.

What were the causes of this increase? Using the Gallup data since it is more recent, fully 70% of the increase (1.4 of 2.0 points) came from 2008 to 2009, when the full-year unemployment rate rose from 5.8% to 9.3%, as mentioned in the Kaiser article. Yet unemployment peaked at 10.1% in October 2009 and is down to 9.1% in August 2011, so it isn't simply unemployment since the uninsured rate has continued to rise. The other main cause would appear to be reduced employer provision of health care, whether through plan suspension, unaffordability, or of course job loss. According to Gallup's data, the percentage of adults with employer-provided insurance declined from 49.2% in 2008 to 45.0% in January-May 2011.  The figure in 2010 was 45.8%, meaning that employer-based insurance fell even though there was no increase in unemployment.

Reversing this trend requires the full implementation of the Affordable Care Act, of course, but in the short run, these data underline the importance of job creation, since that is still by far the most common source of health insurance. Whether President Obama's jobs plan will pass is hard to gauge (though I think it's improbable), but without it, we are likely to see continuing increases in the number of uninsured. In addition, we should pay attention to Medicaid, which may cover fewer people due to state budget crises.