The Congressional Budget Office has just issued a report on the minimum wage that is a real head-scratcher. Analyzing proposals to raise the minimum wage to $9.00 or $10.10 per hour, it concludes in the latter case that there would be 500,000 fewer jobs in the second half of 2016 than there would be under current law (100,000 fewer for $9.00/hr.).
Predictably, conservatives have seized on this number as proof that the minimum wage is a "job killer." Even liberal media, such as Talking Points Memo in this paragraph's link, seem to think that number is a big problem, going on to say, "It's not all bad, though, for one of the centerpieces of Democrats' middle-class agenda ahead of the November congressional elections," as if the CBO report were mostly bad news for Democrats.
There are two problems with these claims. First, the CBO's calculations undervalue the best research on the minimum wage. Second, even in the CBO's estimated world, low wage workers are much better off as a whole than under the current $7.25/hr. minimum wage.
As I've discussed before, a relatively crude cross-national comparison of rich countries' minimum wages and unemployment rates does nothing to suggest any job-killing is going on. But the CBO's estimation procedure has serious flaws. It begins (p. 6) with what it calls "conventional economic analysis," which is already a big mistake. Simple Econ 101 reasoning (when the price of something goes up, the quantity purchased goes down) has had only sketchy empirical support, something that has been especially clear from meta-analysis of minimum wage studies (ungated version of Doucouliagos and Stanley 2009 here).
The CBO, of course, has heard of these studies, but it remains with a non-transparent explanation of how it weighted different studies (p. 22), saying it gave the most weight to contiguous state comparison studies. The only thing is, according to Arindajit Dube, these are the studies least likely to find a negative employment effect. Thus, how CBO ends up with a baseline of job loss remains mystifying.
Okay, so 500,000 fewer jobs isn't entirely plausible then, but what if we accept for the moment that it is? As Jared Bernstein and Dean Baker point out, there are still far more winners (16.5 million direct, another 8 million indirect--the latter being workers just above $10.10 who would probably see raises) than losers (0.5 million among low-wage workers; the rest are people with high incomes) in this scenario. And as Baker emphasizes, "...we are not going to see 500,000 designated losers who are permanently unemployed as a result of this policy." Instead, what will happen is people will work 2% fewer hours at an hourly rate that is 39.3% higher.
The math is simple: 0.98 X 1.393 = 1.365. In other words, low-wage workers will see their income increase, on average 36.5%. And this is the worst-case scenario!
I've said it before, and I'll say it again: the minimum wage is a winner both economically and politically.
Cross-posted at Angry Bear.
Wednesday, February 19, 2014
Wednesday, February 12, 2014
Show Me the (Subsidy) Spreadsheets!
Good Jobs First's new report, Show Us the Subsidized Jobs, is its third assessment of state subsidy transparency, following up on reports published in 2007 and 2010. The good news is that transparency continues to spread: From 23 states in 2007 to 37 in 2010 to 47 plus the District of Columbia in 2014.* The bad news is that for most states, online transparency still has a long way to go.
Why is transparency important? As the reports says, without it, it
Good Jobs First toughened its scoring system this year, making the raw numbers not directly comparable with previous reports. In particular, there is more emphasis on publishing outcome data such as jobs actually created, wage levels, etc. It is also important to note that the report only counts online transparency: If a state agency will give you some information on request, that's nice but won't improve a state's score. We live in a wired world, obviously, so transparency performance should conform to that.
On its 0-100 scale, the best performing states are:
1) Illinois 65
2) Michigan 58
3) North Carolina 48
4) Wisconsin 46
5) Vermont 43
Even these have a long way to go, especially on job outcomes. But they are doing far better than the 14 states with scores below 10 (including Arkansas' corrected score of 8). For example, Georgia, at 4 points, gets demerits because two of its major programs take down the reports a mere 30 days after they are posted.
Taking down data is a pet peeve of mine. Missouri, which ties for 14th for its reporting of state programs, also has quite good data online for local tax increment financing (TIF) subsidies, because the cities are required to file annual reports with the Missouri Department of Economic Development on a project-by-project basis. This requirement was given new teeth a few years ago, so the reports are now close to complete for recent TIF projects. Moreover, they have always been required to give both projected and actual job creation data (though not wage data). The reports provide the amount of the subsidy and the amount of the investment, allowing for the calculation of what the European Union calls "aid intensity," which is the ratio of the subsidy to the investment. This is an important measure, because one obvious reform that could be made for any subsidy program is to cap its aid intensity. Why should Electrolux get a 99% free new factory in Memphis?
However, Missouri TIF reporting has long been hampered by projects that are listed in one year's report disappearing in later reports. Moreover, all the old reports have been taken down by the state, making historical research (trends in aid intensity, anyone?) next to impossible. What I personally have by way of historical TIF data I obtained by hand transcribing information from the pdf format reports onto a spreadsheet. But obviously the state keeps these files somewhere, and Department of Economic Development officials in all probability have a master spreadsheet encompassing all project reports received. The ideal for research and democratic accountability purposes is simple: Show me the spreadsheets!
* The report says 46 states, but after its publication Arkansas belatedly identified two programs with online disclosure. This leaves only Delaware, Idaho, and Kansas as the only states with no online disclosure of their subsidy programs.
Cross-posted at Angry Bear.
Why is transparency important? As the reports says, without it, it
makes it impossible for the public to get atMoreover, the cost of state (and local, much more poorly reported on) subsidies comes to some $70 billion a year, according to my estimates. Moreover, there is a tremendous opportunity cost associated with this: While of course some jobs cost more and some cost less, at $50,000 per year in salary and benefits, that is enough money to hire 1.4 million state and local workers, more than have been laid off since the start of the recession.
even the most basic return on investment,
accountability or equity questions. Which
companies received subsidies (and what
kinds of companies)? Are they delivering
on job creation? How good are the new
jobs? Where will the jobs be located?
Reasonable people cannot have an
informed debate and policymakers cannot
watch the store without good job-subsidy
data.
Good Jobs First toughened its scoring system this year, making the raw numbers not directly comparable with previous reports. In particular, there is more emphasis on publishing outcome data such as jobs actually created, wage levels, etc. It is also important to note that the report only counts online transparency: If a state agency will give you some information on request, that's nice but won't improve a state's score. We live in a wired world, obviously, so transparency performance should conform to that.
On its 0-100 scale, the best performing states are:
1) Illinois 65
2) Michigan 58
3) North Carolina 48
4) Wisconsin 46
5) Vermont 43
Even these have a long way to go, especially on job outcomes. But they are doing far better than the 14 states with scores below 10 (including Arkansas' corrected score of 8). For example, Georgia, at 4 points, gets demerits because two of its major programs take down the reports a mere 30 days after they are posted.
Taking down data is a pet peeve of mine. Missouri, which ties for 14th for its reporting of state programs, also has quite good data online for local tax increment financing (TIF) subsidies, because the cities are required to file annual reports with the Missouri Department of Economic Development on a project-by-project basis. This requirement was given new teeth a few years ago, so the reports are now close to complete for recent TIF projects. Moreover, they have always been required to give both projected and actual job creation data (though not wage data). The reports provide the amount of the subsidy and the amount of the investment, allowing for the calculation of what the European Union calls "aid intensity," which is the ratio of the subsidy to the investment. This is an important measure, because one obvious reform that could be made for any subsidy program is to cap its aid intensity. Why should Electrolux get a 99% free new factory in Memphis?
However, Missouri TIF reporting has long been hampered by projects that are listed in one year's report disappearing in later reports. Moreover, all the old reports have been taken down by the state, making historical research (trends in aid intensity, anyone?) next to impossible. What I personally have by way of historical TIF data I obtained by hand transcribing information from the pdf format reports onto a spreadsheet. But obviously the state keeps these files somewhere, and Department of Economic Development officials in all probability have a master spreadsheet encompassing all project reports received. The ideal for research and democratic accountability purposes is simple: Show me the spreadsheets!
* The report says 46 states, but after its publication Arkansas belatedly identified two programs with online disclosure. This leaves only Delaware, Idaho, and Kansas as the only states with no online disclosure of their subsidy programs.
Cross-posted at Angry Bear.
Friday, January 31, 2014
Obamacare Roundup: Great enrollments for Wellpoint; "Bette from Spokane" debunked
Via Joan McCarter, we learn that Wellpoint, which runs a number of for-profit Blue Cross/Blue Shield insurance plans, reported on an investor's conference call that it expects to add over one million new policyholders this year and that its enrollments are much better than expectations. Of 500,000 enrolled so far, fully 80% of them came to the company via the exchanges. Of that amount, 2/3 were eligible to receive subsidies for their insurance premiums.
Of course, for those of us who support single payer, giving money to private insurers is a mixed blessing. We'd be better off without them, but under our current political situation, this is the best we will be able to do for the uninsured for a while. As McCarter points out, stories like this mean that Obamacare is going to be unrepealable soon, if it isn't already.
Meanwhile, if you could stomach listening to the first Republican response to President Obama's State of the Union address Tuesday, you heard Rep. Cathy McMorris Rodger (R-WA) tell the plight of a woman she called "Bette in Spokane," who supposedly had to pay "nearly $700 per month" more for her health insurance, after her insurance company canceled her old plan.
As with many other such stories, this one has collapsed under scrutiny. As the linked article shows, Bette Grenier had had a catastrophic plan canceled, and she only compared it to the price of a Gold-level policy her insurer suggested as a replacement. Not only were cheaper policies available, she told the paper she would not go on the state exchange to look for a policy, even though this would likely have saved her even more money compared to the one her insurance company offered. She told the paper she and her husband planned to go without insurance.
As Paul Krugman (who pointed me to the Spokane link) notes, there is a reason why catastrophic plans aren't allowed: "If you’re allowed to have insurance that barely covers anything, that’s almost the same as not participating at all." Which appears to be exactly what's happening in this case.
Cross-posted at Angry Bear.
Of course, for those of us who support single payer, giving money to private insurers is a mixed blessing. We'd be better off without them, but under our current political situation, this is the best we will be able to do for the uninsured for a while. As McCarter points out, stories like this mean that Obamacare is going to be unrepealable soon, if it isn't already.
Meanwhile, if you could stomach listening to the first Republican response to President Obama's State of the Union address Tuesday, you heard Rep. Cathy McMorris Rodger (R-WA) tell the plight of a woman she called "Bette in Spokane," who supposedly had to pay "nearly $700 per month" more for her health insurance, after her insurance company canceled her old plan.
As with many other such stories, this one has collapsed under scrutiny. As the linked article shows, Bette Grenier had had a catastrophic plan canceled, and she only compared it to the price of a Gold-level policy her insurer suggested as a replacement. Not only were cheaper policies available, she told the paper she would not go on the state exchange to look for a policy, even though this would likely have saved her even more money compared to the one her insurance company offered. She told the paper she and her husband planned to go without insurance.
As Paul Krugman (who pointed me to the Spokane link) notes, there is a reason why catastrophic plans aren't allowed: "If you’re allowed to have insurance that barely covers anything, that’s almost the same as not participating at all." Which appears to be exactly what's happening in this case.
Cross-posted at Angry Bear.
Thursday, January 23, 2014
Cost of Recession and Austerity in Convenient Clock Form
You've probably heard of the U.S. Debt Clock. I'm not linking to it because its goal is to strengthen deficit hysteria, one of the techniques used to try to destroy the welfare state.
But have you seen the U.S. Lost Output Clock? This is much more informative, showing us just how high the cost of recession and slow recovery (due to austerity, especially at the state and local level) has been. The total now stands at over $5.2 trillion. (H/t @nielsandeweg and Dean Baker)
Here is the clock as of about 2:00pm EST January 22:
Lost National Income since the Financial Crisis of 2008.
Blue line = Potential GDP (if capital and labor are fully employed with adequate demand)
Red line = Actual GDP
Source: http://www.lostoutputclock.com/
As noted, this is calculated by summing the distance between actual and potential gross domestic product. It's a scary picture, especially because there doesn't seem to be much recent change in the distance between the two lines.
Something worth looking at every few months as a reality check. It is, as Paul Krugman says, time to End This Depression Now!
But have you seen the U.S. Lost Output Clock? This is much more informative, showing us just how high the cost of recession and slow recovery (due to austerity, especially at the state and local level) has been. The total now stands at over $5.2 trillion. (H/t @nielsandeweg and Dean Baker)
Here is the clock as of about 2:00pm EST January 22:
United States Lost Output Clock
$5,202,951,507,765
Lost National Income since the Financial Crisis of 2008.
Blue line = Potential GDP (if capital and labor are fully employed with adequate demand)
Red line = Actual GDP
Source: http://www.lostoutputclock.com/
As noted, this is calculated by summing the distance between actual and potential gross domestic product. It's a scary picture, especially because there doesn't seem to be much recent change in the distance between the two lines.
Something worth looking at every few months as a reality check. It is, as Paul Krugman says, time to End This Depression Now!
Wednesday, January 22, 2014
January Tax-Cast Focuses on Romney's Favorite Tax Haven
The January Taxcast, from the Tax Justice Network, is just out.Though of course it says nothing about Mitt Romney, there is a great deal of focus on Romney's favorite tax haven, the Cayman Islands.
In addition, another valuable nugget, though given in far less detail, concerns transfer pricing. The bottom line is very simple: If you want to combat transfer pricing abuse, look at what India does, and do the same thing.
For your convenience, courtesy of TJN, you can launch the Taxcast here:
In addition, another valuable nugget, though given in far less detail, concerns transfer pricing. The bottom line is very simple: If you want to combat transfer pricing abuse, look at what India does, and do the same thing.
For your convenience, courtesy of TJN, you can launch the Taxcast here:
Tuesday, January 21, 2014
France Flirts with Recession as it Incomprehensibly Embraces Austerity
Dean Baker and Paul Krugman are just two of the economists who have noted recently that French President François Hollande has lost his mind. As Krugman notes, Hollande has quite literally invoked the discredited doctrine known as Say's Law, when Hollande said “supply actually creates demand.”
In other words, Hollande has fallen victim to austerity fever, despite its lack of success in other Eurozone countries such as Ireland. Baker points us to an ABC News report that is more specific about Hollande's plans: Despite 11% unemployment, he wants to cut government spending by about 4% in 2015-2017, a total of 50 billion euros (approximately $68 billion).
Take a look at the following chart: Does this look like an economy that can adopt austerity successfully?
From 0% growth in 2012 Q1 to -0.1% growth in 2013 Q3, five of the last seven quarters have seen zero or negative growth in gross domestic product. It is already a prime candidate for another recession. But Hollande seems determined to go over the austerity cliff.
Are these the policies that Hollande and his Socialist Party campaigned on in 2012? Do I really have to tell you?
In other words, Hollande has fallen victim to austerity fever, despite its lack of success in other Eurozone countries such as Ireland. Baker points us to an ABC News report that is more specific about Hollande's plans: Despite 11% unemployment, he wants to cut government spending by about 4% in 2015-2017, a total of 50 billion euros (approximately $68 billion).
Take a look at the following chart: Does this look like an economy that can adopt austerity successfully?
From 0% growth in 2012 Q1 to -0.1% growth in 2013 Q3, five of the last seven quarters have seen zero or negative growth in gross domestic product. It is already a prime candidate for another recession. But Hollande seems determined to go over the austerity cliff.
Are these the policies that Hollande and his Socialist Party campaigned on in 2012? Do I really have to tell you?
Saturday, January 4, 2014
Boeing Saga Ends with 51% Favoring Revised Contract
As I argued last month, the Puget Sound area of Washington state was easily the best place, from a strictly economic point of view, for Boeing to build its new 777x jetliner. This was confirmed when, despite the rejection of its union contract offer by a 2:1 margin and opening an auction for a new facility, Boeing came back to the union with a second contract offer (h/t New York Times). Yesterday, by a 51-49 margin, workers voted to accept the contract.
The new contract ends the company's pension plan in favor of a 401(k), although it does not "affect the pensions already accrued." This was unchanged from the previous offer. However, the company did make concessions on the time to raise to the top of a pay grade (6 years instead of the originally proposed 16) and by adding a second bonus payment, of $5,000, in 2020.
The closeness of the vote shows how difficult a decision this was. In addition, there was a rift between the international office of the Machinists' union, which all but openly supported the contract, and the local union, which quite openly opposed it. Though the workers had a good bargaining position, it's hard to negotiate with a gun to your head, and the company had also shown its willingness to do something stupid (from an economic point of view) when it put a production line for 787 in South Carolina rather than Washington.
So, yet another company ends a true pension plan, contributing to the coming retirement crisis. Washington state gets to set another record for the largest incentive package in U.S. history, although it is surely a violation of World Trade Organization subsidy rules, as was Boeing's 2003 package. And we see yet again the need to ban job piracy, which strengthens the kind of job blackmail we have seen in this case, like so many others.
Cross-posted at Angry Bear.
The new contract ends the company's pension plan in favor of a 401(k), although it does not "affect the pensions already accrued." This was unchanged from the previous offer. However, the company did make concessions on the time to raise to the top of a pay grade (6 years instead of the originally proposed 16) and by adding a second bonus payment, of $5,000, in 2020.
The closeness of the vote shows how difficult a decision this was. In addition, there was a rift between the international office of the Machinists' union, which all but openly supported the contract, and the local union, which quite openly opposed it. Though the workers had a good bargaining position, it's hard to negotiate with a gun to your head, and the company had also shown its willingness to do something stupid (from an economic point of view) when it put a production line for 787 in South Carolina rather than Washington.
So, yet another company ends a true pension plan, contributing to the coming retirement crisis. Washington state gets to set another record for the largest incentive package in U.S. history, although it is surely a violation of World Trade Organization subsidy rules, as was Boeing's 2003 package. And we see yet again the need to ban job piracy, which strengthens the kind of job blackmail we have seen in this case, like so many others.
Cross-posted at Angry Bear.
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