Minimum Insight from the CBO on the Minimum Wage

The Effects of a Minimum-Wage Increase on Employment and Family Income - CBO

 

Making quite a few headlines so far this week is a report from the CBO, called, ‘Estimated Effects on Employment of an Increase in the Federal Minimum Wage‘. While most of the media is grabbing onto the largest number in the report (-500,000 workers), the red circle highlights the reality of the study. We’re talking about the ‘Likely Range’ in which employment would be impacted by a rise in the minimum wage to the ‘$10.10 option’. Let’s translate:

Likely Range: “it could be anywhere between…”

Very Slight Decrease to: “near zero to…”

It would now read, the estimated effects of minimum wage on employment could be anywhere from near zero to -1.0 million workers.

This is nothing new. Textbook economics tells us that minimum wage is a price floor that, in some way, likely contributes to structural unemployment. This is why they carefully chose the words, “Very slight decrease…” As for the -500,000 number, that’s just splitting the difference between zero and -1.0 million, how insightful do you think that estimate is?

Basically, this report already tells us what we know suspect.

19. February 2014 by Jake Lopata
Categories: Income Equality | Tags: , | Leave a comment

The Human Side of Economics?

The Institute for New Economic Thinking has a good post from Mariam Tabatadze on how researchers sometimes forget about the faces behind the numbers and theories. I have nothing to add, but it’s a post worth reading.

16. September 2013 by Jake Lopata
Categories: Class, Education | Tags: , | Leave a comment

Minimum Wage Strikes and Hikes

   A nationwide fast-food strike?  The average hourly wage across the nation for fast-food restaurants is ~$9.00/hour, $1.75/hour more than the federal minimum wage, but workers are being urged to strike for higher hourly wages (~$15.00/hour).  Sounds like the fast-food industry is pretty generous, but people aren’t happy.  One of the reasons the article alludes to, and I think is the biggest reason, is the fast-food industry has been  raking in hefty profits.  The sentiment among the workers is, “if the company is making so much money, they can afford to share those profits with their workers”.

   The rebuttal from the fast-food industry claims that if wages increased they would have to raise the price of their menu items and close stores.  It does seem logical that increasing a business’s payroll expenses could have consequences, but let’s not forget about those profits.

    Let’s look at a recent study of McDonald’s wages and the effect on the price of a Big Mac.

notice the y-axis and x-axis are in different increments.

   The important take away from this graph is that an increase in wages does not result in a 1:1 increase in the cost of goods sold, in this case Big Macs.  This reminds me of a research paper from David Card and Alan Krueger that found the very same results.

    The summary here is, I don’t see fast-food restaurants increasing wages to $15.00/hour or anywhere near it for that matter.  It’s up to the government to raise the minimum wage and there isn’t any discussion of doing so anytime soon.  But given the recent research, the doom and gloom businesses warn of doesn’t seem so apocalyptic.

21. August 2013 by Jake Lopata
Categories: Income Equality | Leave a comment

‘NY State of Health’ Reveals Health Exchange Participants

   Today, NY State of Health has released the names of the companies who will be participating in the New York State Health Exchange and it seems as though almost all the big players (at least for NY) are included on the list.  Although, one large health insurance company is refusing to participate in some states, but they don’t exactly have a good reputation so perhaps it’s not much of a loss.

   The other interesting announcement was that there is a Tax Credit and Premium Rate Estimator available from their website (it’s a download of an excel-macro spreadsheet). It’s a bit ugly, but it gets the job done.  However, for the sake of improvement, I do have two suggestions:

1. There is no explanation of what “Platinum, Gold, Silver, Bronze, or Catastrophic” plans are? What’s included or not included?

2. It would be useful to have a third step that shows the Premium Rate estimate MINUS the Premium Monthly Tax Credit to show what an individual would be paying.

   Finally, some of you may or may not know but each state has been given an option to set up a health exchange and in doing so will receive federal grant money (via the Affordable Care Act).  There are other interesting Fast Facts from the NY State of Health website that are worth looking over (it’s short), if you care to stay informed that is. I think my favorite is the last one, since it is a response to one of the biggest lies the media has been spinning about the health exchanges:

The Exchange will not affect Medicare coverage.

   The Exchange is intended to help New Yorkers who are not eligible for Medicare get health insurance coverage.

20. August 2013 by Jake Lopata
Categories: Healthcare, New York | Tags: , , , , , , | Leave a comment

Elizabeth Warren Defending the 21st Century Glass-Steagall Act

   This could turn out to be a pretty big battle in Congress, as it should be. For me, the likable thing about Elizabeth Warren is how practical she is. This Act won’t solve all of our banking system problems, but I will agree, it’s a good start. Funny how people are saying this bill is already dead in the water, but I suppose casting doubt is the first step to defeating a bill.

12. July 2013 by Jake Lopata
Categories: Banking & Finance, Politics and Policy, Regulation | Tags: , | Leave a comment

Making Sense of the Fed’s $50 Billion Profit off Student Loans

   Congress continues to let down the nation, this time, it’s youth.  Interesting too, since just yesterday a report was making news that the Federal Government was projecting to make $50 billion in profits off of student loans this year. Sounds outrageous (and I agree) but as usual it’s not as clear cut as we’d like it to be.

   For starters, it depends on how you want to do the accounting. CBO describes their method (budgetary cost) and a second method they are piloting (fair-value cost) (pg. 4-6). The later method accounts for “market risks” that the earlier method does not account for. Under the budgetary cost method, they are estimating a profit of $37 billion, while under the fair-value cost method they are estimating $6 billion dollar profit (these estimates exclude $15 billion in estimated savings).  The budgetary method was imposed by the Federal Credit Reform Act of 1990 (FCRA), but it seems the CBO is suggesting that the fair-value cost method is a more reliable measure to use.

www.cbo.gov sites default files cbofiles attachments 44318 StudentLoans.pdf

   Of course market rates are a big factor in this “huge windfall” from the student loan program.  It’s a pretty straight forward example of arbitrage, taking advantage of a price difference between two or more markets.  Interest rates have been at all time lows (currently 0.25%) since the federal reserve dropped the rates in response to the financial market collapse, but student loan rates are fixed at 3.4 or 6.8 (depending on when and what you took them out for).  Without getting into the math, you can see how borrowing at near 0.25% and lending at 3.4% or 6.8% could be profitable.  The CBO projects rising rates in the future (they can’t go much lower than 0.25%!), which is why they show decreasing profits in the out years.

    Another point, $50 billion of the $1 trillion student loans outstanding is about 5% profit, a healthy profit (nothing that crazy).  Since taxpayers fund the government, taxpayers are essentially the beneficiaries of the extra revenue which could go towards paying for other programs.  However I will admit, the government shouldn’t be turning a profit at the expense of people who are trying to better themselves by borrowing to get an education.  Just another angle to think about.

   Anyhow, who’s ready to start talking about universal education?

A nice fact sheet I found on student loans.

10. July 2013 by Jake Lopata
Categories: Education | Tags: , , | Leave a comment

Landlines and Leading Indicators

telephone penetration

Update: Graph label should read “Beginning of the housing market *bubble*”.

    I came across Data.gov which is a free and open data source for government data and, apparently, has been around since 2009.  So I saw there was some Federal Communications Commission (FCC) data available, which is interesting to see how well telecommunication infrastructure is developing in our country.  I guess I was a bit surprised to see telephone penetration (a widely used measure of telephone subscribership which is the percentage of households with telephone service) holding strong at 95% (I imagine the remaining 5% is some kind of “natural rate” occurring from the changing of residence).  It’s the 21st century and I expected to see some sort of gradual decline due to the adoption of cellphones, oh well.

   But then I noticed the dip, which I have circled, that began in 2003. I say “dip” and not recession because the most recent recession didn’t begin, officially, till December 2007.

   Is it possible that Telephone Penetration (TP) could be an economic indicator, perhaps a leading indicator to get a pulse on the health of the housing market?  It seems quite possible.  If at least 95% of households have a landline and the remaining 5% are those who are moving in and out of residence (whether it be a rental or house), then it seems reasonable  to assume if there is suddenly a drop of 3% in TP there must be some kind of shift or change occurring in the housing/rental market.  The dip beginning in 2003 could be signaling turmoil in the housing market.

    Of course no single data set can tell the whole story, but many parts do make a whole.  Anyhow, just an interesting observation I felt was worth sharing.

09. July 2013 by Jake Lopata
Categories: Graphs, Wonky | Tags: , , | Leave a comment

North Carolina, You’re Doing It Wrong

NC DIW

   Ok, I saw Jodi Begg’s post on how North Carolina may follow in Virginia’s footsteps by creating a hybrid vehicle tax last week and I laughed a bit, it’s no more than a money grab. Perhaps some legislatures should be smacked upside the head with an economics book because students who have taken principles of economics know this policy doesn’t make much sense. Besides, I thought most republicans didn’t like taxes (NC is strongly republican).

“Tax Bads, Not Goods”, as the saying goes…

   But this week something even more egregious has happened in NC; a decrease in unemployment benefits.  The CBPP has a nice break down of what this means for NC by the numbers but many reports from liberal media outlets are calling this an attack on the unemployed and their families. Conservative types are probably happy that someone is finally doing something about all those lazy freeloaders taking advantage of our tax dollars.

   However, to me it seems that NC is going all-in on the theory that unemployment benefits keep people from obtaining employment and therefore keeps the unemployment rate high. By greatly shortening the length of time a person can collect unemployment benefits, it will force them back into the labor force and eventually employment. The end result will be low unemployment and a booming economy.

    Will it work? Probably about as well as the Hindenburg.  Even if you believe people are lazy and would rather take a hand out than be employed, there would have to be enough employment opportunities in the state to absorb the 850k+ unemployed in NC, not to mention jobs that happen to match the skills of the labor force (Perfect Labor-Market Matching?).  But do you think everyone on unemployment will be able to wake up tomorrow and just go get a job?  There will be unemployed people who are simply unable to find work because they don’t have the proper skills and/or there simply just aren’t enough job vacancies.  When the benefits stop flowing what happens to these people?  The first thing that comes to mind is the delicate housing recovery currently taking place, what happens to these people when they can no longer pay their mortgage or rent?  It could lead to an increase in mortgage delinquencies and foreclosures, which would be bad news for the local municipalities that rely on property tax revenue and the banks.  It could lead to higher rates of poverty.

    NC isn’t going to be the first 3rd world state in the union, but it doesn’t seem like they have given this much thought before passing it…

01. July 2013 by Jake Lopata
Categories: Employment, Politics and Policy | Tags: , , , | Leave a comment

Ever Ask Yourself, “Why Did I Go To College?”

   Are you or someone you know working a job that you probably didn’t need to go to college for? A recent report from the Center for Labor Market Studies at Northeastern University shows, that since 2007, 1/3 of recent college graduates under the age of 25 are “mal-employed”.  Mal-employed is being used to describe recent college graduates who are taking jobs that do not require a college degree.

    I also found this from the Bureau of Labor Statistics (BLS):

“…college-educated workers may not be able to find a job that uses the education they possess, sometimes referred to as “mal-employment,” which can be more likely during recessions. Even if workers have the right level of degree, they may also experience mismatches between the field of their degree and the fields of degrees required in the jobs available. In other cases, workers simply choose occupations below their education level because they prefer them or they may be working in them while pursuing other options.”

   So this is definitely bummer news for recent graduates, but something else interesting to me is the trend.  You might be quick to assume this is because of the recession but what if this trend has been going on for awhile?  The BLS mentions “mismatches between the field of their degree and the fields of degrees required in the jobs available” a.k.a. labor mismatch. In other words, students are graduating from college with degrees there isn’t much demand for.  This would lead to a rising trend in “mal-employment”.  I have talked about labor mismatch before and I still believe students should be made aware of the degrees currently, and foreseeably into the future, being demanded by the labor markets.

 

26. June 2013 by Jake Lopata
Categories: Class, Education, Employment | Tags: , , , , | Leave a comment

Bubbles and Dragons

   Very wonky TED video, but to anyone in business/finance/economics, etc… you may find Didier Sornette‘s speech on predicting bubbles interesting. Some might say it’s a fools errand…

21. June 2013 by Jake Lopata
Categories: Banking & Finance, Markets, U.S. Economy, Wonky | Tags: , , , | Leave a comment

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