Tag Archives: jobs

Technology, Oil, and Government

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Falling oil prices are a good thing. Except when they’re not. Or….

The irony in the falling prices is that the success of US producers using hydraulic fracturing and horizontal drilling technologies is partly responsible, along with slowing demand by struggling Asian and European markets. Now that success could come back to bite the so-called fracking industry and other drillers in America.

[Wyoming Governor Matt, R] Mead acknowledged that in the short term, lower gas prices will benefit businesses and residents in his sparsely populated state, where distances between towns are often calculated in hours instead of minutes.

But, he pointed out, “If we see low prices continue for some time, we’ll see rigs start to lay down. And it’s not just the direct revenue. It’s the hotels, restaurants and all that goes with that.”

Not to mention jobs.

This is normal in a free market economy, though. New technologies, or old technologies like fracking whose time has come, are always disruptive. Recall the stereotypical, but no less accurate for that, impact on horse-drawn buggy and whip manufacturers with the advent of the horseless carriage and then the assembly line for making those automobiles cheap.

So it is with fracking. Not only does it make hard-to-get oil and natural gas (much) easier and (much) cheaper to get, it drastically increases the supply of these commodities, each of which individually drastically lowers the price of these, and together they synergistically do.

But when supply overshoots demand, and the price obtainable for oil and gas cannot cover even the lowered cost of extraction, many of the suppliers, extractors, stop producing, stop extracting. This has negative effects on both fracking jobs and the ancillary jobs Mead mentioned.

However, in a free market, supply and demand quickly match each other, and prices—and jobs—stabilize. With the technological advances associated with this commodity, too, as with any technological advance, the new pricing equilibrium will be lower than the prior equilibrium. It’s uncertain whether oil and gas pricing in particular will stabilize at their current levels, continue a little lower, or go a little higher. But it’s virtually certain we’re done with $100 oil for the foreseeable future, which is to the good of utilities, manufacturers, consumers, and anyone and anything that uses energy.

And those jobs? They’ll recover with the stability and predictability of the new normal in oil and gas extraction. The widespread use of fracking and related technologies also will lead to a net increase in employment when all is said and done, just like in those early automobile days.

The kicker here is identified by Kathleen Sgamma, Western Energy Alliance Vice President of Government and Public Affairs [emphasis added]:

There is a point at which the lower commodity price combined with the increased regulatory cost will put new wells out of business—they just won’t be drilled[.]

And [emphasis added]

whether a well is on private, state, or federal land, “because the regulatory environment is such that it makes it more expensive to develop on those federal or tribal lands.”

Government’s intrusive regulation wasn’t a factor in Henry Ford’s disruption.

Good for Amazon

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‘Way last July, amazon asked the FAA for expanded outdoor testing permits (Amazon Petition for Exemption – Docket No. FAA-2014-0474) so the company could engage in serious testing of its planned drone-based delivery system. To date, the FAA has chosen not to respond. Amazon has renewed its request and advised the agency that continued unresponsiveness will force amazon to take its development out of the country [emphasis added].

To date, much of our Prime Air research and development efforts, including flight testing operations, have been conducted inside our laboratory and indoor testing facilities in Washington State. However, we must move beyond indoor testing if we are to realize the consumer benefits of Amazon Prime Air. In the absence of timely approval by the FAA to conduct outdoor testing, we have begun utilizing outdoor testing facilities outside the United States. These non-US facilities enable us to quickly build and modify our Prime Air vehicles as we construct new designs and make improvements. It is our continued desire to also pursue fast-paced innovation in the United States, which would include the creation of high-quality jobs and significant investment in the local community.

Their request also has from the jump anticipated risks: they’ve identified a remote area for testing and would conduct their flights within 400 feet of the ground. Other safety precautions are built in, also. The FAA, though, has continued to be unresponsive. Indeed, its disinterest is amply demonstrated by its suggestion that amazon stop bothering them with drone testing applications and go look for an Experimental Aircraft certificate—which aside from starting a wholly unrelated lengthy permitting process from scratch, is a certificate for manned aircraft and so plainly not applicable here.

The FAA’s…disinterest…also is cynically circular. They’ve already determined (under whatever pseudo-logic, but it’s their story and they’re sticking to it) that small drone operation is per force commercial in nature. Experimental aircraft, by legal definition, cannot be operated commercially—they’re for private pilots flying themselves, and maybe a passenger, for fun and no profit. Of course, the FAA knows this; experimental aircraft certificates are FAA-issued certificates.

Amazon now is emphasizing its determination to proceed:

It is also in the public interest for Amazon to keep its small UAS R&D operations in the United States, and help America establish itself as the leader in development of UAS technology. Our continuing innovation through outdoor testing in the United States and, more generally, the competitiveness of the American small UAS industry, can no longer afford to wait.

And their stick to prod the FAA:

We are poised to significantly expand our distinguished team of engineers, scientists, and aeronautical professionals at Amazon’s next-generation R&D lab in Washington State. Amazon Prime Air currently has dozens of United States job openings for highly-skilled professionals including hardware engineers and research scientists.

And

Amazon urges the FAA to swiftly approve our Section 333 petition, submitted nearly five months ago. Without the ability to test outdoors in the Unites States soon, we will have no choice but to divert even more of our UAS research and development resources abroad.

More businesses—especially large ones, which have the heft to make such claims meaningful—should take the government to task for its desultoriness in responding to requests. This would produce a far better business environment and a far better marketplace for American citizens than does big business’ current practice of crony capitalization.

More Thoughts on Minimum Wage

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And actual data. Econbrowser pointed out a quasi-controlled study by PhD candidate Michael Wither and Professor Jeffrey Clemens that compared populations of workers in states that had minimum wage laws with higher minimum requirements than Federally passed wage requirements at the time the Federal legislation was enacted with populations of workers in states that did not. They also compared populations of workers starting out with wages higher than the new mandates with populations of workers with wages lower than the new mandates (workers with wages less than $7.50/hr and workers with wages between $7.50 and $10.00 at the time of a then-newly Federally mandated minimum wage of $7.25) over the three years following the Federal mandate.

This figure is from Econbrowser‘s summary of the study:ProbabilityOfEmployment

Dynamic estimates of the effects of minimum wage on low-skilled workers. Green x’s denote difference in probability of having a low-wage job between states with low minimum wages and those with high minimum wages. Blue dots indicate difference in probability of being employed between states with low minimum wages and those with high minimum wages, with accompanying 95% confidence intervals. Source: Clemens and Wither (2014).

In other words, a low-skilled worker in a low minimum wage state was more likely to have a job at all than was his counterpart in a high minimum wage state. Moreover, while jobs in high minimum wage states got raises as a result of the Federal minimum wage mandate, workers were less likely to be hired into those jobs.

As Clemens and Wither put it,

Over the late 2000s, the average effective minimum wage rose by 30% across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

Clemens and Wither also had this:

We also present evidence of the minimum wage’s effects on low-skilled workers’ economic mobility. We find that binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings. This curtailment of transitions into lower middle class earnings began to emerge roughly one year following initial declines in low wage employment. Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience.

But Progressive Democrats know better. Facts are for the little people—you and me.

Another Disregard for Congress

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Congress passed the Fair Labor Standards Act in 1938, and it last was amended in 2007. Among other things, the FLSA allows the Labor Department to define who, in a business, is a manager and who is not.

There are two problems with this, either of which alone is sufficient to demonstrate the need for a further amendment. One problem is that it lets government dictate to business owners—private citizens—how they will run their businesses by dictating to them who they may have on their management teams.

The other problem, the one of interest in this post, is that Labor’s definition of who can be a manager is determined by the man’s salary and not by what he does. This definition matters because managers are “exempt employees,” that is, businesses do not have to pay them overtime for working more than full-time hours (nominally, 40 hours per week or 80 hours per two-week periods; although Obamacare muddles that definition).

Sean Higgins, of The Washington Examiner, had some thoughts on that earlier. I’ll just comment on a couple of them here; RTWT.

The president and administration officials have indicated they plan to increase the $23,000 minimum amount a worker must make before his employer can opt to exempt him from federal overtime rules….

Groups such as the liberal Center for American Progress, which has close ties to the White House, have called for the threshold to be raised to $50,000.

That’s the set up.

Higgins then quoted Joshua Parkhurst, a New York labor rights lawyer:

A fast-food restaurant can slap an “assistant manager” title on someone and…that exempts them from overtime. The white-collar exemption is far and away the most litigated issue under the act.

I’ll ignore the fee-generating litigation Parkhurst alluded to; the “error” is his implication that being an assistant manager is, of necessity, a bogus status. How many managers does a fast-food restaurant (or other small business) need? Exactly one. Who’s in charge on the shifts where the manager isn’t working? Somebody? Anyone? Answer: the assistant manager. Businesses doing 24-hour operations need at least three assistant managers—one for each shift (because the day shift’s manager would benefit from the help, and so the business would), plus one (or more) to fill in when someone gets sick or goes on vacation. How many more properly is a business decision, not a government one.

Doubling the threshold, the Center for American Progress argues, would force businesses to pay workers the overtime they are due or force employers to raise salaries to meet that level. “The average worker works 11% more hours than he or she did in 1975. If we as a nation could afford overtime rights then, we can afford them now,” center policy analyst Brendan Duke wrote….

This, of course, is nonsense. Raising the threshold (not even doubling it) would not at all force businesses to pay overtime or to raise wages. Businesses also have the option of restricting their business hours. They also have the option of restricting those workers’ hours and hiring temporary, part-time help. The former could harm the business, but it’s a business decision whether the higher labor costs or the reduced business hours would be the less harmful. The latter would be good for the temporary hires, albeit their hours and income would be uncertain. It would harm the existing workers, though, by capping them, ending their upward mobility and limiting their ability to build resume material for later, better jobs. This is what most of the workers in this sort of business are doing anyway—getting work experience and looking to improve themselves.

Or, the businesses could (and this is the most likely alternative) simply cut back on the benefits provided in order to compensate for the increase in labor cost from government’s redefinition of “manager.”

And the pseudo-logic that, just because “we as a nation could afford overtime rights” 40 years ago when we worked less, we surely can afford to pay increased costs today is breathtaking to hear from an “analyst.” Or maybe not.

Finally, here’s Parkhurst, again:

The point is, if you are shifting someone back and forth from administrative tasks to manual labor, they aren’t a manager. And slapping a title on them doesn’t change that.

This, too, is nonsense. By Parkhurst’s logic, “if you are shifting someone back and forth from administrative tasks to manual labor, they aren’t a” laborer. And calling him that doesn’t change that.

This gets to the crux of the matter. What makes a man an assistant manager is what he does, not how much he’s paid. And what he does is a matter for business to determine, not government. Or a “labor rights” litigator.

The FLSA would benefit from one more amendment, and so would the country.

The Taxpayer and Union Pensions

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Here’s the state of the Pension Benefit Guaranty Corporation, a Federal government entity set up to insure union-negotiated pension plans.

Overall, the PBGC has total assets of $90 billion and total liabilities of $152 billion.

The multiemployer subset of that, the section of the PBGC that “guarantees” union-sponsored pension plans to which groups of companies belong, has total assets of $1.8 billion and total liabilities of $44 billion.

The single employer subset, the PBGC section that “guarantees” the pensions of individual companies, has total assets of $88 billion and total liabilities of $107 billion.

The reason for this is that what are being insured are not just any old pension plans, but defined benefit pensions in particular. Recall that these are the plans that guarantee a pensioner a set amount of money every month for life, regardless of how much money the pension plan actually has in it. Somebody has to make up the difference and make the payments, or the plan goes bust, and the pensioner gets nothing. With the PBGC, that guarantor is you and I: us taxpayers.

Of course, the PBGC proclaims that it has never taken a penny of taxpayer money, and that’s true. But the PBGC has never been in worse shape, either, and it’s deteriorating rapidly. Last year, the PBGC was in the hole only $36 billion, compared to this year’s $63 billion pit.

The PBGC also proudly proclaims its mission is to

encourage the continuation and maintenance of private-sector defined benefit plans.

Fine. Congress, as part of the budget bill it will pass next winter, should cut us taxpayers out of this corporation altogether. Congress should spin off the PBGC into a wholly private sector insurance corporation with no ties to the Federal government at all. Let the new company prosper or fail entirely on the private sector merits of encouraging and insuring private-sector defined benefit plans.