Tag Archives: political economy

Helping the Low Wage Worker

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There are lots of sources for this help; I’m only going to talk about how government can help (yes, we can and should help the least among us, and yes, Conservatives, government does have a role, if limited: there are things government can do, even here, better than the private sector).  The trick here is to prevent government mission creep and an ever-increasing government role—a difficulty that in itself makes a powerful, and not entirely illegitimate, argument against any government role at all.

Who are the low-wage workers in America?  They’re our younger teenagers, just starting out; our college students looking for part-time work while trying to remain full-time students for their longer term benefit; the parent looking for part-time work to flesh out the family income, while also needing to take care of children still at home; the high school graduate, or drop-out, trapped by that level of education in a dead-end job.  In short, they’re far and away low-skilled workers, and they’re workers with jobs whose output has very little value to the employer, even if the employer needs that work done to some degree.

So how do we—how does government—help these folks?  One solution proffered lately is the Earned Income Tax Credit as a supplement to those low wages.  The EITC even is “enjoying” a push to expand its reach.  Glenn Hubbard, writing in The Wall Street Journal, is one of those pushing this idea:

The Earned Income Tax Credit, which supplements the income of low-wage workers as they earn more, is supported by many conservatives and liberals alike.  Expanding this program’s payments for single workers (that is, beyond workers with families)—or using an alternative low-wage subsidy—would create more powerful work incentives.

He also favors means testing this aid, but on a shallower slope in order to “reduc[e] the marginal tax rate on work as the support phases out.”  The problem with this last—means testing—is that it still leaves in place that added tax on work.  I’ve written elsewhere of the doom that means testing spells for any welfare program.

Means testing welfare generally actively discourages, if not work itself, then looking for higher-paying jobs, even when the individual is qualified for that better job and it’s available—that’s the outcome of the welfare cliffs that the Pennsylvania Secretary of Public Welfare was describing in my earlier post.  We can’t means test.  Either the individual is eligible for welfare, or he is not.  Full stop.

The larger problem, though, with an EITC form of aid is that, while it might indeed encourage more folks to look for work rather than welfare, it won’t encourage employers to offer that work, and a wage subsidy actively encourages employers to suppress the wages offered for the work they do have—after all, government will make up the difference with its EITC.  Thus, there’s no help for getting out of the bottom levels.

Rather than means testing or open-endedly subsidizing, we should be applying an upper bound on the amount of subsidy offered.  A couple of examples will illustrate.

During the Clinton years, Temporary Assistance to Needy Families was enacted, replacing Aid to Families with Dependent Children, and this program had both a work requirement for aid eligibility and a maximum lifetime duration of that eligibility.  Under that program, folks went back to work, child poverty rates fell sharply, and income sources for the affected families shifted from a 33% from earned income/40% from AFDC split in 1991 to a split of roughly 60% from earned income/9% from TANF by 2000.

The GI Bill, used to educate our veterans—whether the very generous program under which I got two advanced degrees, or the current still-generous program that provides funding for four years of college at sound (if not very expensive) schools—and which benefit was earned by our military service, offers another example of a limited, finite training subsidy.  It’s overkill for initial training, but it demonstrates in a different venue the efficacy of limiting handouts and providing a hand up instead.

The subsidy also needs to be aimed at helping the low-wage worker—or the wholly unemployed—improve his situation so he can get a better job, or a job at all; it should not be just an unfocused handout of money.

Given the reason for those low wages—low value work and lack of training—the better way to help our low-wage workers (we’re not going to increase the value of work that is inherently low-value) is to facilitate their ability to get initial training either for an entry-level job (so as to potentiate getting that first job) or for moving up from a low value job to higher value one.  This can be done by any combination of subsidizing the worker as he seeks that initial training, or by paying the employer (prospective or current) that subsidy.  Subsequent training then can and should be provided by the employer (consistent with business needs) as he recognizes the value of that now known worker or sought by the worker as he looks to change directions in his working career.

In either event, a training subsidy can’t be open-ended, nor can it be means tested to be effective.  The subsidy must have an upper bound either on the total amount paid out—use it wisely—or on the time available for its use—don’t dither—or it must have both limits, and the clock must start on first use (rather than first eligibility).

Spending on Education

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…and education results turn out to be wholly independent of each other—that is, spending more and more hasn’t produced better and better outcomes for our students—it hasn’t had any effect at all.  It’s been a waste of our tax dollars.  This is clearly indicated by Cato Institute‘s Andrew Coulson’s report State Education Trends: Academic Performance and Spending over the Past 40 Years.  What Coulson found is illustrated by this statement early in the report:

The state-by-state results of this investigation are reported in the subsections that follow, but the overall picture can be summarized in a single value: 0.075. That is the correlation between the spending and academic performance changes of the past 40 years, for all 50 states.

At the risk of lecturing to the choir, correlations run from 0.0 to 1.0 with 1.0 being perfect correlation—every bit of the effect being looked into is, in some sense, “explained” by the correlates.  0.0 means that there is no correlation at all, there is no connection between the two correlates at all.  In this case, 0.0 would mean there is no connection whatsoever between spending on education and educational outcomes.  That correlation of 0.075 isn’t materially different from 0.0.

This graph should drive the point home:

Notice that: spending goes up and up and up, and employment (teachers and administrators) goes up and up.  Enrollment—the number of students reached—stays flat.  The performance of that static number of students…stays flat.  As a nation (keep in mind, this is state-level spending; this study didn’t get to Federal spending, which would only add to the amounts wasted, for reasons that become obvious below), we’re spending more and more per student, we’re spending more and more per unit of student performance, and we’re not impacting that performance.  This failure has been going on for nearly 45 years, too—more than two generations of kids.  Our kids’ kids aren’t even benefitting from this government spending.

What was that about doing the same thing over and over while expecting different results?

Here are a couple of graphs for specific states, one relatively blue and one relatively red, that further illustrate the point:

And

Again, spending is up, and performance, now assessed by SAT scores, is unaffected.

Of course, there are naysayers about these results.  New Mexico Voices for Children, for instance, had this to say:

The Cato report assumes that education money is spent the same way it was in the 1960s and ’70s.  In fact, schools have been mandated to provide many more services—special education, after-school programs, computer sciences, etc—and today’s classrooms require much more technology than they did in the days of the mimeograph.

All true.  And all with no effect on those reading, math, science, or SAT scores.

Others insist that, since the number of students taking the SAT has more than doubled in the last 25-30 years, those scores would, of course, flatten out.  But this beef ignores the fact that Coulson provided such demographic adjustments (and others, based on race, socioeconomic status, and so on), and the results didn’t change.

The bottom line is that, at best, spending money (especially increasing amounts) on technology for tech’s sake, on after-school programs to provide extra time away from home for the kids, etc is a waste.  Spending money on increasing numbers of personnel to run these programs, or to supervise the additional personnel, even on more teachers per “classroom” has no effect.

We need to get back to basics, and focus spending on these subjects: reading, writing, arithmetic—the classic three Rs—and add to the mix, throughout K-12, American history/civics and budgeting/finance/economics, and teach these only.  Full stop.

Anything extra should come at the expense of the local community that wants the extra, not at the expense of other communities in a state, or in the nation.

 

h/t Watchdog.org

Jobs Mandates

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Nearby is a post concerning the jobs impact of Obamacare costs being imposed on employers.  Two other labor costs being considered for imposition by our Know Better, Progressive administration are minimum wage increases, and now an increase in the “minimum” wage of salaried managers.

Never mind what such a thing would do to productive company cultures:

…making more people eligible for overtime pay could remove the inherent incentive for lower-level managers to hustle to earn a promotion.

“You work hard, develop the maturity for a salaried position, and then move up,” [Emo Pentermann, owner of Bell ATM Service Inc] says.  “It takes away that whole level of maturity and freedom of choosing to get the job done in the time allotted.  So for all practical purposes, they just might as well be on a time card.”

Or, regarding that last, especially:

…a workplace environment that de-emphasizes keeping up with a time clock.  For instance, employees can take time off work to attend a child’s performance in school.  [Jeffrey Harris, owner of Inte Q] says his employees are more productive as a result of that flexibility.

He had plans to adopt a new, more formal policy this year where he would tell his salaried employees: “You know what your job is.  You’re responsible for it.  Take off when you need to, and we’re not necessarily watching day by day what you’re doing.”

But when he heard about the proposal, he said he immediately thought it would affect the type of work culture that has yielded results for him in both profits and employee retention.

Because our employers don’t have enough barriers for job creation or for business growth—and job creation.

Obamacare Jobs Impact

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The American Health Policy Institute has some data [emphasis in the original].  Although their study concerned itself primarily with the cost impact of Obamacare to large employers—those with 10,000 or more employees—the study’s outcome has implications for our economy’s jobs picture.

  • The cost of the ACA…is estimated to be between $4,800 to $5,900 per employee.
  • These large employers will see overall ACA-related cost hikes of…4.3 percent in 2016 and 8.4 percent in 2023 over and above what they would otherwise be spending.
  • The total cost of the ACA to all large US employers over the next ten years is estimated to be from $151 billion to $186 billion.

This comes after a downward trend in employer cost increases—to no and nearly no increase just prior to Obamacare’s passage—for employee health care benefits has been completely reversed by Obamacare, as this graph from the study demonstrates:

Now for those implications:

At the US median annual wage of $51,000 in 2013 (a decrease from 2012, an added bonus of President Barack Obama’s economic policies), and just taking the lower bound of the 10-year cost range, those $151 billion in added dollar costs work out to a jobs cost of nearly 3 million jobs over that decade—300,000 jobs per year—in a static analysis that ignores the economy’s response to the loss of those jobs: a loss that would increase by some amount each succeeding year as the economy actually responded.

Alternatively, that $151 billion cost is money not being spent on R&D or product development.  To put this in perspective, US companies spent some $424 billion on R&D in 2013; at $15.1 billion/year over the decade, that works out to a 3.6% cut in R&D.  This is a very large drop in a company expense that’s already very low in an increasingly competitive global economy (if not particularly competitive anymore in the US)—Apple’s R&D spending, for instance, amounted to just 3% of net sales in 2013; IBM and GM spent just 5-6% of total revenue on R&D.  This reduction leads directly to a commensurate cut in company profitability, with its own cascade effect on jobs in the US.

Of course, the true outcome will be somewhere in between—a loss of fewer than 3 million jobs, but still a large loss, and a cut in R&D of less than 3.6%, but still a significant cut—each and both with still significant cascade effects in future job losses.

The Ryan Budget Proposal

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House Budget Committee Chairman Paul Ryan (R, WI) has laid out the Republican budget proposal for the decade beginning FY2015.

It begins by balancing the Federal budget over those 10 years, a measure of fiscal responsibility to which the present crop of Democrats don’t even pretend—vis., the Democrat-controlled Senate’s refusal even to produce a budget their first four years of the Obama administration, and which refusal they’ve renewed in the current year, insisting that they don’t need to bring up a budget anymore.

It repeals Obamacare, with that act’s enormous deficit-increasing costs.

It increases Defense spending, contra Democrat—White House—desires.  Plussing up our military is an especially glaring need in this day of a resurgent Russia routinely invading and occupying parts of its neighbors—Georgia and Ukraine come to mind—and an equally aggressive, if more subtly so, People’s Republic of China and its territorial grabs of the East and South China Seas.

It renews the Republican proposal to give “premium subsidies” to senior citizens enrolling in Medicare beginning in 2024—folks today who are not older than 56—and letting them shop for their own insurance in a free(r) market, rather than being dragooned in to Medicare.  Even so, Medicare would be one of their choices, and guaranteed to be no more than second least expensive.  Democrats deride this as a voucher system and object to it.  Aside from the fact that Democrats object to voucher systems in any form, I have to wonder why Democrats object so vociferously to older Americans making up their own minds, without the oversight of Democrat Betters.

It walks away from past practice of projecting budget effects into the future under the assumption that today’s conditions won’t change over the period being projected, including the premise that the economy won’t respond to spending changes by the Federal government—a static analysis—and makes use, instead, of the more realistic assumption that the economy does, in fact, respond to such inputs—dynamic analysis.

This is an outline that should be pursued, and Democrats who insist on continuing their profligate spending instead de-elected.