The Beacon Ignores the Elephant in the Room Regarding Teenage Employment

Posted on by David Stokes

I was amazed to read an entire article about unemployment among teenagers and college students that did not once mention the minimum wage, even only in passing. If businesses were not forced to pay the current $7.25 minimum wage, there would be more jobs available, and more young people would be able to find summer work.

The Show-Me Institute has released two major studies on this subject. From David Neumark’s conclusion:

Where does all of this evidence leave us regarding the wisdom of raising the minimum wage? The evidence suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Although in principle the gains to those who keep their jobs could offset the losses to those who bear the disemployment effects, minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, minimum wages may also have longer-run adverse effects, lowering the acquisition of skills through various channels and therefore lowering wages and earnings even beyond the age at which individuals are most directly affected by a higher minimum.

Without the minimum wage, there would be more total jobs and more total hours available. Kenneth Troske and Aaron Yelowitz describe how this would help poor families:

The key difference between poor workers and the typical adult worker is in hours of work—workers are poor because, on average, they work 1,120 hours per year compared with 1,853 hours per year for all adult workers. As we will show in Table 4, the poverty rate could be dramatically lowered if poor workers worked full-time throughout the year.

The only good thing I can say about Missouri’s current minimum wage is that it is the same as the national wage (it can be higher than the national wage). But we would all benefit from more jobs, and reducing or eliminating the minimum wage is one certain way to accomplish that.

Free-Market Solutions Help All, Not Just Some

Posted on by Caitlin Hartsell

My op-ed on the new autism mandate ran in the Missouri Record this morning, and the blogosphere has already begun to respond! Perhaps I did not articulate myself clearly enough, because this author’s post reflects some misunderstandings of my argument that I would like to clear up:

The problem with free market, anti-regulation fundamentalists is that their arguments lead to despicable results (witness Rand Paul’s opposition to integrated lunch counters). A prime example shows up on the Missouri Record site, where grad student Caitlin Hartsell argues that if we increase costs to insurance companies by making them pay for autism spectrum disorders, those insurers might increase rates. (Characteristic of free-market extremists, she doesn’t provide numbers, or consider the possibility that the costs could be covered by reducing out-of-control executive compensation packages).

If you have a strong stomach or sense of humor, go read her obsequious offering to her Show-Me Institute bosses, and substitute any malady whatsoever as the subject. Try breast cancer or broken limbs, and you can have an argument in favor of freeing our health insurance companies from the burden of having to pay for, umm, health claims.

Where to begin? I never argued that insurance companies shouldn’t pay for claims; I argued that creating mandates is not the solution.

Competition needs to be increased in the insurance market, thus giving insurance companies a strong incentive to cater to people by providing coverage for things like autism therapy. A better solution than a mandate would be to increase competition by breaking the tie between someone’s employment and their insurance, by giving individuals the same tax breaks for insurance policy purchases that employers receive. This would give people more stability, because they could carry their insurance policies throughout their lives, and through uncertain economic times. If the tax break were offered to individuals rather than just employers, it would also reduce the incentive for them to offer “Cadillac” health plans that inevitably trade a portion of employees’ monetary compensation for expansive coverage that doesn’t meet everyone’s needs or budget requirements.

Unfortunately, the free-market argument is far too often misunderstood, because it focuses on the “unseen” as opposed to the very visible “seen” of children with autism. The author of that blog entry and I may very well hope for the same outcomes, but we disagree on the best way to achieve them. I want very much for children with autism to receive the necessary therapy. I also want children with any number of diseases to obtain proper care and coverage. By subjecting the market to competitive forces, people would have an increased ability to choose health insurance plans that fit their unique needs.

Statistics about the increase are available, but they are disparate, and determining the relevant figures depends on which side of the debate you ask. It will also depend on how regulators choose to interpret the provisions. But when costs increase, there will be people at the margin who are affected. Those most affected are the people whose illnesses or conditions aren’t covered by a mandate — their insurance costs are higher, but they do not receive any benefit.

Despite Government’s Encouragement, Rate of Homeownership Remains Steady

Posted on by Christine Harbin

The rate of homeownership has not increased to the extent that the author implies in this Post-Dispatch article:

After being relatively flat for much of the ‘80s and ‘90s, homeownership levels climbed several percentage points in the early 2000’s, peaking at 69 percent in 2004, according to the Census Bureau.

This rate for the United States was indeed flat during this period. However, the author does not disclose the fact the rate hovered around a mean of 64.7 percent between 1984 and 2000 — less than 3 percentage points lower than the peak in 2004. The rate increased only 5 points from 1994 and 2004, from 64 to 69 percent.

Additionally, the author restricted the vertical scale of the graph in a way that makes the increase over time seem large. Looking at an unrestricted version of the chart, this increase is not that significant.

I used annual homeownership rates by state and by metropolitan area data from the U.S. Census to produce the following graphs:

homeown_USMO

homeown_all50
Click graphs to enlarge

Interestingly, the rates of homeownership in the state of Missouri and in the Saint Louis metropolitan area are higher than the rate in the United States. I suspect that this can be attributed to the fact that housing is plentiful and relatively inexpensive in Missouri, and perhaps also to a Midwestern lifestyle that encourages homeownership, among other factors.

Looking at all 50 states, although the homeownership rate for each falls within a range between 50 and 80 percent, there hasn’t been a significant change over time.

Programs that encourage homeownership exist at practically every level in the government. They include: homeownership assistance; property tax relief for new home buyers; homeownership vouchers; housing codes that restrict the number of units in a building; and, the recent federal tax credit for home buyers. However, despite this assistance, it appears that the rate of homeownership remains steady. If it weren’t for these programs, I wonder whether the rate of homeownership would be unaffected or whether it would decrease.

Could the Governor’s Executive Advisory Board Recommend Market-Based Reforms for Missouri?

Posted on by Thomas Duda

While reading the Springfield Business Journal, I ran across a mention of the governor’s recently formed Executive Advisory Board, which will produce “a five-year plan for economic growth.” The governor’s press release states:

The final outcome of the planning process will be six to 10 strategic objectives to transform Missouri’s economy for the 21st century. The objectives will pinpoint existing and future industries that will drive growth. Along with each strategic objective, the plan will include specific tactical steps necessary to accomplish the goal. The strategic objectives and tactics will focus on the next five years.

Although I find the Executive Advisory Board’s mandate ludicrous — that state government should chart and shape the course of something as complex as our collective future economic development, I do find it encouraging that a committee member quoted in the Springfield Business Journal stated:

“We spend lots of money on economic development every year. The question is, ‘Are we strategically aligned to do it in the most effective way?’”

Obviously, the panel will not consider the possibility that the state of Missouri leave the business of economic development entirely, but I am somewhat hopeful that Executive Advisory Board just might conclude that the termination of some market-distorting policies would set Missouri on a course toward a freer and more prosperous future.

Here’s hoping.

Seventh Signature and the Bill is Free!

Posted on by Caitlin Hartsell

The governor will be jetting around Missouri over the coming week for ceremonial signings of H.B. 1311, the Autism Spectrum Disorder Coverage Bill. On Thursday, he will go to Joplin, Springfield, and Columbia. On Friday, he’ll be in St. Louis and Kansas City. On Tuesday, he’ll be in Cape Girardeau. Why one bill requires the governor to be present at six signing ceremonies across the state leads to questions about fiscal responsibility. One would hope that this expense and hoopla isn’t devoted to each of the more than 100 bills delivered to the governor for a signature.

Beyond travel expenses, though, the signing of this bill will be costly for Missouri. I’ve written before about why I think an autism mandate is bad policy for Missouri. The bill may be a huge gain for the 300 to 350 families that will be helped by the mandate, but the rest of Missouri will pay for it in higher insurance costs and foregone jobs.

Clear Example of Tax Laws Favoring Agriculture

Posted on by David Stokes

Via John Combest (who played a terrific first base in softball on Sunday, if I may say so), the Suburban Journals has a good story about a smart property tax move by developers in St. Charles County. What exactly are the developers who have found themselves sitting on large lots of undeveloped property during this recession doing with it? They are farming the land just enough to get it taxed at the agricultural rate instead of at the commercial or residential rate. As the story details, the differences can be huge:

For example, an acre that goes for $5 a square foot and is assessed as commercial would have taxes of $4,800 for an acre. That same acre, assessed as agriculture, would have taxes of $7.68.

This is a topic I have been writing about since the beginning of this blog. Low assessment of agricultural land is one of the main reasons why each year the state transfers money (taxes) taken from suburban taxpayers to give to rural school districts.

The suburban residents, with their higher assessments and rates, support their schools at a fiscal level that has resulted in the state holding aid flat for years; the so-called “hold harmless” school districts. Many rural districts, with their lower assessments, lower rates, and agricultural property, pay less for their schools. The state makes up the difference with general taxes. Let’s be clear — rural districts can often educate their kids at a much lower expense than suburban districts, but the annual transfer of wealth from the suburbs to the rural areas is exactly the type of transfer that is often decried in other situations.

Payday Policymaking

Posted on by Abhi Sivasailam

Consider: There are more payday loan storefronts in the United States than there are McDonald’s and Starbucks outlets combined. Also consider, these payday loan storefronts are much more geographically concentrated than other types of outlets. Whereas Starbucks and McDonald’s sprawl across disparate locations with very unique compositions and characteristics of residents, payday storefronts tend to cluster densely in regions where demand for payday loans is likely to be high. What do these conditions imply about the characteristics of the payday loan market?

For starters, basic economic intuition would suggest that the payday lenders operate in a competitive marketplace. Fairly low barriers to entry (both legal and financial) into the market and the vast number of storefronts implies that individual stores face strong incentives to underprice their competitors. The result, barring collusion or market distortion, would be that prices are efficient, and not exorbitant.

The empirical evidence bears out this claim. A paper released by the FDIC Center for Financial Research used panel data from a large vendor to demonstrate that, despite the high interest rates on payday loans, the profitability of payday lenders does not statistically differ from the profitably of other financial intermediaries, like “reputable” banks. This should appeal to intuition: Payday lenders cater to risky populations that are vulnerable to financial stressors and prone to defaults. Risky customers warrant high rates to compensate for high default rates. This understanding regarding the level of market competitiveness and the condition of interest rate efficiency is crucial to understanding the policy effects of regulation in the payday loan market.

Last week, in a conversation with state Sen. Mary Still — one of Missouri’s most vocal critics of the payday lending industry and author of regulatory legislation in the General Assembly — I hoped to identify her latitude of acceptance for various payday lending policies (including deregulating the market further). I discovered that the two policy tools that are most likely to hear debate in the General Assembly are interest rate caps and providing incentives for banks to become “legitimate” vendors of payday loans. In some important ways, these approaches are troubling. If the market is already competitive and interest rates are efficient, an interest rate cap will choke the market and force lenders out — and banks shouldn’t have the ability to offer significantly cheaper rates on similar products. At any rate, revealed preferences would suggest that there is a reason banks aren’t willing to offer payday loans without incentives.

As I’ve discussed earlier, payday loans have the potential to be both helpful and harmful. Imposing interest rate caps on the market will stifle the ability of payday loans to help consumers, and incentivizing banks to offer such loans will do little to shield consumers from harm.

Metro St. Louis Approves Fiscal 2011 Budget, Making Work Harder to Find

Posted on by Thomas Duda

The Metro Board of Commissioners approved the St. Louis regional public transit agency’s Fiscal 2011 operating budget of $232.4 million in late May with the declaration that the spending plan “includes funds to restore transit services that were cut in 2009.” This comes, of course, following the passage of Proposition A by St. Louis County voters in April, which imposed “a countywide sales tax of one-half of one percent for the purpose of providing a source of funds for public transportation purposes.”

A closer look at Metro’s announcement of its Fiscal 2011 budget, however, yields the following admission (emphasis added):

In addition to restoring services eliminated for financial reasons in 2009, [Metro President and CEO Robert J.] Baer said the new sales tax revenue is committed to replacing a $5 million decline in sales tax revenue and replacing the one-time appropriation of $12 million from the state of Missouri in FY 2010. The revenue also will replace millions of dollars in federal capital funds spent on operations in FY 2010, freeing those federal funds to be used partly to acquire more buses for service restoration. The new budget also reflects $6 million in higher costs for fuel, medical costs and utilities, and $4.8 million more to provide additional services under contract with the St. Clair County Transit District in Illinois.

[…] He said that even with plans to hire 120 new drivers, mechanics and supervisors needed to restore service, the agency would operate with approximately 90 fewer employees in 2011 than it did in 2009.

So, what gives? St. Louis County voters approved a sales tax increase — which triggered a coincident sales tax increase in St. Louis City of one quarter of 1 percent — yet the Metro transit agency will provide a diminished level of service in fiscal year 2011, as compared to 2009.

Yes, the Cross County MetroLink Extension undeniably increased operating costs for the agency, but alongside this increase in fixed operating costs, net sales tax disbursements to Metro in constant dollars exhibit the following negative trends:

Net Transportation Sales Tax Disbursements to Metro in Constant (2009) Dollars
Net Transportation Sales Tax Disbursements to Metro in Constant (2009) Dollars

[I calculated the above and below charts using data from Metro’s 2009 Comprehensive Annual Financial Report and the Consumer Price Index Inflation Calculator from the U.S. Bureau of Labor Statistics website; you can review my dataset here.]


Net Proposition M Sales Tax Disbursements to Metro in Constant (2009) Dollars

Now that Proposition A is a reality, Metro will have an additional source of sales tax revenue over and above the two illustrated here. Despite the seemingly strong evidence illustrated above that sales taxes in St. Louis city and St. Louis County are not sustainable funding sources for public transportation, there are other reasons to believe that Metro will continue to face budgetary problems in the future.

The East-West Gateway Council of Governments said in its preliminary presentation on development incentives research dated Jan. 28, 2009, that:

Higher sales tax rates will suppress local sales and drive higher internet sales.

Ironically, raising sales taxes for Metro so that its commuters can “[get] to work” will necessarily reduce retail employment, further compunding the transit system’s revenue problems as fewer persons buy monthly passes.

Proposition A may very well be the clearest illustration of a “job-killing tax increase,” not only for us but for Metro as well.

Ain’t Nobody’s Business if You Do

Posted on by Christine Harbin

The Columbia Daily Tribune published an article about the opposition to SB 586, a bill on Gov. Jay Nixon’s desk that places restrictions on the erotic services industry. Although this effort is probably well-intentioned, it would have negative economic ramifications.

First, it could negatively affect 3,000 jobs statewide, according to the article. These 3,000 jobs don’t require subsidization from taxpayers, quite unlike the 600 jobs that the IBM service center has promised to create. The government should not favor certain occupations over others (i.e., computer technicians over strippers). Furthermore, these establishments provide employment for workers who are low-income and low-skilled, so restricting them would negatively affect this group. Additionally, because the bill outlaws contact between dancers and customers, such as tipping, a dancer’s income may decline.

Second, if the state government places these restrictions, the government will see a significant reduction in revenue. From the article:

[T]he Association of Club Executives […] says the note attached to this bill — $100,000 — grossly underestimates the loss in sales tax, income withholding and other costs to the state. They claim that if adult businesses are restricted as proposed, at least 60 percent of them would close, costing the state about $2.7 million in lost sales tax and $720,000 in lost state withholding taxes and would put about 1,800 people out of work.

This is another striking contrast from the aforementioned IBM service center, which will be located on tax-abated property and will therefore contribute no revenue to state coffers.

Additionally, as research analyst John Payne has previously argued, it is likely that some individuals would seek out substitutes, such as pornography and prostitution — perhaps even rape.

It would be beneficial if the government didn’t stop willing buyers and sellers from engaging in voluntary transactions in the marketplace. If a person happened to disapprove of these businesses, then he or she can choose not to patronize them and perhaps convince others to follow suit. Because this behavior does not cause physical harm to other people or their personal property, however, the government should not be involved. The scope of government should not extend to regulating the behavior of consenting adults in strip clubs, in sex stores, or in their own bedrooms.

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