Oregon Business blog post on right-to-work: A spark to light Oregon’s employment engine

A little less than a year ago, Michigan became the 24th state to enact right-to-work legislation, a development that has been closely associated with the temperature of Hades dropping. Since then, right-to-work supporters have sought to enact similar legislation throughout the United States. Even here in the Northwest.

In Oregon, the Public Employee Choice Act would provide right-to-work protections to public employees. With the Boeing’s machinists recent rejection of a new contract and the company’s drift toward more business-friendly states, there has been some speculation that the state of Washington may consider right-to-work legislation in order to hang on to key employers.

What is right-to-work?

Right-to-work policies liberalize labor market conditions by loosening some of the most restrictive features of labor legislation enacted during the Great Depression. In 1935, at the depths of the Great Depression job losses, Congress passed the National Labor Relations Act (also known as the Wagner Act). This act permitted closed union shops which require employees to join a union and/or pay union dues as a condition of employment.

The widespread impact of coal miner strikes through the late 1940s led some to conclude that the Wagner Act had conferred too much power on organized labor. The Taft-Hartley Act — enacted in 1947 over President Truman’s veto — modified the impact of the Wagner Act by affirming the right of states to prohibit certain union shop restrictions enabled by the Wagner Act. Specifically, Taft-Hartley indicates that states can pass laws that prohibit unions and employers from making union membership or the payment of union dues a condition of employment. These state statutes are referred to as “right-to-work” laws because they give employees the right to work without the being forced to join a union or handover a portion of their paychecks to unions in the form of dues or fees.

A boost to employment

Right-to-work has gained attention in the wake of the past recession because such laws can be a key component of a pro-investment and pro-employment package that encourages firms to locate and expand in a state. Indeed, a large body of research has found that as a group, right-to-work states have enjoyed more rapid employment growth, better job preservation, and faster recoveries from recession than states without right-to-work laws in place.

For example, the figure below shows that since 1950, states with right-to-work laws have seen their employment grow at roughly double the rate of non-right-to-work states.

While right-to-work laws can be a key component of a pro-investment and pro-employment package that encourages firms to locate and expand in a state, it would not be fair to conclude that all the employment gains can be assigned to right-to-work.

Indeed, there are many factors that contribute to employment growth. For example, some have argued that one of the biggest predictors of employment/population growth is climate: People tend to migrate toward nicer weather. Harvard economist Edward Glaeser, explains:

But the connection between January temperature and growth reflects more than just the weather. Sixty years ago, income and productivity in the South lagged significantly below that in Northern states. There has been a remarkable convergence of incomes since then, as manufacturing firms moved to lower wage areas that gradually became higher wage. Right-to-work laws in Southern states seem to have significantly attracted new industry (Holmes, 1998). Indeed, one can quite plausibly argue that the South had far worse institutions for economic growth before the Civil Rights Era, but that today, fewer regulations and lower taxes makes the Sunbelt more pro-growth

Statistical analysis can account for these other factors and separate out the relationship between right-to-work laws and employment growth. My research finds that, if Oregon were to enact right-to-work legislation, the state’s employment would grow one-half of one percent faster than it is currently projected to grow.

Now, one-half of one percent does not sound like a lot. But, over time, even tiny changes in the growth rate can have large long-run impacts.

For example, the figure below shows that if Oregon adopted right-to-work legislation that went into effect in 2015, then five years later the state would have 56,000 more people working than without right-to-work.

A boost to pay

Opponents of right-to-work argue that enacting a right-to-work law would gut Oregon incomes, calling it “right-to-work for less.” In fact, however, research that controls for other factors that affect wages, finds that right-to-work states have average wages that are “significantly higher” (more than six percent higher) than in non-right-to-work states.
The statistical analysis I conducted shows that wage and salary growth under right-to-work would keep pace or outpace employment growth. In other words, wages would grow as fast or faster than employment. That means that, based on the experience across multiple states over many years, right-to-work laws do not lead to lower wages and are likely to improve pay over time.

A fiscal free lunch

Right-to-work legislation may be the only economic development policy that comes at zero cost to state government. Enacting right-to-work does not require any new taxes and does not demand any new spending and would provide the state a permanent structural advantage in attracting employers and employment to the state.

Originally published by Oregon Business.

Leo and Zoe make a woodblock print

Mission Impossible: Care Oregon needs to sign up 240 people an hour 24/7 ... Using Internet Explorer and a single fax line!

Governor Kitzhaber indicated that if you have your ObamaCare enrollment complete by December 15, you will have insurance coverage by January 1. That means, Oregon's uninsured have just 30 days to have their enrollment complete.

Let's review some key deadlines:

• December 15, 2013 is the deadline to complete enrollment at Cover Oregon.
• By January 1, 2014, you must have health insurance, or face a penalty, but you are allowed to have a gap in coverage no longer than three consecutive months, so ...
• March 31, 2004 is the drop-dead date for having coverage without having to pay a fine.

Something I've never heard anyone mention is that if you don't have coverage by March 31, there is really no point in buying insurance until January 1 of the next year. You will have to pay the penalty for not having insurance. So, what's the point of buying something that you already paid a penalty for not buying?

What is "enrollment complete?"

On OPB's Think Out Loud, Cover Oregon staff explained what you have to do to "complete" enrollment ... And it's more than just clicking some buttons on a website (start listening around 14:10):

We need to have the enrollment complete by December 15. And the "enrollment complete by December 15" means that we have received their application and sent them out an enrollment packet and then received that enrollment packet back.

So, there are three big steps:

1. Send in an ObamaCare application,
2. Have Cover Oregon approve the application and send back an enrollment packet to you, and
3. Pick a plan, sign the packet, and send it back to Cover Oregon.

Can Cover Oregon handle the load?

Keep in mind that Cover Oregon has signed up exactly zero people for ObamaCare.

Add to that the 150,000 Oregonians who have received cancellation notices, the 11,000 in Oregon's soon-to-be closed high risk pool, and the backlog of 12,000 paper applications. You're looking at a minimum of 173,000 applications that must be processed in the next 30 days.

Keep in mind, too ...

If you want to fill out your ObamaCare application on the Cover Oregon website, you must use Internet Explorer (which only 24 percent of Internet users use anymore).

Oh, and if you want to fax in your application (does anyone fax anymore?), according to the OPB interview, Cover Oregon has only one fax line.

As a matter of perspective, that means Cover Oregon must process about 240 applications every hour of every day (yes, that means 24/7) for the next month.

I'm not saying it can't be done, but it sure seems like a near-impossible task.

You won't find the words "software glitch" in this post - Looking for the "affordable" in the Affordable Care Act

Like any nerdy economist, I spent October 1, sitting at my computer trying out Oregon's Obamacare exchange, called Cover Oregon.

It took a few tries to get the site to produce anything other than a "Whoops." (Yes, government websites in Oregon use the word "whoops.") After that, I got whopping list of 69 Obamacare-compliant plans for my family of six: two adults over 40 and four kids ranging from preschool to high school age.

The list Cover Oregon spits out is not particularly helpful in comparing each of the plans, so I put together this graph of each of the plans available to my family.

Here's what the figure shows:

• There is a wide range of prices. Among plans with a $2,500 deductible, the most expensive plan (Providence Gold) is $3,800 more than the least expensive plan (Moda Health Bronze).
• Looking at just the annual payment, the lowest cost plans are Moda Health's $5,000 deductible and $5,250 deductible plans, with an annual cost of about $7,050. That's about the same as the payment on a $125,000 mortgage.
• You cannot see it on the figure, but Oregon's Health CO-OP, which has made quite a bit of a splash with the media, has some of the highest rates. Slap the word co-op on something (especially in capital letters), and Oregonians will eat it up. 

What's the deal with high deductible plans?

Let's rejigger the graph a bit.

The figure below shows what the total annual cost of the plans would be if the deductible is added to the cost. It does not do much good to have insurance if you have to spend thousands of dollars before coverage kicks in.

If you look at the dotted line between deductibles of $1,000 and $5,000 the line appears to be pretty flat. In other words, generally speaking, an increase in the annual deductible is matched dollar-for-dollar with an decrease in the annual payment. That seems to make sense.

Now, look what happens if the annual deductible is more than $5,000. The annual payment increases rather than decreases, which seems at odds with how things should be. There seems to be at least two reasons:

1. For people with extremely high (i.e., "catastrophic") health care costs, the annual deductible is virtually meaningless. If you are facing $100,000 in medical bills, it makes little difference whether you have a $500 deductible or a $5,000 deductible. Thus, those who are most costly to insure may self-select into plans with higher deductibles. An observation verified in a clunkily written working paper.
2. There are fewer insurers offering plans with higher deductibles. The reduced competition among providers may result in higher prices.

What about the subsidies?

Because our family income is about the same as a Congressional staffer's, we don't qualify for any of the subsidies--but if I gave up teaching or did less consulting, I would qualify for a subsidy. (Talk about incentives!)

First blog post on Oregon Business: Income inquality - is it such a big deal?

The following is from my blog post on the Oregon Business website.

Comedian Louis C. K. famously noted that “everything is amazing right now and nobody is happy.” We live in a world of unprecedented prosperity and are much better off then our parents and grandparents were. Since 1950, the average house size has doubled, while the average family size shrunk. We’ve gone from kids sharing a bedroom to each kid having his or her own bedroom. In 1980 a second land line phone was a luxury. Today teenagers carry iPhones with more computing power than most 1990s era PCs.

Regardless of the progress, the recent recession and sluggish recovery has turned our attention to the growing gap between rich and poor.

Even The Economist — the one-time bastion of free market ideas — is now wringing its hands over growing income inequality around the world, declaring “a dramatic concentration of incomes over the past 30 years.”

Income inequality is not such a big deal if everyone is winning.

It’s no big deal that Nike CEO Mark Parker got a raise of more than $3 million last year. Sure, his raise makes him much better off, but I can’t think of anyone who is worse off because of the raise. Are Nike workers paid less because of the raise? Are we paying more for shoes because of the raise? Did Nike’s stock price drop after the raise was announced?

While it may be the case that the rich are getting richer, it’s not clear that the poor are getting poorer. According to the Census Bureau, from 1967 to 2010, inflation-adjusted household incomes for the top five percent grew by $72,350. Over the same period, household incomes for the bottom 20 percent grew by $2,900. Yes, the rich are getting richer, but so are the poor—just at a slower rate.

More important than figuring out whether the income gap is growing, the much bigger question for an economist is: Does it matter?

The overwhelming consensus among economists is … maybe.

One of the key studies finds that income inequality retards growth in poorer countries, but encourages growth in richer countries. In the U.S., research finds that increased incomes among the top 10% of income earners in a state are associated with higher statewide average incomes. In contrast, the International Monetary Fund concludes “reduced inequality and sustained growth may thus be two sides of the same coin.”

Since the data don’t provide a very satisfying answer, the next question is: Could it matter?

Theoretically, yes. University of Oregon economist, Mark Thoma, notes:

1. Perfectly equal distribution of income would destroy any incentive to put in the effort to get ahead (you get the same income whether you work or not).
2. On the other hand, a system in which one person earns all the income and everyone else gets nothing, would destroy any incentive to put in the effort to get ahead (a perfectly unequal system in which you would get nothing whether you work or not).
3. Thus, there must be some optimal level of inequality between perfect equality and perfect inequality. The debate these days is on what that optimal level is.

Can we shrink the income gap?

The knee-jerk response to a growing income gap is more progressive income taxation. However, increased taxes to redistribute income do nothing to foster economic growth.

On the other hand, the figure below shows that growing employment may be one powerful way to slow the growth of the income gap.

The figure shows the relationship between employment growth and income inequality in each state of the U.S. (Income inequality is measured by a number called the Gini Coefficient where 0 is complete equality meaning everyone has equal incomes and 1 is complete inequality meaning one person earns all the income and everyone earns nothing.)

While it’s true that since 1979, income inequality has increased in every state, there are wide differences among states. For example, inequality increased by four times as much in New York and DC as it did in Alaska and South Dakota.  Income inequality seems to be an East Coast problem first, followed by the Rust Belt states of Illinois, Ohio, and Michigan.

Most striking is the relationship between income inequality and employment.  States with weak employment growth saw the steepest increases in income inequality.  Connecticut, New York, and DC had employment growth that was less than half the U.S. average and had the steepest increases in income inequality.

Also striking is the fact that employment grew faster in states without income taxes (shown by the black markers). These states also did not see an change in income inequality that was much different from the U.S. average. In this way, reducing income taxes may be a way to grow employment without necessarily increasing the income gap.

The bottom line

There is no consensus among economists that income inequality has any impact on economic development. However, policymakers seeking to make income distribution more equitable should turn first to finding ways to make a bigger pie by growing employment rather than figuring out how to cut the pie into smaller slices by tax-and-spend redistribution programs.

Ponies and Bronies invade Laurelhurst ... And someone's not too happy about it!

I came across these little fellas while traversing the lands of Laurelhurst.

Apparently, someone in Portland is not too happy about all this horsing around ...

That's the piece of code that calls the NSA ...

As someone who goes to bed listening to Ground Zero, it gets easier to see black helicopters.  While reading yet another Wall Street Journal article on the major snafus getting the Obamacare exchanges to work, I saw this little throwaway paragraph and started thinking: Maybe the stray software does serve a purpose ...

Why bribes are better than extra credit

Summer session of my economics class is wrapping up. With record enrollment, I have also been inundated with last minute requests for extra credit.

Asking for extra credit is a student's way of saying, "I can't be bothered to come to class or read the material, so why don't you let me write a three page paper and you can bump me up by a letter grade?"

Let's just say I hate the whole idea of extra credit ...

First of all, if I have to extend it to Mr. I-don't-have-time-for-class, then I have to extend it to everyone. I grade on a curve, so there is a chance that the extra credit will ultimately do nothing to change the distribution of grades.

Second of all, every three page paper that a student writes for extra credit is a three page paper that I have to read for extra credit. Anyone who has had to read papers by students who are asking for extra credit will tell you that when you are done, you walk away with an overwhelming sense of dread for the future of our country.

So there we have it: Extra credit is unfair to the smart and studious, it provides an uncertain and small benefit to the extra credit seeker, and imposes a huge cost on the instructor. And, the cost to the instructors is much higher than the potential benefit to the student. It is entirely economically inefficient.

Then it hit me ... bribes are much more economically efficient.

• It imposes a cost on the student seeking the higher grade. And, its more fair: "A" students would never pay the bribe, and "F" students would probably be willing to pay a stiff price to get into passing territory.

• Rather than imposing a cost on the instructor, it benefits the instructor.

Now, you'll say that the bribes diminish the value of smarts and studying.  So what? So does extra credit: Extra credit is a way of making up an entire course's worth of work with a little three page essay.

I think I'll put my new "extra credit" system in my syllabus next year and see what the department chair says. He's an economist, after all ...

We're #2! ... On a list of cities likely to follow Detroit

Looky here ... Portland is the second city on a list of cities that could follow Detroit down the path to BK City.

From the article:

One has to wonder if Portland might deliberately drive itself into bankruptcy as part of a larger plan to become the hipster capital of the world.

Regardless, the largest city in Oregon is well on its way to financial trouble. Moody's is reviewing the city's credit rating for its general obligation bonds, but also for Portland's tax obligation bonds, housing bonds and redevelopment bonds. The city has more than $453 million in unfunded pension debt.

Pew notes Portland "had virtually no asset" to offset unfunded liabilities of $2.3 billion in fiscal 2009 for its pension and disability plan for police and firefighters. The city is essentially paying for the retirement costs of those uniformed employees on a pay-as-you-go basis, which any actuary can tell you is a terrible idea.

The article does get on thing wrong, but that's not necessarily good news.

You see, Portland's police and firefighter pensions aren't really all that unfunded. That's because our property taxes will continue to rise to meet whatever costs the pension system throw at us.

I bet you're asking, "What about those property tax limitations?"

Nope. Portland's police and firefighter pensions are exempt.

So, the good news is that Portland probably won't go bankrupt on police and firefighter pensions. The bad news is that we'll keep seeing increasing property taxes, without increasing services.

Laurelhurst History: Even 100 years ago, Laurelhurst residents were protective of their park

Oregonian, April 16, 1913