Collateral Damage Revisited: The Minimum Wage

Posted by & filed under CGR Staff.

Kent GardnerOnce again, the Congressional Budget Office is weighing in on a current policy debate—in a just-released report, they have sided with the consensus view among economists that an increase in the minimum wage will eliminate jobs: “Most [low wage workers] would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.” If the minimum wage goes to $9/hour, CBO estimates job loss of about 100,000 in the second half of 2016, relative to what might otherwise have occurred. If the minimum wage rises to $10.10, they estimate the loss at about 500,000 jobs.

Every policy change has good and bad effects. If the goal is to maximize the number of jobs, we should eliminate the minimum wage entirely. But that would open up some workers to a level of exploitation most of us would find unacceptable, so we put up with some degree of job loss in exchange for this protection. And we counter the effects of the minimum wage on labor demand by putting more money into improving the employability of low wage workers, thus boosting the supply of workers who are more productive. Read more »

That’s why we call it “work”

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerTwo weeks ago, the Congressional Budget Office stirred up a hornet’s nest with its estimate of the impact of the Affordable Care Act (ACA) on jobs. Here’s the key sentence: “CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.” The annual reduction is estimated to be a headline-grabbing 2.5 million jobs.  Download the report here.

Critics of Obamacare greeted the news with barely disguised glee: “The CBO says that Obamacare is a job killer,” they crowed. That’s not what it said: “The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor.” The jobs aren’t eliminated—workers choose not to fill them. Read more »

Don’t underestimate the role culture plays in the economy

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerFew of us make decisions based on a purely rational assessment of our own self-interest. And thank goodness for that! Life with homo economicus, “economic man,” would be dreary indeed. There is a deep tradition in economics that considers the role that “institutions”—defined here as traditions, cultural mores and social organizations—play in society. A cultural value of honesty, for example, contributes to a more efficient economy. Traditions and cultural norms, even without any claim to morality, also bring societal benefit. Laws and explicit rules cannot create a good society unless they are built upon a strong cultural foundation. I illustrate this below in three spheres: the macroeconomy, government, and the firm. Read more »

Oops about OOPM: You really can’t keep your health plan

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent Gardner

The Tampa Bay Times Politifact has awarded its coveted “lie of the year” rating to President Obama’s oft-repeated “If you like your health plan, you can keep it” promise. Personally, I’m happy to chalk this one up to naiveté and the heat of the political moment(s). In this column we’ll explore why the statement was false—and why so many health insurance policies were cancelled due to the Affordable Care Act (ACA or Obamacare). Read more »

Should we tax medical devices?

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerLike most aging runners, my wife’s knees aren’t what they used to be. Fortunately, there is a solution to this problem—knee replacement has become nearly routine surgery.  The Agency for Healthcare Research and Quality reports 718,000 hospital stays in 2011 were due to “knee arthroplasty” or total knee replacement. The rate per 10,000 population nearly doubled from 1997. Yes, the aging of the population has something to do with the increase—yet even among 65-84 year olds the rate increased by 59% (http://www.hcup-us.ahrq.gov/reports/statbriefs/sb165.jsp). And yes, the rising rate of obesity explains part, but not all, of the trend.

We needn’t look to sophisticated studies for the reason as joint replacement surgery can significantly improve quality of life. A 2011 “meta analysis” of over 100 studies concluded that nearly 90% of artificial knees were still doing the job 10 years after surgery. As these studies necessarily involved surgeries that took place before 2000, results have almost surely improved. For most patients, an artificial knee (or hip) can be expected to last 15-20 years. Recovery time is getting shorter, too. Many patients are back to driving in a month. If you can’t walk without pain, an implant would seem to be an easy choice.  Provided you can convince your insurer to foot the bill.

Which brings us to the cost of artificial joints. Did you wonder why the medical device industry gets its very own tax under the Affordable Care Act? American health care’s dysfunction has enabled the medical device industry to earn very robust profits, thus making it a target for special treatment. Does this tax make sense? Read more »

The Challenge of Matching Jobs and Job Seekers

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerThere is nothing more debilitating than unemployment—both for the individual and society. The jobless are deprived of the dignity of work and the community is deprived of the benefit of their labor. We look to workforce development programs and higher education to match jobs and job seekers and, often, to help the unemployed gain the skills that are needed in the workplace.

Recent attention has focused on “middle skills,” those positions requiring some postsecondary technical education and training but not a four year college degree. A recent Harvard Business Review article[*] found that nearly half of new job openings from 2010 through 2020 will be middle-skills positions in fields such as computer technology, nursing, and high-skill manufacturing. Community colleges (such as Monroe Community College) are particularly well suited to addressing the middle skills gap and are exploring how they can best fill that need.

This leads to a reasonably neat policy prescription: If we have willing workers whose skills simply fall short, then the public’s role is to provide a bridge to employment through training. Easy, right? As one of the Rochester area’s most strategic training providers, Monroe Community College is continuously seeking better information on the needs of its market. Read more »

Upstate NY vs. Toronto: A Lesson in Immigration & Tax Policy

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerRemember the Fast Ferry connecting Rochester and Toronto? Although the idea failed in execution, connecting with the vibrant “Golden Horseshoe” economy made sense then—and still does today. When we compare Rochester to, say, Charlotte or Atlanta or Austin, we can always blame the snow. But that doesn’t work when we look across the lake. What’s their “secret sauce?”

Job Growth 1996 - 2011We may be separated only by a bit of water and a line on a map, but it is clear that Canada’s Golden Horseshoe Region, powered by Toronto, has prospered while Upstate New York (defined here as Rochester, Buffalo and Syracuse) has just held its own. Although these neighboring regions share much—that climate, access to markets, and transportation infrastructure—since 1996 the Golden Horseshoe added more than a third to its employment base and a quarter to its population. Read more »

Rochester Has Lowest Monthly Premiums in the Affordable Care Act’s Exchange

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerThe health insurance mandate, probably the most visible outcome of the Patient Protection & Affordable Care Act (ACA or Obamacare), goes into effect in January. Enrollment in the health insurance exchanges opens October 1, so much attention has been focused on the premiums: Supporters of the law hope for lower rates; opponents have been widely predicting that rates would soar.

In July, premiums for New York State’s Health Insurance Marketplace were released and revealed two notable facts: First, premiums in the individual market are far below current rates. Second, Rochester has the lowest rates in the state. Read more »

What Killed Detroit?

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent Gardner“There but for the grace of God go I.” Big city mayors from across the country consider the plight of Detroit’s Mayor Dave Bing and wonder if they’ll be next. What killed Detroit? There must be someone or something we can blame for the staggering decline of a great city.

Read more »

In Defense of Complex Regulation of Energy Extraction

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerAfter my last column on hydrofracking, I was asked to participate in a forum at the University of Rochester sponsored by Phi Beta Kappa. In my intro, I quipped that I was the guy invited to defend the despoiling of the earth and destruction of the climate. Nobody laughed.

This issue has stirred a level of religious fervor that is reminiscent of both sides of the abortion debate. Yet common to most consequential policy questions, the hydrofracking issue (like Oscar Wilde’s truth) is neither pure nor simple. I understand the appeal of clarity and simplicity—we would prefer that fracking be either boon or bane. Complexity makes our heads hurt.

Let me make the case for complexity. Read more »