Posts tagged ‘unemployment’

Uhhh, So?

Apparently it is some kind of amazing new insight or quasi-scandal that the Fed seems to care more about inflation than unemployment, at least as measured by the language of its meeting notes.

Call me crazy, but the Fed's job is to manage the currency and money supply, not to manage employment or the broader economy.  I have always assumed that it was understood by all that keeping the value of money stable (ie fighting inflation) was the Fed's priority ahead of other economic issues.  What am I missing here?

Krugman vs. Krugman 3 Days Earlier (A New Record For Self-Contradiction)

People like to compare what Krugman writes today in his political hack era with what he wrote in his real economist era.  But this time I do not have to look that far back.

On February 5 and On February 6, Krugman essentially agrees with the OMB review of Obamacare effects on employment, saying that the health care subsidies for lower-income workers would cause millions to work less by reducing the incentive to work, which he called "a good thing."  More here.

On February 9, Krugman returns to a theme he has been hitting on for some weeks now, calling the Republicans anti-science, mean-spririted, etc. for actually believing that unemployment benefits might reduce employment by reducing the incentive to work.  And here is what he wrote on the topic on December 8:

The view of most labor economists now is that unemployment benefits have only a modest negative effect on job search — and in today’s economy have no negative effect at all on overall employment. On the contrary, unemployment benefits help create jobs, and cutting those benefits would depress the economy as a whole.

Yes I understand the shape of the subsidy patterns with income are different, but good God man you cannot reasonably argue that the labor supply curve is sensitive to means-tested government subsidies for one program but not at all for another without a heroic analysis that I cannot imagine and Krugman has not supplied.

 

Other Countries Have Higher Minimum Wages. They Also Have Higher Something Else...

Kevin Drum argues our minimum wage in the US is really low

blog_minimum_wage_median

 

A few quick thoughts:

  • I have a constant frustration that we never see these comparisons just on a straight purchasing power parity absolute dollar number.  Numbers related to income distribution are always indexed to a number that is really high in the US, thus making our ratio low.  I seriously doubt Turkey has a higher minimum wage in the US, it just has a much lower median wage.  Does that really make things better there?  I have this problem all the time with poverty numbers.  The one thing I would like to see is, on a PPP basis, a comparison of post-government-transfer income of the US bottom decile or quintile vs. other countries.  Sure, we are more unequal.  But are our poor better or worse off?  The fact that no one on the Left ever shows this number makes me suspect that the US doesn't look bad on it.    This chart, from a Leftish group, implies our income distribution is due to the rich being richer, not the poor being poorer.

  • Drum or whoever is his source for the chart conveniently leaves off countries like Germany, where the minimum wage is zero.  Sort of seems like data cherry-picking to me (though to be fair Germany deals with the issue through a sort of forced unionization law that kind of achieves the same end, but never-the-less their minimum wage is zero).
  • All these European countries may have a higher minimum wage, but they also have something else that is higher:  teen unemployment (and I would guess low-skill unemployment).

click to enlarge

Admittedly this only has a subset of countries, but I borrowed it as-is from Zero Hedge.  By the way, by some bizarre coincidence, the one country -- Germany -- we previously mentioned has no minimum wage is the by far the lowest line on this chart.

The Two Lame Answers Obama Supporters Are Giving Those of Us Who Have Had Our Health Insurance Cancelled

1.  The first Obama Administration response to people (like myself) who have had their health insurance cancelled because of Obamacare and who are facing much higher future premiums is that many of can expect a subsidy.  Do you realize how awful this is?  Basically they are acknowledging that millions of people who paid for their own health care in the past will now be getting taxpayer money.  Essentially, a huge and unnecessary increase in government dependency.

2.  The other equally awful Obama Administration answer is that our new health coverage will be more expensive because it will be "better".  First, there is no evidence of this -- early returns are that people are paying more for less.  Second, though, this is horribly arrogant.  A $200,000 Maserati sedan is likely "better" than my car I am driving, but given its price I would consider myself worse off if forced to buy a Maserati.  In the same sense, forcing me to by expensive insurance options I don't want is not "better", even if I am making choices Obama's advisers would not make for themselves.  I spent a lot of time shopping for health insurance and running numbers on various cases and picking the best plan for me, and am insulted that Obama does not respect my decision.

By the way, I will remind you of what I said way back in 2007 about government health care proposals

Americans are unbelievably charitable people, to the extent that they will put up with a lot of taxation and even losses of freedoms through government coercion to help people out.

However, in nearly every other case of government-coerced charity, the main effect is "just" an increase in taxes.  Lyndon Johnson wants to embark on a futile attempt to try to provide public housing to the poor?  Our taxes go up, a lot of really bad housing is built, but at least my housing did not get any worse.  Ditto food programs -- the poor might get some moldy cheese from a warehouse, but my food did not get worse.  Ditto welfare.  Ditto social security, unemployment insurance,and work programs.

But health care is different.... what is different about many of the health care proposals on the table is that everyone, not just the poor will get this same crappy level of treatment.  It would be like a public housing program where everyone's house is torn down and every single person must move into public housing.  That is universal state-run health care.  Ten percent of America gets pulled up, 90% of America gets pulled down, possibly way down.

We Are In the Best of Hands: Janet Yellen Edition

The Arizona Republic today reviews a speech given by Yellen in January, 2007 in Phoenix:

It was January 2007 when Yellen, then head of the Federal Reserve Bank of San Francisco, spoke here about financial literacy before transitioning into comments about the economy — comments that now look remarkably unperceptive.

Back then, months before the real-estate and banking crisis took down the economy, Yellen expressed concern that inflation was uncomfortably high while job gains were coming too swiftly.

“If labor markets are as tight as the unemployment rate suggests, then there may be reason for concern about building inflationary pressures,” she said according to my Jan. 18, 2007, article.

Subsequent events showed that inflation was the last thing we had to worry about, while the lack of jobs has emerged as a central drag on the economy. Back then, U.S. unemployment was around 4.5 percent. But after the recession took hold, it more than doubled, peaking at 10 percent in late 2009. At 7.3 percent currently, it remains well above where it should be this far into an economic recovery.

In contrast, core consumer inflation (which excludes food and energy costs) of 1.8 percent today has hardly budged from the 2.2 percent rate that had Yellen all worked up back then.

In another comment during her Phoenix talk that now looks wildly off-base, Yellen, who later was named vice chair of the Fed’s board of governors, said recession risks had receded despite lingering weakness in housing. She cited the Valley as a place where home-price appreciation had come down from unsustainably high rates of increase.

The Great Recession, as we all now know in hindsight, began later that year, triggered by a home-price slide of epic proportions.

I don't want to beat her up too bad for missing the bubble burst, since most everyone did.  They also all missed the last bubble burst, and the one before that, etc.

This is what makes me crazy:  not that these folks were wrong, even consistently brutally wrong, but that they display absolutely no modesty in their actions given that they were so wrong.  They propose policy steps, such as seemingly eternal QE, that are astoundingly risky unless one assumes that they have a very, very good grasp on exactly where the economy is going.  Which they clearly never have had in the past.  If they acted like they had been wrong most of the time, then I would have little to criticize.  But to be consistently wrong and then make huge risky bets as if you have reliable predictive powers is hubris of the worst sort.

Officious Insanity in Alabama

I got a crazy inquiry from the state of Alabama today.  I can't reproduce it without redacting a lot of confidential numbers and such, but essentially they said that we had originally filed to pay unemployment taxes in Alabama in March of 2009, but our first payroll report was not until April of 2009.  I said, sure, once we knew we were going to start business in Alabama, I applied for all my Alabama registrations at one time to make sure they were in place for the start of operations (this includes corporate registration with the secretary of state, request for a taxpayer ID number,  eGov account, state sales tax, state lodging tax, state boat rental tax, County sales tax, county boat rental tax, unemployment tax, and employee tax withholding).  I am sure I am forgetting a few, and to make things more fun, every state is different.  Tennessee, for example, has an entirely different set of tax types for businesses that I still do not fully understand.

Anyway, apparently most of these registrations must be obtained in advance, before starting business.  BUT, at least in Alabama, I was told today it is ILLEGAL (yes, they used that word) to register for the unemployment tax system before your first payroll in the state.  Apparently, one must register in arrears.  Because of this, I was told my account has to be shut down and I have to be issued a new account number  (which of course means more paperwork for me making the switch at my payroll company).   All of this over 4 years later because I did not have any payroll in one month and had the naive notion that it was better to have all my government wastepaper in place before I started operations.  I got the strong impression that this was the results of bureaucrats searching hard for something to keep themselves busy.

Sigh.

Blast from the Past

I have not reread this little classic article from 9 years ago, until a customer in California found it and complained that it was outrageous that the state would actually allow such a person as its author to operate anything in a state park.  So I suppose it is worth relinking, if just for that reason.  Most of it holds up pretty well, though I regret the jab implying that progressives supported suicide bombers.  Here is an example:

Beyond just the concept of individual decision-making, progressives are hugely uncomfortable with capitalism.  Ironically, though progressives want to posture as being "dynamic", the fact is that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  That is why, in the end, progressives are all statists, because, to paraphrase Hayek, only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave.

Progressive elements in this country have always tried to freeze commerce, to lock this country's economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our description of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it.

This story of progressives trying to stop history has continued to repeat itself through the generations.  In the seventies and eighties, progressives tried to maintain the traditional dominance of heavy industry like steel and automotive, and to prevent the shift of these industries overseas in favor of more service-oriented industries.  Just like the passing of agriculture to industry a century ago inflamed progressives, so too does the current passing of heavy industry to services....

Take prescription drugs in the US - isn't it pretty clear that the progressive position is that they would be willing to pretty much gut incentives for any future drug innovations in trade for having a system in place that guaranteed everyone minimum access to what exists today?  Or take the welfare state in Continental Europe -- isn't it clear that a generation of workers/voters chose certainty over growth and improvement?  That workers 30 years ago voted themselves jobs for life, but at the cost of tremendous unemployment amongst the succeeding generations?

Obamacare-Driven Stagnation

From the file of things that are absolutely obvious to business owners, and a total shocker to the pundit and policy class:

In its latest monthly report on economic conditions across the country, the Federal Reserve points to Obamacare as one reason the unemployment rate has remained near or above 8 percent under the current administration.

That’s what Sally Pipes, president of the Pacific Research Institute, writes in an op-ed piece for Forbes magazine.

The Fed’s so-called “beige book” noted that employers across the country have “cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff,” Pipes says, adding that as more businesses learn about Obamacare, “the more they’re coming to realize that affordable care” is the last thing it will provide.

Here is my attempt to illustrate the same thing in one chart (net monthly job creation, which Kevin Drum helpfully posts each month):

click to enlarge

I will revise this chart later - this is actually public and private totals.  When you look at private only, the April 2010 peak goes away (that was temporary census hiring) and the chart has an even more stark inflection right there in March 2010 when Obamacare was passed.

 

War and Stimulus

I had an argument about the (economic) stimulative effect of war the other night.  As usual, I was not entirely happy with how I argued my point in real time (which is why I blog).  Here is an attempt at an improved, brief answer:

One of the reasons that people often believe that war "improves" the economy is that they are looking at the wrong metrics.  They look at unemployment and observe that it falls.  They look at capacity utilization and observe that it rises.  They look at GDP and see that it rises.

But these are the wrong metrics.  What we care about is if people are better off: Can they buy the things they want?  Are they wealthier?

These outcomes are hard to measure, so we use unemployment and GDP and capacity utilization as proxies for people's economic well-being.  And in most times, these metrics are reasonably correlated with well-being.  That is because in a free economy individuals and their choices guide the flow of resources, which are dedicated to improving what people consider to be their own well-being.  More resources, more well-being.

But in war time, all this gets changed.  Government intervenes with a very heavy hand to shift a vast amount of the resources from satisfying people's well-being to blowing other people up.  Now, I need to take an aside on well-being in this context.  Certainly it is possible that I am better off poor in a world with no Nazis than rich in one dominated by Nazis.  But I am going to leave war aims out of the concept of well-being.  This is appropriate, because when people argue that war stimulates the economy, they are talking purely about economic activity and benefits, and so will I.

What we find is that in war time, unemployment is down, but in part because young people have been drafted (a form of servitude) to fight and die.  Are they better off so employed?  Those who are left find themselves with jobs in factories with admittedly high capacity utilization, but building things that make no one better off (and many people worse off).  GDP skyrockets as government goes deeply in debt to pay for bombs and rockets and tanks.  This debt builds nothing for the future -- future generations are left with debt and no wealth to show for it, like taking out a mortgage to buy a house and then having the house burn down uninsured.  This is no more economically useful than borrowing money and then burning it.  In fact, burning it would have been better, economically, as each dollar we borrowed in WWII had a "multiplier" effect in that it destroyed another dollar of European or Asian civilian infrastructure.

Sure, during WWII, everyone in the US had a job, but with war-time restrictions and rationing, these employed people couldn't buy anything.  Forget the metrics - in their daily lives Americans lived poorer, giving up driving and even basic staples.  This was the same condition Soviet citizens found themselves facing in the 1970s -- they all had jobs, but they could not find anything to buy.  Do we consider them to have been well off?

There is one way to prosper from war, but it is a terrible zero-sum game -- making money from other people's wars.  The US prospered in 1915 and later 1941 as Britain and France sunk into bankruptcy and despair, sending us the last of their wealth in exchange for material that might help them hang on to their existence.  Ditto in 1946, when having bombed Japanese and German infrastructure into the stone age. we provided many of the goods to help rebuild them.  But is this really the way we want to prosper?  And is this sort of vulture-like prosperity even possible with our inter-woven global supply chains?  For example, I can't see a China-Japan war being particularly stimulative for anybody nowadays.

I Would Go Where the Jobs Are

Bloomberg does a ranking of where one should go if he is unemployed.  Before we go to their ranking criteria, lets think about what criteria I would recommend to someone:

  1. Go where the jobs are.  Duh.  Pay particular attention to where there are jobs that match your skills, but in general a rising tide will lift all boats (e.g. you don't just have to be an oil field worker to find opportunity in North Dakota, they are paying a fortune for waitresses and retail clerks to handle the new demand).
  2. Look at pay for your skills vs. cost of living.  Manhattan may pay the most for waitresses but living costs there are insane.  You can get good work in Vail, Colorado over the winter but good luck finding a low cost place to live anywhere nearby.
  3. Think about tax rates.  You may be exempt now, but hopefully as things get better you will care about income tax rates, and if you are unemployed you certainly are going to care about sales tax rates

OK, so let's look at Bloomberg's ranking criteria.  They also have three:

  1. Unemployment rate.  So far so good.  Go where the jobs are.
  2. State unemployment payment rates.  Seriously, their criteria is not cost of living or average payments for new workers, but how much one can extract from the government for NOT working?  But OK, this still makes some sense  (though there are a lot of barriers to crossing state lines for a better unemployment deal).
  3. Income inequality.  WTF?  What in heavens name does this have to do with unemployed people and how easily they can improve themselves.  Is this psychological -- ie you will feel worse about being unemployed if there are a lot of rich people around?  The average unemployed American is a service worker (if you are a skilled manufacturing worker, say a machine operator, and can't find work, you are in a minority).  Rich people drive demand for service workers.

Soft Head, Soft Heart Argument

Bryan Caplan asks:

So I propose a simple challenge to pave the way to my refutation: Tell me how to sell the abolition of the minimum wage to the typical Feeling American.

Please don't give me any "hard heads, soft hearts" answers.  Give me "soft heads, soft hearts" answers.  You're trying to persuade Oprah Winfrey, not Data from Star Trek after he gets his emotion chip.

I am not sure what makes for a soft head argument, but lots of talk about oppressors and racism combined with argument by anecdote rather than facts felt right, so this was my shot at it:

Bobby is a black teen in Chicago. Since he has just 9 years old, the only way he could support his family and survive in his neighborhood was to join a gang and deal drugs.

After his recent arrest, Bobby wants to go straight, to escape the cycle of crime and violence into which he has become trapped. But no one will hire him without experience. He needs a history showing he can do simple things, like show up reliably to work on time, cooperate with other employees, and interact well with customers.

Bobby would be willing to work for free to gain this experience, to get a toe-hold on the simple skills many of us take for granted. Be he can't. he is barred by law. He cannot legally be offered a job for less than $8.25 an hour, a wage he could one day earn but right now lacks the basic skills to justify.

The minimum wage raises the first rung on the ladder of success higher than Bobby can possibly reach. This is not an accident. Early proponents of the minimum wage in the early 20th century supported it precisely because it protected white workers from competition from blacks attempting to enter the work force. The minimum wage began as, and still is, a tool of oppression,preventing young men like Bobby from gaining access to good employment.

Today, the unemployment among black teens has risen to nearly 40%. This is because the government has been working for years to help older white workers with political clout keep men like Bobby out of the workforce, and the minimum wage is their most powerful tool for doing so.

Ha! Not in California

Eugene Volokh is writing about a case against an attorney who defrauded his firm.  The details are not important, what caught my eye is what is highlighted below:

Once again, this case does not turn on the bare fact that Attorney Siderits wrote-down his time; this case is about Attorney Siderits abusing his write-down discretion and lying to his law partners in order to collect almost $47,000 in bonuses to which he was not entitled. Attorney Siderits cannot seriously contend that firms must have a written policy forbidding stealing and lying before a misconduct charge for one of these actions can be sustained.

That certainly makes sense, but it does not apply at the California EDD, which administers (among other things) the state unemployment insurance program.  We terminated an employee for accepting money from a customer to provide a service, then pocketing the money and not providing the service.  I call this "theft", and had assumed all would understand that stealing from customers is a firing offense.   When California sent out its unemployment paperwork, we said this employee had been fired "for cause", which in many states means that they are ineligeable for full unemployment payments.

However, after some back and forth, I was eventually informed by the EDD that since I did not have an explicit policy in the employee manual that said "employees may not steal money from customers", then they could not recognize that she was fired for cause.  Even if I had put that in the manual, it probably would not have counted because the next thing EDD asked for is something in writing proving, with the employee's signature, that she had read that passage.   And from past experience with the EDD, my guess is that they likely would not have accepted firing on the first offense, but would have insisted we needed to have her steal from multiple customers, with written warnings each time, before we terminated her.

Basically, what this all means is that while the law technically says people can't be paid unemployment if fired for cause, California has made the standards of proof so absurd that this requirement is meaningless.  Everyone is going to get unemployment.

As it turns out, there is a silver lining from this lack of diligence by the state.  My business is seasonal and I can only offer summer work.   Most of my employees are happy with this, as they like to take the winter off (many are retired).  One is not supposed to collect unemployment if he or she is not actively seeking work, but my employees have discovered that California does zero dilligence to check this.  So some of them lie and say they are looking for work over the winter when they are not, and collect unemployment.  I know of two couples who spend their winter in Mexico but still collect their California unemployment like clockwork.   Not only is California not dilligent about it, but when I tried to report someone I knew who was collecting unemployment but not even in the country, I was threatened by the EDD official that I was risking substantial personal liability by submitting such a claim and opening my self up to civil suits and even prosecution for harassing the worker.  So of course I dropped it.

So what is the silver lining?  California is so eager to hand money in the off-season to support my employees' seasonal vacations that my unemployment insurance premium rate is already the worst possible.  My rates can't go any higher.  So if they insist on giving state money to a thief, it's not coming out of my pocket.

A Quick Reminder to Swedish Workers

Apparently Swedish unions are demanding a looser monetary policy

Forget Chuck Schumer's cat-out-of-the-bag 'get back to work' comments to Bernanke, now it is union-leaders who are advising the world's central bankers. "There is a not a single reason not to lower rates" exclaims Sweden's trade union confederation to the central bank as he begins negotiations with employers on wage deals for next year. His demands (for lower rates) are "far from excessive" and he adds "should not cause inflation" as Swedish organized labor have "never called for levels that ... could not be supported economically."

Inflation and monetary debasement have always been Progressive favorites -- until, of course, they were not.  Consider the plight of the worker in Weimar Germany

By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.

It was total hell.  If a worker's family member could not find something to buy in the morning with the worker's morning pay packet, the money was worthless by dinner time.  Not to mention the incredible lost productivity of all those man-hours spent running around trying to find goods on shelves (of which we got a small taste post-Sandy, as people spent hundreds of dollars of their own time waiting in queues because the government would not let gas station owners charge them an extra $20 for scarce gasoline).

Worse Than I Thought

I always suspected government jobs programs and job training programs were a waste of time.  I never imagined they were total vaporware:

"There are no jobs!" That is what people told me outside a government "jobs center" in New York City.

To check this out, I sent four researchers around the area. They quickly found 40job openings. Twenty-four were entry-level positions. One restaurant owner told me he would hire 12 people if workers would just apply.

It made me wonder what my government does in buildings called "job centers." So I asked a college intern, Zoelle Mallenbaum, to find out. Here's what she found:

"First I went to the Manhattan Jobs Center and asked, "Can I get help finding a job?" They told me they don't do that. 'We sign people up for food stamps.' I tried another jobs center. They told me to enroll for unemployment benefits."

So the "jobs" centers help people get handouts. Neither center suggested people try the 40 job openings in the neighborhood.

From John Stossel, who has a lot more at the source link.

My Abusive Spouse Just Offered Me Flowers

I got a call today from the National Conference of Mayors.  They wanted to send somebody by to talk to me about just how committed these great folks were to small business success.

The call began poorly, as their representative tried to use a tactic I mostly only get from penny-stock boiler rooms - pretending that she and I had talked some time in the past and that I had committed to meeting with her.  I suppose this tactic might have worked with a frazzled exec, but it is one sure fire way to immediately get me pissed off in a phone call.  After telling her that she and I had no such call and that I did not appreciate the cheap telemarketing tactic, I said that I had absolutely no desire to help the mayors put some fake pro-business patina on their activities that are generally hostile to commerce and free markets.   I told them that I did not want a subsidy, handout, any special access, training programs, etc., I just wanted to be left alone.  I was not going to participate in some program where I get my picture taken shaking some politicians right hand while he is whacking me with a stick with his left.  The representative, to her credit before she hung up, admitted she gets this reaction a lot.

One only has to look at their "plan" (pdf)  to see what their vision entails for "helping" small business.  Here is a summary of the planks:

  1. More Federal spending on local infrastructure
  2. More Federal unemployment spending and lower Federal payroll taxes
  3. Create new Federal subsidy and loan programs and job training programs for businesses in favored, sexy-sounding industries (e.g. "manufacturing" or "high-tech").  I presume someone starting a restaurant or hair salon or without any political clout need not apply.  To their credit they also advocate free trade agreements and visa reform, though they then lose that credit by also advocating failed ideas like "trade adjustment assistance" and "metropolitan export plans"
  4. More Federal spending in urban areas (police, job training, affordable housing, community development).

As will not be surprising, absolutely nothing in the Mayor's plans dealt with actual issues under their control, such as business, occupational, and occupancy licencing reform.   Also not surprisingly, the mayors call for hundreds of billions of dollars in new Federal spending narrowly aimed at urban areas without once explaining why these can't or shouldn't be funded locally.  If Los Angeles wants more money for its police, or trains, or schools, and if that spending has real demonstrable value to the city, then why can't they sell the new taxes and spending to their own citizens?  Why do they need the money from the Feds (ie from the rest of us)?

But you can just see the corporate state a work.  A few companies will cynically climb on board, knowing this is all BS, but also knowing that they will get a nice subsidy or sweetheart project in exchange for letting the majors check their "pro-business" box  (pro-business used here as distinct from pro-market).

 

It's A Mystery Why the European Economy is Not Growing

European economic problems must be due to the "austerity" (which means, in popular Leftist use, not growing government spending faster than the rate of inflation).  I am sure this kind of thing has nothing to do with high unemployment rates.  I would certainly be really excited to hire more employees under these conditions:

For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe’s highest court ruled that workers who happened to get sick on vacation were legally entitled to take another [paid] vacation.

“The purpose of entitlement to paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure,” the Court of Justice of the European Union, based in Luxembourg, ruled in a case involving department store workers in Spain. “The purpose of entitlement to sick leave is different, since it enables a worker to recover from an illness that has caused him to be unfit for work.

Workers Comp. and Unemployment

Breaking news from California:

The Workers' Compensation Insurance Rating Bureau (WCIRB) made it official and submitted a mid-year filing for a 9.1% increase in the pure premium advisory rate that Insurance Commissioner Dave Jones approved less than six months ago. The proposed July 1 increase follows the 37% increase that Jones approved for January 1 that was hidden by the change in benchmarks for pure premium rates that was made at his request....

The Bureau insists that an increase of this magnitude is necessary to combat the continued deterioration in the claims experience, as well as an uptick in claim frequency in the 2010 accident year. Much of the increase will also go to pay for the higher loss adjustment expenses carriers are incurring fighting liens and litigating permanent disability claims. Projected ALAE costs are up to $11,403 per indemnity claim for the 2011 accident year compared to $10,698 the year before.

A 9.1% increase a half year after a 37% increase is just crazy.  This tends to confirm three issues I have written about before:

  1. People are filing workers comp claims as a substitute for or a supplement to unemployment.  Our company has seen a significant increase in people "coincidentally" suffering an injury on one of the last few days, and particularly the very last day, before they are to be laid off.  Only such fraud explains an increase in claims when economic activity is way down, particularly when more dangerous professions like construction employment fell much more than office employment in the recession.  We have also seen, by the way, an increase in frivolous labor lawsuits in CA coincident with the economic decline.  A year ago I had an employee in CA tell me that she had attended a brainstorming session the night before among several of my ex-employees trying to generate ideas for ways to sue our company.  I can't wait for an improvement in the economy when the returns of working are higher than the returns of brainstorming ways to extract money from our company via the legal system.
  2. California in general does a bad job of policing workers comp. fraud.  Woe to the employer that actually attempts to question an outrageously suspicious claim.  Last time I tried to do so in CA I got slapped with a lawsuit.
  3. All states do a terrible job policing permanent disability claims.  I hire a lot of older workers.  I can't tell you how many people show up at my door trying to be paid under the table because they don't want to endanger their permanent disability by having a record of getting paid for doing very physical outdoor work for us.  They assure me they are 100% capable to do heavy physical labor.  Since I don't pay anyone off the books, they end up finding work elsewhere.   Many of you may not believe such people exist, but I have met a number of folks who consider getting a permanent disability, or at least something a doctor will testify is a permanent disability, the equivalent of hitting the lotto.  I have even been sued by a woman for submitting testimony to the social security administration that might have harmed her chances of getting a permanent disability ruling.  The lawsuit stated that if she was denied the disability payment after I testified that I had seen no evidence of any limitations in what she could do on the job,  that I should be liable for paying her the lifetime amount she would have gotten.  So I wimped out and withdrew my testimony and let the taxpayers pay her rather than farting around with a lawsuit.

Trying to Start a Business in Tennessee

As I wrote previously, I am entering business in Tennessee, trying to reopen some closed TVA campgrounds.  I was initially pissed off that Tennessee is one of the few states that double taxes S-corp earnings.  I expect this kind of BS in California, but I keep finding more Tennessee taxes I have to pay.  Here is what I have so far:

  • Pay annual Secretary of State registration fee (Fixed $)
  • Must collect state sales tax (% of revenue)
  • Must collect county sales tax (% of revenue)
  • Must collect a county lodging tax (% of lodging revenue)
  • Pay state Franchise tax (% of net worth)
  • Pay state Excise tax (% of corporate earnings, even for S-corp)
  • Pay something called a county business tax (% of revenues)
  • Pay annual registration fee for county business tax (fixed $)
  • Withhold employee state income taxes (% of wages)
  • Pay state unemployment taxes (% of wages)
  • Pay state individual income tax (% of pass-through corporate earnings)
  • Pay county property tax (% of assessed asset value)

I am sure I am missing a few.  Except for #2 and #3 which are collected together, every single one of these requires a separate registration and separate monthly or annual filing.

Science and Politics

Matt Welch's description of science and politics strikes a chord

Even more interesting than the soft consensus in favor of government intervention was a strong undercurrent that those who disagreed with it were guilty of denying basic truths. One of the questions from an audience full of Senate staffers, policy wonks, and journalists was how can we even have a rational policy discussion with all these denialist Republicans who disregarded Daniel Patrick Moynihan’s famous maxim that “Everyone is entitled to his own opinion, but not his own facts”? Jared Bernstein couldn’t have been more pleased.

“I feel like we’re in a climate in which facts just aren’t welcome,” he said. “I think the facts of the case are that we know what we can do to nudge the unemployment rate down.…I think the consensus among economists is that this is a good time to implement fiscal stimulus that would help create jobs and make the unemployment rate go down. I consider that a fact.”

In science, you insist most loudly on a fact based on how much it has withstood independent peer review. In politics, it’s closer to the opposite—the more debatable a point is, the more it becomes necessary to insist (often in the face of contrary evidence) that the conclusion is backed by scientific consensus

Another Freaking Tax

Every time we enter business in a new state, it is a constant challenge to figure out all the taxes we owe.  In Alabama, for a single campground, we file and pay

  • Alabama lodging tax
  • Alabama sales tax
  • Alabama boat rental tax
  • Marshall County lodging tax
  • Marshall County property tax
  • Marshall County sales tax
  • Marshall County occupancy tax
  • Marshall County health certification
  • Alabama unemployment tax
  • Alabama withholding tax
  • Alabama personal and corporate income tax

So of course we got billed for a new one today, for the Alabama Business Privilege Tax, apparently a corporate net worth tax.  No forms or notices are sent for this tax until after it is due, when one owes about 80% in penalties.

By the way, pay the government for the "privilege" to conduct commerce is one of those government euphemisms that drive me up a tree.

"Unexpectedly"

From Zero Hedge

 in 2011 initial and continuing [unemployment] claims have been revised higher the week following [their initial release] 91% and 100% of the time, respectively. A purely statistical explanation for this phenomenon is "impossible."

Wow.  Something like 50 out of 50 times, the Administration has under-estimated the economic bad news in its statistics.  Just bad luck, I guess.

Jobs and Texas

I barf when politicians take credit for private job creation.  At best, they stay out of the way.  At worst, they erect barriers to make growth and job formation more difficult.  So I am not ready to credit Rick Perry with Texas' economic performance over the last several years.

But despite enormous work on the left to try minimize the Texas performance, it does appear to be very impressive.  The author observes that merely comparing unemployment rates across states masks the huge job growth advantage in Texas.  Texas has higher relative unemployment compared to states like CA not because it is doing poorly, but because hundreds of thousands of people have given up on states like CA and moved to Texas looking for work.

Save A Worker by Keeping Him Unemployed

Here is a portion of Kevin Drum's argument against lowering the minimum wage to stimulate employment

Is this really what we've come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we're willing to throw them under the bus, who aren't we willing to throw under the bus?

Part of the problem is that Drum is absolutely convinced that our intuition (and, oh, 200 years of experience) that demand curves slope downward is flawed in the case of low-skill labor.  He has read the two studies out of a zillion that, contrary to all the others, suggests that minimum wage increases may not affect employment and has convinced himself that these are the last word in the science.    As an employer who has laid people off and made larger and larger investments in automation with each successive minimum wage increase, I will continue to trust my intuition that higher minimum wages makes hiring less desirable.

I will say, though, that there are a number of reasons why a change in the minimum wage may have a smaller overall effect nowadays than one might expect.  That is because the minimum wage vastly understates the cost of taking on an unskilled worker.  Even with a lower minimum wage, these government costs will remain:

  • Soon, the employer will have to pay for the employees health care, a very expensive proposition
  • Workers comp and other labor taxes add as much as 20% to the cost of labor
  • In states like California, bad employees have an increasing number of avenues to prevent employers from firing them, from appeal to an ADA law stretched out of recognition to any number of other legal presumptions that employers have to just live with hiring mistakes

Hiring employees used to be a joyous occasion.  Now I cringe and wonder what kind of liabilities I am taking on.

But back to Drum's statement, how sick is it that allowing people off the dole to actually get a job is called "throwing them under the bus?" Drum, for someone so fired up to make decisions based on academic work, sure is willing to put on blinders to all the academic work that actually characterizes who works for minimum wage and how long they stay on it.  He who argues against making policy based on flawed intuition is operating here entirely from a flawed perception of who minimum wage workers are.  He seems to want to picture families of eight supported for decades by someone trapped in the same minimum wage job, for whom a raise only comes when Congress grants it, but that is simply not the reality.

Just as one metric, for example, the percentage of all wage and salaried workers making minimum wage or less fell from 8.8% in 1980 to 1.7% in 2008.  In fact, the actual absolute number of people making the minimum wage fell by over 2/3 during these years.    I would argue that this number is probably too low.  A dynamic labor market needs to bring people in at the bottom, and raising the minimum wage makes this harder, and so traps people into unemployment.  In fact, the number of unemployed in this country is at least 6 times larger than the number of minimum wage workers.

If we dropped the minimum wage, only a fraction of the 2 million or so who make the minimum wage would see their wages go down, but lets assume a quarter of them would.  We are therefore trying to prop up wages for 500,000 but at the same time creating barriers for 13.9 million people who are unemployed and are looking for work.  And it is low-skilled workers who we are most particularly throwing under the bus by keeping minimum wages high.

More Upward-Sloping Demand Curves

Other than the demand among the status-conscious for Chanel handbags, the demand for a product or service generally decreases as its price decreases.  This is an observation so trivial it is almost stupid to write down. But I guess the point is still not understood in Washington.

"The Center for American Progress, often called the think tank for the Obama White House, recentlyrecommended another increase in the minimum wage to $8.25 an hour. Though the U.S. unemployment rate is 9.1%, the thinkers assert that a rising wage would "stimulate economic growth to the tune of 50,000 new jobs." So if the government orders employers to pay more to hire workers when they're already not hiring, they'll somehow hire more workers. By this logic, if we raised the minimum wage to $25 an hour we'd have full employment."

The Statist's Wet Dream

I find it absolutely unsurprising that Paul Krugman was enthralled by the vision of a science that can be used by a few people to control the actions and futures of all humanity.  He said “I want to be one of those guys!”  I was captivated by the vision in the book as well, but my thought was always "how do we avoid these guys?"  The second two books were about how government planners used mind control to deal with humanity whenever individuals had the gall to circumvent their plans.  Lovely.

If I remember right, Asimov wrote the Foundation after reading the Rise and Fall of the Roman Empire.  The notion of how much of history is inevitable due to large forces (e.g. economics) vs. how much is due to the actions of individuals and what historians now call contingency (e.g. luck) is an endlessly fascinating thing to debate, and I found the Foundation books to be interesting thought exercises along these lines.  But it certainly didn't inspire my life's goals, any more than Dune made me wish for a religious jihad.

I can see the secret Second Foundation scratching their heads now in their secret lair (which turns out to be in the New York Times building in the middle of New York City but that's a spoiler from the third book).  The equations show right here that a trillion dollar stimulus should have kept unemployment below 8%....