Category Archives: Economics

Major League Winners and Major League Losers

With several sports leagues in full swing or in the playoffs, this seems like a good time of year to highlight recent work on using sports as an economic development tool.  Mark Rosentraub wrote both Major League Losers in 1999 which highlighted failed sports-based economic development.  He followed the work up in 2009 with Major League Winners, which found that with careful planning and execution, sports-based economic development had worked in some more recent cases.

For another view, Public Dollars, Private Stadiums by Kevin Delaney and Rick Eckstein provides an account of the process through which sports teams received public subsidies.

Finally, Sports, Jobs, and Taxes edited by Roger Noll and Andrew Zimbalist is a collection of essays that explore the economics and economic development potential of sports and stadia.

Counterpoint to Friedman’s Assessment of PISA

Thomas Friedman, in the New York Times, has noted that the United States continues to trail other countries on the PISA assessment of student learning in primary and secondary school.

One important note on the PISA tests, and other international benchmarks of student learning, is that the United States has  never led the globe in student achievement — it has always been about where it is today, sitting around 15th place internationally, yet we have the largest GDP and most productive workforce. This suggests that educational achievement is the only factor in productivity and employment.  As Friedman notes, this is partly due to the fact that we once had an economy rich in manufacturing — which required less skill in the workforce. Some believe the preference toward education and skill is overstated though.   Harry Holzer and labor economists have shown that there is still, and will continue to be, a significant middle skill job sector in America.  What they find is that these middle jobs will require some postsecondary training — in programs that may only be a few weeks or months at venues like community colleges.

Most American workers (about 70 percent currently) do not work in jobs that require a college degree (nor does 70 percent of the population hold the degree).  Even as the country becomes more “high tech” and more “new economy” only 40 percent of workers (in the highest of estimates) will need a college degree.  The major gap in learning is for workers who will need “some” postsecondary training, but not a degree.  Our educational system doesn’t address the educational needs for future non-degree holding workers as well as it does for those continuing to a four year college.

Friedman is also correct that students who do best on PISA tests feel some ownership over their education.  America could build more student “ownership” over education by providing more than one track of learning.  This could happen by building out a significant career and technical training program in America’s schools.  The Harvard Graduate School of Education makes a similar argument in its important Pathways to Prosperity report.

 

Encouraging Jobs Report

The recent jobs report shows that unemployment is down to 7.0 percent and that the economy grew by 203K jobs.  The most encouraging part of the report is that unemployment was down because of increased hiring, not because the labor force shrunk.  More people who wanted work had it rather than people giving up on finding work.  455K people joined the workforce in November.

203K jobs is steady (if not grand) improvement in hiring.  The Washington Post suggests that this report shows that the government shut down had little effect on the economy and that the Federal Reserve could consider pulling back its bond buying program to support economic recovery.  They also suggest that holiday sales will be 3 percent higher than last year – another sign of recovery.

Adding One To Ezra Klein’s 5 Worst Things About The Jobs Market

Ezra Klein from the Washington Post has a great analysis of today’s somewhat disappointing jobs report.

I’d like to add one point.  We need to create even more jobs to keep up with population growth.  Klein gets at this in his third point about weak job creation, but we need to remember that we aren’t just aiming at getting back to pre-recession job levels.  America is a growing country and getting back to pre-recession jobs levels in 2023 will mean that the country will still have high unemployment and numerous people out of the job market – we have to do better and create jobs faster.

The Downside of Incentivizing College Loan Debt or Home Debt For Educated Workers

Garance Franke-Ruta recently wrote a piece for the Atlantic suggesting that using debt reduction to incentivize young, debt-strapped professionals could be a good way to increase urban populations, especially in distressed cities.  Given that the country has a serious student loan debt problem AND a number of distressed cities, it seems like the suggestion could be a way to “kill two birds with one stone.”  A policy like that could help reduce student loan burdens as well as bring people to a city that would not have otherwise lived there.

In fact, policies like this have been close to passing.  Recently the New Jersey Legislature considered providing refundable tax credits (that would turn into student loan payments) to college educated residents that moved to either Jersey City, Camden, or Trenton.  New Jersey proposed giving new college educated residents $7,000 for two years of residence in one of the three cities.  (The program did not pass).

On first brush a policy like this – paid for either by federal, state, or local government – seems to make a lot of sense – it could reduce student loan debt and get people to move into a city.  But from both the national, state, or local government perspective, there are serious flaws in the implementation.  I’ll outline a few of them for each level:

National

Regressivity – The main critique I have at the national level is that a program like this is regressive.  It gives money to college graduates who are likely to make more money than their non-degree holding counterparts.  National policy – with respects to higher education – are about making it more affordable, therefore more equitable and accessible to more people.  The country does have a student loan debt problem, but there is a good chance that providing money to solve the debt problem without addressing the cost of education would not do this.  As incentives were more available, college costs will simply “price in” the incentive and  outpace any tax credit or debt reduction programs.  Student debt is a symptom of flawed student finance.

A progressive program would increase access to college for people who could not afford it, thereby increasing access.  The proposed program in the Atlantic rewards people who were able to finance and finish college – a group that least needs incentives.  This is a similar critique to those who would like to see the mortgage interest deduction eliminated or phased out at higher incomes.

Congressional District Politics – urban policy has been limited because of Congressional District politics.  How would a program like this pick the “winning” cities where incentives would be provided and “losing” cities where they weren’t.  Hopefully Congress would use some type of objective criteria to identify the cities most in need of highly educated new workers and residents or that would benefit most from their presence.  (Most in need and most likely to benefit are not synonymous either).  But given the history of other urban related policies like Clinton’s Empowerment Zone programs, we should suspect that twice as many cities will be designated with half as much funding.  Alice O’Connor gives a good review of this in her 1999 essay, “Swimming Against the Tide.”

State and Local

State and local policies are similar so I will discuss them at once:

The Enduring “But-For” Problem – young adults want to live in built up, walkable urban areas.  Urbanist and urban planning media presents some evidence of this phenomenon constantly.  Economic developers are criticized for giving unnecessary incentives to businesses that would have come to an area with or without any government intervention.  This is called the “but-for” problem.  Tim Bartik, an economist at the Upjohn Institute for Employment Research, suggests that incentives can be beneficial if a company would not have located in the area otherwise.

If states or cities pay young college educated workers to live within their boundaries they should be sure that the new residents they attract would not have moved to the area “but-for” the student loan forgiveness.  The proposed programs seem to suggest that incentives between $7,000 and $20,000, will be paid one time, in the future after a certain length of residency.  Young college educated adults are smart and intuitively discount future payments, further reducing the value to individuals.  The young bright people might not be swayed to move to an area just by the sum, but would take advantage if they moved to the area for other reasons.

Buffalo Hunting – this is similar to a main criticism of economic development.  Another important assumption of these programs is that a small amount of money will induce the new residents to stay for a long time.  If people stay for a long time, they will ultimately pay their incentive back through taxes and other economic and social benefits.

Economic development sees a small set of “footloose” businesses that move from one locality to another, constantly taking advantage of different tax incentive programs.  Individuals could do this even more easily.  College educated workers are the most mobile people in the workforce and can move more easily than any other workers.  Theoretically, someone could bounce from one residential student debt incentive to the next and pay off all of their loans.  This would be great for that individual, but every municipality or state that gave them money under the hope that they would pay their money back would be left without much return on that hope.  “Clawbacks” or provisions that protect the locality would need to be stronger, but they would reduce the efficacy of the incentives.

Conclusion

Helping distressed cities and making college more affordable and accessible are very important, but I am not sure that incentivizing completion and residential location in this way works to solve the issue.

 

Recapping Lincoln Education and Land Policy @LandPolicy Conference

This post is somewhat belated.  The 8th Annual Land Policy Conference was held by the Lincoln Institute of Land Policy in Cambridge, MA in early June, and this year’s topic was Education, Land, and Location.

Eric Hanushek, an educational and urban economist from Stanford, was the keynote speaker where he gave an overview of research that he had conducted for the OECD that identified a economic benefit to the United States of somewhere in the range of $40-50 trillion dollars (in present terms) associated with closing the achievement gap between minority and white students in America.

The rest of the conference was made up of thorough discussions of national and international research on how land policy and education are inter-related.  Presenters (and chapters in the upcoming volume) will provide a vast overview on some relatively traditional research topics – including how school quality is capitalized in home values and why people without children in schools still support taxes for education (the answer is that it supports home value and community quality according to William Fischel’s “Home-Voter Hypothesis).  The conference papers also covered how newer policies like school choice and residential mobility programs affect individual outcomes in education and the labor market.  While there was some disagreement on the topic, choice and mobility might contribute to further inequality – but this could be just a short term effect.  There were also great papers on homeschooling, the role of segregation in educational outcomes, and how school choice affects municipal transportation costs.

I was encouraged to see urban economics, urban planning, education policy, and land policy being discussed in nuanced and innovative ways! I learned a lot at the conference and the work of the scholars at the Lincoln Conference has influenced by dissertation.

 

There Are More Low Wage Federal Contract Employees than Walmart and McDonalds Combined #workforcedev

The Washington Post published a piece this morning on federal contract employees and their wages.

Study: U.S. taxpayers employ more low-wage workers than Wal-Mart, McDonald’s combined

While the story title would suggest that these workers were directly employed by the federal government, this is not the case, but the federal government has significant control over their employment conditions since it is contracted work.  The workers largely work for contracting companies – some prominent ones like Lockheed Martin and others more inconspicuous like the food service companies at national parks.  These contract workers also do unnoticed work like night time cleaning at federal buildings.  Other workers, like home health aids, are supported through Medicare and Medicaid spending.

Many of these types of jobs have been sourced through contracts rather than direct federal government employment because it helps manage benefit, health care, retirement, and vacation day costs for the government, but it means that over 2 million workers have seen their pay and benefits erode.

The argument in favor of lower wages that contractors pay is that these arrangements are the fair market wage for these workers (the Post quotes the American Enterprise Institute here).  Also, in a era of tight budgets and high national debt, this would represent an increased cost.

Demos, whose report identified the contract employment problem, estimates that increasing wages to reasonable “living wage” standards would increase contract costs by 10% on average.  This is a significant increase, but at the same time, one executive action could reduce the number of workers in tenuous work and living conditions incredibly quickly.  For reference, 2 million workers represents almost 10 percent of adults living in poverty (about half of all people living in poverty are children, who are dependent on their parents and guardians).

The possibility of increasing these workers wages is incredibly appealing because it is under the direct control of the government and it could reach millions of workers quickly.  Raising wages for these workers could make a big difference and deserves further consideration.