A Chart That Screams, ‘Extend Unemployment Benefits!’

Major hat tip to Daniel Indiviglio of the Atlantic Monthly for this chart.

The Chamber is Frustrated by Coal’s Impact on the State Budget

This is the only conclusion I can reach after reading Steve Roberts’ op-ed in the State Journal attacking our report on coal’s fiscal impact on the state’s budget. It’s obvious that Mr. Roberts didn’t read the entire report. In the op-ed, he responds to the report’s findings by calling us “anti” everything and he dismisses us as “activists” and a “so-called policy and research organization.” As most people know, this response is a classical logical fallacy or a serious error of reasoning. In other words, because he can’t argue the facts he shifts the discussion by making ad hominem attacks.

As an exercise, let me break down in bold each paragraph of Mr. Robert’s complaints and identify where his logic has gone awry. Before I do so, let me make it crystal clear that

we are very open to constructive criticism of our report, and there are some debatable points in the paper, but Mr. Robert’s offers no real criticisms – just rhetorical polarization.

1. Activists at the West Virginia Center on Budget and Policy recently publicized an anti-coal report, paid for in part by the Sierra Club and Natural Resource Defense Council . These environmental groups advocate for policies that would end or seriously curtail coal production in West Virginia, causing tens of thousands of miners to be out of work and .”

Are me,  Paul, Linda, Renate and our summer associates “activists”? I can’t speak for everyone, but I would say maybe depending on your definition of “activist.” While we use intellectual reasoning and empirical evidence to find solutions to improve the lives of low and moderate income residents ( aka the “common good’),  the Chamber is a membership based group serving a narrow special interest that doesn’t rely heavily on scientific reasoning. If you wanna call this “activism” than that would be the pot calling the kettle black since pushing policy is the Chamber’s raison d’etre. Moreover, casting the word “activist” as pejorative reminds me a lot of this.

Is our report “anti-coal”? Taken literally, being pro-coal would mean that you would leave coal in the ground and not disintegrate it into the atmosphere. You would want to protect it. However, I don’t think that’s what Mr. Roberts had in mind. He’s employing binary or circular logic, meaning you are either for coal or against coal – no middle ground. Similar to the “support the troops” tropes of the Bush years, this is a crass appeal to emotionalism, a bullying of dissent with the goal of suppressing debate. It would not be deployed if not for the hopeless logical and factual position that Mr. Roberts finds himself in. The primary purpose of our report was to have an honest discussion about not just the benefits (revenue) of the coal industry, but also it’s costs (expenditures).

Our report revealed that state taxpayers heavily support the coal industry,  like most industries. This should not have come as a surprise to Mr. Roberts or the Chamber of Commerce.So the real question is: Are we allowed to have a honest discussion about the costs of coal in West Virginia? Apparently the Chamber thinks this issue isn’t a public concern.

While I can’t speak for the Sierra Club and NRDC, I do agree that they want to dramatically reduce coal production in the U.S. and West Virginia. So i think it is “fairer” to call these groups “anti-coal” because they would like to reduce employment in the WV coal industry. It’s equally important to note that these groups have been leading voices in the fight for “green jobs.”  (not mention that NRDC is a member of USCAP , which is comprised of such left-wing groups as DuPont, Duke Energy, and GE) However, this discussion has very little do with the contents and facts included in the report. This is just another fallacious argument and it doesn’t point to any substantiated criticisms in the report. On another note, as I showed earlier there are not “tens of thousands of miners” in West Virginia. However, there are about 20,00 workers in the coal mining “industry.”

2. “This report was written by people who are staunchly against the energy production industry. Additionally, they oppose job growth in West Virginia by seeking to drive away coal and manufacturing industries. However, through these industries, West Virginia’s economy flourishes and provides workers with competitive wages and benefits.”

We are obviously very supportive of energy production.  And we know Downstream Strategies is very supportive of wind power energy. Unless Mr. Roberts means “coal” energy production. While we have not formed a definitive opinion about coal production in West Virginia, it makes sense to transition away from coal toward a more renewable energy sources.  Especially since it might be a declining industry over the next couple of decades. Bottom line, we think it’s high time to invest our money in sustainable jobs and work towrd economic diversification. Regarding manufacturing jobs, I take it Mr. Roberts never saw this piece Paul and I had in the State Journal or he wouldn’t make such outlandish claims. As we’ve pointed out, jobs in mining and manufacturing do pay well in comparison to most jobs in West Virginia. That said, I don’t know anyone who opposes job growth. This is just ridiculous.

3. “For West Virginia to see progress, and an improved and competitive global economy, we must begin listening to the people who have an ownership stake in West Virginia. Those who have created jobs, invested in a business or are not dependent on government or the philanthropy of others for their survival deserve our focus.

Bummer. I guess we can dismiss all think-tanks and get rid of Visions Shared, Create WV, Imagine WV, Policy Foundation of WV, WVU BBER, and MU CBER. And not to mention all charities and non-profits in West Virginia. Their opinions on West Virginia’s economic future are not wanted; they have no ownership. According to Roberts, we should also dismiss those pesky foundations that have fund economic development projects.

Creating jobs? Technically, since the WVCBP became an organization we have created five FTE jobs and each of us invests a lot of overtime in our business. We also are member of the Charleston Area Alliance. We have a large stake in the future of West Virginia.

Regarding government dependence, every business relies on government for its survival. Without a well-educated workforce, a court system, police and fire departments, a military, laws, no business would survive.

4. “The West Virginia Center on Budget and Policy has a history of supporting policies that would greatly hinder job creators in our state. They support additional government involvement in health care, anti-jobs and anti-economic growth policies and higher taxes for those who create jobs. These policies result in the increase of our national debt.”

Wow. Where to start? Well, similar to his previous criticisms Mr. Roberts doesn’t provide any evidence to the contrary. Do we support additional government in health care? Yes, we do, and so does the AMA and AARP. Government is already responsible for over 50% of health care spending in the US. Does health reform hurt job creation? No, it doesn’t.  If we had the health-case cost of Canada, there would be no long-term budget deficit.

Do we support higher taxes on those who create jobs? Yes and No. It’s important to note that government creates more jobs than any other employment sector. So do I want to tax the government? No.  it seems Mr. Roberts believes jobs are only created by the private sector. While WVCBP supports strong public structures that require a sound and equitable tax system to support job creation, I’m not sure what policy positions we’ve taken that would increase the national debt over the long-term. The central reason for our current national debt is the 2001 and 2003 Bush Tax cuts and the Chamber of Commerce was very supportive of this policy decision and wants to make the cuts permanent. And don’t forget their support for this major unfunded initiative.  According to the non-partisan CBO, the health care reform bill will lower our long-term budget deficit. In fact, the health care reform bill might be the single biggest act in fiscal conservatism in our history. But don’t let facts get in the way. That said, I do think we need to increase the debt temporarily to boost employment.

5. “The West Virginia employees and the state’s budget will be severely hurt by adopting and promoting ludicrous attacks. For instance, the report from the West Virginia Center on Budget and Policy ignores our nation’s most affordable and most abundant energy supply.

I think if Mr. Roberts read our conclusions calling for increases in the coal severance tax and for the creation of an economic diversification fund trust fund  he might have come to a difference conclusion. Each of the policies would put more money into the state’s budget and would create more jobs i.e. more revenue. We export about two-thirds of all coal produced in West Virginia, therefore it’s an exportable tax not borne primary by West Virginians. Moreover, when the state enacted additional severance taxes on coal in 2005 it didn’t appear to curtail production or employment. Put more simple, we advocated for tax increases that would help, not hurt, the state’s budget.

Did we ignore coal? Our report was 83 pages about coal. I don’t think we ignored it. In fact, we talked about our nations dependency on coal and why we need energy diversification. Do we understand that about 50% of our country relies on coal? Yes. Did we recommend to stop coal production tomorrow? No. Did we say that this is an unsustainable path for WV? Yes. Does that mean “stop all coal production” and let’s lay off everyone in the mining industry. No. I don’t know anyone who wants to do this.

6. “Worse, if we continue to restrict domestic energy production and impose new costs and hardships on industries and business, America, from a national standpoint, will be less competitive. Simultaneously, investment will continue to locate overseas, therefore we will be more dependent on foreign supply of energy.

I totally agree if we restrict energy production that it will make the U.S. less competitive. But why not look to the future?

Is this coming from the same Chamber of Commerce that supported NAFTA? As many know, NAFTA, whether you like the deal or not, exacerbated the U.S. trade imbalance and moved investment from the U.S. to Mexico (and not always producing good results). Energy Independence? I seriously doubt the Chamber is worried about this.

7. “Nearly 75,000 West Virginians currently are seeking work. Now is the time to understand the need for energy production, the importance of manufacturing and the urgency of repairing our economy so our families have an opportunity for wage earners to succeed. False claims form a so-called “policy and research organization” will not create jobs or help our West Virginia families.” 

Nothing to disagree in the first two sentences. I couldn’t have said it better myself. However, it’s too bad the Chamber of Commerce is standing in the way of more federal stimulus and the “tax extenders” bill  that would create or save tens of thousands of jobs. When did the Chamber start caring about the unemployed?

As I said before, Mr. Roberts never showed one flaw in the report – so I don’t know what “false claims” he’s referring to. As for the “so-called policy and research organization,” this is nonsense and he knows it. As much as a I abhor the policies from these guys, I do think they are a policy and research organization.

8. “Wet Virginia employers have strong ideas for creating jobs while encouraging investment in our state. Let’s encourage our state leaders to continue to stand up for our energy driven industry and strive to keep workers and their families from ending up in the unemployment lines.”

I don’t disagree with much here, but I’m not sure what a “energy driven industry” is? Manufacturing? While our state leaders should (and they do) address the concerns of the “energy driven industry” they also need to be thinking about our future. This means economic diversification. And the Chamber needs to quite viewing this as a threat to coal. The economy is changing and we need to catch up.

On a side note,  If we want to increase employment Sean has a good idea here.

That’s it for now. Let’s hope the anti-intellectual currents subside and that we can have an open and honest discussion about West Virginia’s future.

 

Moody’s Says OPEB liability Not a Big Factor

As the Daily Mail pointed out yesterday, Moody’s Investors upgraded the state’s bond rating.  As I’ve opined before, how could this happen if the state has a debt “crisis” due to OPEB? The reason is quite simple. West Virginia’s long-term OPEB liability is just one of numerous factors that Moody’s uses to determine our credit score.

Why is our bond rating important?

Here’s Governor Manchin: “The higher bond rating means that West Virginia, including local school
boards, can obtain money to finance major projects, such as
infrastructure, at a lower interest rate. This will enable the state to
do more at a lower cost and thus will have a positive impact on water
and waste water projects as well as certain types of economic
development ventures. The ratings suggest that the state’s bonds are
more attractive and stable for investors, which means that West Virginia
taxpayers get a better deal on the money the state borrows
.”

As Clinton administration adviser James Carville once said: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

The most interesting part of Moody’s report was that it said our credit weakness was our state’s  “above average concentration in the coal industry.” Let’s hope others read this.

On a different note, the state ended with a surplus of $90 million at the end of FY2010. Like we said earlier this was entirely predictable.

Construction/Extraction Sector May Explain Income Disparities Between White and Black Families

African Americans in West Virginia earn significantly less than their white counterparts. From 2006 to 2008, the median family income for white West Virginians exceeded that of black families by over $17,000.  

Obviously, numbers like this – since they are consistent with national trends – are far from surprising. And clearly, many factors are at play here; the gap between the earnings of white folks and black folks cannot be explained away by one correlation or even a handful. 

However, perhaps one contributor to this income disparity that may go unnoticed is the distribution of jobs across various economic sectors – by race. Here is just a glimpse of the state’s labor market:   

Type of Occupation

Percentage of White Employment

Percentage of African American Employment

Construction, Extraction, Maintenance and Repair Occupations

 

 

2005 – 2007

13.2%

6.8%

2006 – 2008

13.4%

4.8%

Service Occupations

 

 

2005 – 2007

17.1%

26.6%

2006 – 2008

17.2%

30.0%

 U.S. Census Bureau. 2005-2007, 2006-2008 American Community Survey. Analysis by Pete Wilmoth.

To me, what jumps off the page is the large disparity between white and black jobs in construction and extraction. By some Census data (2006-2008), white worker percentages in this sector nearly triple those of black workers. And at best, the percentage of white workers in construction and extraction is almost double that of African Americans (2005-2007). 

Unsurprisingly, black workers tend to work more in service occupations. In fact, nearly twice as many African Americans work in service occupations compared to white workers. 

How does this contribute to the racial disparities in income?

Simply put, jobs in construction and extraction pay better than service-oriented work. Take the following example of two such jobs in West Virginia. 

Occupation

Hourly Mean Wage

Annual Mean Wage

Retail Salesperson

$10.67

$22,180

Construction Laborers

$15.22

$31,660

 Bureau of Labor Statistics, Occupational Employment Statistics, Selected West Virginia, May 2009, Retail Salesperson, Construction Laborers.

By these measures, construction work in West Virginia pays about 30 percent more than a position in retail. While these two jobs require difference skills to carry them out, they are both available to workers without a college degree.

Whatever the cause of this extreme under-representation of black workers in the construction/extraction sector, anyone seeking to understand why African American families in West Virginia remain consistently poorer than whites would be wise not to overlook this phenomenon.

To help remedy this problem, the federal and state governments should look to improve education and job training programs that specifically target communities of color. They should also address labor market discrimination, and providing transitional job training for the formerly incarcerated. 

Another good step would be for the state to create an Office of Minority Affairs. In 2010, the WV House of Delegates passed the appropriate legislation, but the State Senate unfortunately refused to follow suit. Hopefully they follow through next year.

Mt. State Jobs Picture Bleak, Especially for Male Workers (Updated)

The jobs picture in West Virginia continues to look bleak. This is especially true for males. The male 2010 1st quarter unemployment rate was 11.6% compared to a strong 4.0% in the last quarter of 2007. While the female unemployment rate increased 2 percentage points since the start of the Great Recession, the male unemployment rate has grown three-fold. This is primarily due to males working in industries hit hardest by the economic downturn, namely construction and manufacturing. Of the 18,100 jobs lost from December 2007 to May 2010, approximately 68% or 12,300 have been in these two industries alone. On the other hand, industries that employ more females have fared better. For example, employment in education and health services has increased by 4,400 since the recession started.

 

If we apply Moody’s Economy.comstate unemployment rateforecast for West Virginia, theunemployment rate for males will drop slowly to 9.6% in 2012Q4 and 5.6%for females. Moody’s and the CBO are anticipating a very protractedrecession, lasting at least 7 years before reaching full-employment inWest Virginia.

As many know, the unemployment rate doesn’t tell the whole story. This is because it doesn’t include workers who have given up looking for work out of frustration (marginally attached) or those that want full-time work but can’t find it. This is usually referred to as the “real unemployment rate” or the ‘underemployment rate.” According to BLS, the underemployment rate (U-6 measure of labor under-utilization)) in West Virginia from 2nd Quarter of 2009 to 1st quarter 2010 was 14.3% while the unemployment rate was 8.6%.

Workforce West Virginia released state employment figures today and our June unemployment rate is 8.5% (seasonally adjusted). This is one-percentage point higher than the national average of 9.5%. The biggest shock was that West Virginia lost about 5,400 state workers in one month. This was the largest drop of any industrial sector.

Taxes NOT a Significant Factor in Business Location Decisions

The Wall Street Journal joined the fray yesterday in making the time honored claim that West Virginia under performs neighboring states because of its tax laws (not to mentioning bashing our late Senator Byrd). It’s important to note that no one, I mean no one, has ever proved this, people just say it all the time.

While taxes can affect behavior, tax payments are just too small of a cost to make a real difference in business location decisions. Taxes pale in comparison to the cost of energy, labor, and occupancy. To put this in perspective, the average annual wage for manufacturing workers in 2009 in West Virginia was $42,806. For Kentucky it was $44,761, for a difference of $1,955. This means a typical manufacturing firm in West Virginia employing 150 people pays almost $300,000 less per year in wages than one in Kentucky. This difference is easily wider than the “possibly” higher marginal tax rate in West Virginia (No, this doesn’t mean I’m advocating for low-wages).

The most important thing to keep in mind when pundits and politicians say West Virginia’s “tax burden” hurts our state’s business climate, is that businesses look at the overall cost of doing business – not just taxes. According the conservative Milken Institute, West Virginia ranks 37th lowest (two spots better than Kentucky) in their 2007 Cost-of-Doing-Business Index.

Business also considers strong public structures. Gary Walton, Director of the Putnam County Development Authority, noted in the Sunday Gazette that one of the key selling points of locating in Putnam County was that it is  “close enough to West Virginia’s largest cities,Charleston and Huntington, to pull from a labor force of more than100,000 people” and that “the county [was} surrounded by many of the state’s colleges –Marshall University, the University of Charleston, West Virginia State University, etc.” And that this was ” a big selling point for the companies interested in filling jobs that require degrees.”

As conservative Bruce Bartlett pointed last week in the Fiscal Times , “If low taxes were the primary key to growth then Africa would be
far richer than it is
.”

Welfare Not the Source of West Virginia’s High-Income Transfer Payments

West Virginia has one of the lowest per capita incomes in the country, and nearly 25 percent of personal income in West Virginia comes from government transfer payments. The national average is just under 15 percent. Transfer payments are mainly made up of  payments by the government for various social benefit programs. These programs include Social Security, Medicare, Medicaid, unemployment insurance, public assistance and others. Transfer payments make up a larger share of personal income in West Virginia than in any other state.

 
Source: Bureau of Economic Analysis
 
 
To understand why transfer payments make up such a large share of personal income in West Virginia, first it helps to understand what makes up the payments, and where West Virginia differs from the rest of the country. This next chart shows transfer payments by county in West Virginia and also breaks the payments down by category.
 
Source: Bureau of Economic Analysis

Unemployment insurance, income maintenance programs, social security, and medical benefits appear to be the main drivers behind West Virginia’s transfer payments. Now the question is how West Virginia differs from the rest of the country and why.
 
 
Unemployment benefits have  made up less than 1 percent of West Virginia’s personal income since 1990, which is roughly equal to the national average. Unemployment benefits are not creating the difference.
 
 
Income maintenance benefits include welfare benefits like supplemental security income, food stamps, and other forms of family and income assistance. These benefits have made up between 2 and 2.5 percent of personal income in West Virginia since 1990, roughly 1 point higher than the national average. Since West Virginia is a poorer state, you could expect this number to be higher, but it still doesn’t fully explain the overall difference. Something other than welfare gives West Virginia its large share of transfer payments.
 
 
With social security, we are starting to see some real differences. Social security benefits have consistently made up 9 percent of West Virginia’s personal income since 1990, about 4 points higher than the national average. The reason for this is simple, West Virginia has the second oldest population in the country. An older population means more retired persons, which leads to more social security payments.
 
 
With medical benefits, which mainly include Medicare and Medicaid, the picture becomes even more clear. Medical benefits make up almost 10.5 percent of West Virginia’s personal income, compared to the national average of just under 7 percent. Even more important, that number has grown substantially since 1990 for the state and the country overall. This is due to the rising costs of healthcare, and the growing number of seniors drawing Medicare benefits. Also playing a role is the poor health of West Virginians.
 
West Virginia ranks in the top three in the following categories among the states: 
  • prevalence of smoking (1)
  • cancer deaths (2)
  • cardiovascular deaths (3)
  • high cholesterol (1)
  • high blood pressure (2)
  • diabetes (1)
  • obesity (2)
West Virginia also has high levels of air pollution and high levels of preventable hospitalizations.
With an older, unhealthy population, its no surprise that transfer payments make up such a large percentage of West Virginian’s personal income. As the population continues to age, that number will grow, unless we begin to invest in our future population and take steps to control healthcare costs.

Senate Failure Denies 6,900 Unemployment Benefits

On July 3, 2010 it was estimated that 6,900 unemployed West Virginians exhausted their unemployment benefits because the U.S. Senate failed to reauthorize the expired jobless aid that was included in the 2009 Recovery Act. It gets worse. By the end of July the number of unemployed workers in West Virginia exhausting their benefits will climb to 13,300, according to the National Employment Law Project .

On July 1, 2010 the US House passed HR 5618 (Restoration of Emergency Unemployment Compensation Act of 2010) which extended the filing deadline for extended unemployment insurance benefits until Nov. 30, 2010. Rahall and Mollohan voted in favor of the bill. Capito did not vote. The Senate voted on a tax extenders bill (HR 4213) on June 30, 2010 that included the unemployment benefits extension, but it failed by two votes (58-36) to get the two-thirds super majority needed for passage. Rockefeller voted in favor of the bill.

Mark Zandi, cheif economist with Moody’s Economy.com and former adviser to Sen.John McCain (R-Ariz.), testified, “The odds that the economy will slip back into the recession are still well below even. But if Congress is unable to provide this help, those odds will rise and become uncomfortably high.” According to Zandi, for every dollar spent on unemployment compensation, $1.60 is added toour economy’s output. During the first five months of 2010, this brought in over $22 million to West Virginia’s economy.

Extending the unemployment benefits is a “no-brainer.” Our economy is weak, with 3 out of the 4 components that make up our GDP lagging (low private consumption, very little private investment, large trade deficit). This means the only way to move the economy is for government, the 4th component of GDP, to spend money to boost consumer demand.

Even the Wall Street Journal thinks it’s a good idea (and that it will reduce the deficit). And no, extending unemployment insurance benefits does not reduce the incentive to work or create a “moral hazard” in an economic downturn. Quite the opposite.

Let’s hope when Congress reconvenes next Monday that they decide to put workers and the economy first and put aside political posturing. And let’s hope Governor Manchin appoints someone soon to Byrd’s seat so we have a chance at passage.