State Infrastructure Policy to Put Workers Back to Work

As many readers may know, we’ve been pushing the idea that one of the best ways our state could create jobs today would be to issue bonds for much needed investments in infrastructure and schools. This idea is not new. If fact, other states have already implemented this policy as way to boost job creation and save money over the long-term. Writing in Bloomburg Yesterday, policy guru Ezra Klein makes a solid case for increasing federal spending on infrastructure that applies equally at the state-level.

For a country with more than $2 trillion in unmet infrastructure needs, this is a remarkable opportunity. But it gets better. Weak global demand means raw materials are cheap. And the bursting of the housing bubble means unemployment in the construction sector is high. We can borrow at a bargain, buy at a bargain and ease the unemployment crisis in the hardest-hit sector of our economy, all while making desperately needed investments in our future competitiveness and quality of life.

Plus, if we don’t do it now, we’ll have to do it later. Delaying a dollar of bridge repair just means it’s a dollar we’ll have to pay later. And by that time, it might be more than a dollar, because it’s cheaper to repair a bridge than rebuild one that has crumbled.

Good infrastructure and high-preforming schools and colleges are the core building blocks for a thriving state economy.  Quality infrastructure also helps us attract new businesses, entrepreneurs and residents to West Virginia. As Sean has pointed out before, our infrastructure is in need of major repair and the best option we have for funding these needs to to increase the sale of state bonds.

As Ezra points out above, the current economic climate make this a perfect time to borrow. Interest rates are historically low, so the state’s short-term obligations will be low as well. The state’s economy will have presumably improved once the bonds mature, meaning taxpayers will get a good return on their investment. Taking on a responsible amount of debt to pay for infrastructure makes sense long-term, just as borrowing money for home improvements makes long-term sense for a homeowner.

State leaders should get back on course with a healthy package of bonds devoted to new school construction and basic infrastructure needs. This would help ensure our competitiveness far into the 21st century and spark new hiring in construction, teaching and other professions

Do Regulations Kill Jobs? Bureau of Labor Statistics Says No

The Washington Post had an interesting article yesterday highlighting that business demand is the number one reason for job layoffs, not regulations.

“In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.”

Economists also do not find a casual link:

“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” said Richard Morgenstern, a senior fellow at the nonpartisan think tank Resources for the Future who worked at the EPA starting under the Reagan administration and continuing into President Bill Clinton’s first term.

A decade ago, in a landmark study, Morgenstern and others looked at the effect of regulations on four heavily polluting industries — pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills — between 1979 and 1991.

The researchers concluded that higher spending to comply with environment rules does not cause “a significant change” in industry employment. When jobs were lost, they were often made up elsewhere in the same industry.”

This is an important perspective, given the loud cry from the coal industry that regulations are killing jobs in the region. As good economists and the BLS already know, the real problem facing industry is a lack of consumer demand, not regulation.

Bottom line: Regulations both eliminate and create jobs and their  net effect tends to be small.

West Virginia’s Economic Outlook

Yesterday, WVU’s Bureau of Business and Economic Research hosted its annual West Virginia Economic Outlook Conference. Both the Gazette and Daily Mail had good coverage of the event, where economists from WVU and the Federal Reserve Bank of Richmond predicted both the U.S. economy and West Virginia’s economy would grow over the next few years, but at at fairly slow pace.

Below is the employment forecast for West Virginia from the West Virginia Economic Outlook 2012, which was distributed at the conference, as well as historical employment numbers.
 
WV Employment Forecast (thousands)
Source: WVU BBER and BLS QCEW
 
According to the forecast, West Virginia should add 42,500 jobs between 2010 and 2016, putting employment back at pre-recession levels sometime in 2014, between 6 and 7 years after the recession began. Job growth is projected to be slow in the first two years of the forecast, and pick up in pace thereafter.
 
Next up is the unemployment rate forecast for West Virginia.
 
WV Unemployment Rate Forecast
Source: WVU BBER and BLS LAUS
 
West Virginia’s unemployment rate remains stubbornly high in the first years of the forecast, when job growth is slow. As job growth is projected to accelerate, the state’s unemployment rate also begins to fall more quickly, hitting 6.4% in 2016. However, West Virginia’s unemployment rate is shown to remain far above pre-recession levels for length of the forecast, as the effects of the recession continue to linger nearly a decade after it began.

All economic forecasts, including these are subject to a certain degree of uncertainty, and making economic projections is not a cut and dried science. A look at past forecasts can help illustrate this uncertainty. Again, I’ll start with the employment forecasts.

WV Employment Forecast Comparisons
Source: WVU BBER and BLS QCEW
 
In the above chart, the black bars show West Virginia actual total employment from 2001 to 2010, while the colored lines show the employment forecasts from past year editions of the West Virginia Economic Outlook. As the chart shows, the forecasts have typically overestimated total employment in the state, and, as one would expect, become less accurate the further out they forecast. 
 
Next we’ll look at unemployment rates. Again, the black bars are West Virginia’s actual unemployment rate, and the colored lines are the unemployment rate forecasts from past years.
 
WV Unemployment Rate Forecast Comparisons
Source: WVU BBER and BLS LAUS
 
In the case of the state’s unemployment rate, the forecast tends to project a slightly higher unemployment rate than what the state eventually has. This was the case until the recession began to take hold in the state, which the forecasts didn’t show until the recession was in full swing.
 
So what do these trends mean for West Virginia’s outlook. It’s hard to predict the future, and an event like the last recession can throw everything out the window. Barring another major economic meltdown (like the Europe debt crisis spiraling out of control), West Virginia will probably see minor job growth in the next few years. But based on the forecast’s past performance, the acceleration of job growth towards the end of the projection is probably a little optimistic. 

Income Inequality in West Virginia in One Graph

Earlier today Sean pointed out the growing income inequality in the U.S. What I would like to do is touch on how this has played out in the Mountain State.

The graph below tells the story. From 1974 to 1977, growth in median (four-person) household incomes – or the households in the middle of the income distribution – grew at about the same rate as per capita or average incomes. However, between 1979 and 2010,  average incomes grew by 55 percent compared to just 17 percent for the typical four-person family.  To put this in perspective, if middle class family incomes grew at the same rate as average incomes since 1979, they would have brought home about $80,000 in 2010 instead of $61,000  – a difference of $19,000.

It’s important to keep in mind that the middle class divide in West Virginia happened in spite of increases in educational attainment, more women entering the workforce, and productivity advancements over the last 30 years.  This story should serve as a wake up call. You cannot have a strong economy without a strong middle class.

Friday Roundup: All about Inequality

Growing income inequality was the topic of the week as the CBO released a new report showing the incomes of the wealthiest 1% have tripled since 1979, with little to show for everyone else.

Highlights include:
Between 1979 and 2007, income grew by:

  • 275 percent for the top 1 percent of households,
  • 65 percent for the next 19 percent,
  • Just under 40 percent for the next 60 percent, and
  • 18 percent for the bottom 20 percent.
 
And:

The share of income going to higher-income households rose, while the share going to lower-income households fell.

  • The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
  • Most of that growth went to the top 1 percent of the population.
  • All other groups saw their shares decline by 2 to 3 percentage points.

 
 
The CBPP explained that the federal tax system is becoming less effective at mitigating income inequality noting that the share of federal revenue coming from payroll taxes has grown, while payroll taxes have become more regressive.
 
EPI showed that rising inequality isn’t just about education, as income growth at the top is outpacing, by a wide margin, growth for both those with a college degree and those with less education. 
 
The Columbus Journalism Review takes down the argument from American Enterprise Institute that increasing income inequality is a myth. In short, the argument from AEI is, ahem, BS.