Category Archives: Economy

Early Evidence on the Impact of COVID-19 and the Recession on Older Workers

Source: Truc Thi Mai Bui, Patrick Button, Elyce G. Picciotti, NBER Working Paper No. 27448, June 2020

From the abstract:

We summarize some of the early effects and discuss possible future effects of the COVID-19 pandemic and recession on the employment outcomes of older workers in the United States. We start by discussing what we know about how older workers faired in prior recessions in the United States and how COVID-19 and this recession may differ. We then estimate some early effects of the COVID-19 pandemic and recession on employment and unemployment rates by age group and sex using Current Population Survey data. We calculate employment and unemployment rates multiple ways to account for the complicated employment situation and possible errors in survey enumeration. We find that while previous recessions, in some ways, did not affect employment outcomes for older workers as much, this recession disproportionately affected older workers of ages 65 and older. For example, we find that unemployment rates in April 2020 increased to 15.43% for those ages 65 and older, compared to 12.99% for those ages 25-44. We also find that COVID-19 and the recession disproportionately affected women, where women have reached higher unemployment rates than men, which was consistent for all age groups and unemployment rate measures we used.

Revenue securing certain US state and local debt will weaken as coronavirus slows economy and travel

Source: Moody’s, March 30, 2020
(subscription required)

Tax revenue used to repay state and local special tax debt — debt secured by specific tax revenue streams such as hotel or car rental taxes — will rapidly decline amid the coronavirus-related economic downturn. A state or local government with a dedicated reserve fund or the ability and willingness to cover a gap in pledged revenue bolsters the credit quality of certain special tax debt.

Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America

Source: Dan Doonan, Maryna Kollar, Nathan Chobo, Tyler Bond, National Institute on Retirement Security, March 2020

From the summary:
As many small towns and rural communities across America face shrinking populations and slowing economic growth, a new report finds that one positive economic contributor to these areas is the flow of benefit dollars from public pension plans. In 2018, public pension benefit dollars represented between one and three percent of gross domestic product (GDP) on average among the 1,401 counties in 19 states studied.

These findings are detailed in a new study, Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America.

This new report finds that public pension benefit dollars also account for significant amounts of total personal income in counties across the nineteen states studied. For all 1,401 counties in this study, pension benefit dollars represent an average of 1.37 percent of total personal income, while some counties experience more than six percent of total personal income derived from pension dollars.

The report’s key findings are as follows:

  • Public pension benefit dollars represent between one and three percent of GDP on average in the 1,401 counties studied.
  • Rural counties and counties with state capitals have the highest percentages of populations receiving public pension benefits.
  • Small town counties experience a greater relative impact both in terms of GDP and total personal income from public pension benefit dollars than rural or metropolitan counties.
  • Rural counties experience more of an impact in terms of personal income than metropolitan counties, whereas metropolitan counties experience more of an impact in terms of GDP than rural counties.
  • Counties with state capitals are outliers from other metropolitan counties, likely because there is a greater density of public employees in these counties, most of whom remain in these counties in retirement.
  • On average, rural counties have lost population while small town counties and metropolitan counties have gained population in the period between 2000 and 2018, but the connection between population change and the relative impact of public pension benefit dollars is weak.

Incentivizing the Missing Middle: The Role of Economic Development Policy

Source: Carlianne Patrick, Heather M. Stephens, Economic Development Quarterly, OnlineFirst, Published February 28, 2020
(subscription required)

From the abstract:
The shrinking middle class and increasing income polarization in the United States are issues of concern to policy makers and others. Economic development incentives are a key policy tool used at the state and local levels to promote local economic growth, and, presumably, provide employment opportunities. However, these incentives may have unintended consequences that may be contributing to the decline of the middle class. The authors combine detailed industry-level detail on incentives with proprietary county-level industry employment data and two methods for defining middle-class industries. Using an instrumental variable approach, the authors estimate how differential economic development policies affect middle-class jobs. The authors find evidence that incentivizing creative-class and high-wage industries may be contributing to the hollowing out of the middle class. Without hurting employment in other industries, targeting working-class and middle-wage industries alleviates this trend, while reducing incentives on creative-class and high-wage industries could help increase working and middle-class employment.

Macroeconomic Feedback Effects of Medicaid Expansion: Evidence from Michigan

Source: Helen Levy, John Z. Ayanian, Thomas C. Buchmueller, Donald R. Grimes, Gabriel Ehrlich, Journal of Health Politics, Policy and Law, Vol. 45 no. 1, February 2020
(subscription required)

From the abstract:

Context: Medicaid expansion has costs and benefits for states. The net impact on a state’s budget is a central concern for policy makers debating implementing this provision of the Affordable Care Act. How large is the state-level fiscal impact of expanding Medicaid, and how should it be estimated?

Methods: We use Michigan as a case study for evaluating the state-level fiscal impact of Medicaid expansion, with particular attention to the importance of macroeconomic feedback effects relative to the more straightforward fiscal effects typically estimated by state budget agencies. We combine projections from the state of Michigan’s House Fiscal Agency with estimates from a proprietary macroeconomic model to project the state fiscal impact of Michigan’s Medicaid expansion through 2021.

Findings: We find that Medicaid expansion in Michigan yields clear fiscal benefits for the state, in the form of savings on other non-Medicaid health programs and increases in revenue from provider taxes and broad-based sales and income taxes through at least 2021. These benefits exceed the state’s costs in every year.

Conclusions: While these results are specific to Michigan’s budget and economy, our methods could in principle be applied in any state where policy makers seek rigorous evidence on the fiscal impact of Medicaid expansion.

Tax incentives for business leave states worse off

Source: Matt Shipman, Futurity, February 27, 2020

The vast majority of tax incentives aimed at attracting and retaining businesses ultimately leave states worse off than if they had done nothing, researchers report.


For the study, researchers examined data from 32 states from 1990-2015. The researchers evaluated all of the state and local tax incentives available in the 32 states, as well as an array of economic, political, governmental, and demographic data.


A computational model assessed the extent to which the effects of attracting or retaining businesses in a state offset the state’s related tax incentives.


“We found that, in almost all instances, these corporate tax incentives cost states millions of dollars—if not more—and the returns were minimal,” says corresponding author Bruce McDonald, an associate professor of public administration at North Carolina State University.


“In fact, the combination of costly tax incentives and limited returns ultimately left states in worse financial condition than they were to begin with.”


The two exceptions to the finding were job creation tax credits and job training grants.

Related:
You Don’t Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health
Source: Bruce D. McDonald III, J. W. Decker, Brad A. M. Johnson, Public Administration Review, Early View, First published: February 27, 2020
(subscription required)

From the abstract:
Governments frequently use financial incentives to encourage the creation, expansion, or relocation of businesses within their borders. Research on financial incentives gives little clarity as to what impact these incentives may have on governments. While incentives may draw in more economic growth, they also pull resources from government coffers, and they may commit governments to future funding for public services that benefit the incentivized businesses. The authors use a panel of 32 states and data from 1990 to 2015 to understand how incentives affect states’ fiscal health. They find that after controlling for the governmental, political, economic, and demographic characteristics of states, incentives draw resources away from states. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of states.

The United States Prosperity Index 2019

Source: Legatum Institute, 2019

From the introduction:
A new United States Prosperity Index (USPI), published by the Legatum Institute, reveals that prosperity has increased across America over the last 10 years and the gap between the most and least prosperous states is narrowing.

The USPI is the first comprehensive assessment of all aspects of prosperity across America, allowing comparison between the different states and regions. It measures the extent to which all 50 states plus Washington, D.C. have open economies, inclusive societies and empowered people.

The research shows that Washington, D.C. saw the greatest increase in prosperity in the last decade, followed by California and South Carolina. Only four states – Alaska, Louisiana, North Dakota and South Dakota – saw a decline in prosperity. Improvements in health, education and living conditions all contributed to the increase in prosperity. In addition, the majority of states have enhanced the quality of their economy as they have recovered from the financial crisis. While Mississippi is the least prosperous state, its prosperity has improved more than that of top-ranked Massachusetts in the last 10 years.

Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values

Source: Twyla Blackmond Larnell, Davia Cox Downey, Economic Development Quarterly, Volume: 33 issue: 4 November 2019
(subscription required)

From the abstract:
Cities use tax increment financing (TIF) to trigger growth in blighted communities. Critics argue that Chicago’s broad conceptualization of “blight” facilitates the designation of TIF districts that do not resemble conventional notions of blight, bolstering their natural ability to generate capital, thereby exacerbating the gap between wealthy and poor minority spaces. This study examines Chicago’s TIF districts to determine whether blight levels and percentage of non-White residents interact to reduce the effectiveness of TIFs measured as the change in the equalized assessed valuation (EAV) of properties. Using composite indices to measure physical and economic blight, the results of a quantile regression analysis indicate that economically blighted TIFs with predominantly non-White populations outperform other districts. These findings run counter to expectations given that TIFs report high rates of growth in property values, yet they remain substantially blighted. This suggests a need to reconsider change in equalized assessed valuation as the measure of TIF effectiveness given that the “growth” in TIFs does not seem to reflect a higher quality of life for residents.

Making Sense Of Incentives: Taming Business Incentives to Promote Prosperity

Source: Timothy J. Bartik, Upjohn Press, 2019

From the summary:
In recent months, “Foxconn” and “Amazon HQ2” brought immediacy to a costly and lingering subject: economic development incentives. State and local policymakers regularly dangle tax breaks and other financial incentives as lures to attract and sometimes retain businesses and the jobs they say they’ll create. Oversight of these programs is often weak or nonexistent, yet tens of billions of taxpayer dollars are spent each year on these efforts. In the cases of Foxconn and Amazon, billions were offered for each project. Are these incentives worth the price? How do we know? Are they effective at promoting job growth? Is there a better way to grow good-paying jobs in a local labor market?

These questions and more are answered in a new book by Timothy J. Bartik, Making Sense of Incentives: Taming Business Incentives to Promote Prosperity (Upjohn Press, 2019). The book is relatively brief, straightforward, nontechnical, and just what state and local policymakers need to read. It is also available as a free download.

Bartik begins by explaining the basics: What are economic development incentives? Who offers them? Why are they offered? What are the political and economic considerations involved? Why are incentives often wasteful? He then delves into the recent trends in business incentives, including how generous offers have become and whether they threaten needed public services (especially K–12 education), which types of firms tend to receive incentives, and whether needy areas tend to be targeted.

Policymakers often tout the multipliers associated with jobs created via business incentives—e.g., for every one job created another two jobs will appear as a result. But Bartik shows that these numbers are often specious, and why, while providing more realistic estimates.

Then, based on his decades of ground-breaking research, he explains what policymakers can do to improve the use of business incentives. Bartik doesn’t think incentives should be ruled out, just improved, and he explains how this can be achieved. And in his chapter on how to evaluate the success of incentive programs, he describes the program details that need to be considered, and how to use them, in order to judge whether the benefits of incentives exceed the costs.

New York City’s $15 Minimum Wage and Restaurant Employment and Earnings

Source: Lina Moe, James Parrott, Yannet Lathrop, Center for New York City Affairs at The New School and the National Employment Law Project, August 2019

From the press release:
Five years after New York State passed the first of several laws to gradually raise its minimum wage to $15 an hour, New York City’s restaurant industry continues to thrive, with strong growth in restaurant industry employment, wages, and the number of establishments around the city, according to a new report released today by the Center for New York City Affairs at The New School and the National Employment Law Project.

The report’s findings of a prospering restaurant industry are in sharp contrast to the “sky is falling” rhetoric of industry lobbyists who warned of massive job losses, $20 Big Macs, and shuttered restaurants. The report offers a first-of-its-kind assessment of restaurant employment and earnings over the entire period of the city’s historic minimum wage increases, during which the wage floor rose from $7.25 to $15.00 an hour.

The restaurant industry has the highest proportion of workers affected by the minimum wage of any industry. Researchers analyzed comprehensive employment, wage, and restaurant establishment data between 2013 and 2018 to assess the impact of the higher minimum wage on New York City’s restaurant industry. They found that during this period, New York City saw a strong economic expansion of the restaurant industry, outpacing national growth in employment, annual wages, and the number of both limited- and full-service restaurant establishments…..