September 19, 2017

Today’s Economist: Policy Impact and Red Herrings

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Red herrings are frequently inserted into policy discussions but can be readily identified as long as we remember a simple truth about public policy impact.

Today’s Economist

Perspectives from expert contributors.

The impact of public policy on an economic outcome like employment is, by definition, the difference between employment with the policy in place and what employment would have been under an alternative “baseline” policy. Policy impact quantifies how things are different as a consequence of the policy.

Consider these statements:

“The Affordable Care Act will not reduce full-time employment because workers understand that full-time employment is the path to career advancement” (see my previous post).

“Unemployment insurance does not reduce employment because Americans fundamentally want to work and provide for themselves” (see, for example, this commentary on gawker.com)

These are all examples of red herrings, irrelevant statements that are attached to hypotheses.

Take the full-time employment example. It may be true that full-time employment is the path to career advancement, but that is hardly relevant to the Affordable Care Act as long as we assume that full-time employment would be that path regardless of whether we have that law.

That is, lots of people will choose full-time employment because of the career opportunities it provides, but they are counted as full-time employed under the policy and as full-time employed under the baseline policy (say, continuing as if the act had never become law). A policy impact estimate, by definition, counts only those for whom career advancement does not trump their decision to be in a full-time position.

As I explained in that an earlier post, the Affordable Care Act introduces funds and insurance opportunities for part-time employees that will be unavailable to most full-time employees. As long as there are more than zero people whose full-time vs. part-time work decision depends on funds or insurance, there is the potential for policy impact.

In my second example, it may be true that most people want to work and provide for themselves. But I assume motivation to work is the same regardless of whether unemployment benefits are paid for, say, 99 nine weeks or 26. What’s different between the 99-week policy and the 26-week baseline are the circumstances in which people find themselves.

As long as motivation is not the sole factor determining employment, there is the potential for unemployment insurance to have a policy impact, even in a country in which the people are fundamentally hard-working.

Nobody expects a government program to make everything different. So policy analysis is particularly useful in subtracting out the outcomes that would occur regardless of policy measures.

Article source: http://economix.blogs.nytimes.com/2013/07/17/policy-impact-and-red-herrings/?partner=rss&emc=rss

Today’s Economist: Taxing Employers and Employees

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

The delay of the Affordable Care Act’s employer mandate is a favorable development for the labor market, but the employer mandate is only the tip of the iceberg in terms of the labor-market distortions that the law has scheduled to come on line next year.

Today’s Economist

Perspectives from expert contributors.

The Affordable Care Act’s employer mandate will eventually levy a penalty on large employers that do not offer affordable health insurance to their full-time employees. The penalty is based on the number of full-time employees and adds about $3,000 to the annual cost of employing each person.

Employers have been complaining about the penalty, saying it will reduce the number of people they hire and cause them to reduce employee hours. Even economists and commentators supporting the law acknowledge that per-employee penalties reduce hiring by raising the cost of employment.

Economists have traditionally recognized that it hardly matters whether a tax is levied on employers or on employees, especially in the long run. In the employee-tax case, the employee pays the tax directly. In the employer-tax case, the employee pays the tax indirectly through reduced pay, because employer penalties reduce the willingness of employers to compete for people (Jonathan Gruber of the Massachusetts Institute of Technology has provided some good evidence in support of this widely accepted economic proposition).

Among other things, employment, employer costs and employee take-home pay would be essentially the same if the government levied a $3,000 fine on workers for having a full-time job with a large employer that does not offer health benefits, rather than levying the fine on employers on the basis of their full-time personnel, as the Affordable Care Act does.

But the political optics of the two policies are dramatically different. Large businesses can supposedly afford $3,000 per employee, while many employees could not afford another $3,000 bite out of their paychecks. Like it or not, economics’ equivalence results tells us employees will have to afford what amounts to a tax on them beginning in 2015, pursuant to the Treasury Department’s decision to begin collecting the employer penalty in that year.

For the purposes of understanding the state of the labor market, it doesn’t really matter whether individuals would be paying a tax for having a full-time job or receiving a subsidy for not having a full-time job. Either policy would reduce the gap between the income of full-time employees and everybody else. The ultimate result will be less full-time employment, in an amount commensurate with the size of the tax or subsidy.

The Affordable Care Act offers subsidies for people without work or in part-time positions that far exceed $3,000 per employee per year, which makes the employer mandate only a small piece of the law’s employment effects.

The law’s other new work-disincentive provisions, still on schedule for next year, include (i) a sliding income scale that sets premiums for people who buy health insurance on the new marketplaces, (ii) a plan for premium assistance that essentially resurrects the Recovery Act’s subsidy for what are known as Cobra benefits, allowing employees who have left a job to continue to participate, for a limited time, in their former employer’s health plan, in a more comprehensive form and (iii) hardship relief from the individual mandate.

As an example of these provisions, I explained last week how, even without the employer penalties, the premium assistance plan sharply penalizes full-time employment in favor of part-time employment. In combination, the provisions going into effect next year are two or three times larger than the employer mandate by itself, depending on the type of worker and the industry of employment.

Proponents of the Affordable Care Act, including a number of economists, have yet to acknowledge that so many provisions of the act have, from a labor economics perspective, so much in common with the employer mandate. But labor-market distortions are a common feature of several significant parts of the act and are an important part of what has happened in our labor market.

Whatever labor market benefits accrue from delaying the employer mandate could be had many times over by delaying the entire Affordable Care Act.

Article source: http://economix.blogs.nytimes.com/2013/07/10/taxing-employers-and-employees/?partner=rss&emc=rss

Economix Blog: Casey B. Mulligan: What Job-Sharing Brings

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

When employer costs are taken into account, it is unclear whether jobs are something that can be efficiently shared.

Today’s Economist

Perspectives from expert contributors.

The idea behind work-sharing is that employers have a certain amount of work that needs to be done, and that the work can be divided by many employees working a few hours each or a few employees working many hours each. If hours per employee could be limited, by this logic employers would have to hire more employees to get the same amount of work done.

American labor law has traditionally placed some limits on employee hours, such as overtime regulations. While the recent Affordable Care Act does not strictly limit hours per employee, beginning next year it gives employers a strong push toward part-time employment by levying a significant fee per full-time employee and exempting part-time employees from the fee.

A number of employers have said they would change some work schedules to part time from full time to avoid some Affordable Care Act fees. Because part-time workers generally have fewer benefits than full-time employees, this could save employers a considerable sum. From the work-sharing perspective, the part-time employee exemption by itself would be expected to increase employment, because employers would have to hire more people (probably on a part-time basis) to complete work their employees used to accomplish when full time.

But it is possible that work-sharing would reduce employment rather than increase it, because it prevents employers from accomplishing their tasks at minimum cost, adding administrative and coordination expenses. Higher costs for employers may put them out of business, or at least reduce the scale of their business. When companies reduce the scale of their activities, that means fewer employees.

It is also possible that work-sharing would reduce employment by making jobs less attractive to people who desire full-time work. One reason that people sometimes justify commuting long distances to work or enrolling in demanding training programs – trucking and nursing are two such occupations — is that they expect to recoup those cost by taking advantages of opportunities to earn extra by working long hours.

Work-sharing proponents have credited Germany’s comparative low unemployment rate to its adoption of a work-sharing program, because the program encourages German employers to reduce employee hours rather than lay workers off. Work-sharing proponents may be right, although Germany carried out a number of labor-market reforms at the same time, such as allowing businesses to use temporary workers more easily.

As the Affordable Care Act suddenly pushes business toward part-time employment, we economists will have an unusual opportunity to learn whether cutting employee hours creates jobs, or destroys them.

Article source: http://economix.blogs.nytimes.com/2013/05/08/what-job-sharing-brings/?partner=rss&emc=rss

Today’s Economist: Wages and Employer Penalties

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

The cost to workers of the Affordable Care Act’s employer responsibility penalties is greater than you think, because of their business tax treatment.

Today’s Economist

Perspectives from expert contributors.

Most low-skill workers are not offered health insurance by their employers, and those employers have been complaining about the $2,000-per-employee annual penalty they will pay beginning next year ($3,000 per employee who resorts to a subsidized exchange when insurance offered by the employer is deemed unaffordable to the worker).

Next year will not be the first time that employers had to pay taxes based on the number of employees they have. For example, they have been paying payroll taxes that amount to almost $2,000 per year for an employee with a $25,000 salary.

Employer payroll taxes have been extensively studied, and economists have concluded that employees ultimately pay for those taxes in the form of lower wages.

Thus you might think that the new $2,000 penalty would reduce wages by about $2,000 per employee per year. But unlike employer payroll taxes, the employer responsibility levies are not deductible from employer business taxes (see page 74 of this I.R.S. document). To have the same after-tax profit, an employer in the 39 percent bracket (a typical state-plus-federal bracket for corporations) would have to cut wages by $3,046.

An employer paying the $3,000 penalty would have to cut wages by $4,569. That would push someone working full-time at $10 per hour down to minimum wage.

Some good news for the employees who want health insurance: the employer penalties come with employee access to large federal subsidies for purchasing health insurance and paying out-of-pocket health expenses, unless you are in a family that is 400 percent or more above the poverty line.

Not all employers have to pay the penalties, and more good news for employees is that both types of employers will compete with each other in the market for labor, which might prevent penalty-paying employers from passing on the full cost to their employees.

Article source: http://economix.blogs.nytimes.com/2013/02/20/wages-and-employer-penalties/?partner=rss&emc=rss

General Mills 2Q Profit Falls on Higher Costs

PORTLAND, Ore. (AP) — General Mills’ net income fell 28 percent during the second quarter as revenue gains could not keep pace with rising costs.

The company maintained its full-year guidance and said it expects strong sales and profitability gains in the second half of the fiscal year. However, it cautioned that its gross margins would be lower during that time given continued cost pressures and its recent acquisition lower-margin Yoplait.

General Mills, which makes foods such as Cheerios cereal, Nature Valley granola and Hamburger Helper, remains one of the most popular food brands in grocery stores. But like most of its peers, it has struggled with higher costs for everything from ingredients to labor. The company forecast inflation cost increases of 10 percent to 11 percent for the year and has raised its prices to offset that pressure.

General Mills reported Tuesday that it earned $444.8 million, or 67 cents per share, for the quarter ended Nov. 27. That’s down from $613.9 million, or 92 cents per share, a year earlier. Excluding charges tied to its Yoplait deal and other items, earnings were 76 cents per share.

Analysts polled by FactSet anticipated the company would earn 79 cents per share. The miss sent shares down in trading Tuesday.

Revenue rose 14 percent to $4.62 billion. Analysts forecast revenue of $4.6 billion.

“We knew it was going to be a tough environment and it is but the year is shaping up as we anticipated,” said Don Mulligan, the company’s chief financial officer.

The company, based in Minneapolis, saw its biggest revenue jump in its international business during the quarter. General Mills, which already distributed Yoplait products in the U.S., announced in July that it was acquiring a controlling stake in international yogurt maker Yoplait. This was the first full quarter with the yogurt brand under its ownership, which boosted its international sales by 55 percent.

Revenue at its bakeries and food service division increased 12 percent with strong sales of products such as Pillsbury Mini-Pancakes and French Toast. Revenue from its U.S. retail business increased 3 percent on strong sales of cereal and snacks but it saw weaker sales of yogurt and some baking products with higher prices.

For the full year, General Mills still expects adjusted earnings of $2.59 to $2.61 per share; analysts anticipate $2.61 per share.

General Mills Inc. said it expects to drive its gains on the addition of the Yoplait business and introduction of new products, such as Dulce de Leche Cheerios and Greek yogurt. It also expects some costs to level out as the year progresses.

Edward Jones analyst Jack Russo said that while the company struggled with intense pressure this period, all signs point to business improving in the second half of the year as sales trends continue to improve, its new product lineup is strong and its price hikes are already in place.

“I think there is a lot to look forward to,” he said. “They are well trusted in the sector.”

Shares of the company fell 76 cents, about 2 percent, to $38.83 in midday trading.

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AP Business Writer Michelle Chapman contributed to this report from New York

Article source: http://feeds.nytimes.com/click.phdo?i=fb17b76b9b1ff85021b0e12dad582f79

Economix: Where the Jobs Were Lost

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

Ben Bernanke, the chairman of the Federal Reserve, said recently that people with less-than-average incomes bore the brunt of the recession’s job losses. Census Bureau data confirm Mr. Bernanke’s statement and show employment gains at the high end.

For the 12 months ended September 2008 — the month Lehman Brothers failed — employment in the United States was 146 million. Over the next 12 months, employment fell to 141 million.

The Census Bureau conducts a monthly survey of households and asks some of them what household members have been earning, if anything, on their jobs. I have used that data to investigate the types of jobs that were lost during the Great Recession and have classified the jobs by their weekly pay.

Among people who are working, the median weekly earnings are a bit more than $600 a week. That is, about half of working people earn less than $600, and about half earn more. So if Mr. Bernanke is correct, the bulk of the losses were of jobs paying less than $600 a week.

Chart 1 categorizes people by their weekly earnings –- people earning $1 to $100 a week are in the first group, those earning $101 to $200 a week in the second, and so on. Although the chart’s horizontal axis goes to $2,500, most workers are in the first seven categories.

The vertical axis measures the change, from the 12-month period ended September 2008 to the 12-month period ended September 2009, in the number of people (in millions) in the various categories. Because the zero earning category is excluded, the sum of all of the changes shown in the chart, plus a year’s adult population growth (about two million), is equal to the change in the number of people without paying jobs, a category that grew by six million.

(These totals do not agree exactly with the Census Bureau’s employment totals for technical reasons related to the lack of reliable earnings information from some respondents. For brevity, I make no distinction between “workers” and “jobs,” although some data shown in the chart include people earning money from more than one job during a week.)

The first two categories gained a bit, which probably reflects the surge in part-time employment during this period. But, over all, Mr. Bernanke was correct: an awful lot of jobs were lost in the $201-to-$600-a-week range. Essentially no jobs were lost in the combined $1,101+ categories.

Because less than a quarter of workers are earning $1,100 a week or more, it helps to examine those categories’ job losses in percentage terms, as in Chart 2.

For example, a value of 9 percent in Chart 2 for $2,101 to $2,200 means that 9 percent more people earned $2,101 to $2,200 a week in the 12 months after Lehman failed than earned that amount in the 12 previous months.

The percentage job losses tend to be less for the higher-paying jobs. All the categories above $2,000 a week actually gained jobs (although those types of jobs are relatively rare, the Census Bureau survey is large enough that it includes more than 12,000 people earning that amount over 24 months).

Economists have yet to examine the recession-era pay data thoroughly, but further study of the employment growth at the high end may someday help gauge the importance of unemployment insurance, “skill mismatch” and other factors that are said to have contributed to the employment downturn.

Article source: http://feeds.nytimes.com/click.phdo?i=aeeef24b9b40775504698a11b0f895e4