Topic: General

Another Lesson from Bastiat: So-Called Employment Protection Legislation Is Bad News for Workers

Frederic Bastiat, the great French economist (yes, such creatures used to exist) from the 1800s, famously observed that a good economist always considers both the “seen” and “unseen” consequences of any action.

A sloppy economist looks at the recipients of government programs and declares that the economy will be stimulated by this additional money that is easily seen, whereas a good economist recognizes that the government can’t redistribute money without doing unseen damage by first taxing or borrowing it from the private sector.

A sloppy economist looks at bailouts and declares that the economy will be stronger because the inefficient firms that stay in business are easily seen, whereas a good economist recognizes that such policies imposes considerable unseen damage by promoting moral hazard and undermining the efficient allocation of labor and capital.

We now have another example to add to our list. Many European nations have “social protection” laws that are designed to shield people from the supposed harshness of capitalism. And part of this approach is so-called Employment Protection Legislation, which ostensibly protects workers by, for instance, making layoffs very difficult.

On The Gender Pay Gap, I’m Not With Her

As a young professional woman myself, lately I’ve grown fatigued by the media’s on-going portrayal of women as victims of circumstance. Media messaging on one topic in particular – the gender pay gap – is especially discouraging because it’s assembled on the basis of flimsy facts. Although it necessitates a voyage outside my traditional topical expertise, setting the record straight seems a sufficiently worthwhile activity as to require it.

Let’s begin with the numbers. Hillary Clinton and others allege that women get paid 76 cents for every dollar a man gets paid – an alarming workplace injustice, if it’s true.

The 76 cent figure is based on a comparison of median domestic wages for men and women. Unfortunately, comparing men’s and women’s wages this way is duplicitous, because men and women make different career choices that impact their wages: 1) men and women work in different industries with varying levels of profitability and 2) men and women on average make different family, career, and lifestyle trade-offs.

For example, BLS statistics show that only 35% of professionals involved in securities, commodities, funds, trusts, and other financial investments and 25% of professionals involved in architecture, engineering, and computer systems design are women. On the other hand, women dominate the field of social assistance, at 85%, and education, with females holding 75% of jobs in elementary and secondary schools.

An August 2016 National Bureau of Economic Research study, Does Rosie Like Riveting? Male and Female Occupational Choices, suggests that industry segregation may not be structural or even coincidental. According to the authors of the study, women may select different jobs than men because they “may care more about job content, and this is a possible factor preventing them from entering some male dominated professions.”

Another uncomfortable truth for the 76-cent crowd: women are considerably more likely to absorb more care-taker responsibilities within their families, and these roles demand associated career trade-offs. Sheryl Sandberg’s Lean In describes 43% of highly-qualified women with children as leaving their careers or off-ramping for a period of time. And a recent Harvard Business Review report describes women as being more likely than men to make decisions “to accommodate family responsibilities, such as limiting (work-related) travel, choosing a more flexible job, slowing down the pace of one’s career, making a lateral move, leaving a job, or declining to work toward a promotion.”

It’s fair to assume that such interruptions impact long-term wages substantially. In fact, when researchers try to control for these differences, the wage gap virtually disappears. A recent Glassdoor study that made an honest attempt to get beyond the superficial numbers showed that after controlling for age, education, years of experience, job title, employer, and location, the gender pay gap fell from nearly twenty-five cents on the dollar to around five cents on the dollar. In other words, women are making 95 cents for every dollar men are making, once you compare men and women with similar educational, experiential, and professional characteristics.

It’s worth noting that the Glassdoor study could only control for obvious differences between professional men and women. It’s likely that other, more nuanced but documented differences, like spending fewer hours on paid work per week would explain some of the remaining five percent pay differential.

Now, don’t misunderstand. Certainly somewhere a degenerate, sexist, hiring manager exists. Someone who thinks to himself: you’re a woman, so you deserve a pay cut. But rather than that being the rule, this seems to be an exception. In fact, the data seems to indicate that the decisions that impact wages are more likely due to cultural and societal expectations. A recent study shows that a full two-thirds of Harvard-educated Millennial generation men expect their partners to handle the majority of child-care. It’s possible that women would make different, more lucrative career decisions given different social or cultural expectations.

Or maybe they wouldn’t. But in the meantime, Hillary’s “equal pay for equal work” rallying cry is irresponsible, in that it perpetuates a workplace myth: by painting women as victims of workplace discrimination, when they’re not, it holds my sex psychologically hostage by stripping us of the very confidence we need to succeed. It also unhelpfully directs our focus away from dealing with the real barrier to long-term earning power – social and cultural pressures – in favor of an office witch hunt.

And that’s why, on the gender pay gap, I’m not with her.

A 51-Percent Premium Hike Rescues ObamaCare In Pinal County

Demonstrator Ryan Thomas, a supporter of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds an "ACA is here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Ryan Thomas

Pinal County, Arizona was in danger of being the first second third fourth place where ObamaCare caused insurance markets to collapse. As of last month, every private health insurance company now selling ObamaCare coverage in the county announced it would no longer do so in 2017. Had that scenario come to pass, it would have tossed nearly 10,000 residents out of their Exchange plans and left them to buy ObamaCare coverage outside of the Exchange, with no taxpayer subsidies to make the coverage “affordable.” If they didn’t buy that unaffordable coverage, ObamaCare would still subject them to penalties, at least until the Secretary of Health and Human Services intervened.

It appears that Pinal County has avoided that fate. Blue Cross Blue Shield of Arizona has announced that, despite reservations, it will sell ObamaCare coverage in Pinal County next year. Pinal County now joins 13 other Arizona counties, one third of counties nationwide, and seven states that will have only one carrier in the Exchange.

Anatomy of a Brutal Tax Beating

Based on the title of this column, you may think I’m going to write about oppressive IRS behavior or punitive tax policy.

Those are good guesses, but today’s “brutal tax beating” is about what happens when a left-leaning journalist writes a sophomoric column about tax policy and then gets corrected by an expert from the Tax Foundation.

The topic is the tax treatment of executive compensation, which is somewhat of a mess because part of Bill Clinton’s 1993 tax hike was a provision to bar companies from deducting executive compensation above $1 million when compiling their tax returns (which meant, for all intents and purposes, an additional back-door 35-percent tax penalty on salaries paid to CEO types). But to minimize the damaging impact of this discriminatory penalty, particularly on start-up firms, this extra tax didn’t apply to performance-based compensation such as stock options.

In a good and simple tax system, which taxes income only one time (including business income), the entire provision would be repealed.

But when Alvin Chang, a graphics reporter from Vox, wrote a column on this topic, he made the remarkable claim that somehow taxpayers are subsidizing big banks because the aforementioned penalty does not apply to performance-based compensation.

…the government doesn’t tax performance-based pay for…any…top bank executive in America. Unlike regular salaries — where the government takes out taxes to pay for Medicare, Social Security, and all other sorts of things — US tax code lets banks deduct the big bonuses they give to their executives. … The solution most Americans want is to either heavily tax CEO pay over a certain amount, or to set a strict cap on how much CEOs can make, relative to their workers. As long as this loophole is open, though, it makes sense for banks to continue paying executives these huge sums. ..for now, taxpayers are still ponying up to help make wealthy bankers even wealthier, because the US tax code encourages it.

Since Mr. Chang is a graphics reporter, you won’t be surprised that he included several images to augment his argument.

Are ITT Alternatives Much Better?

The outcome was certain the moment federal and state regulators spilled blood in the water and swarmed ITT Technical Institutes, but today it became official: ITT is going out of business. No proven guilt, just accused to death. But we’ve been over all that.

What is worth pointing out now are the alternatives to ITT. I’ve recently seen a couple of stories from Ohio about community colleges offering to take in students stranded by ITT’s demise, and thought it might be worth doing a little comparison between Ohio ITT branches—I mean, former branches—and these would-be rescuers.

Here is some broad info from the federal College Scorecard on Ohio ITT branches, and it is certainly not great: Annual after-aid costs ranging from $21,212 to $24,258, graduation rates from “not available” to 52 percent, and salary after attending of $38,400, which appears to be listed for most ITT campuses nationwide.

How about those community colleges?

I couldn’t find Butler Tech or Great Oaks on the Scorecard, but Cuyahoga Community College has an annual after-aid student cost of $5,832—enabled by upfront taxpayer subsidies—but only a 6 percent graduation rate and an annual salary after attending of $27,600. Cincinnati State Technical and Community College has an annual cost of $7,021, a graduation rate of 22 percent, and a salary of $29,700. The community colleges are cheaper than ITT, but their outcomes appear appreciably worse.

The Scorecard, importantly, is a seriously flawed tool, but it comes from the very federal government that has targeted ITT, and it gives the kind of first-blush data that have readily been employed to attack the for-profit sector. What I looked at is also, of course, anecdotal. But what it suggests is that the alternatives to ITT, at least in Ohio, are probably no better than ITT was, and may well be worse. Which supports what you’ve read here many times, and which broader evidence upholds: For-profit colleges are not distinctly terrible. It is the whole, federally distorted system that is a wreck.

Police Misconduct — The Worst Case in August

Over at Cato’s Police Misconduct site, we have selected the worst case for the month of August. It’s the Baltimore Police Department (BPD). 

Although the misconduct has been festering for many years, our selection is based upon the investigative findings of the Department of Justice, which were published in a report last month.

Here are a few of those findings:

  • The BPD engages in a pattern or practice of making unconstitutional stops, searches, and arrests;
  • The BPD engages in a pattern or practice of using excessive force;
  • The BPD engages in a pattern or practice of retaliating against people engaging in constitutionally-protected speech;
  • The BPD has allowed violations of policy to go unaddressed even when they are widespread or involve serious misconduct;
  • The BPD has failed to take action against offenders known to engage in repeated misconduct.

Because the problems run deep, it would be a mistake to focus all of our attention on the police department itself. The political establishment of Baltimore knew there were problems, but failed to address them. It remains to be seen whether the reform rhetoric we have been hearing will be followed by real action.


Ending Fed Ed Would Hardly Be Pure Loss

The Center for American Progress Action Fund (CAPAF) has sounded the alarm: Donald Trump’s proposal to eliminate the U.S. Department of Education (ED) would be pure loss because a lot of people use federal education money. Lost jobs, lost college access, lost learning. Which makes sense if you assume that the federal government miracles money into existence, people can’t adjust to changing circumstances, and federal control can only help.

Of course, the federal government does not just will money into existence. It does spend far more than it has, but sooner or later someone is going to have to pay for that. And money arriving through taxation comes from people who may have used it for other, more productive things. Taxpayers may have spent it on new businesses, or housing, or food, or lots of other things that would have potentially grown the economy and created new jobs. Or heck, just made them happier. So there are costs—maybe big ones—that CAPAF ignored: opportunity costs.

Then there are costs to dealing with ED demands. Yes, as CAPAF points out, the department has a relatively small workforce—about 4,300 full-time equivalent employees—but that is in part because ED makes states do a lot of the administrative heavy lifting, forcing them to hire a lot of bureaucrats. There is also a sizeable compliance cost that goes with federal programs. The latest available numbers I could find were from a 1998 report—pretty old—but that precedes the No Child Left Behind Act, which greatly expanded federal management. That report suggested that for every dollar sent to Washington only 85 cents made it back to local districts, and noted that there were nearly three times as many state employees being funded by federal money as ED employees.

How would ED be eliminated? While it is unclear how Trump would do it—details do not seem to be his thing—he would likely phase the department out, not just kill it all at once. Of course, he could just move the programs elsewhere in the federal bureaucracy. But assuming that by killing ED he means to kill the programs, he would probably phase them out, leaving states, districts, colleges, and students time to adjust. And if he were to couple phasing out the programs with, say, proportionate tax relief, or even just block grants to states, that money could still be used for education! It would not necessarily mean any lost teacher jobs, student aid, or anything else. It could just mean that instead of losing 15 cents in bureaucratic processing for each dollar, taxpayers could keep the whole buck!

Would trimming what we spend necessarily even be bad educationally? Signs pretty clearly point to “no.” As the graph below shows, as well as this report on SAT scores, large spending increases haven’t come close to producing commensurate improvements in achievement, at least as measured by standardized tests for high school kids. Those scores have essentially sat still. Same for staffing: In roughly the same period as is covered in the graph, public schools went from about 14 students per staff member, to just 8 students, approaching a doubling of employees per child. Even the high-school graduation rate “all-time highs” that sound so nice aren’t: CAPAF cited a report based on only four years of data, and longer-term data show in 1969–70—close to when the feds first got heavily involved in education—the average freshman graduation rate for public schools was 78.7 percent. As of 2012–13—the latest data on the chart—it was 81.9 percent. Hardly a huge increase, and possibly one inflated by “credit recovery” and other dubious practices. Oh, and the feds coerced states to adopt a single curriculum standard—the Common Core—only to see tremendous backlash after the public finally became aware of what had been foisted on them. At the very least, great political acrimony and stomach-churning educational turbulence have been the result.

The evidence—more of which can be found here—suggests that in K–12 education, federal involvement may well be a loss, not a gain.

How about higher ed? Federal student aid, it is becoming increasingly certain, has largely translated into skyrocketing prices, major non-completion, credential inflation, and big student debt. Hardly the pure affordability effect that is all CAPAF discusses. You can get more in-depth on higher education here.

There is one other thing that ought to be mentioned, though it may seem passé: Washington has no constitutional authority to meddle in education outside of DC itself, federal installations, and prohibiting state and local discrimination in education provision. Yet the vast majority of what ED does goes far beyond those things. Ignoring the Constitution comes with costs all of its own, which CAPAF—and everyone else—may learn very quickly if there is a President Trump and he, among other things, unilaterally tries to change federal education policy. You know, like President Obama.

CAPAF portrays the U.S. Department of Education as all gain, and it’s possible ending all pain. But there is a whole other side to federal education meddling: costs. And they are big.