The Real Crisis Is Youth Unemployment, Not the Minimum Wage

Over the past year, grave warnings of an ongoing crisis have been issued from politically Left-leaning think tanks like Policy Matters Ohio all the way up to the President of the United States. This relentless drumbeat of doom, the specter of which demanded our federal executive to act without Congressional action, would have Americans believe that without a minimum wage increase, countless millions of people will fall into oblivion.  Yet their wailing ignores the plight of the needy—the young, unskilled, and unemployed, who are far less likely to find a job if liberals succeed in raising wages such that entry-level jobs are eliminated, or are priced out of their reach.

As recently highlighted by the Bureau of Labor Statistics, only 4.3 percent of hourly paid workers earned the federal minimum wage or less in 2013. Young people from the ages of 16 to 24 made up 50.4 percent of workers making at or below minimum wage. Only 2.7 percent of hourly workers 25 or older made at or below the federal minimum wage. The East North Central census division, comprised of Ohio, Illinois, Indiana, Michigan, and Wisconsin, saw 4.3 percent of all hourly workers paid at or below the federal minimum wage. This outcome is reflective of the nation as a whole and well below the 5.7 percent seen in the South region, which stretches from Delaware to Texas.

While it is important not to trivialize those who do earn a living in a career at the minimum wage, it is also important to keep the issue in the proper context. A vast majority of workers do not earn an income at or below the federal minimum wage and those that do are more likely to be younger and to grow into higher earnings as their careers progress.

And that it is in the area of employment levels for youth where the wailing is deserved.  As America has crawled out of the hole created by the great recession, young workers continue to struggle to find work.  For African Americans, the youth unemployment rate is even worse, a whopping 36.1 percent in March.  As multiple studies, such as the Cato Institute and even the Congressional Budget Office, show, hiking the minimum wage is likely to be a job killer, especially for those seeking to start on the ladder of economic success.  To deny them a chance to climb that ladder is what should truly be considered a drumbeat of doom.

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Ohio’s “Student Accountability Act” Provides Cold Comfort to Student Data Privacy Concerns According to New Buckeye Institute Report

A new report, released Wednesday, April 9, by The Buckeye Institute for Public Policy Solutions finds that opponents of the federal government’s Common Core Standards rightly worry that the Obama Administration has found a backdoor into a “national, student-level” database that will house sensitive information about our students.

Concern over the State Longitudinal Database System (SLDS)-a state-led record-keeping system-includes the potential for misuse of sensitive student data by federal agencies, researchers, and data mining companies that may access such information through data sharing and research agreements.

Ohio’s House of Representatives deserves credit for passing the “Student Data Accountability Act” (H.B. 181) in December 2013 in order to address these fears; however, several broad exceptions and caveats may ultimately undermine the effort.

Historically, states, their agencies, and local boards of education have proven to be all-too-susceptible to federal and other financial incentives.  Often, board approval for the sharing of such sensitive personal student data may be only another federal grant away.

Further, it may surprise many Ohioans that federal law already recognizes that states, via their public schools, can collect psychological and psychiatric information about their students through individual and group activity or testing “that is not directly related to academic instruction and that is designed to elicit information about attitudes, habits, traits, opinions, beliefs, or feelings.”

The Buckeye Institute’s president, Robert Alt, emphasized that “Ohio has an obligation to ensure that students’ privacy is respected.  To date, Ohio’s efforts to safeguard student privacy haven’t made the grade.”Given a recent U.S. Department of Education report that suggests that education officials have a growing appetite for highly personal data, more robust measures are needed to protect this information than those included in H.B 181.

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BLS Revisions Improve Ohio’s Private Sector Job Creation Ranking

The February 2014 Ohio By the Numbers report (now available on The Buckeye Institute website) is the to incorporate the Bureau of Labor Statistics’ (BLS) new annual benchmarks.  Using the new benchmarks that showed higher job creation numbers since 2010 than initially reported, Ohio’s national private sector job ranking since improved from December’s rank of 34 to 25 in February.

After several months of mirroring, or coming in above, the nation’s unemployment rate, Ohio dropped below the national level in February (6.5 percent vs. 6.7 percent).  Despite the unemployment rate drop, Ohio shed 600 private sector and 4,000 government jobs in February according to preliminary BLS numbers.

Ohio’s labor force increased by 1,855 individuals in February.  This marks the second straight month of labor force growth in the state.  Overall, the labor force in Ohio has shrunk by slightly over 200,000 workers from its peak of 5.97 million people in December 2006.  It has gained nearly 7,000 workers since the beginning of 2014.

Despite the BLS benchmark-based upward revision for job growth in recent years, Ohio continues to lag the private-sector growth rates of most other states when considering the longer time span of the past two decades.  Ohio continues to rank as only the 47th best state since 1990.

For a full Labor Force update, click here.

Overall highlights from the report:

  • Ohio lost 600 private sector and 4,000 government jobs in February;
  • Ohio ranked 25th nationally in private sector job growth since January 2010, growing at a 7.2 percent rate;
  • Ohio currently ranks 47th nationally for private sector job growth since January of 1990, growing at 9.7 percent (top-ranked Nevada grew 96.4 percent over the same time span).

Within individual industry sectors, Professional and Business Services, Education and Health Services, and Leisure and Hospitality continue to employ more people today than in either 1990 or 2000.  Meanwhile, Mining and Logging, Construction, Manufacturing, and Information sectors have fewer jobs today than in 1990 or 2000.

The report shows that Forced Union states (which include Ohio and several of its neighbors — with the exceptions of Indiana, which became a Worker Freedom state in February of 2012, and Michigan, whose recent Worker Freedom law became effective at the end of March 2013) had a private sector growth rate far below Worker Freedom states.

Between 1990 and January 2012, Worker Freedom states’ private sector jobs grew at a 38 percent rate vs. only 14 percent for Forced Union states (11.8 million vs. 8 million).  Since Indiana became a Worker Freedom state in February 2012, Worker Freedom states’ private sector jobs grew at a rate of 4.6 percent vs. 3.6 percent for Forced Union states.

For the full report, please click here.

 

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States With No Income Tax Booming Economically While Ohio Plays Catch-Up

Taxes are as inevitable as death.  Yet, in nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), residents are not paying a dime in income taxes on their wages.  And, contrary to the howls of big government advocates, it seems to be working for those states’ economies by creating a better business climate.  As we prepare for the release of the Mid-Biennial Review bill, it is expected that Gov. Kasich will take a step along the path toward elimination of Ohio’s income tax, which will be a good thing for Ohio if done in the appropriate way.

A look at “Rich States, Poor States,” the annual report compiled by economists Arthur Laffer, Stephen Moore, and Jonathan Williams, shows not only which states are performing the best economically, but projects their economic performance out into the future by analyzing public policy on a state-by-state basis.

The empirical evidence presented in the report shows that, in the case of state income taxation, less accomplishes more.  The nine states without an income tax on wages (two of the nine tax certain non-wage income) were rated economically on a scale from 1-50, with 1 being the best, as follows:

  • Texas: 1
  • Nevada: 2
  • Wyoming: 4
  • Alaska: 8
  • Washington: 10
  • Florida: 14
  • South Dakota: 16
  • Tennessee: 23
  • New Hampshire: 32

Of the nine states with no income tax, only one of them was ranked below 25, and five of them were ranked in the top ten.  Ohio, on the other hand, fared much worse than any of them with a score of 49.

While rankings shift over time, they do raise legitimate questions about wider and more general trends.  Why would people move to Ohio if they could choose to move to one of nine states where they would not pay income tax on their wages?

Higher income-tax states, like Ohio, which also has the additional burden of municipal income taxes, are hemorrhaging residents, and non-income tax states are experiencing population booms and the affiliated positive economic benefits that correspond thereto.  The states without an income tax are simply more competitive and gaining more residents and, ultimately, jobs as a result.

The abolition or decrease of income tax can actually produce tax revenue growth.  In fact, according to Arthur Laffer, the states without an income tax actually have higher levels of tax revenue growth than the average of the highest income tax states.

Richard Rahn of the Cato Institute contends that moving away from the income tax is a step that can move a state toward a less intrusive, more economically friendly tax system that will help a state’s relative competitiveness.

“Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.”

While other factors besides income taxes play a role in determining a state’s overall economic climate, it is clear that once the burden associated with income taxes is lifted, history has shown that the economy benefits.  Ultimately, this economic growth benefits taxpayers as well.  If nine other states can do it successfully, it is time for Ohio to make itself number ten, and reap the resulting economic rewards (job growth, businesses relocating here, and an influx of residents) that we desperately need to climb up from our current position.

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Talking Tax Cuts on the Eve of the Mid-Biennial Review

Our Statehouse Liaison and Policy Analyst, Greg R. Lawson, was on the State of Ohio with Karen Kasler this past Friday along with Jon Honeck from the Center for Community Solutions.  They discussed the upcoming Mid-Biennial review bill to be proposed by Governor John Kasich including anticipated tax cuts, drop out recovery for students and workforce development.

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Stop Being Obsessed With “Income Inequality” and Get Obsessed With Creating Jobs

Recently, there has been a lot of talk about the issue of income inequality.  In a Gallup poll released on February 17, 23% of Americans listed “Unemployment/Jobs” as the number one problem facing the country.  Despite insistence by the Obama administration that an increasing gap between the richest and poorest Americans is the issue that deserves top priority, Americans do not agree.

The reason for this disconnect is in part a reflection of disparities in methodologies commonly used in income inequality studies.  As the Cato Institute has found, methodologies based on IRS tax returns do not take into account the changes in U.S. tax rules since the 1970s that have encouraged individuals to report greater income for the purpose of tax collecting.  As The Heritage Foundation points out, another common methodology uses Census data, which counts households rather than individuals, underestimates existing wealth transfer policy, and does not use equal quintiles.

As the Hoover Institute argues, a better measure of inequality would focus more on consumption.  This methodology would better take into account the impact of taxes and existing wealth transfer policies.

For a picture of the impact of income redistribution through the use of the Federal tax code, consider these recent findings from the Tax Foundation,

  • American’s lowest-income families receive $5.28 worth of government spending (federal, state, and local) for every $1 they pay in total taxes.  Middle-income families receive $1.48 in total spending per tax dollar, while America’s highest-income families receive $0.25 cents in spending for every dollar of taxes paid.
  • As a group, the bottom 60 percent of American families receive more back in total government spending than they pay in total taxes.
  • Government tax and spending policies combine to redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.
  • The total amount of redistribution has increased slightly over the past 12 years. Middle-income and working lower-income families were the biggest beneficiaries.

It is notable that the fabled “1 Percent” currently pays collectively almost as much in income tax as the bottom 95 percent combined.  You can read more on that here and be sure to note the below chart.

Ultimately, the talk of income inequality obscures something that Ohioans and Americans know too well: since the Great Recession, not enough jobs are being created.  The labor force participation rate is at historic lows.  As the CBO recently identified, new disincentives for work associated with Obamacare are set to pressure labor participation even further downward.  Instead of offering additional disincentives for work and using redistributionist tax policies to divvy up a stagnantly growing economic pie, we need to find ways to increase opportunity, promote business growth, and encourage people to work so that all workers, across all income levels, can share in the fruits of a larger economic pie.

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The Buckeye Institute’s Greg R. Lawson Testified on Energy Mandates, Government Transparency

On Wednesday, February 12, The Buckeye Institute’s Statehouse Liaison and Policy Analyst—Greg R. Lawson—offered interested party testimony to the Ohio Senate Public Utilities Committee regarding Senate Bill 34.  This bill, sponsored by Sen. Kris Jordan (R- Ostrander) would repeal Ohio’s current advanced and renewable energy portfolio.

In 2008, the General Assembly passed Senate Bill 221, which dramatically overhauled the laws surrounding Ohio’s energy market.

SB 221 explicitly forces electric distribution utilities and electric services companies to obtain a significant portion of their electricity from a combination of renewable and advanced energy sources.  Specifically, it imposes a 25 percent mandate, of which 12.5 percent must be from renewable sources with .5 percent set aside for solar energy.  SB 221 also developed mandates for utilities regarding energy efficiency.

Lawson stated in his testimony that the energy portfolio requirements,

“…constitute gross government intervention into the marketplace and, contrary to the assertions of renewable energy advocates, are likely to cost consumers much more money over the long run.”

Ohio is unlikely to avail itself of a competitive advantage for many renewable resources compared to other states.  For example, access to wind, already a resource that by its very nature is variable and inconsistent, is even more limited in Ohio than some other states.  Additionally, Ohio’s energy landscape has been fundamentally changed since the mandates were initially passed.  Thanks the shale boom, the price for natural gas is much lower today than it was in 2008.

Any cost increases will not only hurt homeowners, but—over time—will lead to significant increases in cost to high-energy users, particularly the manufacturing community.  Ohio is barely pulling itself out of the economic recession into which it fell between 2000 and 2010, when it lost more private sector jobs (619,000) than any state in the country except Michigan.  Now is the worst time to risk increasing energy costs and forcing businesses to choose between electricity and growing their businesses and hiring additional employees.

For the full testimony, click here.

Greg R. Lawson also testified at the end of January on a package of bills introduced by State Representatives Mike Duffey (R- Worthington) and Christina Hagan (R- Alliance) collectively known as “DataOhio.”  House Bills 321-324 work together to:

  • Require state and local public entities to maintain an open data standard, which would facilitate public access and searchability (HB 321);
  • Provide a uniform chart of accounts for state and local governments that will make it possible to make apples-to-apples comparisons across jurisdictions (HB 322);
  • Create a website, data.ohio.gov, that offers descriptions of various public data as well as tutorials (HB 323);
  • Offer $10,000 grants to local governments to incentivize them to provide various data in the open data format while utilizing uniform accounting practices (HB 324).

Given The Buckeye Institute’s longstanding dedication to government transparency and accountability, the expansion of easily-accessible and publically-available data as envisioned by “DataOhio” would provide the sort of transparency and accountability that taxpayers should expect.

In the testimony, Lawson states,

There are literally thousands of local governmental bodies and various taxing authorities in this state. Transparency for those entities is just as important as it is for transparency related to state-level expenditures. Until we open the books to allow disinfecting sunlight into the crevices of local government expenditures, taxpayers, and many local government officials themselves, will remain in the dark without access to the requisite information to hold all levels of their government accountable.”

To read the full testimony, click here.

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