Saturday, July 24, 2010

Which State has 5 counties in the Top 10 in terms of job growth in the last 10 years? Answer within...

According to CNN Money, these are the Top 10 Counties in the country that, on a percentage basis, have experience the largest job growth...Look where 5 of the Top 10 counties are located.  I wonder why that is? Click HERE to see more of the list and descriptions. (HT: Carpe Diem)

1. Lincoln County, SD
2. Williamson County, TX
3. Hays County, TX
4. Douglas County, CO
5. Fort Bend County, TX
6 Webb County, TX
7. Collin County, TX
8. Broomfield County, CO
9. Hamilton County, IN
10. Cache County, UT

Does an increase in the Minimum Wage hurt teen employment? Textbook says it does, but maybe Grandpa has a different opinion.

In today's WSJ there is an editorial relating the recent increases in the minimum wage to an increase in unemployment among the teenage population.  Every introductory economics textbook tells us this relationship exists, but there is some controversy (at the margins) about how much of an effect it actually has.  As with many things economics lately, there is another variable(s) to consider.  Look at the chart below....
Previous Blog Entry
Statistically, there are more 65+ people in the job market at the lower ends of the pay scale then teenagers (a relatively new development, demographically speaking.  So, perhaps it is not as cut and dry to say that the increase in the minimum wage has reduced teen employment.  Perhaps "the olds" are being employed at a higher rate than teenagers.  I don't know the answer, I just pose the question that the WSJ does not address  I suppose one would have to look at the hiring rate of the 65+ group and see if there is a connection.  Might be a good research paper for someone...

Friday, July 23, 2010

Letting the Bush Tax Cuts Expire--Primer on Marginal Tax Rates...It is FUN!...Really, it is!!

     Congress is in the midst of deciding to extend or let expire the "Bush Tax Cuts" of 2001-03 (In the original law, there was a "natural" expiration date of 2011).   These tax cuts were initiated as part of a fiscal stimulus plan to get the economy out of a recession that further deteriorated as a result of the events of 9/11.  The tax cuts were on Marginal Tax Rates applied to individual  incomes. 
     Marginal is a fancy word economists use to mean "each additional". In the US we have what is termed a progressive tax structure, which means the more you earn beyond certain levels of income, a higher tax rate is levied on each of those additional dollars.  Currently we have 6 levels of income that when each level is exceeded, the tax rate applied on each additional dollar is higher than the tax rate on the previous level of income (confusing, I know...example to follow).
    First, look at the graph below.  The current marginal tax rates are in the first column. The benchmark level of income that is subjected to each marginal tax rate is in the third column. The fourth column are the previous (pre-2001) marginal tax rates and the ones that we will return to if the tax cuts are allowed to expire. These columns are the ones we want to examine.

  Important definition:  In the third column you can assume these numbers represent "Taxable Income".  Taxable income is the income left over AFTER you take any tax deductions and/or tax credits you may be entitled to. Also, the FIRST $5,350 of income you earn is exempt from taxation.  In other words, you likely earned more than this amount, but not all of it is subjected to Federal taxation. 
     Look at the first line in our graph. Right now, if your TAXABLE INCOME, is between $1.00 and $16,750 you pay 10% of that income in Federal Income Taxes.  Assume you take all your deductions and credits you are entitled to take and you are left with a taxable income of exactly $16,750.  Currently, when you do your tax return you would owe 10% of that, or $1,675.  If the tax cuts expire, you would pay 15%, or $2,512.50.  One caveat here: Congress has the discretion (important word!) to keep any of the current tax rates or change any one of them.  It is NOT likely they would make lower income people pay this much more, percentage-wise, but for illustration purposes I will assume they do.
    Lets assume instead of $16,750 your taxable income was $17,750.  Under the current tax rates you would pay 10% of the first $16,750 or $1,675 PLUS 15% of the $1,000 over $16,750, which is $150.  Per our definition, each additional dollar over $16,50 is taxed at a higher tax rate (15%).  So, now your total tax would be $1,675 + $150 = $1,825.  Using the numbers from the previous paragraph, you can easily calculate what the total tax bill would be on $17,750 if the tax cuts were allowed to expire. Note: the 15% marginal tax rate is the only one that stays the same.  I forget the main idea behind this, but I have to assume that this level of income represented middle class America back then.
   Another example: You are now a high paying executive and are doing your taxes. After deductions/credits you find you have a taxable income of $250,000 (which means you ACTUALLY earned $300,000+). Nice going!!! Lets calculate your Federal income tax:

Looking at the above table under CURRENT TAX RATES
The first $16,750 of earnings times 10% =                                        $1,675.00
The amt. between $16,750 and $68,000 = $51,250 times 15%=         $7,687.50
The amt. between $68,001 and $137,300 = 69,299 times 28% =      $19,403.72
The amt. between $137,301 and $209,250 = $71,949 times 31%=   $22,304.19
The amt. between $209,251 and $250,000 = $40,749 time 33%=     $13,447.17
Federal income tax owed on a taxable income of $250,000  =  $64,517.58

While you are in the 33% tax bracket ($250,000 is in between $209,251 and $373,650 with a marginal tax rate of 33%) your EFFECTIVE TAX RATE is $64,517.58 divided by $250,000 multiplied by 100 = 25.8%.  In other words, you are actually paying 25.8% of your taxable income in federal taxes, not 33%. And in terms of your gross income, say $300,000, you are effectively paying ($64,517.58 divided by $300,000 mulitplied by 100) 21.5% of your income in Federal taxes.   This is a technical issue, but important to know if you want to be literate on the issue...
    Now, YOUR homework is to calculate what the amount of tax in dollars AND the effective tax rate is on $250,000 IF the Bush Tax Cuts are allowed to expire. How do the two compare?  We will use this for class discussion on Fiscal Policy, tax policy and  Automatic Stabilizers...

Thursday, July 22, 2010

I have solved the unemployment problem---Shovel ready projects! Err, I mean get your shovel ready for a project...See video!

Two ways to lay concrete.  Congress seem to think the construction industry TODAY will create jobs as illustrated in the first video but in reality it is more like the 2nd illustration (photo).  The job creation process COULD BE accelerated if, in any stimulus bill, they banned the use of capital equipment used in construction. That would work, right? ..I am being facetious (or am I?) but is seems like there is too much of a tendency to apply the job creation policies of the Depression to what is happening today.  We USED to work like the first video, now we work like the picture.  Things have changed...Why can't the thinking on "stimulus" change too???  Just askin'...(Watch the video and the photo at the same time---it speaks volume to "progress")

Here are two more to watch simultaneously...Look what happens when you substitute Capital for Labor!

Nice Graphic--Environmental Impact of a Pair of 501 Jeans---

"Levi's studied the life cycle of a pair of stonewashed 501 jeans as part of its research into sustainable apparel..." WSJ: How Green is my Sneaker?"

Tuesday, July 20, 2010

Navy shooting down drones with a Laser---I hope NOT mounted on a Shark Head...See Video!

This is a REAL news story (Link HERE)...The first video shows the Navy shooting down a drone aircraft with a "Lazzer"...The second video shows how this has already been done in the movies, except on a shark.... :)

Why Economists (or econ teachers) are never invited to play boardgames...

Monday, July 19, 2010

The productivity of labor vs capital---Could you do ANY of these jobs for more than 10 minutes?? Look and see...

HT: (Cafe Hayek) Here are 3 very instructive videos that illustrate the productivity of labor relative to the productivity of physical capital.  While you watch think about the physical capital we in the developed world use to do these tasks that are performed by people in many/most parts of the developing world.  You certainly can employ alot of labor by not using machinery, but is it conducive to economic growth and the general welfare of a society??..These are VERY short (no more than 30 seconds each) and are REALLY amazing. The first one with the buckets ESPECIALLY!! The coordination to accomplish the job is something to behold. Could YOU do ANY of these????  Judge for yourself...

This is more like we do here---mostly capital, less labor---quite the difference, ehh???

HT: Carpe Diem

Sunday, July 18, 2010

Personal Opinion enclosed---Republicans need to support extending Long-Term Unemployment Benefits NOW!

     Should the Republicans stop blocking the passage of a bill that will further extend unemployment benefits to the long term unemployed?  In all introductory economics textbooks, students learn is that if unemployment benefits are increased then people, especially, but not exclusively, at the lower-end of the pay scale, will respond to this incentive by taking more time to find another job. If you look at the differences in unemployment compensation offered by many European countries (which are relatively generous) compared to the US and Japan, you will see that the European countries experience persistently higher levels of unemployment.  Unemployment compensation is not the only cause of this, but it is certainly a contributing factor.  While the unemployment compensation, in general, does not 100% replace the working pay, it is enough to allow people to extend their search for a more "ideal" job. 
    Having said that, it is obvious we live in interesting times right now.  It appears that the bromide "a job is a job is a job" is no longer apropos (if it ever really was) and applying learned/current labor skills in lateral industries is increasingly difficult.   There is a continuing shake-out on the Aggregate Supply-side of the economy, as certain industries contract and the re-deployment of those resources (human, physical/financial capital, production capacity,etc) takes place.  Some of those resources are fluid and can go to other uses rather easily, and some are high static and not "fungible" and take more time, if ever, to find a new productive use. 
    Labor/skill specialization and advancements in production technology have converged to squeeze lot of people out of the pool of workers needed for current jobs.  This form of unemployment is called "structural unemployment", meaning a worker is no longer needed because his/her skill has been rendered obsolete by the adoption of technology. We can extend this definition to the advancement in processes that lead to efficiencies that allow for fewer workers to do a particular task. For example, the auto worker who operates a rivet gun is replaced by a robotic arm. The worker cannot move to another plant because the technology will be adopted industry-wide. Or a workplace design or innovation streamlines production.  He or she in either line of work is outta luck. 
    One could say, "Ah Ha! He/she can go to the businesses that makes the robotic arms and get a job!".  But does he/she have the necessary skills to make that transition? Where do they get training to do this and feed their families at the same time? What is the time lag between losing a job, training, and finding a comparable pay job? Hmmm...have to put yourself in their position.  The longer one stays unemployed the difficulty in finding gainful employment multiplies exponentially.
   If the economy is booming and jobs are plentiful, then a case can be made for REDUCING unemployment benefits because people can reasonably find a job and limited, if any, social damage would be inflicted on the least amount of people. However, when employment prospects are limited because: (1) the economy is simply not creating jobs  fast enough , if at all (2) there is a re-deployment of resources which is a slow process, (3) workers are structurally unemployed due to technological advances in production, then, I believe, the unemployment benefits have to be extended.  Having said THAT, there has to be a commitment by public policymakers and industry to facilitate training and/or re-training of workers AND a commitment from the unemployed to do so as well.   The social cost, which appears to be unseen to Republicans, of not doing so is too high.  Too much idle human resource creates lots of potential ancilliary social problems Not addressing it promotes uncertainity for those who still have a job and may feel "but for the grace of god there go I". That trepidation is not condusive to inspiring confidence, which, in addition to new jobs, is vital to economic recovery.
   My only question is, "What SERIOUS proposals are on the table to help the long term unemployed that complement the extension of unemployment benefits?"...Not a rhetorical question....
    So, Republicans, vote for this (sorry, it is on the Demand-side)! Democrats---work on this resource re-calculation problem (sorry, it is on the Supply-side).  Get out of your comfort zone and help my country, please and thank you!!
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