Tag Archives: Nevada employment

Nevada’s Good News, Bad News Economy: Housing, Wages, and Woes

Nevada’s home foreclosure rate is still not a pretty picture.   The state still exceeds the national average.  This is not an argument to slather on the Doom and Gloom economic message with a trowel, but it is a cautionary item in the prolonged narrative of the effect of the housing bubble, and the continued pressure from low wage employment.

Nevada Foreclosure 4 2016One in every 702 properties is in some phase of foreclosure, with one in every 373 in Lyon County, one in every 448 in Nye County, one in every 468 in Churchill County, one in every 643 in Clark County, and one in every 657 in Elko County. [RealtyTrac]  Dismal as this may seem, it does represent an improvement over Nevada’s record breaking performance in 2008-2010. [LVSun] At the end of 2010 Las Vegas saw one in every 9 home receiving some form of default notice. [moneyCNN]

The good news:

“The December surge in foreclosure starts is not a cause for concern, as it comes from a previously existing supply of distressed properties,” said Andres Carbacho-Burgos, Senior Economist at Moody’s Analytics, which analyzes RealtyTrac foreclosure data to forecast foreclosure trends. “The national pool of distressed mortgages has not increased despite the surge in foreclosure filings.” [RealtyTrac]

The astounding appetite of the Wall Street Casino for a supply of home mortgages to slice, dice, tranche, and securitize seems to have mellowed given that the “national pool of distressed mortgages” (of which Nevada contributed more than its share?) hasn’t increased.  National foreclosure statistics illustrate an effort to “clean up” previous backlogs.  So, if housing isn’t the big downer, what might be?

The Not So Good News: Nevada’s wage growth from 2007 to 2012 was a –6.5%.  Yes, that’s a minus sign in front of the percentage.  This is not the sort of chart that warms the hearth:

Nevada wage growth 2012 In short, whatever general wage growth there was between 2002 and 2008 was given back in the wake of the housing bubble collapse. The average weekly earnings of $835 in 2002 dribbled down to the average weekly earnings of $840 in 2012, a $5 increase in five years isn’t much to applaud.

There’s a bit  better news for 2016.  Weekly wages in the 3rd quarter of 2015 were $860, compared to the $840 of a year ago, up 2.6%. [NWF pdf] Even better, the unemployment rate in Nevada is now reported at 5.8%, a significant improvement over the +/- 14% we were looking at during the Recession. [NWF]  And now, another note of caution.  The greatest demand for employees in the state is for wait staff (2,229 openings), retail salespersons (2,113 openings), combined food prep including fast food (1,793 openings), and cashiers (1,420 openings) [NWF pdf] 

More food for thought:  Only two of the jobs listed with more than 500 potential openings offer wages or salaries above the median income in Nevada.  General and Operations Managers (571) has an annual average wage of $104,832, and Registered Nurses (608) can expect an average about $78,811. By contrast, wait staff averages $22,277, retail salespersons about $27,040, food prep about $19,781, and cooks $27,456. [NWF pdf]

Not to put too fine a point to it, but the occupations most in demand in Nevada aren’t the ones which will do much to improve either the housing market or the actual level of wage growth.

Nevada’s current $8.25/$7.25 minimum wage is not helping the situation.  A informative graphic in the Las Vegas Sun illustrates that a studio apartment rental in Clark County is affordable for someone working full time at $12.12 per hour, 1 bedroom requires $15.13, a 2 bedroom $18.63, a 3 bedroom unit $27.46, and 4 bedrooms $32,60.  Want a 2 bedroom apartment in Clark County? It requires 2.25 jobs at $8.25 per hour.

One of the least helpful suggestions made to the last version of the Nevada legislature came from Senator Joe Hardy (R- Boulder City) who offered the following resolution:

The resolution would repeal a constitutional amendment approved by Nevada voters in 2006 setting a standard minimum wage. Hardy said he would also propose legislation giving the Legislature the power to control the state’s minimum wage and tie the wage to the Consumer Price Index. [LVSun]

Republicans offered up a proposal for $9.00 per hour, still well short of what it would take a minimum wage worker to afford a studio apartment. Democrats proposed a $16/$15 minimum wage – which would just about get someone into a single bedroom rental unit.  Hardy’s proposal went nowhere, as did the other two offerings.

Meanwhile, the income inequality gap increased in the state.

“The states in which all income growth between 2009 and 2012 accrued to the top 1 percent include Delaware, Florida, Missouri, South Carolina, North Carolina, Connecticut, Washington, Louisiana, California, Virginia, Pennsylvania, Idaho, Massachusetts, Colorado, New York, Rhode Island, and Nevada.” [EPI]

If there were ever a way to insure that an economy based on consumer demand could stagnate, then it surely must be related to the incongruous notion that if a few rich people get richer then everyone will be better off. Let me suggest a re-reading of the old classic, “Where Are The Customer’s Yachts?

Let me also suggest a review of the Department of Labor’s myth-busting publication on the effects of raising the federal minimum wage.  Conservative sites have their own “myth-busting” reports but their conclusions are highly questionable, and just as highly generalized,  and none effectively challenges the research from Kruger and Card which demonstrates that there’s nothing “job killing” about increasing minimum wages. [HuffPo]

Nevada’s economy could be improved by:

  • Increasing the state’s minimum wage to at least $13.00 per hour.
  • Continuing to restrict the activity of bankers who want to securitize mortgages, under the terms of existing banking laws and regulations.
  • Continued implementation of the Dodd-Frank Act.

Nevada’s politicians might be improved by asking some pointed questions:

  • Do you support an increase in the State’s minimum wage to $13.00 per hour?
  • Do you support the continued implementation of the Dodd-Frank Act

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Filed under Economy, Nevada economy, Nevada politics

The Forced Choice Fallacy: Employment and Education

NV Employment by Industry 2015 The Background: There are 1,418,000 Nevada residents in the state’s civilian labor force, and 7% of them are looking for work. The state has 1,254,300 individuals in the non-farm wage and salary category, up 3.4% since last year.  28.11% are employed in a single sector – Leisure and Hospitality. 5.41% are employed in construction related jobs.

Category  % of employment  change YOY
Leisure Hospitality 28.11% +5.1%
Trade, Trans, Utility 18.97% +3.8%
Prof Bus. Services 12.68% +2.8%
Government 12.13% 0%
Education/Health 9.68% +5.2%
Construction 5.41% +8%
Financial Activities 4.59% +0.7%
Manufacturing 3.33% +0.7%
Other Services 2.89% +3.7%
Information 1.12% -5.4%
Mining & Logging 1.08% -5.6%

(Source: Department of Labor, BLS)

The first table shows the situation at the present. Projections from NDETR estimate what employment will look like as of 2022.

Category Number of openings from Growth to 2022
Construction 24,580
Food Preparation/Service 23,100
Office & Admin Support 16,990
Transportation 12,640
Sales Related Occupations 12,120
Personal Care & Service 11,700
Management 8,660
Healthcare Practitioners  & Assts. 7,780 (+3,680 Support positions)
Business Financial Occupations 6,850
Production Occupations 6,530

*There are projected to be another 6,500 jobs in the Installation, Maintenance, and Repair occupations category; and, about 4,840 jobs related to Education, Training, and Library personnel positions. Of the 24,580 jobs in “Construction and Extraction” only 80 openings are projected to be in the “extraction” category related to “growth.”  In short, the Nevada economy of 2022 is projected to be much like the Nevada economy of 2015.

False and Forced Choices

Now that we have some hard data, and some rationally projected data about employment opportunities in Nevada extending to 2022, it’s time to take a gander at some of the policy decisions which need to be made about how to create expansion in the economy.

Here’s a classic example of how NOT to approach the issue:

“The left claims they’re for American workers, and they’ve got lame ideas, things like minimum wage. We need to talk about how we get people skills and qualifications they need to get jobs that go beyond minimum wage.”

Scott Walker, yesterday  [h/t Angry Bear]

First, the most recent entry into the GOP Candidate Bus separates “skills and qualifications” from issues about raising the minimum wage.  This seems to be an artificial forced choice – either one supports the minimum wage increases or one supports more education and training to become qualified for better paying jobs.  (Not that Governor Walker’s slashing of the higher  education budget makes his position comprehensible?)   It is humanly possible to support both increasing the minimum wage AND support additional resources for our post secondary educational institutions.  And, there are some practical reasons this would make sense for Nevada.

Secondly, let’s look at the minimum wage issue as a practical matter in Nevada.   Retail sales worker positions account for 7,450 of the 12,120 projected job openings due to growth in the NDETR estimations for 2022. Food and beverage service positions account for 13,260 of the total 23,100 food preparation and serving jobs estimated to be available by 2022.  What would punch up the economy of Nevada faster? Leaving the minimum wage at current levels for the expected positions in retail and hospitality sectors of the Nevada economy? Or, increasing the minimum wage for those 20,710 jobs?

A person earning $7.25 per hour working 40 hours per week for 50 weeks per year would earn $14,500.  A person earning $10.00 per hour working a 40 hour work week for 50 weeks would earn $20,000 annually.  If you are keeping score with your calculator – that’s a difference of some $113,905,000 available to be pumped into the local economy from those 20,710 jobs.  Since we know from the research that lower income workers spend more on basic household expenses, that’s an additional $114 million for groceries and supermarkets, clothing stores, housing and furnishings, and for transportation.  One more time – The GDP formula:

Gross Domestic Product Formula Remember, that “C” in the formula is Consumer Spending.  And, I can keep hauling out this graphic until it hits home that increasing consumer spending is an essential feature of what drives growth.

Now, about those “qualifications and skills..”

Where does one get additional training for higher paying jobs?  If a person did not intend to stay in a minimally paying food service job, or a low paying construction job, or a low pay office job, then where are the training programs for advancement?

Let’s assume for the first argument that an individual wants to advance in the same field as his or her entry level position.  Nevada has both public and proprietary post secondary educational programs available. [NVps pdf] On the public side, a person wanting to move up in the office might want to consider an associate’s degree in bookkeeping? Management?  The community colleges offer these programs throughout the state.  And, yes, a person earning more than a minimum wage might be better able to take advantage of the post secondary training available from the Nevada system.

How about a move from one occupation category to another?  What if our hypothetical prospective employee wants to move from a retail job into the field of medical or health information technology? There’s a program for that at Southern Nevada College.

In short, the most efficient and cost effective way to provide career pathways for economic improvement is to invest in our community colleges and technical education institutions.  These are also the best ways to assist older workers who are moving from declining fields to those in which some growth is expected.

What did the President have to say about community colleges?

“As the largest part of the nation’s higher education system, community colleges enroll more than 6 million students and are growing rapidly. They feature affordable tuition, open admission policies, flexible course schedules, and convenient locations. Community Colleges are particularly important for students who are older, working, or need remedial classes. Community colleges work with businesses, industry and government to create tailored training programs to meet economic needs like nursing, health information technology, advanced manufacturing, and green jobs.”

So, yes, it makes sense to provide support for post secondary education in Nevada.  Those “qualifications and skills” have to come from somewhere, and what better way than to expand the capacity of our post secondary programs to enroll and instruct those who want to advance in a chosen field or become qualified for employment in a new one.

Meanwhile, we have to acknowledge that a preponderance of the growth in this state is still in occupational categories such as retail sales and food service which are relatively low paying jobs, and from which we could expect much more robust economic growth by requiring if not a living wage of $15.00 per hour then at least an increase to $10.00.

No forced or artificial false choices are required: We really can do two things at once.

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Filed under Economy, education, employment, Nevada economy, nevada education, Nevada politics

Nevada’s Job Trap and the Minimum Wage

The Nevada employment report was encouraging last round. [DETR] Remember when the press release read:

“Total employment in Nevada’s economy is projected to grow by about 61,000 jobs through 2015 to reach an average of 1,218,700; this represents a 5.3 percent increase. Specifically, growth rates of 2.5 percent for 2014 and 2.7 percent for 2015 are expected. Some of the fastest projected growth will occur in accommodation and food services, construction, and retail trade.  Together these three industries are expected to account for over 55 percent nearly 34,000 of all new jobs during this period, Anderson noted.”

This almost mirrors the latest commentary from the Bureau of Labor Statistics on the jobs report.

Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor  Statistics reported today. Employment gains were widespread, led by job growth in professional and business services, retail trade, food services and drinking places, and construction.

If we are projected to see jobs increase in (1) accommodation and food service, (2) construction, and (3) retail trade, then what does the current debate about raising the federal minimum wage tell us about the capacity for economic growth in Nevada.

Specifically, the median annual income for a person working in a retail clothing store in Nevada is $21,660.  An employee in a grocery store can expect $23,560 median annual earnings.   A worker in a sporting goods store?  He or she can expect median annual earnings of $21,420. [DETR]    The  median annual earnings number for wait staff in the accommodation/food service category is $19,310. [DETR]  The median hourly wages for construction workers? About $16.40 per hour.

Not to put too fine a point to it — BUT when 55% of the employment growth in the state is projected to occur in jobs which don’t often pay a living wage, then the state is asking for trouble.  Either the wages have to improve, or the state has to pick up more of the slack to insure people aren’t falling into unsustainable poverty conditions in which they can’t afford housing, adequate food, and basic utilities.

One of the sputtering arguments against raising the minimum wage is the Inflation Argument.  Gee, if we raise wages then things will just cost more and if they do then the increase won’t be meaningful and “won’t solve the problem.”   What problem?

The Inflation Argument is the essential position of the banking sector.  No inflation is good inflation.   The old saw said debtors liked inflation, while bankers (creditors) preferred stability or deflation.  If our “problem” is that we don’t have enough economic growth (read: more aggregated demand for goods and services) then there are some ideas which need more examination, beyond the recitation of old truisms.

What happens, for example, when the level of deflation is such that it actually increases the burden of the debt and reduces the cash flow necessary to service that debt?  The obvious answer is that the debt becomes uncollectable.  People declare bankruptcy. People down-size their living arrangements; people avoid major expenditures in housing, goods, and services.  That’s not a way to grow an economy — at the state or federal level.

Another notion which hasn’t been explored very often is that during periods of stagnation it makes some sense for enterprises to sit on their cash.   If, however, an industrial or commercial business believes that there is some likelihood of moderate inflation, then the decision to spend money now as opposed to waiting until “things” get more expensive kicks in.

Would we come closer to solving our “employment problem” if commercial and industrial businesses expected that a moderate level of inflation would mean they could get more for their expansion or upgrading money now, as opposed to waiting?

The second sputter often sounds something like — but, but, but do we want the government determining the value of a worker’s labor? Shouldn’t the “market” do that?  This is lovely at the ideological and theoretical level, but doesn’t exactly provide a road map for Nevada business enterprises.

If our sporting goods store employee can expect $21,420 annually, but there is no ‘floor’ under that median, then if there is no minimum standard how do we prevent a race to the bottom, a race in which the big box stores reduce wages to the lowest possible common level?  If there is competition based on who can reduce prices by reducing wages, then where does this stop?  A related question is: At what point does the sustenance provided by the state for the protection of general living conditions become a subsidy for the corporate employers?  Barry Ritholtz’s article for Bloomberg News, “How McDonalds and Wal-Mart Became Welfare Queens,” illuminates this issue.

If there is a state in this union which could benefit from an increase in the minimum wage it’s Nevada, with its projection of most employment rising in retail, accommodation/food service, and construction.  Further, if the inflation argument is demonstrated to be informed by economic feedback from inflationary pressures, and in the real world there are benefits to be gained from moderate inflationary pressures, and if we do not want to create a situation in which major employers are subsidized by taxpayers, then it’s time to support setting the minimum wage to at least $9.80/hour, or $10.10 — or what about $15.00?

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Some Good News and Some Cautions

Hard HatInitial jobless claims are down in Nevada! “Initial claims for unemployment in Nevada fell 5 percent in July from the same month last year, marking the eighth straight month that the claims dropped year-over-year.”  [RGJ]

Nationally, the numbers aren’t too bad either:

“The advance number of actual initial claims under state programs, unadjusted, totaled 280,502 in the week ending August 10, a decrease of 8,142 from the previous week. There were 317,680 initial claims in the comparable week in 2012.

The advance unadjusted insured unemployment rate was 2.2 percent during the week ending August 3, a decrease of 0.1 percentage point from the prior week’s unrevised rate. The advance unadjusted number for persons claiming UI benefits in state programs totaled 2,858,818, a decrease of 100,830 from the preceding week’s revised level of 2,959,648. A year earlier, the rate was 2.5 percent and the volume was 3,180,011.”  [BLS]

As always, looking at seasonally adjusted initial unemployment applications is rather like looking at the economic world via the rear view mirror.  That said, it is comforting to note that the numbers of long term unemployed persons is edging down: “Officials say the number of unemployment benefit recipients who exhaust their regular benefits is also down, from 53 percent in July 2012 to 47 percent this July.” [RGJ]  It does appear it’s getting a bit easier to find work in the Silver State, as opined by DETR’s Bill Anderson.

Ball and ChainThere are some obvious weights attached to Nevada’s employment recovery.

#1. The Bubble Factor — There’s no way to avoid the fact that the Nevada housing market, pre-crash and burn, was “overheated.” “Nevada’s construction industry shed about 66 percent of its workforce in six years, down from 147,700 jobs in May 2006 to 49,200 in May 2012. The sector has a labor force of 52,100 workers as of April this year.” [RGJ June 2013]

#2. Declining public sector employment — While it might be popular in some circles to grouse about public employees as Pigs At The Public Trough, unless one is satisfied with over-crowded classrooms, slower response times to fires and medical emergencies,  less police presence in the community, fewer and less extensive health inspections of medical clinics or restaurants,  and wider, bigger, and more spectacular pot holes, public employees provide essential community services.

And, the local governments which provide these services have faced the largest cuts.

Public Sector Employment NevadaAs continually repeated on this site —  Public employees do not soak up “sacred tax payer dollars” into large sink-holes — the wages and salaries are SPENT in local grocery stores, drug stores, garages and auto dealerships, furniture outlets, clothing and other retail establishments, cafes and restaurants, barber shops and beauty salons, home improvement stores, medical offices, hardware stores, sporting goods stores, and other businesses which need customers to survive and thrive.  Consider the profit margins for a moment.

It is common for a restaurant, for example, to experience a 0% profit during its first year of operation.  An established high end restaurant can expect returns of about 8% annually, a less expensive (in terms of profit to operation cost ratio) cafe might make as much as 35%.  [Restaurant.Com]  More generally, “The type of retail establishment you operate may dictate your ability to raise margins. Specialty retailers and general merchandisers — department stores — were the most profitable sector of the retail economy in 2009, according to “Fortune”magazine, with a 3.2 percent average profit margin. Food and drug stores operated on a 1.5 percent margin.” [HChron]  8%, 3.2% margins? 1.5% margins?  How many job losses in the public sector does it take to carve into these profit to operating cost ratios at the local level?

#3. The Spiral Effect — declining employment combined with declining property values have ramifications for local governments.  We can look to the Debt Limit calculations for local governments to see how spending gets squeezed.

As of June 30, 2007 when the Housing Bubble bloomed the Nevada debt limit for local school districts was $17,174,852; in 2009 it was $21,631861,623; as of June 30, 2012 it had dropped to $12,935,539,045.  Think of the Debt Limit as if it were a ‘line of credit’ available to a local government entity — and note that as the credit limit declines there can be fewer capital expenditures.  Capital expenditures for building, renovation, and major maintenance directly affect the construction sector.

Another form of the spiral more directly relates to retail spending for consumer products and home related expenditures.  Retailing is struggling back:  “After two years of decline in 2008 and 2009, retail ended each year on a positive note through 2012. The sector, however, is still down by about 10,000 jobs from 2007, when it closed the year with a labor force of 147,000 workers.” [RGJ]   One way to measure the relative health of our consumer based economy is to look at the amount of debt American families are willing to take on.  The New York Fed’s report for the second quarter of 2013 tells us:

“The latest Household Debt and Credit Report shows outstanding household debt declined by $78 billion from the previous quarter, due in large part to a decline in housing-related debt. Total auto loan balances increased $20 billion from the previous quarter, the ninth consecutive quarterly increase and the largest quarter over quarter increase since 2006.”

There’s a graph for this:

Total debt balanceNote that both trends are downward — for housing and non-housing indebtedness.  It isn’t outside the realm of common sense to observe that American consumers, once burned are twice shy.  One question which remains unanswered is whether the reduction in mortgage interest rates will give families enough slack in the budget to increase their optimism about their capacity to make purchases on credit.

The spiral effect related to consumer credit becomes a problem when consumers decline to make both major and minor purchases because (a) they are functioning on lower or stagnating wages and salaries, (b) are insecure about their future employment, and/or (c) while they may feel better about housing payments, the reduction thereof is insufficient to justify using more credit.  This has a profound effect for automobile dealers and commercial enterprises related to housing.

#4. The wage and salary wheel.  This sounds good: “Health care was the only sector to gain jobs in the recession. The industry had about 100,000 workers, up 20 percent from 2006. It also posted employment gains for each year during this period.”  [RGJ]  However, does this increase indicate a major spur for the Nevada economy.  Perhaps not.

One of the more disturbing charts in the June report from DETR shows what’s been happening with respect to personal income in Nevada.

Nevada Person Income GrowthThe trend since 2011 indicates that what we may have been doing is increasing the number of lower paying jobs while losing ground in higher paying employment.

If the trend in personal income growth declines, then how are we to expect the overall economy to increase?

Ball and ChainCutting the Chains  If the state of Nevada intends to secure higher growth rates, then it would be better to concentrate on those elements which are directly related to that growth.  Once more, let’s divest ourselves of the pleasant myth that by getting businesses to move to or to open in Nevada because we have a “pro-business” (read: Low Tax) environment we will boost the overall state of our economy.  National businesses will move here IF, and ONLY IF we have the infrastructure to support their operations (education, transportation, research..)  New commercial enterprises will open their doors here IF and ONLY IF there are customers for their products and services.

Once free of that continually trickling down ideology we can focus on rebuilding the public sector, which includes many of those professional occupations considered Middle Class (police, fire, teachers) and which provide support for those pillars (headquarters, back office, manufacturing and distribution, and research and development) which entice business enterprises to open in our region.

We should also be attending to the issues related to how we can escape the spiral effect and wage and salary wheels, which keep rotating, but require more than ideologic wish lists in order to alleviate the disinclination to take on consumer purchases or to be inclined to find room in the family expense accounting to increase what our friends across the Pond are wont to call the “custom.”

Until then, we’re weighted and freighted — and spinning our wheels.

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Challenging Our Economic Assumptions In Supply Side Nevada

Blind faith can be a very good thing.  However, as in most situations in which human beings find themselves, Samuel Johnson’s quip — “Moderation is commonly firm, and firmness is commonly successful” — should be applied.  When speaking of the Nevada economy, sluggishly trending back to prosperity, a little moderation would be a firm handle to grasp.  Better surely than grasping at platitudes and assumptions.

Some Assumptions Need To Be Questioned

Why, for example do we measure our economic recovery by looking at the peak growth points in 2007?    The numbers in 2007 were artificial. We know that in retrospect.   Nevada was riding the Housing Bubble.   Therefore, should we assume our state’s economy won’t be fully recovered until we see employment and growth figures similar to the ones from 2003 to 2007?

Why, do we believe that a specified percentage of growth is the ideal target?  One look at a graph of the U.S. GDP since 1947 certainly doesn’t indicate that our GDP growth since World War II has been a steady march of progress.

If we take the numbers back to 1900 the historical average annual increase in the GDP is about 3.1%.  [DotL] What we’re looking for now is an annual increase in the GDP sufficient to reduce the current levels of unemployment.  By October 2011 we were seeing an increase in the Real GDP of about 2.5%, positive but not enough to cause a significant reduction in the overall unemployment rate.  What would the picture look like if we split out the components of the GDP?

This:  (click on the chart to go to the interactive version)

What we’re looking at is a flat line for personal consumption expenditures since 2010 Q1,  volatility in gross private domestic investment, and mostly negative public (government) consumption expenditures.   The yellow GDP line muddles along.  Notice that when government expenditures moved into “positive territory”  beginning Q2 2010 the GDP moved up to 3.8%.   When the government expenditures dropped 5.9% in Q1 2011, the GDP was barely in positive country at 0.4%.

If there is no specified ideal GDP number, only an increase in overall economic activity sufficient to reduce the unemployment rate, then can we assume that all government spending is wasteful?   Not if we’re all looking at the same graph.

Reviewing what what happening economically in the latter part of 2011 the EPI analysis seems both relevant and precise:

“The one-year rise in the market-based PCE deflator excluding food and energy—a closely watched indicator of potential future inflation—rose only 1.6 percent. This low inflation rate, combined with only a 1.6 percent GDP growth rate over the same period (third quarter 2010 to third quarter 2011), argues that this remains an economy plagued by weak demand. Measures to boost demand are by far the most effective tools to bring the economy back to health.”  (emphasis added)

Is tax rate reduction the best way to increase demand?  Nevada has experienced job growth during 2012 in every part of the state except Carson City.  If “cutting back on government” is the recipe for economic growth in the private sector, why didn’t private sector employment pick up the slack in the state capital?  Silly question? Not really.  What we have here is an illustration of the inter-connectivity of public and private spending and consumption.

The second chart from DETR shows us that every major sector in the Nevada economy grew in both FY 2011 and FY 2012 except construction. That’s to be expected.   However, if we’re assuming that this is because taxes were reduced, then the exclusive connection can’t be made. The 2011 Nevada legislature extended tax increases that were scheduled to expire to make its budget numbers, [NNB] and the job growth increased in two major sectors over 2011, and the construction numbers were “not as bad” as 2011, or putting a Happy Face on it were 1/2 as bad as FY 2011.  There’s yet another question to be asked.

If Nevada further reduced its taxation would an amount of personal income “remaining in individual pockets” be enough to drive economic growth toward the level necessary to reduce unemployment?  Probably not.  We have no personal income tax.  We have the aforementioned Modified Business Tax, we have sales taxes ranging from 6.85% to 8.10%, we have Sin Taxes, excise taxes on insurance and banks, and some other taxes, but no corporate income tax. [NVDoTx] Taxation-wise we’re one of the most mining friendly places on the planet. [Gleaner]

In fact, what we have at the state and local level is a system which doesn’t reward consumption of goods and services, or good old fashioned Demand.  The more you buy the more  you pay, regardless of your annual income.  Local property taxes are based on the value of the property, not the income capacity of the homeowner.  The only forms of taxation we could reduce are already insufficient to sustain local government operations, witness the layoffs in the Clark County School District.

We appear to have spent so much time worrying about the supply side of the equation we’ve diminished our capacity to encourage or reward demand.

Can we assume further emphasis on the supply (investor) side of the classic market equation will eventually reward us with economic growth necessary to reduce unemployment?  Why would it?  An investor could back The Next Greatest New Product On Earth, but if there is no demand for it the investment and the innovation will both be in vain.

Well Gee, we say, if there’s no demand then the Market Has Spoken, and neither the innovator nor the investor can expect anything other than failure — you win some, you lose some, and a few get rained out.  If we extend the baseball analogy a step further — have we paid enough attention to the rain outs?

A rain out might look something like this:  A hypothetical suburban neighborhood has a higher percentage of public employees — teachers, firefighters, police officers, social workers, and so on — than some other residential areas in the region.  The neighborhood has the usual assortment of retail enterprises, a supermarket, a medium sized shopping mall, a couple of Big Box retailers for general merchandise and home supplies.   If there is a significant reduction in the wages, salaries, or the number of public employees what happens to the micro-domestic product?  No reduction in taxation rates are going to recoup the lost revenues in the neighborhood such that the retailers can maintain their previous profit levels.

There may be a point at which the reduction in demand tips, and the retailers cannot maintain their staffing levels, at this juncture public sector layoffs beget private sector layoffs; and, if we aren’t careful there’s a downward spiral effect on overall economic activity in the area.  Obviously, the larger the population the more such losses can be absorbed in the generalized figures, but just as obviously in places with smaller populations (Carson City for example) the impact is magnified.  Remember this home-made graph?

The 8.3% rebound looks good, but the dip between 2007 and 2010 was deep and hard.  There is yet another way to observe the connections between weak demand and the Nevada economy.

How many new businesses are being registered with the Secretary of State’s office?  As would be expected the drop off is fairly clear beginning in 2006 (Housing Bubble starts to waver) and plumbs the depths until starting back up in 2010.  Then we falter.   Should we test the hypothesis that the “plague of weak demand,” is at least partially responsible for the little bounce from a 0% increase to another 0% increase in 2012?

The hypothesis ought to be tested because there are some assumptions beneath it, including “no one starts a business expecting to fail,” or “no one starts a business without the expectation of having customers.”  If we are, indeed, “plagued by weak demand,” then might this show up in the numbers of businesses formed in a given region?

Perhaps it’s time to forgo the pleasant assurances of ethereal ideological assumptions about the functioning of our free market economy with a singular focus on the investors, and apply some moderation.  We ignore the demand side of the scales at our peril.

Moderation is commonly firm, and firmness is commonly successful

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Filed under 2012 election, Economy, employment, Nevada economy, Nevada politics, nevada unemployment, public employees

Nevada Employment in a Quadrant: Blowing Our Bubbles?

Return with us now to those less than wondrous days of yesteryear when we were sitting in high school math as the instructor explained quadrants.  We divide our plane into four equal portions along an X axis (horizontal)  and a Y axis (vertical).  We label our newly constructed quadrants counterclockwise I, II, III, and IV.  Quadrant I is clearly The Place To Be — that’s where the values are both positive.  But, Quadrant II not so much, the our X value is in negative territory but the Y value is still positive.  Quadrant IV is, of course the reverse, the X value is positive and the Y value is a negative.  The place you really don’t want to be is in Quadrant III where in Both the X and Y values are negatives.  And, now it’s time to take a second look at the employment chart in Nevada.

(Once more, for the full screen version, click here and scroll down to Figure 3 warning PDF)

The most obvious thing about our graphic is that the biggest bubbles are in that ignominious Quadrant III.  Employment in tourism and gaming is the biggest bubble, retail trade is connected to it, and out there with slightly higher wages but really low growth potential is the construction sector. Not to put too fine a point to it, but when a state’s largest employers are Quadrant III material we have a problem, because  quadrant III contains low wage + low sector growth employment prospects. Since the big bubbles are brown, this is no surprise because brown is the code for service sector employment.

Quadrant II isn’t all that happy either.  Some of the wages are higher (Y), but we’re still in low potential growth territory (X).  The biggest bubble is assigned to Business Services, but the wages aren’t all that far above Nevada’s version of the Mendoza Line, i.e. $48,077 for the year.  Again, the biggest bubble is brown — not a very happy color in this graphic because these are lower paying service sector jobs.

Quadrant IV is all but vacant, low wage + higher growth potential, and again we have a Big Brown Bubble — general services.

If Nevadans intend to diversify the local economy, then the object should be to attract more Quadrant I material.  As of now we have some aerospace/defense employment, IT services, medical and life science related employment, and financial services employment.  And then there’s the another big brown bubble for “government and education.” The wages aren’t as high as the other sectors, save for financial services, but both are related to their neighboring bubbles.

Notice that those blue bubbles,  aerospace/defense, energy/environment, IT services, and life science/medicine are all in research intensive areas of an economy.  The message here ought to be reasonably apparent: If we want to expand on the employment opportunities in this part of the Nevada graph, then we need to be willing to support the coterminous research opportunities related to them.  Our record on this hasn’t been exactly stellar.

The University of Nevada announced budget cuts last March, including a “Significant reduction in the Nevada Bureau of Mines and Geology: Following a projected $1.1 million cut, the role of the Nevada State Geologist and related services, which are defined by Nevada Revised Statutes, would continue.”   There goes some research in the energy/environment fields.   It gets worse: “Additional and significant reduction in University-wide information technology services and the libraries’ materials budget.   Anyone who’s spent any time on a college campus knows that the Library is central to the function of any research institution.  If we thought the Quadrant I support couldn’t get worse: “Reductions to the University of Nevada School of Medicine.”   [UNR 3/7/2011]  Backhanded congratulations to us — we just cut the programs most likely to spur expansion of our meager Quadrant I economic graph components.

Meanwhile back at UNLV, the institution saw approximately $73 million cut, and the loss of about 700 positions in the last four years. [LVRJ] Channel 8 reported in June: “UNLV is preparing to take a $19 million cut. There will be 215 positions possibly slashed permanently. All employees will take a 2.5 percent cut in pay and tuition will go up 13 percent.”  Putting it tactlessly, when a state is desperate to get more jobs in better paying sectors, which are intrinsically research intensive, cutting university budgets is a bass-ackwards approach.

The common curmudgeonly rejoinder is that we don’t need all those pointy-headed profs soaking up taxpayer’s hard earned money — well, not unless those heads are engaged in training people in energy/environmental, aerospace/defense, IT services, life sciences and medicine, and financial services.

Or, there’s the complaint about the “waste” of money spent on the liberal arts.  What’s that got to do with the real world?  Except for Steven Spielberg who was an English major?  Or, Astronaut Sally Ride whose undergraduate major was also in English?  Or, Natalie Cole who majored in Child Psychology? Or, Michael Dell who was in a pre-Med program?  The redoubtable John Wooden was an English Literature major.   Then there’s J.K. Rowling who majored in French and Classic Literature.  Robert Iger studied Communications at Ithaca College — he’s now running Disney Inc.  Sam Palmisano, IBM CEO, was a History major at Johns Hopkins.

While we’re about it, why not consider the interconnectivity of the arts and engineering.  Who decided that my TV remote would be long and narrow rather than square?  Who determined that the line of coffee makers produced by Mr. Coffee would be black or white models?  Who decided that kitchen chairs would no longer come in “1960 Orange vinyl?”  Whatever happened to Avocado Green bathroom fixtures?  Who put tail fins on automobiles, and then blessédly took them off again?  Manufacturers need designers, for reasons ranging from ergonomics to fashion.  Without designers our manufactured products wouldn’t be nearly so convenient, or nearly so attractive to consumers.

We have 284 days until the next general election, and that is surely enough time to consider candidates who support research, support libraries and their research activities, and support a university system which can serve the state by training the personnel and supplying the  information needed to move more of our Bubbles into Quadrant I.

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Filed under Economy, employment, Nevada economy