Making Youth Unemployment Worse

The unintended negative effects of raising minimum wage rates

By Randall Pozdena and Steve Buckstein

President-elect Donald Trump has nominated the CEO of one of the nation’s largest fast food chains to serve as U.S. Secretary of Labor. The food preparation and serving industry employs almost half of all minimum wage workers. It is thus widely assumed that the nominee would be unfriendly to minimum wage regulation. Efforts such as the union-financed Fight for 15 are seeking to raise the federal minimum wage in the food service industry to $15 per hour—a 52 percent increase over the $9.87 average pay rate in the industry today.

The spotlight has thus returned to the issue of minimum wage regulation, including the impact of recent Oregon legislation. SB 1532, passed in 2016, phases in a $14.75 minimum wage in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas, by 2022. The average annual increase over the prior (statewide) minimum wage would be 8.5, 6.6, and 5.0 percent respectively for these three tiers over the 2016-2022 phase-in period. As with the last major reform in 2002, the legislated minimum wages would be adjusted after that time by any increases in the CPI.

To put these events in perspective, Cascade Policy Institute has released a major, new analysis of the history, theory, and empirical impacts of minimum wage regulation. The report focuses on the labor market impacts on youth, aged 16 to 24—the age cohort most likely to be affected as new entrants into the labor force. The study uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

The findings have ominous implications for youth labor markets. First, as many studies over the past fifty years have shown, the new study finds that increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.

Second, contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.

Third, the study finds that even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.

Oregon’s newest policy of legislating different minimum wage levels among metro and designated rural markets is, ironically, a concession to the reality that unregulated private market forces better balance the supply and demand for youth labor. Since the state imposed higher-than-market levels of wages nonetheless, the new study uses its findings to estimate the impact on the three tiers’ respective youth labor markets.

Although detailed, localized youth employment data for Oregon does not exist, application of the nationally estimated behavior measures can be used to estimate regional tier impacts. This analysis suggests that Portland metro area youth will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Even though a three-tiered minimum wage is an attempt to accommodate real economic differences between urban and rural areas, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.


Randall Pozdena is President of QuantEcon, Inc., an Oregon-based consultancy. He received his BA in Economics from Dartmouth College and his Ph.D. in economics from the University of California, Berkeley. He is the author of Cascade Policy Institute’s new analysis, Minimum Wage: Its Role in the Youth Employment Crisis. Steve Buckstein is Senior Policy Analyst and founder of Cascade Policy Institute, Oregon’s free market public policy research organization.

Now What?

By Steve Buckstein

Here at Cascade Policy Institute, as a nonprofit, nonpartisan think tank we don’t support or oppose political candidates. But we aren’t shy about telling candidates and elected officials what we think about their policies.

Now that this especially contentious election is finally over, you’re probably happy about some of the results and unhappy about others. But even if you got what, or whom, you wanted, you might think about some timeless insights from two discerning historical figures.

The first insight comes from Eric Hoffer, known as the longshoreman philosopher. In his 1951 book The True Believer, Hoffer noted:

“A man is likely to mind his own business when it is worth minding. When it is not, he takes his mind off his own meaningless affairs by minding other people’s business.”

The second insight comes from American statesman Daniel Webster, who in the early 1800’s said:

“There are men in all ages who mean to govern well, but they mean to govern. They promise to be good masters, but they mean to be masters.”

Even if the worst happened on election night in your opinion, remember that America has survived as a free and strong nation since declaring our Independence in 1776. In those 240 years we’ve benefited from some great public servants, and suffered some terrible ones. But we’ve always survived and generally prospered, and odds are that we will this time too.

Does Oregon Rank Dead Last in Corporate Taxes? NO

By Steve Buckstein

Trying to sell voters on the largest tax increase in Oregon history, Measure 97 proponents claim that “Oregon ranks dead last in corporate taxes.” But the nation’s leading independent tax policy research organization, The Tax Foundation, says this claim is misleading. It looked at three ways to rate corporate taxes and found:

  • Oregon’s top marginal corporate income tax rate is the 18th highest in the nation.
  • On a revenue per capita basis, Oregon’s corporate income tax is the 28th highest.
  • The Foundation’s State Business Tax Climate Index ranks Oregon 37th nationally for overall corporate income tax structure.

The “dead last” corporate tax claim relies on two national reports (AEGCOST) that look at total business tax burdens, not just the tax burdens of large C corporations, the only entities directly targeted by Measure 97. Even so, both these reports make clear that they rate Oregon’s business tax burden low not because corporate taxes are low, but rather because Oregon doesn’t have a sales tax.

As the COST report notes, “If sales tax revenue is excluded…[Oregon] moves from the lowest…to the 20th-lowest rate.”

Misleading voters about Oregon’s corporate tax structure may simply be a tactic to keep us from focusing on the fact that Measure 97 is really a hidden sales tax on steroids that will hit every Oregonian. When we realize that, Measure 97 should suffer the same fate as every other statewide sales tax measure—defeat.

Read much more about Measure 97 and why you should vote against it on Cascade’s Measure 97 webpage.

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“The Rent Is Too Damn High!” — Why Rent Control Won’t Help

Once again, Portland led the nation this July with its home prices rising 12.4 percent year-over-year versus the national average of just 5.0 percent. As of April, Portland remained the 12th most expensive rental market in the nation. These numbers are not unrelated. Housing prices are often related to what units can be built for, whether they are single-family homes or multifamily apartment houses.

Whatever the causes of rising rents in Portland and elsewhere, the political fix bubbling to the surface not only won’t help most people afford housing, it likely will make the situation worse. That political fix goes by the name of rent control.

Last year, Willamette Week published an informative and entertaining piece entitled “The Five Myths About Portland Apartments.” In response to Myth 3, which is that rent control is the answer, Jerry Johnson of Portland real-estate consulting firm Johnson Economics noted:

“Rent control is an Econ 101-level policy disaster. If you happen to get one of the rent-controlled units, good for you. But it’s basically a lottery of who wins and who loses.”

Apparently unaware of the policy disaster that rent control forebodes, Oregon Speaker of the House Tina Kotek recently proposed allowing localities to enact their own rent control programs. She also wants to end so-called “no-cause” evictions and to ban rent increases above a “reasonable” percentage “for the foreseeable future.” In her prepared remarks she said, “Our housing crisis is a man-made emergency that demands bold action,” and, “We have privileged the right to make a profit on property far above the universal human right to safe and stable housing.”

Our housing crisis may very well be a man-made emergency. If so, the Speaker has misdiagnosed the cause, which has more to do with Oregon’s “man-made” restrictive land use laws than it does greedy landlords. And, the “bold action” she proposes likely will make the situation worse.

Economists of virtually every political stripe reject rent control as a viable way to improve housing affordability. They recognize what too few of our political leaders and voters recognize: namely, that controlling the price of a commodity, in this case rental housing, actually harms the very people the policy is designed to help. They know from economic theory and observation over many decades The High Cost of Rent Control. They know that it misallocates housing resources, heightens tensions between landlords and tenants, stifles private investment in affordable housing, and leads to deterioration and eventual abandonment of the very housing stock that middle- and lower-income tenants wanted it to protect for them at affordable prices.

Three local economists were quick to respond to Speaker Kotek’s suggestions:

“Rent control just sends us a couple hundred miles closer to San Francisco in terms of housing policy,” said Gerard Mildner, director of the Center for Real Estate at Portland State University.

“It’s almost textbook that any form of rent control ultimately harms consumers, as well as landlords,” said Eric Fruits, an economist and editor of Portland State University’s Center for Real Estate quarterly reports. “It may benefit some in the short term, but in the longer term, there will be fewer units available to rent, which will only make matters worse.” Instead, Fruits said, the free market should be allowed to work, with higher prices sending signals to developers that more units are needed.

“The demand for urban living is increasing and cities are not increasing the supply nearly fast enough,” Portland economist Joe Cortright said. “The only solution is to build new housing.”

As an Oregonian editorial then pointed out:

“Among other things, limiting rent growth dampens future investment in housing, inflates rents for unregulated units and discourages residents who secure rent-controlled units from moving, even when it’s in their best interest.”

In a lively discussion on social media following Speaker Kotek’s pronouncements, one person responded to her call for an end to “no-cause” evictions:

“No cause eviction benefits good tenants. When the bad guys move in, they threaten the good tenants who are afraid to testify about their behavior. The good tenants become prisoners in their apartments while the bad guys run wild. A landlord’s only defense is to become more restrictive on who they will rent to, therefore decreasing options for all renters.”

Even self-proclaimed “progressive” Portland city commissioner, Steve Novick, notes:

“…most economists say rent control has unintended consequences, including a decline in the production of new rental housing.”

While this is true, in “progressive” Portland and in the state Capitol economic laws are often trumped by political laws that make people feel better for a while, until economic reality rears its ugly head. Of course by then those who passed the laws have often moved on.

Accountability is rarely a part of the political process, which may be why it so often leads to unintended consequences that harm the very people the politicians were trying to help. Unfortunately, we may be destined to repeat this process again as rent control lurches onto the 2017 legislative agenda.


* Political activist and frequent candidate Jimmy McMillan memorably used “The Rent Is Too Damn High!” as his main campaign issue, slogan, and the name of his political party during his campaigns, including the 2010 New York gubernatorial election.

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Twenty-Five Years Litigating for Liberty

How many attorneys do you know who make their living defending liberty? Well, 43 attorneys work full-time at the national public interest law firm Institute for Justice. They protect school choice, economic liberty, the First Amendment, and private property. Supported by generous donors, the Institute for Justice never charges its clients.

Founded 25 years ago, the Institute for Justice has litigated over 200 cases, including five before the U.S. Supreme Court, where it won four times. The fifth case led to the infamous Kelo decision, where the Court unfortunately seemed to forget that private property cannot be taken through eminent domain for a “public purpose,” but only for a “public use.”

This year, Arizona Governor Doug Ducey appointed Institute for Justice co-founder Clint Bolick to the state Supreme Court, saying that “Clint is nationally renowned and respected as a constitutional law scholar and as a champion of liberty.”

It is fitting on this 25th Anniversary of Clint Bolick’s Institute for Justice that Oregon’s free-market think tank Cascade Policy Institute has chosen him as the Keynote Speaker at our 25th Anniversary Dinner on October 20. There, Justice Bolick will talk about how important defending personal and economic liberty has been—and still is in his new role on the Court. You won’t want to miss his inspiring talk.

For full details and to RSVP, go to CascadePolicy.org/25.

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Improve Education Outcomes Through Education Savings Accounts, Not Measure 97’s Hidden Sales Tax

On the third day of the new school year at Portland’s Madison High School, Governor Kate Brown spoke about her goal to improve educational outcomes for all students. She bemoaned the fact that at 74%, Oregon has one of the lowest high school graduation rates in the country, and then she noted that “For me this is a very personal issue”:

“My stepson blew out of one of the local area high schools a few years ago. We were very fortunate. We had the resources to provide him with another educational opportunity, but not all families do. That’s why it’s absolutely imperative that we work together to improve Oregon’s high school graduation rates.”*

So how does Governor Brown propose to assist families that don’t have the resources hers had to help their children achieve educational success? Apparently, by supporting Measure 97 on the November ballot, which would be the biggest tax increase in Oregon’s history.

In reality, Measure 97 is a sales tax hidden behind the façade of being a tax on big business. Its passage will actually make it harder for many of the families the Governor wants to help, in the questionable hope that the revenue it generates would be spent properly to give their kids a better chance at graduation from the same schools that have failed so many in the past.

Measure 97 will not only act as a consumption tax on many of the goods and services Oregon families buy every day, but it also will reduce private sector employment opportunities as more than $3 billion are siphoned out of the private sector into the state general fund each year. From there, all this money—which is about what a six-percent retail sales tax would produce—may or may not be spent in ways that would give struggling families the same opportunities that the Governor’s family had when her stepson needed help.

Rather than ask voters to take a $30 billion gamble over the next ten years on a tax measure that may not show any positive economic or educational results for Oregon families, the Governor and voters should consider another way to provide all families with the resources they need to give their children the educational opportunities they deserve. And, this other way will not raise anyone’s taxes, and it will not reduce anyone’s job prospects.

This other way is school choice. Governor Brown’s predecessor, John Kitzhaber, took a major step toward this other way when he signed Oregon’s public charter school law in 1999 that currently allows more than 30,000 students to attend some 127 charter schools for educational opportunities they otherwise would have been denied. All without costing taxpayers or the public school system one additional dime.

Oregon is one of forty-three states and the District of Columbia that offer public K-12 charter school opportunities to their families. Now, the newest wave in the school choice movement is offering Education Savings Accounts in five states, and that number is sure to grow.

Education Savings Accounts, or ESAs, are not a college savings plan. Rather, if families decide the public schools their children are assigned to are not meeting their needs, they can leave those schools and instead receive money from the state to pay for approved alternative education options and expenses. Parents can spend the funds on private school tuition, individual courses at public schools, tutoring, online learning, textbooks, educational therapies, and other education-related services and products. They can use a combination of these services based on what they think would best meet their child’s learning needs.

Each eligible child is able to draw from his or her own personal Education Savings Account maintained by the state and funded by most, but not all, of the money that otherwise would have been sent to the local school district. When properly structured, ESAs require no new taxes and are not a financial burden on the state or local public school districts. They simply allow money already allocated for public education to be used in ways individual families choose, instead of in ways dictated by the ZIP code students happen to live in.

In an improvement over earlier school choice programs such as vouchers, ESAs let families spend only what they want to each year, and save or rollover the balance toward future educational needs. If not all the money in an ESA is spent by the time a student graduates from high school, the remaining funds may be used to help cover his or her higher education costs.

So, let’s not ask taxpayers to gamble that our troubled public schools will somehow get it right this time if we simply give them enough new money out of our pockets with the hidden sales tax in Measure 97. Instead, let’s ask our legislators in Salem to explore a new, truly innovative way to improve educational outcomes for each individual student with personal Education Savings Accounts.


* Governor Brown’s complete remarks at Madison High School were recorded and can be heard on this KXL radio episode of Beyond the Headlines in the first segment of about seven minutes at https://soundcloud.com/kxl-beyond-the-headlines/week-of-8-28-16-episode-130

No to Hidden Sales Tax on Steriods 97

Policy Picnic – September 21, 2016

Please join us for our monthly Policy Picnic led by Cascade’s Senior Policy Analyst and Founder, Steve Buckstein


Topic:  Measure 97 – A Hidden Sales Tax on Steroids

Description:

Measure 97 on Oregon’s November 2016 ballot would impose the biggest tax increase in Oregon history: a sales tax on steroids, hidden behind the facade of being a $3 billion annual Gross Receipts Tax on business. It will raise taxes by $600 per capita.

Contrary to claims that it is only a tax on big corporations, the nonpartisan Legislative Revenue Office found that it will act largely as a consumption tax on Oregonians, with lower-income households being hurt the most. Prior to receiving its ballot measure number, Measure 97 was known as Initiative Petition 28.

Steve Buckstein will explain what the measure really does and what it means for you, your family, or your business. Bring your friends and coworkers!

Admission is free, but reservations are required due to space limitations. You are welcome to bring your own lunch; light refreshments will be served.

Please click here to reserve your free tickets.

Cascade’s Policy Picnics are generously sponsored by Dumas Law Group, LLC.

Dumas Law Group
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Two-Thirds of Oregon Union Members Want to End the Unions’ “Forced-Rider” Problem

By Kathryn Hickok and Steve Buckstein

This month, National Employee Freedom Week (August 14-20, 2016) called attention to the rights of union members to opt out of union membership if they choose and to stop paying dues and fees to unions they do not support. National Employee Freedom Week has conducted surveys of union members and households. One of this year’s significant findings is that a strong majority of union members nationwide agree that if members opt out of paying union dues and fees, they should represent themselves in negotiations with employers.

Two-thirds (66.9%) of Oregon union members agree with this proposition. “Worker’s Choice” would end the so-called free-rider problem (really a forced-rider problem), which argues that labor laws require unions to continue representing workers even after they stop paying dues. The Mackinac Center for Public Policy explains: “Without requiring a complete overhaul of collective bargaining laws, [Worker’s Choice] can free unions from having to provide services to employees who do not support them, and allow individual employees to represent themselves and negotiate independently with their employers.”

Now we know that two-thirds of Oregon union members want workers to be able to represent themselves, and they don’t want to force unions to represent non-dues payers. It remains for future court decisions, or other political efforts, to end union compulsion in Oregon. Until that happens, Worker’s Choice should continue to be brought to the attention of union members and the public.


Kathryn Hickok is Publications Director and Steve Buckstein is Senior Policy Analyst and Founder at Cascade Policy Institute, Oregon’s free market public policy research organization.

No to Hidden Sales Tax on Steriods 97

Cascade Policy Institute Says NO to Measure 97

    ELECTION RESULT: 59 percent of Oregon voters said NO to this sales tax on steroids. Only 41 percent voted to impose it on all of us.
Measure 97 on Oregon’s November 2016 ballot would impose the biggest tax increase in Oregon history: a sales tax on steroids, hidden behind the facade of being a $3 billion annual Gross Receipts Tax on business. It will raise taxes by $600 per capita.
Contrary to claims that it is only a tax on big corporations, the nonpartisan Legislative Revenue Office found that it will act largely as a consumption tax on Oregonians, with lower-income households being hurt the most. Prior to receiving its ballot measure number, Measure 97 was known as Initiative Petition 28.
Below are factual and opinion sites to understand what the measure is and why it is in effect a sales tax on steroids, hidden behind the facade of being a tax on business.

•  Text of Measure 97 (IP28)

•  No on Measure 97: Defeat the Tax on Oregon Sales

The official campaign to defeat Measure 97

•  Does Oregon Rank Dead Last in Corporate Taxes? NO

by Steve Buckstein, Cascade Policy Institute, October 2016

•  Improve Education Outcomes Through ESAs, Not Measure 97’s Hidden Sales Tax

by Steve Buckstein, Cascade Policy Institute, September 2016

•  Measure 97: A $30 Billion Gamble Oregon Voters Shouldn’t Make

by Steve Buckstein, Cascade Policy Institute, August 2016

•  Cascade Policy Institute Opposes Measure 97,
the “Sales Tax on Steroids”

Media Release, August 2016

•  Like a Sales Tax on Steroids

by Steve Buckstein, Cascade Policy Institute, July 2016

•  A Sales Tax by Any Other Name

by Steve Buckstein, Cascade Policy Institute, June 2016

•  Assaulting “Corporate Profits” Will Hit Average Oregonians

by Steve Buckstein, Cascade Policy Institute, October 2015

•  Shifting the Cost of Measure 97 Forward

The Tax Foundation, October 2016

•  Supporters of Measure 97 Mislead On Corporate Taxes

The Tax Foundation, September 2016

•  Gross Receipts Taxes: Lessons from Previous State Experiences

The Tax Foundation, August 2016

•  Oregon Initiative Petition 28: The Threat to Oregon’s Tax Climate

The Tax Foundation, April 2016

•  Oregon Legislative Revenue Office Report on IP 28

(now Measure 97)

•  Portland State University Report on IP 28

(now Measure 97)

•  Oregon Legislative Counsel Opinion Letter on Measure 97

Concluding that contrary to proponents’ claims, “the Legislative Assembly may appropriate revenues generated by the measure in any way it chooses.”

Willamette University Economics Professor and Cascade Policy Institute Academic Advisor Fred Thompson has written a series of informative blog posts related to IP28/Measure 97 on the Oregon Economics Blog:

Why Are State Corporate Income Taxes Disappearing?
Tax Mavens Talk About Disappearing State Corporate-Income-Tax Revenues; Oregon Did Something About It
Where, Oh Where, Has Oregon’s Corporate Tax Gone? Where, Oh Where, Can It Be?
Update on IP28
More Background on IP28 (Measure 97?)
Measure 97: Any Pinocchios Yet?
The LRO’S Research on Measure 97

 

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Measure 97: A $30 Billion Gamble Oregon Voters Shouldn’t Make

The massive gross receipts tax Measure 97 on Oregon’s November ballot (previously known as Initiative Petition 28) is guaranteed to suck more than three billion dollars a year out of the productive private sector and deposit them in state coffers. What isn’t guaranteed is how all this new government spending might impact the state economy.

While union proponents of this “sales tax on steroids” argue that putting more money into education and other public services will be good for the state, two reputable economic studies don’t show it.

A nonpartisan Legislative Revenue Office report looks ahead five years and sees no positive economic effects showing up by then. While LRO economists may believe there will be positive effects later, that assumes the money will be spent effectively by a state that has a poor track record of doing so.

A Portland State University report, actually paid for by the measure’s public employee union proponents, looked ahead ten years and still found no positive economic effects showing up. Again, the PSU economists assume there will be positive effects eventually, but their model doesn’t show them.

So, we’re left with this inconvenient truth: If Measure 97 passes, taxpayers will send more than $30 billion to the state over the next ten years without any noticeable positive economic effects to show for it. That’s a $30 billion gamble that Oregon voters should turn down.

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