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Seattle has adopted a city minimum wage of $15 an hour.

June 6, 2014 - 6:44am

As you may have heard by now, Seattle has adopted a city minimum wage of $15 an hour. As with all minimum wage increases, this one will be phased in over three to seven years depending on the size of the business

Arindrajit Dube, a rising star in labor economics has an excellent editorial on the proposal that I would encourage you all to read.

One of the great challenges of public policy work as a labor economist is squaring off in the media with business lobbyists and/or public relations professionals for industry associations who consider “nuance” to be a dirty word.  Being honest about what we do and don’t know about a policy or labor market trends is right and honorable, but often a loser in policy debates when our opponents have no ethical qualms about being misleading. Still, at the end of the day, the best and most effective policy work is tethered to research and open to changing course when the policy doesn’t lead to good outcomes.

In this regard Dube, who more than most commentators can take credit for advancing our understanding of the impacts of the minimum wage, stands out for his measured honesty and pragmatism:

Finally, we should acknowledge the limits of our knowledge about how local economies respond to a minimum wage. In my opinion, the best evidence suggests that state and federal minimum wage increases have had a very small impact on employment, while moderately reducing turnover, poverty and inequality. The limited evidence from other cities corroborates this. However, we cannot reliably apply those estimates to predict the effects of an increase the size of Seattle’s. The good news is that the somewhat long ramp-up period in Seattle will provide us with an occasion to learn from this experiment and offer opportunities for course corrections.

Dube is a great model for aspiring economists and public policy researchers not to mention policy makers.

While Seattle begins its bold effort to reduce inequality the campaign for a more modest increase in the minimum wage to at least $10.10 an hour here in Pennsylvania continues. Remember to reach out to your representatives in the House and Senate and share this petition with your friends. 


Tax revenues continue to nosedive in May. Now $174 million less than last year due to corporate tax cuts. 2014-15 shortfall continues to grow.

June 5, 2014 - 11:18am

For the sixth straight month, General Fund revenues fell short of estimate in May, missing the target by $108 million, or 5.5% for the month. The year-to-date revenue deficit grows to $613 million, or 2.3% below estimate (excluding the early transfer of liquor store profits in March). The deficit is now larger than the $581 million the Independent Fiscal Office had forecasted for the fiscal year just one month ago, as tax collections in nearly every category fell short of estimate in May.

Unfortunately, things did not have to be this way.

Looking at revenue growth from the prior fiscal year, it is apparent that this funding crisis is largely self-inflicted. Tax revenue has dropped $173 million from this point in 2012-13. While sales tax shows modest growth and personal income taxes are flat (due in large part to wealthy taxpayers recognizing capital gains on their 2012 returns to avoid a federal tax hike), corporate taxes have fallen $322 million, or 6.9% from last year. Some of the largest portions of this loss of revenue come from the capital stock and franchise tax (down $255 million) and bank taxes (still down $35 million after some late payments in May), both of which had tax rate cuts as part of the 2013-14 budget.

The anemic revenue collections in May push the funding shortfall for the 2014-15 budget to over $1.5 billion. Without new and sustainable revenue, the cuts that would be required to balance the budget could be catastrophic – at a time when the overall economy continues to grow. All gains proposed by Governor Corbett for early childhood programs, education, and other human services would likely be reversed and many non-mandated services could be slashed.

At a time when other states are starting to see healthier revenue gains, Pennsylvania is falling behind[1] – making it more difficult to restore previous cuts to education, health care, and critical human services. With less than a month left to enact a new spending plan for 2014-15, it is clear that Pennsylvania must take a balanced approach and consider new revenues to bridge the $1.5 billion funding gap.

[1] Pennsylvania’s tax revenue growth ranked 30th highest out of 46 states reporting revenues in the 1st quarter of 2014 according to data compiled by the Rockefeller Institute,

1314 Revenue Tracker by Month May 2014 May 2014 Revenues to Estimate May 2014 Revenues to Prior Year

More Bark than Bite: Feds Back Pennsylvania's Gross Receipts Tax after Inspector General Report

June 5, 2014 - 10:30am



CMS Is Not Asking for Its Money Back

A report issued by the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services on Pennsylvania’s tax on Medicaid managed care services has a relatively sensational title. But the reality is the federal government is not going to force Pennsylvania to eliminate its Gross Receipts Tax (GRT), or even modify it, anytime soon.

The report comes at a critical juncture for Medicaid expansion. Lawmakers are reportedly revisiting the idea, which would generate immediate substantial savings that could help to close a $1.5 billion-and-growing budget gap (not to mention giving health coverage to half a million working people). It would also give Pennsylvania’s economy a desperately needed boost.

A bill that would allow Pennsylvania to expand Medicaid sponsored by State Rep. Gene DiGirolamo was reported by the House Human Services Committee on Wednesday, June 4.The OIG report is no reason to slow the Medicaid expansion train down.

Buried in a lengthy Capitolwire article is the good news:

“[The federal government], if it determines the tax is inappropriate, does not intend to force Pennsylvania to “offset,” meaning repay, the revenues the GRT generated and which were used to pay for Medicaid managed care services since the creation of the GRT. Nor will the state be forced to repay - as was suggested by the OIG report - the federal matching funds received by the state due to those GRT-funded state managed care expenditures after Fiscal Year 2011-12.”

It is important to tamp down the hysteria and look at the facts. The feds are bending over backward to work with Pennsylvania in their negotiations over a potential Medicaid expansion.

The federal Centers for Medicare & Medicaid Services (CMS), which oversees Pennsylvania’s Medicaid program, has not found Pennsylvania’s GRT to be “impermissible.” The OIG report confirms that states may be permitted to use revenue from health care-related taxes to help finance the states’ share of Medicaid.  The decision about whether a GRT is impermissible rests with CMS, and CMS has not made that determination in Pennsylvania.

Pennsylvania changed its managed care assessment in 2009 to comply with federal law. Medicaid managed care companies are subject to Pennsylvania’s 5.9% GRT, the same tax that is paid by telecommunications and electric companies and transportation entities.

The events that triggered the OIG investigation were anomalies. Certain federal requirements do not apply to states with GRTs under 6.0%, but during the recession, Congress lowered the threshold rate to 5.5%.  After September 30, 2011, that threshold (called a “safe harbor”) reverted back to 6.0%. 

A second trigger occurred when Pennsylvania GRT taxpayers were assessed a 0.16% surcharge in 2011, which put Pennsylvania above the 6.0% threshold for a second time. Once Pennsylvania was over the GRT safe harbor threshold, certain prohibitions (on sharing revenue with the managed care payers) that are not applicable to a state GRT under 6.0% kicked in.

CMS has issued no guidance on what a permissible GRT looks like.  CMS has not issued guidance to help states determine if their GRTs are permissible.  Last year, CMS told Pennsylvania Medicaid officials that it had no plans to issue the guidance, and that it did not plan to scrutinize Pennsylvania’s GRT. And CMS has authority to waive existing GRT requirements, including requirements that the GRTs be broad-based and uniform.

According to an article in Bloomberg news, the Department of Health and Human Services will “work with Pennsylvania to develop an approvable tax structure.”

The article also notes that 49 states have some form of assessment on managed care nursing homes or other health services that help to draw down additional federal Medicaid dollars.

The OIG report will have no impact of the 2014-15 budget.  The OIG report focuses only on the unique circumstances surrounding the GRT in 2011 and 2012.  It has no impact the upcoming budget.

There are some unknowns ahead. What is known is that Pennsylvania has a budget shortfall and can not afford to walk away from billions of dollars in new federal funds that could jumpstart the terribly sagging economy, and can not afford to ignore the savings that would come immediately from the Medicaid expansion.

Four Actuaries and a Pension Plan: Tobash Plan Is a Non-Starter

June 3, 2014 - 5:36pm

Last week, the Public Employee Retirement Commission (PERC) released a cover memo and reports from four actuaries analyzing the newest public pension proposal championed by Governor Corbett, one put forward by Rep. Mike Tobash. We put out a press release and brief on this proposal Monday.

PERC's 150-page door stop was not light reading. As I said in a press call with reporters, the movie rights -- "Four Actuaries and a Pension Plan"? -- seems unlikely to fetch a high fee.

But the reports did fill an information vacuum that had existed on a pension proposal rumored about for months.

And if you read the reports carefully, they make a solid case that the Tobash plan -- and the Corbett Tobash variant adding in the Governor's proposed cuts in pension contributions over the next four years -- are non-starters.

They would make little progress reducing the state’s pension debt, while forcing draconian benefit cuts on future teachers, cafeteria workers, nurses, and state employees.

Estimates by two of the actuaries found that many employees would see cuts of 40% or more from the already reduced level of Act 120 benefits.

The actuary for SERS, Buck Consulting, also noted that the Tobash Plan could dig a deeper pension hole -- and cost taxpayers more money -- by lowering investment returns on SERS and PSERS assets. Last year, three actuaries estimated that Governor Corbett's plan to provide new employees with 401(k)-type savings accounts would have had a $40 “transition cost” because it lowered investment returns. A Tobash transition cost equal to even a small fraction of $40 billion would more than wipe out any savings.

Summarizing the results of these studies, PERC's consulting actuary concluded, “For new employees the loss of retirement security is greater than the value of the cost savings for the Commonwealth.”

The end of the KRC brief outlines a six-point framework for reform that would build on Act 120, including by incorporating elements of the pension proposals advanced by Representative Glen Grell and Senate Democrats. A starting point could be recapturing to shore up state pensions a portion of the $3 to $4 billion revenue lost annually because of corporate tax cuts since 2003.

Our press release and pension brief provide all the details, also pointing out that the Tobash plan would erode the quality of schools and state services by increasing turnover among talented mid-career professionals. 

Here's the Patriot-News story on our new brief.



Is yet another vehicle to expand payday lending in the hopper in Harrisburg?

June 2, 2014 - 2:58pm

First there was HB2191 in 2012, followed by SB975 in 2013 and now Senator Jake Corman is soliciting his colleagues for co-sponsorship of a bill that would create a “90 Day Consumer Loan Program”.  With short term lending products the devil is always in the details and we don’t yet have the language of the bill.  

Absent more information on the features of this new product the coalition to stop predatory payday loans in Pennsylvania is urging members of the Senate to decline co-sponsorship until the full terms of Senator Corman’s proposal can be analyzed. 

What low income consumers in Pennsylvania need is more income not another vehicle for predatory lenders to trap them in a cycle debt that ultimately ends in bankruptcy. 

The Pennsylvania legislature has the capacity through setting a higher minimum wage to boost the incomes of over a million low wage workers. Doing so will boost the economy by providing more working families with income to spend on the basics like food, doctor visits or necessary repairs. 

Allowing payday lending companies to lure financially unsophisticated borrowers into debt products has the opposite effect. Money that would have gone to pay for rent, medical bills and groceries is eaten up by high fees sapping the local economy. 



Minimum wage increases didn’t hurt job growth in other states; it’s time for PA to join the club

June 2, 2014 - 1:15pm

Last week, Michigan passed a bill to increase its minimum wage from $7.40 an hour to $9.25 an hour over the next four years. Michigan is the seventh state, in addition to D.C., to legislate a minimum wage increase thus far in 2014. Additionally, as of yesterday, 22 states across the country, including all six of Pennsylvania’s neighboring states, have a wage floor higher than the national level of $7.25 per hour. Support for raising the minimum wage is building among Pennsylvanias so that our workers are not left even further behind.

On Tuesday, June 3, Raise the Wage PA – a coalition of labor, religious, community, women’s and worker’s groups – will be holding a rally and lobby day at the Pennsylvania Capitol building at 1 pm urging lawmakers to increase the state’s minimum wage to at least $10.10 per hour. Bills to raise the minimum wage have been recently introduced in both chambers of the Pennsylvania legislature. An increase of this magnitude would boost the incomes of about one million workers in the state, most of whom are adults working in mid- to full-time jobs (more than 20 hours per week).

Despite common misconception, increases in the minimum wage do not have significant negative impacts on employment. In fact, the most rigorous economic research shows that state-level minimum wage increases in the last 20 years raised worker pay without causing job losses, even in regions where the economy was weak and unemployment was high.

Additionally, job growth in Pennsylvania has actually been slower than in states that have recently increased their minimum wage. The figure below shows average annual job growth in Pennsylvania since January 2010 (the beginning of the first full year of economic recovery) as well as in states that have experienced minimum wage hikes during the same time. Employment changes in these states represent job growth since the implementation of each respective state’s most recent wage hike and for which there are at least 12 months of jobs data since the raise. (For example, while Ohio’s minimum wage rose in January 2014, this graph looks at average annual employment growth since the previous increase in January 2013, or from January 2013 to April 2014.)

Since January 2010, annual job growth in Pennsylvania averaged 0.80 percent. All 14 states that implemented an increase since then have experienced a faster pace of employment gain, ranging from 0.84 percent in Vermont to 3.13 percent in Florida. It is clear a minimum wage increase would not hurt job growth. It would, however, increase incomes and living standards for hundreds of thousands of low-wage workers in Pennsylvania, boost the state’s economy by putting more money in the hands of those most likely to spend it, and strike a significant blow to the state’s runaway income inequality.

An update on the campaign to raise the minimum wage in Pennsylvania

May 30, 2014 - 4:55pm

Here is a quick audio update (mp3) on the campaign to raise the minimum wage in Pennsylvania.

Those of you that prefer not to hear my voice can read the update here.

Policy Matters: Piketty and "Two Critical Realignments" in One Graph

May 28, 2014 - 7:28pm

Our friend Colin Gordon of the Iowa Policy Project runs a website called The Telltale Chart. As the name implies, he loves charts.

Colin's outdone himself today on the blog of the Center for Economic Policy and Research (CEPR) with what he calls "Piketty in one graph."

Two other possible titles for this chart, just to hit you over the head with Colin's messages.

  1. Two critical realignments in one chart (dramatic changes in the political system). The chart shows in spades the impact of progressive shifts in what we could call a "big four" set of policy variables in the 1930s: the top marginal income tax rate, the inheritance tax, the minimum wage, and union density (which are impacted by labor laws). Then in the second "critical realignment" -- the first Reagan Presidency -- these variables moved powerfully in a regressive direction.
  2. A simpler, title: POLICY MATTERS. That is something of a "duh." Less of a "duh" is a corollary -- you want big changes in outcomes (such as income inequality), you need big changes in policies. We got big changes in policies in the big four in the 1930s and the 1980s and we got big changes in outcomes. We want to fix income inequality in this decade, we need big changes in policies. Can you say "New Deal for a New Economy"?

A wag once said that economists have predicted seven of the last three recession. In my case, as an institutional economist, I've predicted two of the last zero "New Deals for a New Economy" -- 1993-94 and 2008-09. Maybe this time.


The sincerest, sincerest form of flattery

May 23, 2014 - 3:07pm

If imitation is the sincerest form of flattery - then plagiarism must take flattery to a whole new level of sincerity. So the Center for Budget and Policies Priorities (CBPP) in Washington, DC must really be feeling the sincere love from Maine Governor Paul LaPage. According to news reports, the governor awarded the Alexander Group a $925,000 no-bid contract to do a report on the performance of Maine’s Temporary Assistance for Needy Families program. When the report was turned in, however, it contained sections, some as long as two full pages, which were lifted directly from the work of CBPP.

The revelation has caused quite a fuss in Maine where the entire affair has been dubbed “LaPlagarism.”CBPP’s vice president, said that she had never seen the organization’s work copied so liberally.

Pennsylvania readers will recognize the Alexander Group’s founder, president and CEO, Gary Alexander as Governor Corbett’s first Secretary of the Department of Public Welfare. While he was DPW’s secretary, he maintained a home in Rhode Island and did a six-hour taxpayer funded commute from work to home. We also remember that, while he was still the DPW secretary, he started his own private consulting firm to do real estate deals.

Ever the stickler for appearances, Secretary Alexander also imposed a dress code for women working at DPW that required them to wear pantyhose.

The report in question, by the way, has quite a handsome cover.

Putting the April Jobs Report in Context

May 16, 2014 - 3:34pm

The Bureau of Labor Statistics reported today that nonfarm payrolls grew by 10,000 jobs and the unemployment rate fell to 5.7% in April.

Resident Unemployment

Over the month, the labor force was essentially unchanged as the number of residents reporting employment rose by 0.4% and the number reporting they were unemployed fell by 5.6%.

Over the year the story is more mixed as the fall in the unemployment rate of 1.9 percentage points was a mixed bag of a shrinking resident labor force (down 0.6%) but an encouraging rise in resident employment (up 1.4%).

Nonfarm Employment

To get back to an economy where we see growth in the earnings of middle income families we need the Pennsylvania labor market to generate on average about 9,000 jobs a month.  In this respect the gain of 10,000 nonfarm payroll jobs in April is right on target. 

On the other hand the recent pattern of nonfarm employment growth is not as impressive with the commonwealth adding about 2,700 jobs a month in the first four months of this year.

As Figure 1 illustrates payroll growth in the most recent twelve months has improved relative to what it was in the same period a year ago but the pace of job growth remains well short of what it was in the first year of the recovery.

Industry by Industry 

The next seven charts summarize the trend in monthly job creation by industry in Pennsylvania from May to April of each year since 2010.

Contrary to what you might hear at Marcellus shale rally employment growth in Manufacturing has been very weak with the sector shedding jobs in the last two years (Figure 2). Since I mentioned Marcellus shale I should probably add that employment in Minining and Logging was unchanged in April and is up 600 jobs since April of last year. 

Employment growth in Construction in the last 12 months is relatively strong but here again remember this sector is still just barely beginning a recovery from a historic decline in employment (Figure 3).

As usual the public sector in Pennsylvania remains a significant drag on overall employment growth although the pace of losses has slowed to just under half of what it was during the initial big wave of teacher layoffs (Figure 4).

Like most states with weak overall employment growth, Leisure and Hospitality is the one consistent strength in terms of job growth in Pennsylvania (Figure 5).

Employment growth in Education and Health Services is still positive but well below what it was earlier in the recovery (Figure 6).

Employment growth in Professional and Business Services continues to decelerate (Figure 7).

Employment growth in Trade, Transportation and Utilities has yet to match growth during the first year of the recovery (Figure 8).

$1.3 billion less for 2014-15 budget according to IFO

May 15, 2014 - 9:42am

On May 1, the Pennsylvania Independent Fiscal Office (IFO) released updated revenue estimates for the remainder of 2013-14 and its initial estimate for 2014-15. With General Fund revenues already a half a billion dollars short through April, it was expected by many budget watchers that revenue projections would be scaled back. The IFO forecasts a decrease of revenue of $568 million from official estimate for 2013-14 and for 2014-15, predicts a further decline of $768 million from the Governor’s Office estimates from February. This jeopardizes the increases proposed by the Governor for 2014-15, and could lead to budget cuts from 2013-14.

Governor Corbett’s budget proposal was already build on a fragile base, and with the IFO report, that foundation has crumbled. Back in February, Governor Corbett’s proposed 2014-15 budget projected ending 2013-14 assumed that revenue for the current year would meet estimates. The 2014-15 budget would increase spending by $825 million, but relied on optimistic revenue growth for next year (4.9%) including $225 million that was being transferred into the General Fund from other funds.

The new IFO figures scale back overall revenue growth to 3.5%, and overall tax growth in 2014-15 to 3.3%. These figures do not include the Governor’s proposed transfer of $225 million into the General Fund, as they have not been enacted into law.

The IFO’s reduced revenue forecast for 2013-14 and 2014-15 underscore the ongoing need for additional revenue sources. Without new revenue, $1 billion or more will be cut from Pennsylvania schools, hospitals, and human service providers. This will result in the loss of jobs and a further drag on our state economy.

There are sensible revenue and cost saving options available for state policy makers- including a severance tax on natural gas, smokeless tobacco taxes, and the immediate expansion of Medicaid.

Click for more on the IFO revenue estimates.


Senate Bill 76: a School Defunding Formula Bill?

May 9, 2014 - 4:56pm

The Senate Finance Committee did not take up Senate Bill 76 this week, a positive sign. The committee held a hearing on April 30 to consider an amendment that was supposed to fix the problems with the legislation, but the amendment had the opposite effect, raising even more questions about the impact of the bill on schools, communities, and businesses.

SB 76 is known by its supporters as the property tax elimination bill. But it needs a new name, one that more accurately describes both its intent and is impact: the public school decimation bill is one, or maybe the school defunding formula bill. 

The case for the devastating impact of this bill on public school funding was made eloquently this week by the people who are in the trenches, representatives for the school boards and superintendents trying to hold together school budgets under the most trying of circumstances.

Their op-ed in the Harrisburg Patriot News highlighted the biggest problem with SB 76:

Would the tax mix proposed in SB 76 properly fund public education? The simple answer is “no” according to the Pennsylvania Independent Fiscal Office (IFO).

They make the obvious point that no one likes to pay property taxes and that school boards and superintendents don’t enjoying asking for them. But without a well-funded system of education there is no economic progress, for kids or for the state.

They make a number of other great points:

  • Federal income taxes would rise for the nearly 2 million Pennsylvanians who have claimed a state/local tax deduction on their federal taxes;
  • Individuals will pay more in sales taxes on a host of goods and services;
  • Inequities in school funding would be locked in, forever.

They point out that the real culprit is the small state share of overall school funding. When the state kicks in only 34% of education costs rather than the 50% that was promised (and that so many other states manage to provide) local property owners are forced to pay more.

What we need is a school funding formula with appropriate funding, not a school defunding formula.

So far state lawmakers seem to be doing the responsible thing, asking hard questions about SB 76 and not advancing the bill. But unless public school advocates speak out, as Nathan Mains, Jim Buckheit, Jay Himes, and Joe Bard did, that could change.