Catherine Rampell, the economics editor at nytimes.com, presents some graphs showing state and local public sector employment as a share of total employment.

Rampell notes her surprise that the graphs appear to show that more conservative states (i.e., those that are stereotyped as wanting smaller government) have seem to have a higher share of their work force employed in state and local government.

For example, the graphs show that Wyoming and Alaska have the highest share of their workforce employed in state and local government.  In both states, Obama drew less than 40 percent of the popular vote.

Rampell’s analysis of the graphs raises some potentially interesting questions.  The analysis also has some potentially serious flaws that highlight the pitfalls of statistical analysis.

Federal or state & local public sector employment?

Rampell’s graphs focus on state and local public sector employment. She then attempts to link state and local public sector employment to a national election.

One could argue that a U.S. President has greater control over federal employment than over state and local employment.  For that reason alone, one would expect to see one or more graphs showing the share of federal employment.

Static versus dynamic analysis

The New York Times graphs show employment for only a single point in time: 2009.

One reasonable hypothesis might link the changes in employment over time to voting patterns.  For example, a politician who promises more public sector employment may be rewarded with more votes.

The dynamics, however, raise a question of causation: Do changes in employment affect voting or do election results affect employment opportunities.  Do voters reward and punish politicians or do politicians “pay back” (or “pay off”) voters?

The answer to that question requires more than few pieces of information and a few hours of analysis.

The graph below shows that there in no measurable relationship between changes in state and local government’s share of employment and voting behavior in the last election.

The graph below suggests that there may be a relationship between changes in the federal government’s share of employment and voting behavior in the last election.

Much of this relationship appears to be driven by outliers.  However, these outliers raise some interesting questions.

For example, former Vice President Cheney’s home state of Wyoming had the lowest percentage voting for Obama.   Wyoming has also seen the steepest five year decline federal government employment as a share of total employment.

On the other end of the spectrum, President Obama’s home state of Hawaii had the highest percentage voting for him.  The Aloha State has also seen the steepest five year increase in federal employment as a share of total employment.

All this raises the question: Did the voters create the jobs or did the jobs bring out the voters? (Or are the two things unrelated?)

At 11 percent unemployment, Oregon is tied with Alabama for having the ninth highest unemployment in the U.S.  Some politicians and policy makers are cheering the fact that Oregon is not tied for first or second place, as it was a few months ago. Even so, Oregon has occupied a spot in the top ten highest unemployment states in 18 of the past 34 years.

Oregon’s chronic high employment has been a source of bafflement for many observers and economists.

Businesses note that Oregon has an anti-business attitude that treats business as a problem to be dealt with rather than an endeavor to foster.  In contrast, others point to surveys that rank Oregon as having one of the lowest business tax burdens in the country [1, 2] or being one of the most “business friendly” states in the country. In the face of these studies, Oregon’s persistent high employment rate suggests (1) Oregon is not employment friendly, and/or (2) the various tax burden and business friendly reports are fundamentally flawed and, therefore, meaningless.

Since so many Oregonian’s do not like to discuss the state’s business environment, observers have tried other explanations for Oregon’s moribund jobs environment, including:

1. Education.  If Oregon just spent more money on education, employment in the state would improve.
2. Climate.  Analysts at the Oregon Employment Department have a theory that states with milder climates have higher unemployment rates and (believe it or not) Oregon is considered to have a relatively mild climate.
3. High minimum wage.  Although minimum wage workers (and potential workers) make up a relatively small portion of the workforce, Oregon’s unemployment rate among those most likely to earn minimum wage is substantially higher than if Oregon’s minimum wage was the same as the Federal rate.

Ultimately, many observers, reporters, and politicians throw up their hands and blame manufacturing.  The story goes like this …

Oregon relies heavily on heavy manufacturing. Heavy manufacturing is highly cyclical: Employment soars during boom times and plummets during down times.  Thus, during recessions Oregon’s employment suffers worse than the rest of the country.  The story falls apart for several reasons:

1. Oregon’s unemployment rate is high even during boom times.  If the manufacturing story were true, during economic booms Oregon’s unemployment rate should drop faster and/or be lower than the rest of the country’s.
2. Oregon does not rely that heavily on heavy manufacturing.  According to the Oregon Employment Department, throughout the U.S. heavy manufacturing accounts for approximately 6.1 percent of employment.  In Oregon, it accounts for 8.3 percent. It not clear that this is enough of a difference to explain the state’s persistently high unemployment.
3. Other states that rely more heavily on heavy manufacturing do not have persistently high unemployment.  According to the Oregon Employment Department, Wisconsin, Iowa, and New Hampshire have a greater share of their employment in heavy manufacturing, yet these states have much lower unemployment than Oregon.  In fact, the Oregon Employment Department produced the following graph that concludes that “there seem to be other factors that have a stronger correlation to the unemployment rate than the concentration of durable goods employment.”

I am on a crusade to make Twitter a place for useful economic information and informative economics discussion.  That goal is partially accomplished by following economists doing interesting and relevant research and subscribing to economics Twitter lists.  The problem is that so many tweets—even those by economists—have nothing to do with economics.

I recently rediscovered Yahoo Pipes and found that it can interact with Twitter in a way that does not require any coding on my part and does not require that the application be served on my own website.

The result is TweetEcon, an experimental retweeting economics Twitterbot.  Here is a sample of the tweets TweetEcon has retweeted:

How to build your own retweeting Twitterbot

1.  Get a Yahoo Pipes account and create a new pipe.

2.  Get the tweets to be retweeted.  Under Sources, grab Fetch Feed.  Go to Twitter Search and enter a search term, such as economics.  On the results page, click the link that says Feed for this query.  This will take you to the RSS feed.  Notice that there are a lot of worthless tweets that use the word economics.  That is why the next step is necessary.

3. Filter the tweets retrieved.  Under Operators, grab Filter.

First, filter out any retweets.  This serves two purposes: (a) it prevents retweet looping in which the pipe retweets its own tweets, and (b) most retweets are editorial rather than informative.  The swear words are blocked for obvious reasons.  Also, a huge portion of economics tweets say something like “My boyfriend’s cousin just lost his job at Best Buy. This economy sucks!”  Also another huge portion of tweets are from economics students griping about having to wake up at 9:00 a.m. so they can make it to their 10:15 a.m. class, which is why school related terms are blocked.

Unfortunately, tweets with #hashtags have a massive noise-to-signal ratio.  Here is one example:

RINO Marco Rubio speech demanding amnesty for illegals http://youtu.be/3xIgN51XxD4 #teaparty #economy @gopleader #gop #tcot

See, no economics in the tweet, but this twit decided to use the #economy hashtag.

The most important filter is the filter that keeps only those tweets that have a link in it.  Tweets without links tend to provide observations or opinions, rather than useful information.  I decided that I will only retweet posts that have a link.

The filter is probably where most of the future tweaking will be.

4. Form the retweet.  Under Operators, grab Loop.  The first field puts the author’s Twitter user name at the beginning of what will be my retweet.  The second field is a single space.  The third field is the tweet that is being retweeted.

5.  Form the retweet, part 2.  Under Operators, grab Regex. This step replaces the Twitter username URL (e.g., http://twitter.com/ericfruits) with the username used by Twitter (e.g. @ericfruits) and adds “RT” in front.  Note, that the “RT @username” must go at the beginning of the tweet.  Otherwise, the tweet may be too long and cut off the RT.  If that happens, you run the risk of getting into a retweet loop.

6.  (Optional) Sort the retweets from most recent to oldest. Under Operators, grab Sort.

7.  Test the pipe.  You may get some error messages (especially those that end in “420″).  Do not worry.  That means that Twitter and Yahoo Pipes are having a temporary spat.  Wait a few minutes and try again.  If it still does not work, save the pipe, go back to the My Pipes page, then click on the pipe and/or click on the RSS feed for the pipe.  This step will drive you crazy because you will not know if you have done something wrong.

8.  Tweet the pipe’s results.  Go to My Pipes, click on the pipe, then click on Get as RSS.  Now that you have the RSS, you can use Twitterfeed and/or Feedburner to convert the RSS output to tweets.  Twitterfeed is fairly self-explanatory.  To have Feedburner tweet the RSS, click on Publicize, then click on Socialize and follow the steps.

I use both Twitterfeed and Feedburner.  Because of the time and tweeting limits of both services, there is no real overlap of tweets.  For example, my pipe retrieves approximately 50 tweets an hour.  Twitterfeed will send out a maximum of 10 tweets an hour and Feedburner sends out a maximum of 16 tweets an hour (maybe).  So far, Twitterfeed is a much more reliable tweeter than Feedburner.

Happy pipe-tweeting!

The business press and investment advisers have declared this year to be the Year of the Roth IRA.

Roth IRA: “One of the best deals in retirement planning”

With a Roth IRA, virtually all income growth and withdrawals are tax-free.  Because retirees don’t pay taxes on their withdrawals, the Roth IRA has been called one of the best deals in retirement planning.

With the turn of the New Year, the income limits that have prevented many individuals from converting a traditional IRA or employer-sponsored retirement plan to a Roth have been eliminated.   The loosening of the rules is particularly well-timed for a period when workers are losing their jobs and are no longer employed with the company that holds their retirement account.

There is a catch, though.  If you convert your traditional IRA or employer-sponsored retirement plan to a Roth IRA, you must pay taxes on the converted money as if it was earned income.

Even so, the Federal government has made this part less painful in 2010. You can report the amount you convert in 2010 on your tax return for that year. Or, you can spread the amount converted equally across your 2011 and 2012 tax returns, paying any resulting tax in those years. For example, if you convert $50,000 next year and choose not to declare the conversion on your 2010 return, you must declare $25,000 on your tax return for 2011 and $25,000 on you return for 2012. The two-year option is a one-time offer for 2010 conversions.

Many Roth IRA conversions may be subject to Measure 66′s higher rates

While most of the attention on Measure 66 has been directed at the impacts on entrepreneurs and investors, the increased taxes will also affect the thousands of middle class households that are considering a Roth IRA conversion.  Oregon’s Measure 66 will make such conversions especially painful because some or all of the money that investors have saved over the years may be subject to Measure 66′s highest tax rates.

Measure 66 imposes two new tax brackets affecting 2010 income:

• A new marginal tax rate of 10.8 percent would be levied for taxable income between $250,000 and $500,000 for joint filers and $125,000 and $250,000 for single filers.

• A new 11 percent marginal tax bracket would be created for taxable income above $500,000 for joint filers and $250,000 for single filers.

More than 40 percent of all families in the U.S. participate in some type of employment-based retirement plan.  These plans include defined benefit (pension) plans and defined contribution plans such as a 401(k) or 403(b).  In addition, approximately 1 in 3 families has an IRA or Keogh account.

Among those with either a defined contribution plan or an IRA/Keogh account, the average account balance is $148,440.  For those age 55 and older, the average account balance is more than $250,000.  More than 1 in 10 families have account balances in excess of $500,000.

A family converting $300,000 in retirement funds would have to come up with another $900 in Oregon taxes if subject to Measure 66.  A family converting a $600,000 retirement account would have to find another $6,500 in cash to pay additional Measure 66 taxes.

As an unintended consequence, Measure 66 may deny many Oregonians the chance to participate in a once-in-a-lifetime opportunity to get into what has been called one of the best deals in retirement planning.

The Wall Street Journal provides a summary of the provisions of the Roth IRA conversion program.  The Employee Benefit Research Institute provides statistics on retirement plans and balances in the plans.

The Pew Center on the States examined nine states, in addition to California, that are particularly affected by the recession (pdf). Pew notes that all of California’s neighbors—Arizona, Nevada and Oregon—were severely hit by the bursting housing bubble, landing them on Pew’s list of states facing fiscal difficulties similar to California’s. Pew blames Oregon’s problems on the state’s lack of sales tax, its Kicker law, and its relatively undiversified economy.

The following provides an economist’s view of selected portions of the Pew report.  While most of the study is more reportage than analysis, some of the facts and analysis would have benefited from a more rigorous review.

[The recession has] prompted lawmakers to respond with $2 billion in spending cuts, aggressive use of federal stimulus dollars and more than $1 billion in new taxes, including $733 million in proposed income tax hikes that will be challenged at the polls in January 2010.

Oregon’s Legislative Fiscal Office reports (pdf) that the state budget has increased by 9.3 percent (enlarge figure).  The Legislature increased spending by $4.8 billion.

Between the second quarter of 2008 and the second quarter of 2009, Oregon’s unemployment rate more than doubled, outpacing California’s job loss increases and surging faster than that of any other state. … To understand Oregon’s soaring unemployment rate and its corresponding decline in tax revenue, look no further than the goods the state produces—many of which are going unsold. Oregon’s once-mighty wood products industry, whose workforce has been shrinking due to automation and technology advances, is projected to lose a jarring 21 percent of its jobs in 2009. Driving the collapse is the nation’s housing bust: When new homes are not being built, timber sales slump.

Oregon almost always has some of the highest unemployment in the U.S., whether or not the country is in boom or recession. While the decline in the timber industry and the housing bust may explain Oregon’s chronic high employment, eventually a time comes to ask whether the state’s policies are contributing to the unemployment.

Some policy makers, including the governor, believe that one sector of Oregon’s economy, clean energy, offers hope. Oregon had a bigger share of its jobs in clean energy than any other state as of 2007, according to a Pew report. Kulongoski has worked hard to build a green legacy—insisting on generous tax credits for renewable-energy firms even as other Democrats sought to reduce them, for example, and publicly test-driving electric cars in an effort to lure their manufacturers to Oregon. … But some experts question whether the sector can lead Oregon out of its economic doldrums. “There are worries that we’re getting in a little late, especially with all the investment that China is doing,” said Jessica Nelson, an economist with the Oregon Employment Division.

It is becoming more and more clear that the “generous tax credit” could more accurately be described as a money grab bordering on scandalous.

Confronted with a staggering loss of jobs and tax revenue that accompanied the state’s economic nosedive, Oregon Democrats seized upon the supermajorities they won in last year’s legislative elections. On February 5, less than a month after the session began and about two weeks before President Obama signed the federal stimulus package into law, Kulongoski signed Oregon’s own, state-level stimulus initiative, a $175 million borrowing plan that promised to create jobs while making improvements to the state’s roads and schools. At the same time, lawmakers made about $2 billion in cuts ….

Again, these “cuts” were actually an increase of $4.8 billion.

But the more than $1 billion in tax increases that Democrats pushed through to balance the budget and pay for major new initiatives in transportation and health care have proven most controversial. To help fund a massive road-improvement plan they said would create thousands of jobs, lawmakers raised the gas tax from 24 to 30 cents per gallon and hiked the cost of vehicle registration from $54 to $86. To expand health care for to up to 115,000 uninsured children, they created a new 1 percent tax on health insurance premiums and raised hospital taxes.  … The vast majority of new tax revenue, $733 million, came in the form of new personal and corporate income tax rates that have drawn national attention and will go before the voters in a crucial special election in 2010.

As noted on this blog, over the next four years, increased taxes on hospitals and health insurance will be as large as the increased personal and corporate income taxes.  All of these new taxes amount to $2.6 billion in new taxes.

Oregon’s minimum wage is another line of demarcation. The $8.40 hourly rate is the second- highest in the nation, and while liberals see it as helpful to the poor, fiscal conservatives claim that it hurts businesses and even some low-wage workers who might not get jobs because of it.

Actually, this has nothing to do with “liberals” and “conservatives.”  Empirical research demonstrates that Oregon’s minimum wage is associated with an unemployment among young workers that is 5 to 10 percentage points higher than it would be if the state’s minimum wage was the same as the federal minimum wage.

The state-level stimulus has provided its own controversy, similar to the national debate over the federal stimulus. The Oregon Legislative Fiscal Office credits the program with having “created or retained a total of 3,236 jobs” in its first three months.201 But an Associated Press investigation questioned the way the state counted those jobs and found that each job lasted a total of 35 hours, or less than a week of full-time employment.

Oregon is quickly reaching the point where employment impacts published by state agencies cannot be trusted [1, 2, 3].

PERS: Oregon’s 800-pound gorilla that the Pew report missed

It is well known that Oregon’s Public Employee Retirement System (PERS) has been a major driver of Oregon’s high state and local government spending.  It is a system of generous promises that shifts to taxpayers nearly all of the risks of investing in asset markets.  The PERS crisis earlier this decade pushed the state to the edge of insolvency.  There is still a risk of another crisis in the future.

At the end of 2007, Pew published a report that said Oregon had THE BEST funded pension system in the U.S. (pdf). Even though the PERS Board knew of the flaws in Pew’s study, it promoted the report as proof of the system’s soundness (pdf).

Pew seemed unaware that the state and many local governments issued pension obligation bonds to plug the huge deficits in their accounts.  This practice shifted money out of the pension system and onto the books of the individual government entities.  It did not solve the problem, it simply made a pension problem into a bond problem.  Pew missed this crucial fact of Oregon’s pension system, which means that Pew’s conclusions are meaningless.  The PERS Board should have known this and flagged it for Pew.  Instead, the PERS Board trumpeted the flawed findings.

California—and Oregon’s—fiscal problems are spending problems not revenue problems

The Pew report focuses almost exclusively on states’ challenges to find new or additional revenues.  Much of the fiscal problem facing states are spending problems: Misdirected tax credits, ambitious programs, and skyrocketing public employee expenditures.

The Pew report does not describe how much is spent on Oregon’s Business Energy Tax Credits.  The Pew report only briefly mentions the massive expansion of state-run and state-subsidized health care in the state.  These new programs will cost as much or more than the amount returned to taxpayers with the last Kicker payment.

The Oregon Public Employees Retirement System (PERS) is an impending train wreck. We can delay the wreck and we can move some passengers to the back of the train. Nevertheless, the PERS train will wreck and taxpayers are going to pay for it.

When financial markets tanked earlier this decade, governments were facing huge increases in the amounts they would have to contribute to their employee’s PERS accounts to fill the defined benefit gap. The Oregon economy was in recession and the electorate had little or no tolerance for increased taxes. In response, the state and some local governments issued pension obligation bonds.

The plan carried some risks: While it would make high returns higher, it could make low returns disastrous. At the time, the stock market was about to begin a four-year run of double digit annual returns, the housing market was taking off and interest rates were nearing record lows. These factors caused state and local governments to determine that the benefits of issuing bonds outweighed the downside risks. The governments that used the bonds have moved themselves toward the back of the train, but they nevertheless remain on the train.

Read the entire op-ed at the Statesman-Journal, or download a PDF.

The Judicial Conference of the United States approved an amendment to Rule 26 of the Federal Rules of Civil Procedure. If adopted by the U.S. Supreme Court, the amendment would  expand the scope of the work product privilege regarding communications between attorneys and expert witnesses.

As recommended, Rule 26 would include the following provisions

Rule 26(b)(4)(B):

Trial-Preparation Protection for Draft Reports or Disclosures. Rules 26(b)(3)(A) and (B) protect drafts of any report or disclosure required under Rule 26(a)(2), regardless of the form in which of the draft is recorded.”

Rule 26(b)(4)(C):

Trial-Preparation Protection for Communications Between a Party’s Attorney and Expert Witnesses. Rules 26(b)(3)(A) and (B) protect communications between the party’s attorney and any witness required to provide a report under Rule 26(a)(2)(B), regardless of the form of the communications, except to the extent that the communications:

(i) relate to compensation for the expert’s study or testimony;

(ii) identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or

(iii) identify assumptions that the party’s attorney provided and that the expert relied upon in forming the opinions to be expressed.

The Committee justified the amendment as “profoundly practical” and “rest[ing] not on high theory but on the realities of actual experience with present discovery practices.”

The Committee explained that the extension of work-production protection to attorney-expert communications and drafts, “begins with the shared experience that attempted discovery on these subjects almost never reveals useful information about the development of the expert’s opinions. Draft reports somehow do not exist. Communications with the attorney are conducted in ways that do not yield discoverable events.”

The Committee added, “The losses incurred by present discovery practices are not limited to the waste of futile inquiry. The fear of discovery inhibits robust communications between attorney and expert trial witness, jeopardizing the quality of the expert’s opinion.”

Source: Wisconsin Law Journal

Minimum wage increases are a hot-button issue in many states. As such, minimum wage increases are politically challenging to implement. To avoid the knock-down/drag-out fights associated with minimum wage increase, several states—including Oregon and Washington—have introduced minimum wage indexing. With indexing, the minimum wage increases automatically each year based on some measure of inflation. As a result, Oregon and Washington have some of the highest minimum wage rates in the country.

Now that Oregon’s economy is in a tailspin, with record unemployment and business closures, the legislature is considering HB 3053 that would halt increases in the minimum wage during an economic downturn.

A study by Eric Fruits for the Employment Policies Institute measures the effect of minimum wage indexing on employment and wages in Oregon and Washington.  The study finds that minimum wage indexing imposes employment costs with no measurable income benefits. In particular:

• Higher minimum wages in Oregon and Washington are associated with reduced employment.
• Younger members of the labor force—age 25 and younger—are more likely to be adversely affected by increases in the minimum wage and minimum wage indexing. The figure above shows that Oregon and Washington would have significantly lower unemployment if the state minimum wage rates were equal to the lower Federal rate.
• Higher minimum wages have no statistically significant impact on wages of Oregon and Washington hourly wage earners.

If passed, Oregon SB 80 would establish a greenhouse gas cap-and-trade scheme for the State of Oregon. The Oregon Senate Committee on Environment and Natural Resources will have a public hearing on SB 80 on Thursday April 9, 2009 at 3:00 P.M. in Hearing Room C.

The following is the written testimony submitted by Eric Fruits regarding the costs of Oregon SB 80.

In September 2008, I co-authored a comprehensive analysis of the economic and fiscal impacts on Oregon of meeting the ambitious greenhouse gas reduction goals outlined in the proposed amendments to SB 80. In February 2009, I submitted testimony on the economic and fiscal impacts associated with the cap-and-trade scheme introduced in SB 80. I have attached my past testimony and the report I co-authored.

This letter summarizes my earlier testimony and presents new evidence of the substantial costs associated with trying to meet Oregon’s aggressive greenhouse gas emissions reduction goals.

• Oregon’s economic output would be $48.3 billion lower; 90,000 fewer people would be employed; and state and local government revenues would be $4.4 billion lower (Pozdena & Fruits, 2008).
• Subsequent independent research supports our findings: a 1 percent decline in carbon dioxide emissions is associated with a 0.74 percent decline in GDP (Annicchiarico, et al., 2009).
• Recent research calculates that for every “green” job created via subsidies and tax breaks, 2.2 jobs elsewhere in the economy are destroyed (Álvarez, 2009).

There is no avoiding the substantial costs of SB 80. Households, businesses, and the public sector will have steeper power bills and will pay more to engage in nearly every activity.

Today, businesses are shrinking, closing shop, or exiting the state. Oregon now has its highest unemployment in 25 years and one of the worst unemployment rates in the country. Higher energy prices under SB 80 will worsen an already dire economic situation.

It is now evident that hopes of creating new “green” jobs funded with tax credits and subsidies paid by existing Oregon businesses and consumers is a losing proposition where more jobs are lost than created. Projections of increased employment under SB 80 are built on unrealistic assumptions and flawed models that produce counterintuitive results that have been refuted by real world observations.

Sources cited:

Álvarez, G. C. (2009). Study of the effects on employment of public aid to renewable energy sources. King Juan Carlos University, Madrid, Spain.

Annicchiarico, B., Bennato, A. R., and Costa, A. (2009). Economic growth and carbon dioxide emissions in Italy, 1861-2003. MPRA Paper No. 12817.

Fruits, E. and Pozdena, R. J. (2008). Oregon Greenhouse Gas Reduction Policies: The Economic and Fiscal Impact Challenges. Cascade Policy Institute. Portland, OR.

USA Today ran a front page story on the the impacts of early stimulus projects. While the story focused on the businesses and families that hope to benefit from the stimulus spending, there was one dissenting skeptic:

Eric Fruits of Economics International in Portland, Ore., warns that stimulus spending may not revive the economy in the long run. “Borrowed money has to be repaid. A job today may come at the cost of someone not having a job in two or three years,” the economist says.