Dr. Eric Fruits is an economics expert, finance expert, and statistics expert. He has produced numerous research studies involving economic analysis, financial modeling, and statistical analysis. As an expert witness, he has provided expert testimony in state court, federal court, and an international court.
This blog is an informal look at a wide range of issues in economics, finance, and statistics. Some posts are based on original research, some may be copy-and-pasted from other sources, and others may be some combination of the two. Information, conclusions, and opinions in posts are usually based on casual or informal review of issues and data. Any conclusions or opinions are those of the author’s and do not reflect the views of any individual or organization.
A little less than a year ago, Michigan became the 24th state to enact right-to-work legislation, a development that has been closely associated with the temperature of Hades dropping. Since then, right-to-work supporters have sought to enact similar legislation throughout the United States. Even here in the Northwest.
In Oregon, the Public Employee Choice Act would provide right-to-work protections to public employees. With the Boeing’s machinists recent rejection of a new contract and the company’s drift toward more business-friendly states, there has been some speculation that the state of Washington may consider right-to-work legislation in order to hang on to key employers.
What is right-to-work?
Right-to-work policies liberalize labor market conditions by loosening some of the most restrictive features of labor legislation enacted during the Great Depression. In 1935, at the depths of the Great Depression job losses, Congress passed the National Labor Relations Act (also known as the Wagner Act). This act permitted closed union shops which require employees to join a union and/or pay union dues as a condition of employment.
The widespread impact of coal miner strikes through the late 1940s led some to conclude that the Wagner Act had conferred too much power on organized labor. The Taft-Hartley Act — enacted in 1947 over President Truman’s veto — modified the impact of the Wagner Act by affirming the right of states to prohibit certain union shop restrictions enabled by the Wagner Act. Specifically, Taft-Hartley indicates that states can pass laws that prohibit unions and employers from making union membership or the payment of union dues a condition of employment. These state statutes are referred to as “right-to-work” laws because they give employees the right to work without the being forced to join a union or handover a portion of their paychecks to unions in the form of dues or fees.
A boost to employment
Right-to-work has gained attention in the wake of the past recession because such laws can be a key component of a pro-investment and pro-employment package that encourages firms to locate and expand in a state. Indeed, a large body of research has found that as a group, right-to-work states have enjoyed more rapid employment growth, better job preservation, and faster recoveries from recession than states without right-to-work laws in place.
For example, the figure below shows that since 1950, states with right-to-work laws have seen their employment grow at roughly double the rate of non-right-to-work states.
While right-to-work laws can be a key component of a pro-investment and pro-employment package that encourages firms to locate and expand in a state, it would not be fair to conclude that all the employment gains can be assigned to right-to-work.
Indeed, there are many factors that contribute to employment growth. For example, some have argued that one of the biggest predictors of employment/population growth is climate: People tend to migrate toward nicer weather. Harvard economist Edward Glaeser, explains:
But the connection between January temperature and growth reflects more than just the weather. Sixty years ago, income and productivity in the South lagged significantly below that in Northern states. There has been a remarkable convergence of incomes since then, as manufacturing firms moved to lower wage areas that gradually became higher wage. Right-to-work laws in Southern states seem to have significantly attracted new industry (Holmes, 1998). Indeed, one can quite plausibly argue that the South had far worse institutions for economic growth before the Civil Rights Era, but that today, fewer regulations and lower taxes makes the Sunbelt more pro-growth
Statistical analysis can account for these other factors and separate out the relationship between right-to-work laws and employment growth. My research finds that, if Oregon were to enact right-to-work legislation, the state’s employment would grow one-half of one percent faster than it is currently projected to grow.
Now, one-half of one percent does not sound like a lot. But, over time, even tiny changes in the growth rate can have large long-run impacts.
For example, the figure below shows that if Oregon adopted right-to-work legislation that went into effect in 2015, then five years later the state would have 56,000 more people working than without right-to-work.
A boost to pay
Opponents of right-to-work argue that enacting a right-to-work law would gut Oregon incomes, calling it “right-to-work for less.” In fact, however, research that controls for other factors that affect wages, finds that right-to-work states have average wages that are “significantly higher” (more than six percent higher) than in non-right-to-work states.
The statistical analysis I conducted shows that wage and salary growth under right-to-work would keep pace or outpace employment growth. In other words, wages would grow as fast or faster than employment. That means that, based on the experience across multiple states over many years, right-to-work laws do not lead to lower wages and are likely to improve pay over time.
A fiscal free lunch
Right-to-work legislation may be the only economic development policy that comes at zero cost to state government. Enacting right-to-work does not require any new taxes and does not demand any new spending and would provide the state a permanent structural advantage in attracting employers and employment to the state.
I would also like to announce the Spring, 2013 issue of the PSU Center for Real Estate Quarterly Report, produced with the assistance of the Oregon Association of Realtors. You can find the latest issue at the Center’s website:
From that web page, you can download each individual article or the entire issue. We have also indexed all the articles in The Quarterly Report back to 2007.
Our feature article is a review (PDF) of public private partnerships by Attorney Michael Silvey of Lane Powell. Silvey discusses some of the advantages and pitfalls of a public-private partnership, using his experience with the development of the Rose Garden in Portland and the Seahawks’ Stadium in Seattle.
In our single family housing report, RMLS student fellow Evan Abramowitz reports continued rises in housing prices and sales volume, both in Portland and nationally. At a national level, home prices are up 10.3% over the past 12 months, according to the National Association of Realtors. Using RMLS data, the median housing price in the Portland region reached $291,000 in Q1, 2013, a 26% increase over Q1, 2012. Using a similar time period, the Case-Shiller Repeat Sales Index found a price rise of 8.3%, which suggests increasing sales of higher quality homes in recent months. The revival of prices in the Portland region has been accompanied by a burst of new construction activity and sales activity from one year ago, although about half the level as during the boom period of 2005-07.
Outside of the three-county Portland area, Abramowitz finds sharp increases in housing prices in all the major markets in the state and region, with the following median levels: Portland area, $291,000, Vancouver suburbs, $258,800; Bend, $250,000, Benton County, $250,000; City of Vancouver, $228,000; Eugene-Springfield, $192,000; Redmond, $162,000; and Salem $149,900.
In the multi-family housing report, Abramowitz reports apartment rents have been increasing across the nation by an average of 3.5%. The Portland-area apartment market remains one of the tightest in the United States, with a vacancy rate of 3.6%. At the same time, Abramowitz quotes Portland apartment appraiser, Mark Barry, that the increase in apartment construction is likely to put the local market in balance in 2014 and 2015, moderating the rent increases.
In our commercial market report, OAR Student Fellow George McCleary finds that the improving economic conditions in the last quarter have led to lower vacancies and some rent growth. Unemployment has fallen from a 2009 peak of 11.1% to 8.0% today. Major office leases were signed this quarter by financial firms, technology firms, and business services firms throughout the region.
However, as he reported last quarter, the vacancy rates in the CBD have been rising while those in suburban markets have been tightening. Portland’s CBD vacancy rate of 8.7% remains quite low, but it’s following closely by Airport Way, 10.2%, the Lloyd District, 11.7%, and Sunset Corridor, 12.5%. The rate for the Sunset Corridor is a major decline from 15.9% last quarter, reflecting new activity at Intel, Nike, and related firms. Much higher vacancy rates persist in Kruse Way, 19.6% and the Hwy. 217 Corridor, 17.2%.
I hope you enjoy this latest issue of the Center for Real Estate Quarterly Report. I would like to thank the Oregon Association of Realtors (OAR) for their continued support of the Center and the publication of The Quarterly Report. As usual, we welcome your feedback on the articles as well as your suggestions for future articles.
I have been invited to present to three different groups in the next month. There will be some overlap in the presentations, especially regarding my forecast for the Oregon and US economies over the next year or so. At the same time, there should be enough of a difference makes all three worthwhile.
2013: The Year of the Turbulent Turnaround
Institute of Management Accountants Special CPE Breakfast Event
Wednesday, May 8, 2013, 7:30-9:00 am
Crowne Plaza Portland-Lake Oswego, 14811 Kruse Oaks Blvd, Lake Oswego, OR 97035
How to register:
Visit the IMA Portland Chapter’s website, and write “Breakfast” in the notes
Real Estate Forecast for the Next Year or So
Association of Government Accountants, Portland Chapter Spring Conference
Thursday, May 30, 2013, 8:00 am to 5:00 pm
Lloyd Center Doubletree, Executive Meeting Center, 1000 NE Multnomah, Portland, OR 97232
Other presenters include Gary Blackmer, Director, Secretary of State Audits Division speaking on Oregon’s financial condition; Darrell D. Dorrell, Founding Partner of FinancialForenics on forensic accounting; Nick Beleiciks, State Employment Economist, Oregon Employment Department on Oregon unemployment and the labor market; and Paul Cleary, Executive Director, Oregon Public Employee Retirement System with a PERS Update.
How to register:
Visit the AGA Portland Chapter’s website and download the registration form.
Oregon’s Public Employee Retirement System, or Can an 800 Pound Gorilla be Tamed?
Washington County Public Affairs Forum
Monday, June 3, doors open at 11:00 am, speakers begin at noon
Tanasbourne Old Spaghetti Factory, 18925 NW Tanasbourne Drive, Hillsboro, OR 97124
The other presenter is Marc Abrams, attorney with the Oregon Department of Justice.All programs are video taped and broadcast over Tualatin Valley Television as well as being streamed from the Forum’s website.
How to register:
There is not charge for admission. But, the cost of lunch pays for the room. Please note, however, that only paid up members of the Washington County Public Affairs Forum are allowed to ask questions of the speakers.
The Winter 2013 issue of the Portland State University Center for Real Estate Quarterly Report has just been published online.
Ron Ross, from Compass Commercial Real Estate Services, provides a review and forecast for Central Oregon’s commercial real estate markets (PDF). He says in 2013, the industrial market should expect to see a drop in industrial vacancy rates and a slight rise in rental rates. He forecasts that retail occupancy will rise and rates will be expected to climb a bit. In the Central Oregon office market, Mr. Ross expects a one to two percent drop in vacancy and for lease rates to remain stable.
In the single family housing report (PDF), RMLS student fellow Evan Abramowitz reports that the market recovery continues, with improving home sales, and increasing upward pressure on prices. In the Portland metropolitan area, the median sales price continues to sputter upward to $315,320 for new homes and $287,000 for existing homes. Central Oregon is seeing signs of improvement, but wild swings in sales and prices from quarter-to-quarter provided little confidence in knowing how strong any recovery will be. The Willamette Valley and I-5 corridor continue to be challenged by stagnant or slightly declining prices.
In the multi-family housing report (PDF), Abramowitz finds a market that “has everything going for it.” He reports that rents have increased in the U.S. by just under four percent. At 2.1 percent, Portland vacancies are among the lowest in the country. The region continues to attract young migrants who seem hesitant to commit to homeownership. He finds that new construction continues to lag behind demand, but several new projects in the pipeline are expected in the next year.
In the office market report (PDF), OAR Student Fellow George McCleary finds a market that has improved modestly in 2012, with general economic conditions continuing a slow upward climb. Fundamentals have improved, and unemployment has dropped almost a full percent, to 7.8 percent. Vacancy is down and 100,000 square feet of space was delivered to the market, although speculative construction is still nearly nonexistent. He concludes that new space is unlikely to be developed before demand increases, forcing lease rates higher.
McCleary’s retail report (PDF) finds overall retail vacancy rate of 5.7 percent, up three tenths of a percentage from the same period last year. Absorption totaled 141,586 square feet for the year, and rents are up by 0.4 percent to $15.83 per square foot. He predicts that measures are expected to improve in 2013. Mixed-use projects drove much of the retail development in 2012, and that most development was build-to-suit or owner-user oriented. Speculative retail construction remains mostly absent, save for smaller infill projects, or ground floors of apartment buildings.
In the industrial report (PDF), McCleary that fourth quarter of 2012 was the tenth straight quarter of positive absorption in the Portland industrial/flex market. It also, however, saw the lowest number of leasing deals since the third quarter of 2003. Although there is a lack of space in certain classes, lease rates are generally still not supportive of speculative construction, as has been in the case for the past four years. Developers have constructed facilities, but nearly all development has been built-to-suit. This is expected to continue in the months to come, with market fundamentals eventually arriving at levels that support speculative development.
Yesterday’s post raised the question whether student loans may contribute to income inequality. It generated some buzz in the Twitterverse and caused me to flag some other factoids.
MarketWatch reports that students who go to the most “affordable” four-year public colleges are more likely to drop out and to fall behind on their student-loan payments, according to a “College Scorecard” released by the U.S. Department of Education.
MarketWatch argues that, in general, colleges with lower net costs tend to attract more lower-income students who are also more at risk for leaving school before graduation if their families suffer a financial setback. From there, a domino effect ensues: Dropouts are less likely to have the means to keep up with student loan payments, which in turn leads to a higher default rate for that institution.
Oregon Public Broadcasting’s “Think Out Loud” ran a segment on the long lasting impact of student debt. One of the commenter’s, “Dave in Depoe Bay” highlighted the problems with high student debt:
I have a B.S. in psychology that is currently billed at $200,000. Every year or two they get sold to another collector that then adds more (along with daily interest). Since, I am in default I am considered a criminal without statue of limitations. No chance of bankruptcy, only $800 a month or $85,000 up front.They harass my job, family, and friends without a glimpse of reality. EDUCATION IS THE LARGEST, HAUNTING REGRET OF MY LIFE.
Perhaps before students sign up for ever larger student loans, schools should make them take a short course in the principles of net present value calculations.
The distribution—and redistribution of income—is back in the news. The Economist reported on study of the persistence of income distribution from generation to generation, which generated some discussion.
Then, Gary Becker and Richard Posner jumped into the debate with some often overlooked observations. Judge Posner, however, flag a growing problem that is just getting some attention:
And it must be borne in mind that some programs that purport to reduce inequality, such as the federal student loan program, may well increase it, by imposing debt burdens disproportionate to the value of the education that they finance.
Seems only a few years ago, the discussion of higher education focused only on the benefit side: How much more money will you earn with a BA, MA, or Ph.D.? Now, the discussion starting to turn to the costs: Will the bump in income more than offset the additional cost of debt?
Two stories have recently surfaced of some growing pains in the government’s EB-5 visa program.
With financing scarce and often difficult to obtain, it’s little wonder that real estate developers across the U.S. are looking for new ways to fund their endeavors. Within the past three years, there has been an increasing amount of interest in the EB-5 Investor Visa Program as a potential source of capital as foreign nationals seek to invest in the U.S. According to a number of recent reports, there is a growing class of foreign millionaires looking to invest in businesses and development projects through the EB-5 program. The Portland State University Center for Real Estate Quarterly Report recently published a primer on the ins-and-outs of the EB-5 program (PDF).
A recent story in the Miami Herald has—perhaps unfairly—characterized the EB-5 program as “selling greencards.” More precisely, the program provides green cards to investors who provide at least $1 million dollars (or, in some cases, $500,000) for projects that add at least 10 jobs to the local economy. The story is a sign that the press is now paying attention to the program.
A more interesting development is the Securities and Exchange Commission’s announcement that it had filed civil charges against—and received an emergency order to freeze assets of—the Intercontinental Regional Center Trust of Chicago. The SEC alleges misrepresentations or omissions in the offering documents and in documents filed with U.S. Citizenship and Immigration Services in connection with the applications for conditional permanent residency, specifically:
The offering documents made numerous false claims, including the receipt of all necessary building permits, franchise agreements with several major hotel chains, the availability of a state-sponsored bond facility, the value of the underlying land, the financial potential for the project to provide a return to investors and the refundability of administrative fees if visa approvals were not granted.
The sponsors provided falsified documents to USCIS in an attempt to secure conditional visa approvals for investors, which approvals were a precondition to release of each investor’s $500,000 investment to the issuer.
More than $2.5 million of $11 million in administrative fees were directed to the principal’s personal bank account in Hong Kong and most of the balance spent rather than available for refund.
As pointed out in a blog post, while there have been allegations of fraud around other regional center projects, this is the first EB-5 enforcement action filed by the SEC. Press reports from September 2012 indicate that an internal memorandum prepared by the USCIS noted that Regional Centers “are not even making good-faith attempts to conform their offering documents to basic securities regulations.” Press reports also indicate that the Department of Homeland Security’s Office of Inspector General has launched an investigation into fraud in the EB-5 program. The SEC notes in its press release for this action there was close coordination with USCIS in bringing the case.
This case confirms that both the SEC and USCIS are paying attention to EB-5 applications’ compliance with securities laws, and USCIS is now monitoring for securities law compliance in its review of visa applications.
Today is the first day of class for Economics / Real Estate 431, Urban Economics.
That means this blog may have more posts related to the topics we are covering in the course. It also means that there may be some posts with opinions and conclusions that I do not agree with. That serves as a handy reminder that just because it’s on this blog, does not mean it’s this blogger’s opinion. If you want to follow along, click on the “Urban economics” category to the left. This blog is powered by WordPress, which means that you can get an RSS feed of any category.
Economies of scale
Because there the course is cross listed between Economics and the School of Business, the students were assigned to two different classrooms. One mass email and a sign on the door later, the 30 students who have enrolled for the class will now be sitting in a 235 seat auditorium.
Typically, when students ask if there is room in the class, I answers, “If there are seats, there is room.” I may have to rethink that if another 200 students show up.
The room assignment shuffle is a handy reminder of the economies of scale in education: Teaching 235 students is almost as difficult as teaching 30 students.
From the “What Do You Mean I Can’t Do That? Department” …
Two Alabama real estate investors and their company pleaded guilty this month for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in southern Alabama, the Department of Justice announced.
Robert M. Brannon; his son, Jason R. Brannon; and their Mobile-based company, J & R Properties LLC, pleaded guilty to an indictment originally returned in an Alabama federal court. The indictment charged each of them with one count of bid rigging and one count of conspiracy to commit mail fraud.
According to court documents, the Brannons and their company conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama. After a designated bidder bought a property at a public auction, which typically takes place at the county courthouse, the conspirators would generally hold a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property. The Brannons and their company were also charged with conspiring to commit mail fraud.
The Brannons and their company are charged with participating in the bid-rigging and mail fraud conspiracies from as early as October 2004 until at least August 2007—that was during the housing boom, not after the bust.
To date, eight individuals and two companies have pleaded guilty in federal court in connection with this particular ongoing investigation.
You may not have ever heard of Bill McDonald, but you have probably heard his jokes. A profile of McDonald explains that, from his Southeast Portland home, McDonald writes jokes for “Tonight Show” host Jay Leno and for about 140 radio stations around the world that feed McDonald’s quips to their on-air staffs—jokes like these from a few years ago:
I’m a little suspicious of these electronic voting machines. They even showed President Bush ahead in Fallujah.
Ricky Williams was asked if he preferred playing on grass or AstroTurf, and he replied, “I don’t know. I never smoked AstroTurf.’”
McDonald also has a keen eye for economic absurdities. His latest target: “Business” and “employment” taxes. In a recent comment he highlights the Portland region’s peculiar payroll tax used to fund its public transit system, a situation that many taxpayers in many regions face:
Let’s say I wrote jokes that were sent out of state, examined, and then bought outside the state. There is a form called TSE-AP with “Sales Factor Only” on it and “Total within district” where you compute the percentage of sales here versus outside the district.
Stay with me. I assumed that sales within the district would mean….wait for it…the sales within the district. If nobody bought any of my jokes in the state of Oregon and the district was in Oregon that would be zero…..
But what it really means is if you wrote the joke in the district and sold it anywhere in the world, you were to be taxed here so that a train or light rail or bus could be funded, because OF COURSE, I need a bus or train to sit in my basement and write jokes.
Ironically, if I had taken a car out of the district, wrote the joke there, and then sold the jokes to the Mayor of Portland sitting in the heart of the district, that would not be a sale within the district because…oh never mind….
I’ve been around long enough to know why our transit district taxes payrolls the way it does, but McDonald shows that, many times, the difference between what can be taxed and what should be taxed is much like the difference between grass and AstroTurf.