USA Today

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.

What makes Oregon different so that it always has high unemployment?

As with most economics issues, there is no single answer.  In Oregon, several factors combine to produce the state’s long-run high unemployment.

1. Unemployment benefits. The Economic Policy Institute in Washington, D.C., ranks Oregon as one of the more “generous” states for unemployment benefits. On one hand, unemployment benefits help to put food on the table. But overly generous benefits allow job seekers more leeway to hold out for higher wages than they would otherwise, thereby slowing their return to work.
2. Taxes and regulations. Taxes and regulations raise costs to firms offering employment. Rigidity in employment laws adds to a firm’s costs of growing its workforce. In addition, employer-provided health insurance in Oregon is expensive because of regulations mandating that insurers cover specific conditions, procedures or treatments. Such mandates raise the costs of adding and retaining employees.
3. Minimum wage. A binding minimum wage creates a surplus of unskilled labor. At $8.40 an hour, Oregon has one of the highest minimum wages in the country. This has the effect of decreasing the amount of labor demanded by Oregon businesses and increasing the amount of labor supplied by Oregon workers. On the upside, owners can be choosy about who they hire. But, this puts the unskilled in a Catch-22: Their inexperience makes them unemployable at the high minimum wage so they cannot get experience to justify the wage.
4. Migration. If people are moving to the state faster than jobs are being created, higher unemployment results. Oregon has a well-deserved reputation for livability. As a result, people from outside of Oregon are attracted to the state and people who are here already are hesitant to leave: Some people would rather be unemployed in Oregon than find work out of state.

Is there a solution?

On the public spending side, many Oregonians are hopeful that an injection of state and federal infrastructure spending will pull people off the unemployment line and onto construction crews. However, by the time projects are funded, requests for bids are issued, contractors are in place and workers are hired, we may already be six months into a recovery.

On the private side, investments by businesses produce the gains in productivity that fuel future production and consumption. Broad-based investment tax credits and similar investment incentives are not as alluring as large-scale spending programs and showpiece infrastructure projects. On the other hand, much of the blame for the current recession has been placed on the credit crunch and the resulting decline in private investment. Broad-based investment incentives would mitigate some of the crunch and encourage firms to begin spending and hiring again.

Oregon is a leader in climate change legislation. The state has adopted one of the most ambitious greenhouse gas emissions reduction goals in the world. Although Oregon is big in leadership status, it is small in size. Even if all Oregonians dropped their energy consumption to zero–or doubled it–the Earth’s climate would never know it. Thus, policies to substantially reduce greenhouse gas emissions in the state run the risk of being virtually “all pain, no gain.”

There is no getting around it: both carbon taxes and cap-and-trade programs raise energy prices. If either program is put into effect, households, businesses, and the public sector will have steeper power bills and will pay more to drive their vehicles. Meeting the goals would mean Oregon’s economic growth would be cut almost in half. In turn, state and local governments would collect $4.4 billion less in revenues.

Numerous businesses are shrinking, closing shop, or exiting the state, leaving Oregon with almost double digit unemployment. Higher energy prices under a carbon tax or cap-and-trade program will only make things worse.

Eric Fruits writes in Oregon Business that the state’s efforts to cut carbon are sure to reduce the state’s economic growth. Similarly, reducing economic growth is one way to cut carbon emissions. Dr. Fruits provides five ways in which cutting carbon will slow the state’s economy:

1. Carbon taxes mean that every good purchased by every household and business in the state would be more expensive
2. “Green” energy mandates, euphemistically known as renewable portfolio standards, force companies to use more expensive sources of energy
3. Deferring road maintenance will reduce the flow of goods in an out of the state.
4. Eliminating industrial land means that carbon emitting businesses will have to locate elsewhere.
5. “Picking winners” with “green” tax credits will stifle investment in other businesses in the state.

Eric Fruits writes in Oregon Business that one part of the crisis has been the rising cost of health care and health insurance. For years, the cost of health care has outpaced inflation. In turn, the costs of health insurance have risen rapidly, taking a toll on businesses and their employees. Another part of the crisis is the number of uninsured. Last year, Oregon’s governor tried to sell voters a huge tobacco tax increase by pointing to an estimated 117,000 uninsured children in Oregon. These parts of the crisis are related and were born out of the growth of the third-party payer system of covering health and medical costs.

Eric Fruits writes in Oregon Business that there is nothing magical about streetcars.  Politicians always have the opportunity to wave their zoning wands to accommodate developers demands.  Streetcars are to development as french fries are to a burger platter–a nice, but not necessary, complement.

Eric Fruits writes in Oregon Business magazine that sometimes it’s optimal to hold your customers hostage or to be held hostage by your employees. Unique skills benefit a business because the company’s competitors can’t duplicate the products or services it provides the market. Just as an employee with unique skills has leverage over his employer, a firm with unique products or services has leverage over the market. This leverage produces more sales or lower costs. Either way, it improves the bottom line.

Coinciding with the WSJ article, the Oregonian announced that a major downtown retailer is leaving for the suburbs. Then, I received an email announcing that the Cascade Policy Institute will move out of downtown.