Wednesday, June 25, 2014

A Quick Reaction to More Minimum Wage Nonsense

Danielle Kurtzleben of Vox has an interview with Gap's Vice President of Stores Lynn Albright about the company's decision to phase in higher wages for its lowest paid workers. The claim being made is that this decision is good for the Gap, as it will reduce employee turnover (which is costly) and attract higher skilled workers. I have two reactions.

First, good for the Gap for figuring out that it can raise profits by changing a labor practice. Also, good for the higher skilled workers who now have more opportunities in the labor market.

Second, this policy change at one company has absolutely nothing to do with the case for raising the minimum wage in the economy as specified by law. Such legislation affects the opposite labor practice -- when a company figures out that it can raise profits by offering lower wages, acknowledging that it will suffer higher turnover costs and that it will attract less skilled workers. With that labor practice forbidden by law, companies with that production model and the less skilled workers, who now have fewer opportunities in the labor market, are worse off.

The problem that we should be addressing is that low-skilled workers have low skills, not that there are labor market opportunities that pay them in accordance with their low level of productivity.

Wednesday, June 11, 2014

The End of Tenure in California Public Schools?

Judge Rolf M. Treu of the Los Angeles Superior Court has ruled in Vergara v. California that tenure and other job protections for teachers in primary and secondary public schools are unconstitutional. I think this is a clear case of judicial overreach -- legislating from the bench.

I don't think it is a hard case to make that the implementation of employment protections in many public school systems is bad policy. However, bad implementation of the policy does not mean that the policy is unconstitutional. The ruling pays lip service to this distinction, but that seems to be all. The key excerpt from the ruling in this case is:

Substantial evidence presented makes it clear to this court that the challenged statutes disproportionately affect poor and/or minority students.

Any policy under the purview of the public sector in which the benefits and costs fall unevenly by race would be deemed to violate the civil rights of the disadvantaged group. It is interesting to me that almost all of the tentative decision focuses on how bad the Challenged Statutes are at their worst, only two paragraphs focus on the effect on low-income and minority students in particular, and none of it discusses potential advantages of the job protections in the Challenged Statutes.

Even if those two paragraphs are the essential part of the ruling, the remedy is to ensure that the policy is implemented better, not necessarily to declare the policy unconstitutional. For example, based on what is presented in the ruling, consider a system in which:

  1. The Permanent Employment Statute had a 3-5 year evaluation period (as a defense witness suggested and as is found in most other states), 
  2. The Dismissal Statute had protections only at the level described in the Skelly v. State Personnel Board case cited in the ruling, 
  3. The "Last In, First Out" Statute were relaxed to having seniority considered as one among many factors rather than the only factor (as the ruling notes is the case in 20 other states), and
  4. The State could establish that there was no correlation between a school's incidence of low-income or minority students and the presence of ineffective teachers (where the latter was measured based on performance facing a standardized classroom).

This system would appear to violate no principle identified in the ruling. I don't expect this ruling to survive on appeal. I expect a higher court to require the State to implement a system like what I have outlined here.

Wednesday, April 23, 2014

College Admissions in Michigan, Again and Again

Supreme Court Justice Sonia Sotomayor's dissent in the Schuette v. Coalition to Defend Affirmative Action case is puzzling to me. She accuses her colleagues in the 6-2 majority of "trying to wish away racial inequality." They do nothing of the kind. It seems very hard to believe that there is anything in the Constitution or judicial precedent that would deny the citizens of Michigan the prerogative to affirm that a public university they support will be constrained to not treat applicants differently based on their race. This says nothing about whether the Michigan policy is a good one -- only that it is within the purview of the citizens to make this requirement. It does not say that every state must affirm such a policy. Is Sotomayor really saying that there is a Constitutional requirement that public universities must treat applicants differently based on race?

In the context of figuring out what is an equitable policy, we often hear questions about non-racial preferences in admissions, like athletes and legacies. Given the racial composition of profit-sport athletes relative to the student body, I don't expect the coalition that is pushing for Sotomayor's worldview to challenge those preferences. But it would not surprise me to see, and I think the day is coming when we will see, a legal challenge to legacy preferences at public institutions based on the claim that they discriminate against racial minorities. Legacy preferences perpetuate a legacy of discriminatory admissions standards (or simply unequal college preparation) that may have existed years ago. I doubt it would be too hard to show that the potential pool of legacy applications to any flagship state university is tilted away from racial minorities relative to the potential pool of applicants statewide. It would also not surprise me if Michigan was once again the battleground for this challenge.

Wednesday, March 05, 2014

The Unhelpful Way To Build Support for Raising the Minimum Wage

I find myself reacting quite negatively to two aspects of the way the White House and its allies are pushing the Raise the Wage agenda to build support for increasing the federal minimum wage from $7.25 to $10.10 per hour.

The first aspect is to compare the federal minimum wage to the poverty level without acknowledging that the Earned Income Credit provides income support for those with low incomes. The chart below gives an example from the White House webpage linked above:

The orange curve should be augmented by the appropriate EIC amount for the family type in question. In that case, we would see levels of income that are higher relative to the various poverty lines. That might or might not persuade you that the minimum wage is high enough, but it would give a fairer accounting of income relative to poverty and it would suggest another avenue for providing support.

The President's proposed FY15 budget includes provisions to expand the EIC and make more workers eligible. If income support is society's obligation, then it should be done through the tax code. There is no need to interfere with the workings of marketplaces, particularly in a way that discourages employers from creating the low-wage jobs that unskilled laborers depend on, to meet that obligation. Perhaps the Republicans will make that case and strike a deal -- adopt the higher EIC and the suggested mechanisms to pay for it and say no to the higher minimum wage.

The second negative aspect of this campaign is to produce narratives about single moms in which there is no discussion of the children's father's resources. Here's an example from an e-mail sent out today by Secretary of Labor Tom Perez:

Semethia's a 36-year-old single mom. Her son hopes to go to college one day. Her daughter wants to take gymnastics lessons. But with a service job that pays just $8.25 an hour, Semethia relies on food stamps and help from friends and family just to keep food on the table -- much less build the future she'd like for her kids.

That's all we learn about Semethia from the e-mail. You can find other vignettes in the popular press, like these two at the New York Times Motherlode blog. They are compelling stories. These moms are struggling, and they shouldn't have to go it alone.

What about the children's father?  Why are his earnings and resources not being applied to alleviate the financial burden on his children? If he is deceased, there should be survivor benefits from Social Security. If he is not deceased but they are divorced, then there should be divorce agreement stipulating child support, and courts should actively ensure that child support is being paid. If they were never married and his resources are not being offered voluntarily, then the appropriate policy is to enhance the ability for courts and others to obtain child support. All of these issues should find their way into the public discussion.

Let me be clear. I am not saying that Semethia should be married to the children's father or that he should even be a presence in their lives. What I react negatively to is that the policy in question -- raising the minimum wage -- would presume to take resources from Semethia's employer, the employer's customers, or other potential employees at this employer without first taking the resources from Semethia's children's father. The minimum wage is a tax on employers who provide employment for people like Semethia whose best opportunities in the labor force generate output that is valued at only $8.25. I do not see the wisdom in making it harder for an employer to do that.

Tuesday, January 28, 2014

Donating the Voucher

In honor of National School Choice Week, I'd like to highlight a paper I published last year that considers the federal government's tax treatment of private school enrollments. In brief, I'd like to see the federal tax code be as neutral as possible with respect to the funds that are used to meet the requirement that all students have access to primary and secondary education. Neutral with respect to financing helps to promote choice.

The starting point for the paper is the observation that most dollars spent by citizens to educate primary and secondary students are a tax deduction on their federal income taxes. For example, my property taxes and state income taxes are deductions when I file my federal income tax. My payment of these taxes has nothing to do with how much I use the public schools, only that I live in a jurisdiction subject to these taxes and that I have the right to send my children to these schools without additional payment. It also doesn't matter how much the public schools spend -- they could be spartan or lavish, efficient or inefficient. All of the tax payments can be claimed as deductions.

This arrangement contrasts with the funds that support private schools. Some of these funds are tax deductions -- for example, when a charitable donation is given to a private school, even if the donation is from a parent whose child attends the school. But the tuition payments paid by the parents are not tax deductible, and this is where my question arises. What should the federal government's tax treatment of private school tuition be? I think the answer starts with some recognition that enrolling children in a private school reduces the financial burden on the citizens of the state and locality of funding their attendance at the public school which their residence entitles them to attend. If there were no private schools, then public schools and the taxes that support them would have to be higher. Those higher state and local taxes could then be claimed as deductions on federal income tax returns.

We can approximate the amount of higher deductions by the per-pupil expenditures in the school districts of those students who attend private schools, modified to exclude those expenditures that would not follow the typical student and capped at the amount of private school tuition paid. This is what the paper noted above contributes -- an estimate of the tax cost to the federal and state governments for allowing these deductions by combining data from the American Community Survey, Public School Finance data, and the NBER Taxsim calculator. The result of the analysis is that the tax cost to federal and state governments is surprisingly small -- under $10 billion per year in 2010 dollars using the ACS from 2006 - 2010.

The title of the paper is "Donating the Voucher," based on the idea that if every student received a voucher equal to the per-pupil expenditures in his or her district, then 10% of the students are claiming no services with their vouchers and have essentially donated them back to the citizens who fund the public schools. I blogged about the politics of the idea several years ago, before I started work on the paper. The full abstract of the paper is:

Approximately 10 percent of school-age children in the United States are enrolled in private schools, relieving the financial burden on public school systems, and the taxpayers who support them, of the cost of their education. At present, the tax code does not allow families who provide this financial relief an income tax deduction, even though such relief is a gift to governments for exclusively public purposes and thus analogous to a charitable donation. Using the Public Use Microdata Sample of the American Community Survey and the NBER Internet Taxsim calculator, this paper estimates that granting families who enroll their children in private schools an income tax deduction equal to the per-pupil expenditures in their public school district would cost the federal government an average of $7.75 billion per year over the 2006 – 2010 period. This amount is less than one percent of federal income tax revenues. Because private school enrollment, public school expenditures, the likelihood of itemization, and marginal tax rates increase with taxpayer income, the dollar benefits of this change are positively related to income. At the margin, high-income taxpayers would receive about 35 cents in federal and state tax relief for each dollar of per-pupil expenditures foregone.