About the author
Mark Perry Tweets
What’s New on AEI
New BLS report on women’s earnings: Most of the 17.9% gender pay gap in 2013 is explained by age, marriage, hours worked
View related content: Carpe Diem
According to a TV election ad in 2012, “President Obama knows that women being paid 77 cents on the dollar for doing the same work as men isn’t just unfair, it hurts families.” Do the data support the president’s claim? Not at all.
For example, the Bureau of Labor Statistics (BLS) releases an annual report on the “Highlights of Women’s Earnings” (since the BLS report actually looks equally at data for both men’s and women’s earnings, one might ask why the report isn’t simply titled “Highlights of Earnings in America?”, but maybe that’s a politically incorrect question). Here’s the opening paragraph from the most recent BLS report “Highlights of Women’s Earnings in 2013” that was released this week:
In 2013, women who were full-time wage and salary workers had median usual weekly earnings of $706. On average in 2013, women made 82.1 percent of the median weekly earnings of male full-time wage and salary workers ($860). In 1979, the first year for which comparable earnings data are available, women earned 62 percent of what men earned.
How do we explain the 23% gender pay gap claimed by Obama, or the fact that women working full-time earned only 82.1 cents for every dollar men earned in 2013 according to the BLS? Here’s how the National Committee on Pay Equity explains it:
The wage gap exists, in part, because many women and people of color are still segregated into a few low-paying occupations. Part of the wage gap results from differences in education, experience or time in the workforce. But a significant portion cannot be explained by any of those factors; it is attributable to discrimination. In other words, certain jobs pay less because they are held by women and people of color.
Let’s investigate the claim that the gender pay gap is a result of discrimination by looking at some of the wage data by gender in the BLS report for 2013:
1. Among full-time workers (those working 35 hours or more per week), men were more likely than women to work a greater number of hours (see Table 5). For example, 25.5% of men working full-time worked 41 or more hours per week in 2013, compared with only 14.3% of women who worked those hours, meaning that men working full-time last year were almost twice as likely as women to work 41 hours per work or more. Further, men working full-time were also more than twice as likely as women to work 60-hour weeks: 6.3% of men worked 60 hours per week in 2013 compared to only 2.7% of women working full-time who worked those hours.
Also, women were more than twice as likely as men to work shorter full-time workweeks of 35 to 39 hours per week: 12.2% of women worked those hours in 2013, compared to only 5% of men who did so. Although not reported by the BLS, I estimate using their data that the average workweek for full-time workers last year was 41.4 hours for women and 43.4 hour for men; therefore, the average man working full-time worked 2 more hours per week in 2013 compared to the average woman.
Comment: Because men work more hours on average than women, some of the raw wage gap naturally disappears just by simply controlling for the number of hours worked per week, an important factor not even mentioned by groups like the National Committee on Pay Equity. For example, women earned 82.5% of median male earnings for all workers working 35 hours per week or more, for a raw, unadjusted pay gap of 17.5% for full-time workers (Table 5). But for those workers with a 40-hour workweek, women earned 89.6% of median male earnings, for a pay gap of only 10.4%. Therefore, once we control only for one variable – hours worked – and compare men and women both working 40-hours per week in 2013, almost half of the raw 17.5% pay gap reported by the BLS disappears.
2. The BLS reports that for full-time single workers who have never married, women earned 95.2% of men’s earnings in 2013, which is a wage gap of only 4.8% (see Table 1 and chart above), compared to an overall unadjusted pay gap of 17.9% for workers in that group. When controlling for marital status and comparing the earnings of unmarried men and unmarried women, almost 75% of the unadjusted 17.9% wage gap is explained by just one variable (among many): marital status.
3. Also from Table 1 in the BLS report, we find that for married workers with a spouse present, women earned only 78.0% of what married men with a spouse present earned in 2013 (see chart). Therefore, BLS data show that marriage has a significant and negative effect on women’s earnings relative to men’s, but we can realistically assume that marriage is a voluntary lifestyle decision, and it’s that personal choice, not necessarily labor market discrimination, that contributes to much of the gender wage gap for married workers.
4. Also in Table 1, the BLS reports that for young workers ages 25-34 years, women earned 89.4% of the median earnings of male full-time workers for that age cohort in 2013. Once again, controlling for just a single important variable – age – we find that almost half of the overall unadjusted raw wage gap for all workers (17.9%) disappears for young workers.
5. In Table 7, the BLS reports that for full-time single workers with no children under 18 years old at home (single workers includes never married, divorced, separated and widowed), women’s median weekly earnings were 96.1% of their male counterparts (see chart). For this group, once you control for marital status and children, you automatically explain almost 80% of the unadjusted gender earnings gap.
6. Also in Table 7, the BLS reports that married women (spouse present) working full-time with children under 18 years at home earned 78.9% of what married men (spouse present) earned working full-time with children under 18 years (see chart). Once again, we find that marriage and motherhood have a significantly negative effect on women’s earnings; but those lower earnings don’t necessarily result from labor market discrimination, they more likely result from personal family choices about careers, workplace flexibility, child care, and hours worked, etc.
7. If we look at median hourly earnings, instead of median weekly earnings, the BLS reports in Table 8 that women earned 86.6% of what men earned in 2013, which accounts for about 25% of the raw 17.9% gender earnings gap that exists for weekly earnings. And when we look at young workers, women ages 16 to 19 years earned 96.7% of the hourly wage of their male counterparts in 2013, and for the 20-24 year old group, women earned 94.0% of what men earned per hour. Also in Table 8, we see that for never married hourly workers of all ages, women earned 92.7% of the hourly earnings of their male counterparts in 2013, which explains almost half of the unadjusted 13.4% gender difference in hourly earnings.
Bottom Line: When the BLS reports that women working full-time in 2013 earned 82.1% of what men earned working full-time, that is very much different than saying that women earned 82.1% of what men earned for doing exactly the same work while working the exact same number of hours in the same occupation, with exactly the same educational background and exactly the same years of continuous, uninterrupted work experience. As shown above, once we start controlling individually for the many relevant factors that affect earnings, e.g. hours worked, age, marital status and having children, most of the raw earnings differential disappears. In a more comprehensive study that controlled for all of the relevant variables simultaneously, we would likely find that those variables would account for almost 100% of the unadjusted, raw earnings differential of 17.9% lower earnings for women reported by the BLS. Discrimination, to the extent that it does exist, would likely account for a very small portion of the raw gender pay gap.
For example, in a 2005 NBER working paper “What Do Wage Differentials Tell Us about Labor Market Discrimination?” by June O’Neill (Professor of economics at Baruch College CUNY, and former Director of the Congressional Budget Office), she conducts an empirical investigation using Census data and concludes that:
There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics.
This observation is an important one because it suggests that the factors underlying the gender gap in pay primarily reflect choices made by men and women given their different societal roles, rather than labor market discrimination against women due to their sex.
To claim that a significant portion of the raw wage gap can only be explained by discrimination is intellectually dishonest and completely unsupported by the empirical evidence. And yet we hear all the time from groups like the National Committee on Pay Equity, the American Association of University Women, the Institute for Women’s Policy Research, and President Obama, President Jimmy Carter and Virginia governor Terry McAuliffe that “women are paid 77 cents on the dollar for doing the same work as men.” And in most cases when that claim is made, there is almost no attention paid to the reality that almost all of the raw, unadjusted pay differentials can be explained by everything except discrimination – hours worked, age, marital status, children, years of continuous experience, workplace conditions, etc. In other words, once you impose the important ceteris paribus condition of “all other things being equal or held constant,” the gender pay gap that we hear so much about doesn’t really exist at all.
But we know by now that logic, economic theory and empirical evidence won’t matter to gender activists, progressives, and most Democrats, and all we’ll hear about regarding the new BLS report will be that women earned only 82.1 cents for every dollar earned by men last year…. for doing the same work, and how unfair that is……
Related: The “Discriminator-in-Chief” Obama has his own gender pay gap at the White House that exposes his hypocrisy on this issue – while lecturing everybody about the unfairness of the gender pay gap nationally using aggregate salary data, an analysis of White House salaries shows that he pays his own female staffers 13.3% less on average than his male employees. Alternatively, if the 13.3% gender pay gap at the White House can be explained by factors other than discrimination (like experience, age and education), Obama should then stop using unadjusted, aggregate salary statistics to lecture the country about a gender pay gap crisis at the national level.
View related content: Carpe Diem
Below are summaries of three research papers on the negative effects of increases in the minimum wage — the first one finds empirical evidence of negative employment effects from increases in the minimum wage between 2008 and 2012 (negative demand side effects), and the other two find negative effects of the minimum wage on high school enrollment (negative supply side effects from reduced skill acquisition).
1. The first research article is a new NBER working paper (“The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers” by UC-San Diego economists Jeffrey Clemens and Michael Wither) that’s been getting a lot of attention because it provides some new empirical evidence of the negative employment effects of the minimum wage increases in 2007, 2008 and 2009. And in addition to reducing employment opportunities for low-skilled workers, the researchers found that minimum wage increases also significantly reduced those workers’ upward, economic mobility to higher paying jobs by reducing “access to opportunities for accumulating work experience.”
Translation: If you’re not working, or your hours have been reduced, or your on-the-job training is reduced because of the 41% minimum wage hike, you’re not acquiring the job skills and experience that would allow you to move to a higher-than-minimum wage job over time. Here’s the paper’s conclusion:
We investigate the effects of recent federal minimum wage increases on the employment and income trajectories of low-skilled workers. While the wage distribution of low-skilled workers shifts as intended, the estimated effects on employment, income, and income growth are negative. We infer from our employment estimates that minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point between December 2006 and December 2012. As noted above, this accounts for 14 percent of the national decline in the employment-to-population ratio over this period.
We also present evidence of the minimum wage’s effects on low-skilled workers’ economic mobility. We find that binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings. This curtailment of transitions into lower middle class earnings began to emerge roughly one year following initial declines in low wage employment. Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience.
For an excellent, readable summary of the NBER paper, see this review by James Hamilton.
Most of the discussion and research on the minimum wage focuses on the negative employment effects of higher mandated wages, i.e. the negative effects on the demand for low-skilled and unskilled labor. The Law of Demand tells us that as the wage (price) of low-skilled/unskilled is artificially increased through legislation, the quantity demanded for those labor services by employers will fall. Period. Like in the NBER working paper above.
But there’s also an important supply-side effect of the minimum wage that receives much less attention, but significantly contributes to a higher jobless rate for teenagers and reduces the long-term job and career opportunities for that group of workers. The Law of Supply tells us that higher wages for unskilled and low-skilled workers will increase the quantity supplied of those labor services. One group of unskilled workers who are willing to supply more labor services following minimum wage increases are high school students who drop out of school to seek employment at the artificially mandated higher wage levels. The attraction to higher wages from minimum wage legislation reduces high school completion rates for some students with limited skills, who are then disadvantaged with lower wages and career opportunities over the long-run if they never finish high school.
Here are the conclusions from two different research papers that found empirical evidence of an upward sloping supply curve for unskilled high school workers and a positive relationship between minimum wage hikes and the number of students dropping out of high school.
2. “Minimum wages and skill acquisition: another look at schooling effects” by David Neumark and William Wascher (Economics of Education Review, 2002):
This paper takes another look at evidence on the effects of minimum wages on schooling, seeking to reconcile some of the contradictory results in recent research. We first examine evidence using CPS data from the late 1970s through the 1980s, a period that was characterized by many state-level minimum wage increases and received considerable attention from researchers studying minimum wages. In addition, we report results including data for the 1990s, in order to bring our estimates up to date. Our findings consistently point to negative effects of minimum wages on school enrollment, and indicate that these estimated effects are in general not very sensitive to how enrollment is measured in the CPS and are sometimes as strong or stronger using an enrollment measure that has been proposed in recent research. This bolsters the evidence of negative effects of minimum wages on enrollment from a number of recent studies, as well as some older ones, and counters claims that appeared to overturn at least some of this evidence.
Thus, our reading of the recent literature (including our work as well as that by Chaplin et al., 2002) is that the minimum wage reduces the proportion of teenagers in school. Moreover, our new evidence is consistent with our previous finding that increases in the minimum wage result in substitution by employers toward enrolled teenagers and in a significant increase in the proportion of non-enrolled teenagers without a job. Coupled with research on the effects of minimum wages on training, we regard the weight of the evidence as most consistent with minimum wages reducing skill acquisition among the young.
3. “Minimum wages and school enrollment of teenagers: a look at the 1990’s” by Duncan D. Chaplin, Mark D. Turner and Andreas D. Pape (Economics of Education Review, 2001):
In this paper we estimate the associations between minimum wages and high school continuation ratios over time and across states. We use data covering all public school students in the US. This provides us with much more precise estimates than could be obtained using data on samples of students. We find evidence that increasing the minimum wage lowers continuation ratios for grades 9–10 in states with drop out ages under 18. This suggests that these policies may have the unintended negative consequence of diverting some young people from continuing with their education.
The costs and benefits of changing the minimum wage through its effect on school enrollment depend in part on the benefits of working during high school. Chaplin and Hannaway (1999) show that high school employment may be beneficial in the long run, even if it increases the risk of dropping out, especially for at-risk youth. On the other hand, most students are probably much better off staying in high school even if they are working. For these reasons we believe that our results suggest that employment policies be adjusted to better ensure that teenagers remain in high school. Increasing the drop out age would be one means of accomplishing this goal. Indeed, this result is also supported by the work of Neumark and Washer (2003). Alternatively requiring parental and/or school permission for employment (as is often done for sports participation or forobtaining a GED) would be another way to ensure that teenagers are not taking too much time away from their education in order to work. Finally one could further restrict the hours that teenagers are allowed to work when school is in session. In any case, our results suggest that the trade-offs between employment and school enrollment for teenagers should be kept in mind when increases to the minimum wage are being considered.
Bottom Line: Despite what politicians and progressives might think, the laws of supply and demand, like the law of gravity, are not optional. Those basic fundamental economic laws can be ignored, but they can’t be avoided. Economic theory and empirical evidence tell us that higher mandated artificial minimum wages for unskilled workers will have predictable and unavoidable negative consequences for unskilled workers through reduced employment opportunities in the short run, and additional long-run adverse effects on long-term skill acquisition and educational outcomes, and ultimately reduced job and career opportunities. The three research papers summarized above provide empirical evidence for those negative demand and supply side effects of higher minimum wages.
Some thoughts about Eric Garner’s death, over-criminalization, the regulatory superstate and the violence of the state
View related content: Carpe Diem
Here are what I think are three examples of especially insightful commentary about the death of Eric Garner, and what it teaches us about over-criminalization, government force, police brutality, the regulatory superstate, and the violence of the state (emphasis mine).
1. J.D. Tuccille writing on the Reason blog, “Eric Garner’s Murder Reveals the Ugly Core of Government and Law Enforcement“:
And also, let’s be clear, because when you unleash armies of thugs on the population to enforce every petty law, they’re soon going to acquire an attitude. Eventually, telling a cop, “Please just leave me alone,” as Eric Garner told the cops rousting him, becomes an unacceptable act of defiance. It’s interpreted as an invitation to swarm a man suspected of selling handfuls of untaxed cigarettes and wrestle him to the ground.
You want a society taxed and regulated toward your vision of perfection? It’s going to need enforcers. Those enforcers are going to interact on a daily basis with people who don’t share that vision of perfection, and who resent the constant enforcement attempts. They’ll push back to greater or lesser extents. And the enforcers will twist arms in return to frighten people into obedience. People will be abused and some will die.
Government, at its core, is force. The more it does to shape the world around it, the more it needs enforcers to make sure officials’ wills are done. “The law is the law,” says New York City Mayor Bill de Blasio, but it’s creatures like him who make so much damned law. And then they send the likes of Officer Daniel Pantaleo to make sure we comply. Or else they might kill us.
2. Randy Soave also writing on the Reason blog “Listen Up, Liberals: Make Everything Illegal, Create More Eric Garners“:
Look, police brutality has many underlying causes. One of them is undoubtedly racism; black people are disproportionately arrested and imprisoned. Another cause is the police incentive structure. Police have far more legal protections than non-police. They can get away with so much more. It’s difficult—often impossible—to punish police for bad behavior, which gives the bad apples free rein to abuse people.
You know what’s also a cause? Over-criminalization. And that one is on you, supporters of the regulatory super state. When a million things are highly regulated or outright illegal—from cigarettes to sodas of a certain size, unlicensed lemonade stands, raw milk, alcohol (for teens), marijuana, food trucks, taxicab alternatives, and even fishing supplies (in schools)—the unrestrained, often racist police force has a million reasons to pick on people. Punitive cigarette taxes, which disproportionately fall on the backs of the poorest of the poor, contribute to police brutality in the exact same way that the war on drugs does. Liberals readily admit the latter; why is the former any different?
If you want all these things to be illegal, you must want—by the very definition of the word illegal—the police to force people not to have them. Government is a gang of thugs who are paid to push us around. It’s their job.
3. Jonah Goldberg writing for National Review Online:
When you pass a law, you authorize law enforcement to enforce it. That’s actually why they’re called “law enforcement.” New York City declared war on tobacco a long time ago, and in the process City Hall has become addicted to Brobdingnagian cigarette taxes. That’s why law enforcement is enforcing the laws against bootleg smokes.
Without laws making cigarettes more expensive, Eric Garner would be alive today, period.
In the war on tobacco, like the war on drugs, if politicians will the ends, they must will the means. This is something that libertarians understand better than everyone else: The state is about violence. You can talk all day about how “government is just another word for those things we do together,” but what makes government work is force, not hugs.
If you sell raw-milk cheese even after the state tells you to stop, eventually people with guns will show up at your home or office and arrest you. If you resist arrest, something very bad might happen. You might even die for selling bootleg cheese.
Everyone agrees: No one should die for selling bootleg cigarettes. But if you pass and enforce a law against such things, you increase the chances things might go wrong. That’s a fact, whether it sounds callous to delicate ears or not.
Despite China’s new status as the world’s no. 1 economy by one IMF measure, the US is still 74 years ahead on a per-capita basis
View related content: Carpe Diem
Over at Marketwatch, Brett Arends is making a big deal about the fact that on a “purchasing power parity” (PPP) adjusted basis, the International Monetary Fund (IMF) projects that China will produce slightly more economic output (GDP) this year ($17.632 trillion) than the US ($17.416 trillion). These IMF estimates supposedly mean that the US has officially lost its status as the “world’s largest economy,” a position it has held for 142 years, going back to 1872 when the US economy first surpassed the size of the UK economy. Here’s a shortened version of Arends’ article “It’s official: America is now No. 2″:
Hang on to your hats, America. There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet. It just happened — and almost nobody noticed.
The International Monetary Fund (IMF) recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.
Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.
This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights.
A few comments:
1. This really isn’t a new story, the IMF reported in early October that it expected China’s PPP-adjusted GDP to surpass US GDP this year, and Business Insider reported that on October 8. So it really didn’t “just happen,” and it’s really not true that “almost nobody noticed” – the Business Insider article was linked on the Drudge Report on October 9 and I posted about that article here the same day.
2. More importantly, this is not a “geopolitical earthquake” and there’s no reason that Americans need to “hold onto their hats” and feel bad about being No. 2. Reason? As I pointed out in my October post, the US is still almost 75 years ahead of China when we consider the more important measure of economic output per person. China and the US are both producing about the same amount of economic output this year, but China’s population is 4.25 times the size of the US population (1.355 billion vs. 319 million). Therefore, on a per-capita basis the IMF estimates that the US will produce $54,678 in economic output per person in 2014, which is more than four times the expected per-person GDP in China of only $12,893. The chart above shows that the US produced that amount of real GDP per person (about $13,000) back in 1940, almost 75 years ago!
3. Without making an adjustment for PPP and using market exchange rates, the IMF estimates that China’s economic output per person will be only $7,572 this year, equivalent to America’s GDP per person back in 1900 (see chart above).
4. It’s also important to note that without the adjustment for differences in purchasing power, China’s economic output this year will be only $10.355 trillion at current market exchange rates, or about 40% smaller than the size of the American economy. Realistically, it could take decades, if it ever does happen, before China would ever even come close to reaching the size of the US economy when measured traditionally at market exchange rates.
A recent Investor’s Business Daily article by Terry Jones (“No, China Hasn’t Overtaken U.S., And May Not Ever“) makes a similar point:
Not only has China not passed the U.S. [except on a PPP basis], but it’s quite possible it never will. China’s population growth is heading for a dramatic Japan-style collapse, which will slash economic growth dramatically in coming years. Growth has already slowed from 10% a year in the 1990s and 2000s to 7% — and it’s likely to fall further from there.
That’s not all. The real measure of a nation’s standard of living, productivity and, ultimately, the size of its economy is GDP per capita. What does that tell us about the difference between the U.S. and China?
This year, America will have per person output of $50,979 in real terms, China $5,947 [both in 2010 dollars using USDA data]. So the average American is nine times more productive than the average Chinese. So don’t panic. The U.S. isn’t No. 2, except in certain IMF statisticians’ minds. Nor will it be soon.
Bottom Line: China has made phenomenal economic gains over the last several decades to become the world’s largest economy on a PPP basis. It’s one of the most remarkable economic success stories in human history, and it only happened after China started adopting market-based reforms. China should certainly be congratulated for their rise to become the world’s largest economy by one measure. But before breaking out the champagne to celebrate China’s new No. 1 status and before Americans start to feel humbled about falling to No. 2, the chart above helps to put this all in perspective — on a per-capita basis the US is still 74 years ahead of China on a PPP basis and more than a century ahead of China at current market exchange rates.
Energy superpower ‘Saudi America’ has been the world’s largest petroleum producer for 22 months in a row
View related content: Carpe Diem
The Energy Information Administration (EIA) released new data yesterday on international energy production for the month of August, and here are some highlights of that update:
1. For the 22nd month in a row starting in November 2012, “Saudi America” took the top spot again in August as the No. 1 petroleum producer in the world. Also, for the 22nd straight month, total petroleum production (crude oil and other petroleum products like natural gas plant liquids, lease condensate, and refined petroleum products) in the US during the month of August at 14.16 million barrels per day (blue line in chart) exceeded petroleum production in No. 2 Saudi Arabia (11.66 million barrels per day, see red line in chart).
2. During the 2004-2008 period before America’s shale oil and gas boom started, Saudi Arabia routinely produced 2–3 million more barrels of petroleum products per day than the US (see blue arrow in chart). But since America’s shale revolution started around 2009 when America’s “petropreneurs” starting accessing oceans of shale oil and gas with revolutionary drilling and extraction technologies, there has been a surge of nearly 60% in the supply of petroleum produced in the US, and America surpassed Saudi Arabia at the end of 2012 to become the world’s No. 1 petroleum producer. In August, production of US petroleum products (14.16 million bpd) exceeded Saudi Arabia’s output (11.65 million bpd) by 2.5 million bpd (see red arrow in chart), which is the biggest difference in favor of the US during the 20-year history of international production data from the EIA (see chart).
Bottom Line: The EIA data on international petroleum production through August provides more evidence that America’s shale energy revolution is taking the US from “resource scarcity” to a new era of “resource abundance.” The shale revolution has remade the US into a formidable energy superpower and we now consistently produce a greater “total oil supply” than Saudi Arabia (by more than 2.5M bpd in August) and have led the world in total petroleum production for 22 straight months. This energy bonanza in the US — described as the “energy equivalent of the Berlin Wall coming down” — would have been largely unthinkable even six years ago. But then thanks to revolutionary drilling techniques that were developed by American “petropreneurs” and are “made in the USA,” vast oceans of shale oil and gas have been accessed across the country, making the US the world’s No. 1 petroleum producer for 22 months running.
Note: Based on the international oil production data released yesterday, Texas as a separate oil-producing country would have been the 6th largest oil-producing nation in the world for crude oil output in August at 3.24 million bpd – just behind No. 5 Canada’s production of 3.4 million bpd. In previous months, Texas would have ranked as the world’s No. 7 oil producer, but just moved up one place in the rankings in August when the Lone Star State surpassed Iran’s crude oil production for the first time.
Zenefits in Utah: A classic case of regulatory capture causing government to protect producers at the expense of the public interest
View related content: Carpe Diem
A recent ruling by the Utah Insurance Department to protect traditional brick-and-mortar insurance companies by banning online competition from innovative startup Zenefits provides a classic case study example of what Marc Andreessen described on Twitter as “regulatory capture causing government to penalize consumers for the benefit of incumbents.” Here are some background facts:
1. Zenefits offers a free, online HR platform for small businesses to manage payroll, hiring, and benefits like health insurance. Without any obligation, Zenefits also offers its users health insurance for a fee through its HR platform, and it has quickly become one of the fastest growing insurance brokers in the country.
2. Traditional health insurance brokers have complained to state regulators, arguing that Zenefits online platform is “unfair competition.” In three states – Texas, Wisconsin, and Washington – state insurance regulators have sensibly closed their investigations without taking action against Zenefits.
3. Unfortunately for small businesses in Utah, the state’s Insurance Department recently sided with the traditional insurance brokers against Zenefits. Utah’s insurance commissioner Todd E. Kiser (himself a former insurance broker with 25 years of experience) has issued a decision to shut down Zenefits in the state. In his ruling, Kiser cited the need to protect “fair competition,” and he argued that the “ease of using Zenefits” to purchase health insurance made it “unfair” to traditional insurance brokers.
In other words, it’s classic government-enforced protectionism that protects existing, incumbent high-cost industries from the competition of efficient, low-cost startup rivals. And it’s also a classic case of “regulatory capture” defined here as:
The process by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. Regulatory capture happens when a regulatory agency, formed to act in the public’s interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public.
It turns out the Utah insurance community doesn’t like competing with free, and the commission there is pushing back as a result. The letter from Kiser (embedded below) states that by providing free, up-front services to all, Zenefits is violating Utah inducement and rebating laws for those who choose to have it manage their insurance as well.
For violating those laws, the department claims Zenefits can be assessed a penalty of $5,000 per violation and twice the profit gained from those violations. But the penalty itself is a small amount compared to the change in its business model if the local insurance department were to have its way. To comply with state laws, the department is urging Zenefits to stop advertising that it offers free HR cloud management services. More importantly, however, the regulator argues Zenefits should have to charge a “fair market value” for its services to ensure fair competition with other insurance licensees in the state.
That’s not something Zenefits wants to do, of course, and the company says it will fight the department’s ruling in the courts to ensure it isn’t shut down in the meantime. Zenefits is also urging Utah Governor Gary Herbert to intervene as part of his commitment to support tech innovation in the state.
This is a perfect opportunity to invoke the timeless wisdom of French economist Frederic Bastiat, who wrote this in 1850 four days before his death:
Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.
Regrettably, Utah Insurance Commissioner Kiser has ruled against the interests of the human race and the citizens and businesses of Utah in favor of an entrenched special interest group, to the great overall detriment of his state. Hopefully, Governor Herbert will side with the public interest and with Bastiat.
An obvious, but overlooked reason for declining household income: the number of work hours per US household has been falling
View related content: Carpe Diem
In a recent CD post (“Have changing household composition and retirement caused the decline in median household income?“), I suggested that the decline in US median household income since around the turn of the century can be largely explained by demographic factors including: a) the significant increase in retired Americans as a share of the US adult population, and b) the changing composition of US households that increasingly includes more no-earner and single-earner households and fewer married and two-or-more-earner households. It’s an important point that most of the discussions and hand-wringing about declining US median household incomes completely ignore the demographic realities that the composition of American households is not static. US households in 2013 are significantly different from US households in 2000 in important ways (size, age, number of earners, hours worked, etc.) that affect household income, so we can’t accurately compare the $51,939 in median household income in 2013 to the much higher peak of $56,895 in median household income in 1999 (both median incomes are expressed in 2013 dollars).
In a recent Real Clear Markets op-ed (“The Obvious Reason for the Decline In Median Income”), economist Jeffrey Dorfman points out another very important demographic change that has significantly contributed to the decline in real median household income in the US over the last decade: the average number of hours worked per US household has been declining. So we would naturally and logically expect median and mean household incomes to decrease when average household work hours are falling. Here’s the opening of Jeffrey’s article:
Much has been made recently of the fact that real median household income has been stagnant over the past twenty years and falling for the past seven. While there are many problems with using median household income as a measure of the economic health of the middle class, it is still important to examine what is causing this middle-income stall. A major, and overlooked, part of the answer appears to be quite simple: Americans are working less.
As I pointed out previously (and as Jeff points out in his article), there’s been a significant demographic shift (along with the economic effects of the Great Recession) that has resulted in both smaller average households over time and a smaller percentage of Americans working in recent years, so that the average number of work hours per US household has naturally declined. And therefore, the very obvious, but overlooked conclusion reached by Dorfman is that: “When people and families work fewer hours, they earn less money.”
Following a procedure outlined by Dorfman in his article but using a slightly different dataset, the top chart above shows the relationship over time between annual US median household income (adjusted for inflation) and the average weekly work hours per US household in each year from 1980 to 2013. To calculate the average work hours per household, I used: a) the BLS series “Average Weekly Hours at Work in All Industries” (from Table 21 in this BLS report), b) the BLS series “Civilian Employment,” and c) the number of US households in each year from the US Census. Using the average weekly work hours and the number of Americans employed, the total number of hours worked annually were calculated and divided by the number of US households in each year to determine the average number of weekly work hours per household in each year from 1980 to 2013, and those values are represented by the red line in both charts above.
As can be seen in the top chart, the 8.7% decline in real US median household income between the 1999 peak ($56,895) and 2013 ($51,939) was accompanied by an even greater 9.25% decline in average household hours worked. As Dorfman points out, household work hours are calculated here and in his analysis as an average (mean) and not a median, “so it is not the perfect match to median household income, yet the insight revealed is still rather remarkable.” In fact, a simple linear regression reveals that almost 89% of the decline in median household income between 1999 and 2013 can be explained by the decline in average household work hours, so there is a very strong statistical relationship between median household income and average household hours worked, as expected.
The bottom chart above addresses the mis-match between median household income and average weekly household work hours by comparing average annual household income from 1980 to 2013 to the average number of work hours per US household. That chart shows that average household income has declined by 6% from the 2000 peak of $77,287 to $72,641 last year. During that same period, average weekly work hours per household declined by more than 10% from 48.3 to 43.3 hours. Like before, the results of a linear regression model show that 88% of the decline in average household income between 2000 and 2013 can be explained by the decline in average household work hours.
Further, about one-third of the 10.25% decline in average household work hours between 2000 and 2013 can be explained by the 3.1% decline in average household size during that time period from 2.62 to 2.54 persons. The remaining 7% of the decline in average household work hours since 2000 would be explained by other demographic changes including an aging US population with more Americans in retirement as a share of the population, and the shift towards more (fewer) single-earner (multiple earner) households. And there could also certainly be economic effects from the Great Recession that put downward pressure on average hours worked especially in 2008, 2009 and 2010, although that trend has reversed slightly in the last few years. There could also be a downward “Obamacare effect” on average hours worked that started in 2013 when many companies reduced workers’ hours below the 30-hour-per-week threshold to avoid the employer mandate to provide health insurance for full-time employees.
Here’s Jeffrey’s conclusion:
Middle class incomes are not growing as fast as most people would like because middle class families are working fewer hours. Possible policy prescriptions could include pro-business moves to increase hiring or pro-work moves such as making the social safety net somewhat less comfortable than it has become over the past five to ten years. Either way, it seems clear that the major problem restricting faster growth in household incomes is not income inequality, nor corporate greed, but a basic lack of people working.
And to that I would add that in addition to the economic factors that have contributed to a decline in average hours worked in recent years, e.g. involuntary part-time employment because workers can’t find full-time employment due in part to Obamacare, there are other important long-term demographic trends that can also explain declining household work hours and therefore declining household income. Specifically, the composition of US households is changing over time due to the natural consequences of an aging population and an increasing share of households with retirees, along with more (fewer) single-earner (multiple earner) households that reflects an ongoing trend of smaller US households dating back to at least WWII – and those factors can’t be ignored when discussing trends in US household income.
View related content: Carpe Diem
1. Chart of the Day I. Between January 2011 and 2014 (through October), there have been more single-family building permits issued in Houston (117,415) than in the entire state of California (117,291). That huge difference in home building at least partly explains the 2X difference in median home sales prices in October: $382,000 in California vs. $192,000 in Houston.
2. Chart of the Day II. Another US energy milestone: Crude oil production in November topped 9 million barrels per day (bpd) for the first time since March 1986. At the current pace, daily US oil output is on track to hit the 10 million barrel milestone by the fall of 2015 and surpass the previous all-time record high production of 10.04 million bpd in November 1970.
3. Economic Updates: a) Online Labor Demand Rose to a New All-Time Record High in November for Both Total Ads and New Ads (from the Conference Board), b) Staffing Employment for the Week of Nov. 17–23 climbed to an all-time record high of 106.96, according to the ASA Staffing Index, c) the Restaurant Performance Index Surged in October to the Highest Level Since 2004 (from the National Restaurant Association, see chart above), and d) US auto sales in November (17.2 million units at a SAAR) were the highest for the month since 2003.
4. Interesting Economic Facts: a) 300+ Hours of Video are Uploaded to YouTube Every Minute (source), b) the US has enough natural gas to provide the United States with electricity for 575 years and to fuel homes heated by natural gas in the United States for 857 years (source), and c) Nationwide, there are almost two unemployed workers per job opening, while in booming North Dakota at the heart of the US shale oil revolution, there are two job openings per unemployed worker (source).
5. Markets in Everything: a) Shortcut is an on-demand grooming service for men that brings a barber to your home, office or hotel room (“Uber for hair”), b) uberESSENTIALS delivers the everyday items you need in 10 minutes or less, c) uberPOOL launches today in NYC and the ride-sharing services says its new carpooling option could eventually take more than 1 million cars off the road, d) NYC bans cell phones in public schools, so there’s a booming cell phone storage business (via Marginal Revolution), and e) Cable-free elevators move you in any direction – vertical and horizontal (ht/Hitssquad).
6. Quotations of the Day, from Thomas Sowell:
a) It is amazing how many people think they are doing blacks a favor by exempting them from standards that others are expected to meet. (Source)
b) The time is long overdue to stop looking for progress through racial or ethnic leaders. Such leaders have too many incentives to promote polarizing attitudes and actions that are counterproductive for minorities and disastrous for the country. (Source)
7. New Wave of Creative Destruction. TV viewers are abandoning traditional broadcast and cable networks for online streaming services, and new devices in their living rooms are making it easier for them to cut the cord. (Source)
8. Street Car Craziness: a) Warren Meyer says, “I love the phrase ‘modern street car.’ Like an up-to-date stagecoach,” and “My best guess is that these kinds of projects have become prestige projects for government officials. This is the way they show off to each other and act as a portfolio for them to seek larger jobs in bigger cities,” and b) Steve Hayward writes, “After the fetish for renewable energy that’s expensive and intermittent, the greatest fixation of the utopian left is mass transit, especially light rail—a 19th century technology for 21st century mobility needs.”
9. Video of the Day I. The Mackinac Center reports below on several disturbing examples of how Michigan police confiscated the private property of innocent citizens and froze their bank accounts without ever making an arrest or charging them with a crime. These unconstitutional cases of civil asset forfeiture abuses come to us as a direct result of America’s senseless, expensive, and immoral War on
Drugs Otherwise Peaceful Americans.
10. Video of the Day II. Reason reports below that “When San Francisco Stopped Prosecuting Drug Users, Violent Crime Went Down.”
Texas oil topped 3M barrels per day again in September; as a separate nation it would be world’s 6th largest oil producer
View related content: Carpe Diem
The Energy Information Administration (EIA) released new state crude oil production data last week for the month of September, and one of the highlights of that monthly report is that oil output in America’s No. 1 oil-producing state – Texas – continues its phenomenal, eye-popping rise. Here are some details of oil output in “Saudi Texas” for the month of September and the economic impact that production is having on the state’s economy:
1. For the fourth straight month starting in May, oil drillers in Texas pumped out more than 3 million barrels of crude oil every day (bpd) during the month of September. The 3.25 million bpd in September was the highest daily oil output in the Lone Star State in any month since at least January 1981, when the EIA started reporting each state’s monthly oil production (see chart above). Texas reached the two million barrel per day oil production milestone in August 2012, and has since added a million more barrels of daily oil production in less than two years to reach the three million barrel milestone in May of this year. Compared to oil production a year ago, Texas posted a 22.8% increase in September marking the 41st straight month starting in May 2011 that the state’s oil output has increased by more than 20% on a year-over-year basis.
2. Remarkably, oil production in the Lone Star State has more than doubled in less than three years, from 1.59 million bpd in October 2011 to 3.25 million bpd in September of this year (see chart above), and that production surge has to be one of the most significant increases in oil output ever recorded in the US over such a short period of time. A 1.66 million bpd increase in oil output in only 35 months in one US state is remarkable, and would have never been possible without the revolutionary drilling techniques that just recently started accessing vast oceans of Texas shale oil in the Eagle Ford Shale and Permian Basin oil fields. As I have reported before on CD, the Eagle Ford and Permian Basin oil fields in Texas are now each producing crude oil at a rate of more than 1 million bpd, joining an elite international group of only ten super-giant oil fields in the world that have ever surpassed the one million barrel per day production milestone at their peak level of output.
3. The exponential increase in Texas oil output over roughly the last three years has completely reversed the previous, gradual 28-year decline in the state’s conventional oil production that took place from 1981 to 2009 (see arrows in chart) – thanks almost exclusively to the dramatic increases in the state’s output of newly accessible, unconventional shale oil.
4. As recently as mid-2009, Texas was producing less than 20% of America’s domestic crude oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale and Permian Basin oil fields of Texas, thanks to breakthrough drilling and extraction technologies, has recently pushed the Lone Star State’s share of domestic crude oil all the way up to more than 36% of America’s crude output for the last five months, and almost 37% in September.
5. Updated 12/4/2014 based on new EIA data: Oil output has increased so significantly in Texas in recent years that if the state were
considered as a separate oil-producing country, Texas would have been the 6th largest oil-producing nation in the world for crude oil output in August (most recent month available for international oil production data) at 3.24 million bpd – just behind No. 5 Canada’s production of 3.4 million bpd. In previous months, Texas ranked as the world’s No. 7 oil producer, and just moved up one place in the rankings in August, when it surpassed Iran’s crude oil production for the first time ever.
6. The dramatic increase in Texas’s oil and gas production is bringing jobs and economic prosperity to the state. For example, over the last 12 months through October, payroll employment in the state of Texas increased by 421,900 jobs – the largest 12-month job gain in state history – and that represented a 3.74% annual payroll increase, almost double the 1.93% increase in total US payrolls over that period. With only 8.4% of the US population, Texas created 16% of the new US payroll jobs over the last 12 months through October.
Every business day over the last year, more than 1,600 new jobs were created in the Lone Star State, and many of those jobs were directly or indirectly related to the state’s booming energy sector, which experienced an 7.8% increase in payrolls for oil and gas extraction jobs (8,200 new jobs) over the most recent 12-month period through September. Oil and gas companies in Texas hired nearly 32 new employees every business day over the last year just for extraction activities, or almost 4 new hires every hour!
MP: The significant increase in Texas’s oil production over the last several years is nothing short of phenomenal, and is a direct result of America’s “petropreneurs” who developed game-changing drilling technologies that have now revolutionized the nation’s production of shale oil. Thanks to those revolutionary technologies, Texas is now home to two of only ten super-giant oil fields in the world to ever produce more than 1 million barrels of oil per day – the Eagle Ford and Permian Basin.
For oil output in Texas to increase from 2 million to more than 3 million bpd in less than two years, and increase so dramatically that the state now produces almost 37% of US oil, is undoubtedly one of the most remarkable energy success stories in US history. At the current pace of annual increases of more than 20%, daily Texas oil production is on track to surpass the 4 million barrel milestone by August of next year. With those projected increases in Texas oil output, the state could soon surpass Iran and even Canada to move up in the international oil production rankings to become the world’s No. 5 oil producer in 2015.
“Saudi Texas” continues to be the shining star of The Great American Shale Boom.