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By Dave Oberting

The true unemployment rate is known as the U6 rate. This figure includes all the people who are unemployed and looking for a job, plus the individuals who are working part time involuntarily, plus the people who have given up looking for work altogether out of frustration. The District doesn’t publish this rate by ward, but we estimate it to be in the 35-40% range east of the Anacostia river.

Cutting that rate in half is one of Economic Growth DC’s primary goals. It is fundamental to the District’s goal of widely shared prosperity. A significant percentage of the unemployed population east of the river are ex-offenders. Coming up with solutions to the problems that returning citizens face in reintegrating into the workforce is a necessary prerequisite for accomplishing that goal.

There are several strategies floating around for addressing this problem, some good, some bad. One of those efforts, called “ban the box,” is an especially counterproductive tactic.

The problem with ban the box is that it’s a symbol, not a solution. For the uninitiated, “ban the box” is a provision in a law being considered by the DC City-Council that would make it illegal for an employer to ask about criminal convictions on a job application. It offers the appearance of helping those with criminal convictions obtain employment, but it reality, it will do the opposite.

Not a single returning citizen will gain employment because of this provision. In practice, it will lead to less hiring, and the provision may jeopardize progress on other, more important measures designed to help returning citizens re-integrate into the workforce.

Ban the box will create the perception among employers that it is more risky to hire anyone. When something is perceived to be more risky, you get less of it. When hiring becomes more complex and expensive, many employers simply choose not to hire.

The negative impact ban the box will have on hiring generally will be quantifiable, and sadly, it will hurt the group of people it purports to help.

The authors of the bill claim that they are not exposing District employers to additional liability, but the perception will be that the District is asking private employers to take on significantly more risk when hiring anyone. These provisions will also add so much uncertainty to the hiring process that an employer might have to consult a lawyer every time they want to hire someone, which will further deter employers from hiring.

We are also concerned that ban the box is only the first step in an attempt to ban criminal background checks altogether. In terms of its destructive effect on job creation, this is the worst possible approach. There is evidence, as described in the study attached, that employers who conduct criminal background checks are considerably more likely to hire African-American men than employers who don’t. It is unfortunate that stereotyping plays a role in this effect, but a lack of the full picture and risk profile of a potential hire causes hiring managers to take steps they wouldn’t otherwise take.

If an employer can check a criminal background, they are reassured that the record is clean, or they know what the offenses are and can decide accordingly. Not knowing causes them to stereotype right from the beginning. In many cases employers will decline to even interview African-American men.

Two alternative approaches make more sense: One is to aggressively expand the number and kinds of offenses that can be sealed by court order. Right now in the District, you cannot seal any felonies, no matter the type or the age of the offense. We support the idea of sealing certain older, non-violent felonies through a court supervised process. Law enforcement would still have access to the information. A process like this would reassure employers because they’ll know any offense sealed has gone through a supervised process.

A second approach would involve the funding and creation of a job placement firm dedicated exclusively to the placement of returning citizens. It would have to be funded in a way that would allow the project to hire experienced, highly trained job placement professionals. The Economic Growth DC Foundation has proposed such a program called Operation Capstone. It proposes to place a minimum of 2,500 returning citizens per year into employment in the District area.

Reducing the unemployment rate east of the river is a District imperative. More aggressive record sealing in combination with an effective job placement program have a chance to succeed where other efforts have fallen short.

Perceived Criminality Hiring Study

Operation Capstone

Dave Oberting is the Executive Director of Economic Growth DC. Follow him on Twitter @GrowthDC

 

 

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IESC Logo                empowerdc-logo

 

The Economic Growth DC Foundation is pleased to announce the creation of the Modern Entrepreneurship Project. It is a micro-enterprise program designed in partnership with Empower DC, the International Executive Service Corps, and the Volunteers for Economic Growth Alliance.

If you or someone you know has a small business they’d like to expand, or a great idea for a business and they’re in need of technical, managerial, and financial support, encourage them to read and respond to our Request for Applications.

The document can be found here: Modern Entrepreneurship Project Request for Applications

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Accenture Logo Revised     Code4Life Logo

 

The Economic Growth DC Foundation’s Code4Life initiative is moving towards its launch. Code4Life is an after school program offering instruction in basic computer programming to middle and high school DCPS/Charter school students. For more information on the program, including how you can help, visit the Foundation’s website at http://egdcfoundation.org.

You can also read about the program here: Code 4 Life One Pager

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Operation Capstone Logo

 

Ban the box makes it illegal to ask a job applicant about criminal convictions until after a conditional offer of employment is made. It is an expression of frustration on the part of District policymakers about the poor job prospects that residents returning to the District from incarceration face. Unfortunately, ban the box is likely to aggravate the problem by making the hiring process more complex, confusing and expensive. There is a better option attached. Operation Capstone envisions the creation of a non-profit job placement firm that would do nothing other than place returning citizens into jobs.

See the business and financial plan for this project here: Operation Capstone

For more details, visit our charitable foundation’s website at http://egdcfoundation.org/programs.

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By Dave Oberting

The technical definition of a recession is two consecutive quarters of negative GDP growth. If DC were a country, it would be in recession.

Real GDP data (real GDP adjusts for inflation) from the Bureau of Economic Analysis indicates that the District’s economy contracted in 2013 to $105.47 billion from $105.99 billion in 2012. This $520 million decline over the course of four quarters in 2013 means that the District’s economy is technically in recession.

If DC’s economy had performed at its historical norm (2.25%) for the past decade, the economy would have increased to $107.84 billion. So while the paper loss was $520 million, the District actually dug itself a $2.5 billion hole.

Declining GDP

This revelation should sound alarm bells in DC policymaking circles.

An attempt will be made to blame the contraction on last year’s government shutdown, but that connection is murky. The shutdown certainly had an economic impact on the District’s economy, but how big that impact was is difficult to quantify.

Regardless of the final numbers, it is another glaring example of why we need to diversify our economy away from government spending. The District currently derives a whopping 35% of its economy from government spending. The national average among the 50 states is 11%.

The overall negative impact of the shutdown is likely to be small. It was a short shutdown and the District government stayed open. It’s highly improbable that the shutdown accounts for the full $2.5 billion in lost economic activity.

A more likely scenario for explaining the contraction is the deterioration of the business climate that’s been building for over a year now. When you combine an aggressive increase in the minimum wage with a completely redundant wage theft bill (which is really just a solution in search of a problem), and the incredibly destructive ban the box bill — just to name three — the District has dramatically increased the costs and risks of doing business here directly and in terms of compliance costs.

The activists behind both the wage theft bill and ban the box are seeking a right to sue DC businesses over small dollar amount disputes that can be easily resolved using the regulatory powers granted under current law. Should a private right to action be included, legal and liability insurance burdens will increase significantly — accompanied by an utterly predictable slow down in job creation.

All three of these initiatives leave significantly fewer resources available for investment in things like new restaurants, information technology, and most importantly — job creation. Factor in the fear and uncertainty of not knowing what’s coming next, and you’ve accounted for most of last year’s $2.5 billion drop..

Most importantly for the typical DC resident, this perception of increased risk and lack of confidence jeopardizes a resident’s chance of finding a new job. Employees are a business’s biggest asset and its biggest liability, often at the same time. When the cost of carrying an employee jumps, employers will either hire less, seek out more aggressive ways to automate processes, outsource more functions or a combination of the three.

Whatever the combination of factors is, the outcome for many DC residents will be catastrophic. And as usual, the worst consequences of bad public policy will be felt by low wage/low skill workers and other disadvantaged residents. In the case of ban the box, the community that will suffer most are African-American men.

All three initiatives will end up harming the various groups they purport to help. The minimum wage will hurt by restricting the number of minimum wage jobs available in the District. Wage theft and ban the box both create a perception that hiring anyone is more risky. When something appears to be more risky (in this case hiring), that thing happens less.

The minimum wage, the wage theft bill, and ban the box bill have all been championed by a relatively small group of activists with outsized influence at the Council. Each item has been in the works for well over a year. Some of those same activists are clamoring for an even more aggressive increase in the minimum wage.

Expectations of higher costs have forced businesses to adjust their plans for the future. In our conversations with business owners and managers, many of them have pulled back on plans for expansion. They have become much more cautious in making investment decisions and are seeking to reduce their risk exposure.

We also have no means of calculating the opportunity cost related to how many would be entrepreneurs chose not to start a business in the District in the first place over the past twelve months.

As mentioned, when something is perceived to be risky, you get less of it. In 2013, that translated into a decrease in economic activity. The way it will be manifested in 2014 is with a slower pace of job creation and reduced tax collections.

Ultimately, why it happened is less important than the fact that it did. The imperative is figuring out how to fix it and making sure it doesn’t happen again.

Fixing it requires the adoption of a broad based pro-growth strategy. The first item on that agenda is a Hippocratic oath for local politicians. A public promise by the Council and various regulatory agencies to do no additional harm to DC’s economy by imposing more burdens on DC businesses would be an important first step in restoring confidence.

Secondly, the District needs to be much more aggressive about reforming its regulatory regime. The Regulatory Reform Task Force did a laudable job in dealing with the regulatory issues under its purview, like business licensing, but we need to be considerably more assertive about removing the regulatory burdens that depress investment and hiring in the private economy.

Finally, the District should consider, right away, a more aggressive reduction in both business and individual income tax rates, and other fees associated with operating in the District. The District cannot print money. Keynesian stimulus is not an option. That means income tax rate reductions (even temporary ones) are the best tools the District has for stimulating economic activity. Now is the time to implement them before the downturn begins to feed on itself.

As far as individual rates are concerned, a broader rate decrease affecting all DC workers who pay income taxes and who benefit from the earned income tax credit would put a significant amount of money back in the pockets of  DC residents. Most of that money will be spent quickly at District businesses. A more aggressive business income tax rate reduction is considered by many economists to be the most stimulative economic policy a local government can enact. It quickly provides more income for investment and hiring.

The District has two options as it relates to what is technically speaking this recession: it can stay the course (which apparently includes regularly imposing more burdens/costs on local employers), or it can use this opportunity to move publicly, loudly and firmly towards a more growth oriented approach.

We’ve often said economic growth doesn’t solve every problem, but without it we’ll solve none of them. This is the perfect example. A recession can either be a time of panic, or it can present historic opportunities to make substantive changes in economic policy.

Let’s hope District policymakers grasp the urgency of the situation and seize the opportunity, as the fiscal impacts of this contraction will manifest themselves in 2014. We project that budget surpluses will be slim to non-existent this year. If surpluses do appear, the strongest case to be made is for returning that money immediately to taxpayers.

Dave Oberting is the Executive Director of Economic Growth DC, a political and economic advocacy organization focused on the District and its economy. Follow Economic Growth DC on Twitter @GrowthDC. Email Dave at dave.oberting@economicgrowthdc.org.

 

 

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The District of Columbia had a $109.4 billion economy in 2012. An astounding 35% of that economy was derived from government spending. The national average for the 50 states is about 11%. The District desperately needs to diversify its economy away from the federal government. Technology is the best path to achieving that goal for a couple of reasons:

Every high-paying technology position that’s created in the District subsequently leads to the creation of five related support positions such as waiters and landscapers. Technology is based almost exclusively on intellectual property and intellectual capital. This keeps startup costs low and operating expenses reasonable. It also doesn’t take up much space. The District is confined to 67 square miles of real estate and we are densely packed and getting denser.

Economic Growth DC plans to facilitate the growth of the District’s tech sector in a number of way. They are:

1) Policy advocacy and legislative opportunities. EGDC is primarily an advocacy organization, so we’ll be at the Council and in front of DCRA and other executive branch agencies promoting policies that are conducive to the faster growth of the technology sector.

2) Venture capital firm engagement and recruitment. EGDC believes that in order to exponentially grow the amount of venture capital invested in the District, we need to have the largest venture capital firms on the ground here pursuing investment opportunities. EGDC plans to spend part of its time recruiting the very biggest names in venture capital to the District.

3) Additive manufacturing. The District will never be a manufacturing hub. Our geography doesn’t permit it. However, we are in a position to capitalize on the birth of new industry: 3D printing, also known as additive manufacturing is an industry exploding all around country. We’ve recommended the District legislate ways to make it easier to start and build an additive manufacturing business in the District. It could provide tax incentives for the purchase of what is sometimes expensive pieces of equipment and it could make special provisions for the establishment of such businesses.

4) Technology business recruitment. We focus on making the District a better, easier and less expensive place to do business. These elements are a critical component of being able to recruit existing businesses to the District. We have the most highly educated workforce in the country. The amount of brainpower here is immense. Companies should want to tap into that as we make the District a better place to do business.

5) Building a pipeline of talent. In our conversations with technology entrepreneurs, they already talk about a shortage of top technology talent. They are having a difficult time recruiting coders, software engineers and other types of technology professionals — who also happen to be the people who start companies. This fall, our foundation will begin a program called Code4Life. It is an after-school basic computer programming class. Students will enter the program in 6th grade and remain there through high school. Our plan is that graduates from the program will be so skilled that there will be technology companies interested in hiring them immediately.

 

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Economic Growth DC’s principals went to business school. Writing a business plan is just part of the drill, but we’ve always been frustrated because almost no one reads past the executive summary. That’s probably because it’s usually 40 pages of words and charts. We’ve been looking for a mechanism to tell the story in a more concise and visually appealing way. We ended up with what amounts to a business plan consolidated into a three page chart. We think it does a good job of explaining the policy areas in which we work — technology, education, workforce development, and healthcare — and what we’re trying to accomplish. It details some of the programming we intend to run on the charitable foundation side of the house, plus details on how the 501(c)(4) will be organized and run. Please look it over and provide us with some feedback. Email any questions or comments to us at feedback@economicgrowthdc.org.

Economic Growth DC 1-2 Year Combined Business Plan 6-14

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Tax policy is the best lever a local government has for fostering faster economic growth. Council Chairman Phil Mendelson yanked on ours pretty hard.

Chairman Mendelson engineered an 11-2 vote in favor of a set of strategically vital business and individual income tax rate reductions.

The immediate benefit is economic stimulus. Thousands of DC residents will have more money in their paychecks for use at local businesses — more money to spend, save, or invest.

While the actual amounts of the cuts are not huge ($165 million) in the context of a $10 billion budget, they are gigantic symbolically. Half the DC population perpetually manages its spending and investment with an expectation that a tax increase is always right around the corner.

This move puts that fear to bed for the foreseeable future. It also provides the policy certainty on tax issues that businesses use to plan for future growth and investment. Decisions such as opening a new restaurant that might have remained on hold can now move forward.

The confidence a rate reduction instills in consumers, business owners and investors will be reflected in everything from consumer spending to business attraction and investment to hiring.

We should move quickly to capitalize. Maryland has been raising taxes for years. Virginia is not as favorable a tax climate as it appears on paper. Let the word go forth that the District is cutting taxes while its neighbors are raising them. The District just became an even more attractive place to live, work and play.  Let’s put some billboards up on the B-W Parkway.

Chairman Mendelson easily wins the award for the most pro-growth maneuver by a DC government official in recent memory. He should be commended for a bold move that will accelerate growth and benefit District residents for years to come.

We should also thank former Mayor Williams and his Tax Revision Commission’s work that led to these policy changes. Mayor Gray should also be congratulated. These changes would not have been possible without his decision to form the Commission in the first place.