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By Dave Oberting

In a July 18th press release, the Vincent Gray administration announced that the unemployment rate in the District dropped 0.1% — from 7.5% to 7.4%. This number is known as the U3, or headline, unemployment rate. It has declined steadily, if slowly, since the bottom of the recession.

However, the U3 rate tells only part of the story with regard to the true unemployment situation in the District. The full picture is more dire and requires a more muscular policy response.

If you dig deeper into the unemployment figures, here’s what you’ll find:

As mentioned, the headline rate is 7.4%. This rate represents only the total number of DC residents, as a percentage of the civilian labor force, who are unemployed and actively looking for a job.

This rate leaves out two important categories of DC residents — those who are working part-time involuntarily and those who have given up looking for a job altogether out of frustration.

These categories are captured in what’s known as the U6 unemployment rate. It incorporates these two categories and provides a more complete, but still somewhat deceiving, picture of the District’s unemployment situation.

The U6 rate is published quarterly, not monthly, so as of the end of Q1, the U6 rate for the entire District was 13.9%. This rate, however, is not spread evenly throughout the District. High income wards like 2 & 3 have virtually no unemployment at all, as evidenced by their respective 3.3% and 1.7% U3 unemployment rates.

The District doesn’t currently calculate the U6 rate by wards, most likely because the Bureau of Labor Statistics doesn’t generate a large enough sample size. Having a better understanding of the U6 rate is important enough to warrant the District conducting its own monthly survey to assemble this data.

Below, we present what we believe to be a more accurate analysis of the true unemployment picture in the District.

**Note: At the time of this writing, 8/14/14, the only ward level unemployment data available on the DOES website is from 2012. This is odd because more up to data has been released since then. It appears DOES has taken this data down for some reason. We have December, 2013 data posted on our website, which we’ll use for this exercise.

U3 Rate as  of December 2013

W1 = 5.9%

W2 = 3.3%

W3 = 1.7%

W4 = 5.5%

W5 = 9.4%

W6 = 6.9%

W7 = 11.6%

W8 = 17.7%

Estimated U6 Rate

The District’s U6 rate is 87% higher than its U3 rate. We used that ratio (1.87:1) to calculate our estimate of the current U6 rate by wards:

W1 = 11.03%

W2 = 6.17%

W3 = 3.18%

W4 = 10.33%

W5 = 17.65%

W6 = 12.90%

W7 = 21.78%

W8 = 33.24%

While these numbers are estimates, they do offer a more realistic picture of unemployment in the District.

The combined 27.51% U6 rate east of the Anacostia river, as well as Ward 5’s 17.65% rate constitutes an unemployment emergency bordering on a crisis in the predominantly African-American portions of the District. It cannot continue indefinitely. These issues require a more serious response by a serious DC government.

We should also pay attention to the quality of the jobs being created in the District. Nationally in June, the majority of jobs created across the country were part-time jobs. Specifically 500,000 full-time jobs were lost and 800,000 part-time jobs were created. There is no reason to think the District is different from other jurisdictions.

Also note this 2013 State of Downtown Report - 2013 State of Downtown – All Sections, published bt the Downtown Business Improvement District. It claims that there has been no significant growth in DC private employment since August. The report covers only downtown, but if there is no job growth there, what does that mean for the rest of the District?

We already produce too many low-skill, low-wage jobs in the District and not enough middle-skill, middle wage jobs. This situation cannot be rectified without faster economic growth.

The District’s economy actually contracted by .005% in 2013 from $105.99 billion to $105.47 billion. There is no reason to believe we’ve emerged from that recession this year. The District government must implement policies that are more conducive to faster economic growth. That is the only way we’ll create the numbers and kinds of jobs required to address this crisis. Better educational opportunities and better job training are important longer-term goals, but the immediate priority is an economy that grows faster and the  job creation that comes with it.

Dave Oberting is the executive director of Economic Growth DC, a political and economic advocacy organization focused on the District and its economy. Follow him on Twitter @GrowthDC or email him at dave.oberting@economicgrowthdc.org.

 

 

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By Dave Oberting

A “corporate inversion” takes place when an American company merges with a foreign enterprise and reincorporates in that company’s home country in order to minimize its U.S. tax bill. This is driven primarily by our country’s unwillingness or inability to reform at least the corporate tax code. U.S. corporate marginal tax rates are among the highest in the world. While inversions are an unfortunate development, the maneuver was entirely predictable based on our current tax code. There are however, more pernicious forces at work, which we’ll explore below.

The inversion problem will not be solved by coercion. What we need to do in the short run is make the U.S. a better, easier and less expensive place to do business. We’ll improve the business climate by completing a real tax and regulatory overhaul. This may require one party control of Congress and the White House, but it shouldn’t. Anyone who’s been following along knows the outlines of a successful deal — broader base, lower rates, no loopholes, fewer exemptions. The regulatory piece would include reform of our immigration system to prepare for the day when we have a deficit of working age residents. A functional and more effective Congress would recognize the long-term risks and act with some foresight.

There is a longer-term trend loosely linked to corporate inversions that has larger implications and is potentially far more dangerous than a few inversions: as this article by Dr. George Friedman at Stratfor points out, what many have called the “hollowing out of the middle class” is real and it may be happening faster than we think. We think it also represents a hidden rationale for moving overseas.

Through the elimination of millions of good jobs here in the U.S. due to automation and globalization, the median U.S. wage has declined by $4,000 to $49,103 since 2000. The median means half of incomes are above that figure and half below. This in turn means many millions of households have slipped into the lower-middle class or worse.

Median Income Chart

It’s possible within a decade or two that we could have a majority of U.S. households that are unable to afford the amazing assortment of high-value products and services U.S. companies make — from financial services products, to cars, to smart phones. We could be on the road to a significant degree of cannibalization of what is currently the largest consumer market in the world. If the purchasing power of that market is substantially diminished, it becomes less important to U.S. companies and the need to be U.S. based declines.

If you’re GE and you sell a lot of washing machines, but the number of washing machines you sell in the U.S. is declining, but skyrocketing in Asia, Singapore becomes a comparatively more attractive place to base your business. Companies want to be close to their most important customers.

So it seems, in the long run, globalization, automation and the managerial revolution that’s taken place over the last thirty years that has made American producers dramatically more efficient and productive, has seriously damaged its largest market. This could provide an additional incentive to American companies to move out of the country.

How do we rectify the situation?

Here’s an answer we give quite frequently: with the faster economic growth that’s required to create the number and kinds of middle-income jobs we’ll need in the first half of the 21st century, a radically improved and employer-driven job training system, and much more dramatic gains in all forms of education — K-12, higher ed, technical training, vocational education, apprenticeships and other forms work-driven education.

Education and workforce development are core government functions. We must get much better at providing more Americans with the knowledge, skills and abilities required to to earn a real middle-class wage.

We should also remember the wisdom of Henry Ford. He paid his employees enough so that they would be able to afford the cars his company made. There’s no way to coerce employers into paying higher wages — the minimum wage is not even close to a real living wage — but, if our education and workforce systems produce citizens that are prepared for and capable of higher-skill work, the good jobs will be there.

Loss of Middle Income Jobs

As to the question of how corporate inversions might impact DC, most of our largest private sector employers are healthcare companies and government contractors. It will be much more difficult for them to invert, but it’s not outside the realm of possibility especially if we don’t change course.

Dave Oberting is the executive director of Economic Growth DC, a political and economic advocacy organization focused on the District and its economy. Follow him on Twitter @GrowthDC, and write to him at dave.oberting@economicgrowthdc.org.

 

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By Dave Oberting

The real unemployment rate in certain parts of the District is over 30%. This may sound fantastic to some, but it’s a realistic estimate. Hands down, the most important issue in November’s mayoral election is jobs – especially jobs in the predominantly African-American parts of the city. For that matter, the second and third most important issues are jobs and jobs — especially good, middle-class, middle-income jobs that we don’t’ seem to be creating much at all anymore.

News flash: you are not qualified to be the Mayor of Washington, DC if you cannot articulate how and why a job gets created. You are also not qualified to be the mayor of DC if you cannot, or will not, lay out a concrete set of policies that you will implement to enable faster private sector job growth.

This may sound strange, but a job normally only gets created as a last resort. When the demand for your company’s product or service exceeds your ability to deliver that product or service with existing resources, that business owner is forced to make one of the following decisions: a) turn away business; b) improve the productivity of existing staff — through a more efficient process or the implementation of technology; or c) hire a new worker.

Job creation Just Ahead

A typical business owner is loathe to turn away business, but they will only hire a new worker when they’ve maxed out productivity gains. Job creation only occurs when demand cannot be met by gains in productivity. It’s not good enough to have an economy where demand narrowly exceeds supply. It has to be growing fast enough to outrun gains in productivity for serious job growth to take place. Since 2013 in the District of Columbia, it has not.

If job creation is driven by increased demand, shouldn’t the District government be spending the majority of its time and efforts encouraging and facilitating growth in what the economists call aggregate demand? A would-be mayor must have a plan for doing exactly that. The next time you see a mayoral candidate on the street, ask them how they intend to stimulate aggregate demand. The answer will tell you a lot.

In times of economic trouble, the Keynesian school of economics calls for the government to stimulate demand by pumping borrowed money into the economy through deficit spending. Economists have argued about whether deficit spending stimulates demand/job growth ad nauseam, but in the District, the argument is moot. We are required by law to spend no more than we bring in each year.

Then what is left for a municipal government to do? Simple. Restore the confidence of the electorate. Yes, we said confidence. Give both businesses and consumers a sense of reassurance that it’s safe to invest and spend.

The District’s economy contracted in 2013 for a couple of reasons. The definition of a contraction is that that economic output declines from one period to the next. The District’s economy produced $520 million less in 2013 than it did in 2012. We attribute this partially to the government shutdown, but it seems the average District consumer was not convinced that tomorrow will be better than today. It also seems the average business was not convinced that demand for its goods and services tomorrow will exceed the demand for them today.

This caused both to pull back in 2013 — consumers on spending and businesses on investment. We call that a shortfall in aggregate confidence. The real danger is these processes feed on one another and can spiral in the wrong direction.

For the District’s economy to right itself, both businesses and consumers must have confidence in the new mayor’s stewardship of the economy. A would-be mayor has no chance of restoring that confidence if they cannot articulate a credible plan for accelerating economic growth and the faster job growth that comes with it.

Consumers and businesses want a mayor with the knowledge and experience that’s necessary to manage a $106 billion economy. Businesses want to be assured that the new mayor will protect them from the imposition of additional burdens and mandates, and consumers just want to know that things are getting better.

Should we trust that one of the major mayoral candidates has what it takes? Not until they can lay out a platform credible enough to inspire the magic word – C-O-N-F-I-D-E-N-C-E.

We're Hiring

 

Dave Oberting is the Executive Director of Economic Growth DC, a non-profit political and economic advocacy organization focused on the District. Follow them on Twitter @GrowthDC.

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Executive Director Dave Oberting comments on the ongoing Taxis v. Uber battle here in the District in this WUSA9 story by reporter Mola Lenghi.

**************

Economic Growth DC likes to participate in the Uber vs. Taxi industry war because we see it as a proxy for a larger debate over how we regulate in a time of technological disruption.

The primary conflict in the District arises from the DC Taxicab Commission misconstruing its role as a regulator. Taxi commissioner Ron Linton has been quoted in the past claiming that he has an industry to “protect.”

But that’s just not the proper role of a regulator. A regulator’s job is to protect consumers by maintaining a level playing field and providing them the benefits of choice and competition. Rather than smothering Uber like Kurt Vonnegut’s Harrison Bergeron, they should throw out the rule book for taxis and start over.

The regulatory architecture that governs our taxi industry was created decades ago. It’s no longer relevant in a modern age. They should try again to develop a framework that frees the taxis to compete on equal terms.

Uber v. Taxis is today’s battle, but what happens in six months when the automation of the District’s restaurant industry blows up? A restaurant with iPads on every table requires a wait staff about half the size of a store without them. Want to see the rate of automation double? Triple the tipped minimum wage like activists want and the transition will move into overdrive.

And wait till the driverless car gets here in earnest. It’s only a matter of time before they become so proficient and so safe that they won’t require a human in the front seat. At that point ALL taxi drivers, ALL Uber drivers, and two million long haul truckers become obsolete.

We’ve been substituting technology for labor since the invention of the wheel. 150 years ago, 80% of Americans worked in agriculture. Through automation, it’s down to 2%, and that’s been remarkably good for society. It has freed up millions of Americans to pursue more productive activity — including the invention of technology like Uber. Silicon Valley would not exist without the plow horse.

As we’re seeing around the world with ridesharing, governments can slow these developments for a while, but they cannot be stopped. Technology wins in the end.

So, for us at Economic Growth DC, the question is what do you do about it?

There are two imperatives:

We must have a local economy that grows significantly faster than it has for the last decade. A faster growing economy is the only means by which we create the number and kinds of jobs (at all skill levels) that we’ll need to replace those that are automated. As a taxi job goes away, we have to be able to create another middle-class job that provides equal or greater pay — like a technically skilled  job maintaining and repairing driverless cars.

And, we must dramatically (and quickly) improve the way that we educate and train our workforce so that they are properly prepared for the middle-wage jobs that will exist in the first half of the 21st century. This means doing everything better: K-12, vocational education, technical education, apprenticeships and employer-driven job training programs that prepare people for the future, not the past.

It’s either going to be Xanadu or Thunderdome, but we get to choose.

 

 

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Let’s start with what we don’t mean by this statement. We are not advocating for the wild wild west. We don’t agree with an uber-libertarian philosophy that contends that all regulation is bad. We’re not advocating for a return to the 19th century.

In fact, we’re advocating to move our regulatory framework into the 21st century. It needs to be modernized. And what we mean most when we say modernized is simplfying it and making it easier to understand and comply with.

A perfect example of a poor regulatory system that cries out for modernization is what has transpired in DC and globally with the taxicab industry and Uber. The regulatory regime that manages the taxicab industry in the District is decades old — created before the internet and smart phones. It is in no way prepared for the technological innovations yet to come.

The system of minutely mandating every inch of what a taxi must look like and every moment of a cabbie’s day was built for a bygone era and it’s rendered the taxicab fleet uncompetitive. Taxi regulation desperately needs an overhaul. Taxicab owners and drivers need to freed from the straitjacket that inhibits their ability to innovate and create value for their customers.

Good Design & Regulation is as Little as Possible

Click to enlarge.

What does that new regulatory framework look like? We’re not sure, we’re not regulatory experts, but we’ll bet it’s going to be simpler and less burdensome.

The taxicab/Uber drama is but one example of a regulatory system that adds unnecessary costs, puts burdens on commerce, is a drag on economic growth and one that ultimately benefits no one.

“Less but better” — Dieter Rams

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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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The Economic Growth DC Foundation is pleased to announce the creation of the Modern Entrepreneurship Project. It is a micro-finance/micro-enterprise program designed in partnership with 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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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