Category Archives: Labor & workforce

The Case for a Regional Approach to Economic Development

warehouseby James A. Bacon

The economies of 17 Virginia localities and one North Carolina locality in the Hampton Roads region are more inter-related than they were 10 years ago. Almost two-thirds (more than 65%) of all workers in the metropolitan statistical area commute to jobs outside the jurisdiction where they live — up from less than 60% in 2005, according to a new report, “Our Jobs Are Also Your Jobs,” published by the Hampton Roads Economic Development Alliance.

That fact has profound implications for economic development strategy, argue the report’s authors James V. Koch and Vinod Agarwal with Old Dominion University. Political leaders of Hampton Roads jurisdictions act as if “the only really good economic development project is the one that is located squarely inside their own city our county,” they write. What that assumption overlooks, however, is the extent to which the economic impact — and benefits — are diffused throughout the metropolitan economy.

Koch and Agarwal gave the hypothetical example of a new warehouse facility built in Suffolk to serve the growing cargo business flowing through the ports in Norfolk and Portsmouth. Suppose that warehouse employs 250 people averaging $50,000 annual pay (including managerial salaries but not including fringe benefits). Here is how they predict those jobs, income and sales tax revenues would be distributed geographically.

diffused_impact

In this example, while Suffolk would enjoy the biggest impact, the benefits would be broadly distributed through the region. Suffolk residents would reap about one-third the jobs, income and sales tax revenues. Yet, to pick a different locality, the project also would create 20 jobs for Virginia Beach residents and generate $40,000 a year in additional sales tax revenues.

Moreover, the Suffolk warehouse would spend money on products and services from area businesses, which also would be distributed geographically.

“When more than 65 percent of individuals cross city and county lines to travel to their place of employment, it is inevitable that economic benefits will be widely diffused,” write Koch and Agarwal. “The moral to the story is that regional cooperation and regional economic development efforts make sense. … Parochial approaches to economic development are not likely to achieve great success — if success is interpreted to mean capturing the economic benefits that are generated by a new or expanded business. … The economic success of one city or county soon becomes another’s.”

Bacon’s bottom line: What applies to Hampton Roads applies to every other metropolitan region in Virginia. Nowhere in Virginia do political boundaries coincide with economic boundaries. From a regional perspective, economic development is best pursued as a regional enterprise.

Koch and Agarwal highlight an important insight, although they do overlook a critical facet of economic development that will not change without a dramatic re-write of Virginia’s tax code: The locality where a new warehouse, manufacturing plant or corporate facility locates captures 100% of the property tax revenue. Because property tax is the largest single source of local revenue in Virginia, local governments are highly motivated to see to it that a particular project lands within their boundaries. Unless subsidies are offered to attract the investment, such facilities are a big winner for the locality in question because business operations require little in the way of public services. Indeed, the fact that 2/3 of a company’s employees are located outside the jurisdiction means the locality in question is saddled with the cost of providing educational and other government services to only 1/3 of the workforce. Thus, ironically, the more economically interdependent the localities of a region are, the more local governments are incentivized to capture the tax benefits of bagging a corporate investment.

The only way to change that dynamic is to change the tax code to allow for (or require) the regional sharing of revenue from commercial and industrial property. And that will never happen because any change would create winners and losers, and the losers would fight like hell to thwart it.

But the Koch-Agarwal paper does make a sound argument for supporting regional economic development organizations like the Hampton Roads Economic Development Alliance. Fortunately, most Virginians get it, and a regional approach to economic development predominates in the Old Dominion.

Virginia Migration Patterns

Sources of emigration to the Washington metropolitan area.

Sources of emigration to the Washington metropolitan area.

by James A. Bacon

The U.S. Census Bureau has released inter-metropolitan migration data based on its 2009-2013 American Community Survey, and Luke Juday at the Stat Chat blog has created a tool allowing people to visualize the origins and destinations of people coming and leaving each metropolitan area. The results for Virginia’s metros, though hardly surprising, are nonetheless intriguing. Showing the linkages between metros, I would suggest, shows how inter-connected they are by ties of family, friends, education and business.

The Washington metropolitan linkages are, strongest by far with the major cities of the Northeastern megalopolis, particularly Baltimore, New York, Philadelphia and Boston, but the region does have fairly strong ties to Virginia, including Richmond, Hampton Roads, Blacksburg and Charlottesville as well. Washington’s ties to states south of Virginia are tenuous. Only Atlanta registers as an important node for back and forth movement.

The net immigration, not shown in the maps but displayed in the table below, also is revealing. New York, Boston and Phillie send far more people to Washington than they receive in return. But Washington exports people to Virginia — Richmond at the top of the list, followed by Blacksburg and Charlottesville. One suspects there is a strong university connection with Blacksburg and Charlottesville. The steady leakage of people from Washington to Richmond is an interesting phenomenon worth digging into.

metro_washington

The Richmond story is marked by strong linkages with the other metros in Virginia. While its total migration numbers are smaller than those of Washington, a metropolitan region five times its size, they are larger as a percentage of the population. The situation is reversed for movement between Richmond and New York, Chicago, Atlanta and Philadelphia; there is less movement than between Washington and those metros, even on a population-adjusted basis.

Sources of immigration to Richmond

Sources of immigration to Richmond

Richmond is a net exporter of population to Blacksburg and Harrisonburg, college towns, and a large importer from Washington, Norfolk and New York.

The one big surprise in this data: There was far less movement between Richmond and North Carolina metros than I expected. In my personal experience, Richmond is full of Tarheels (including my wife). I guess that anecdotal information doesn’t count for much.

metro_richmond2

I did not have time to develop comparable profiles for other Virginia metros, but if readers are inclined to do so, I would be happy to publish their analysis.

Purge the Algorithms

Ned Ludd

Ned Ludd

by James A. Bacon

It’s Labor Day, a suitable occasion for opining on the future of work…

One of the great questions of our era revolves around the impact of robotics and artificial intelligence on the job market. People have fretted about automation since the days of Ned Ludd, the knitting-frame wrecker. Machines have been replacing human labor on a large scale for more than two centuries now. Yet somehow the economy managed to generate more new jobs, and somehow our society has managed to become more productive and prosperous than ever.

Some say, this time it’s different. The nature of automation is changing.

My friend David Rafner refers me to an article in Space Daily describing how biophysicists are developing an algorithm for inferring laws of nature from time-series data of dynamical systems. The hope is that large-scale computing can spot patterns that elude mere mortals. If the biophysicists are successful, they will have made a huge advance toward Ray Kurzweil’s vision of the Singularity, in which computing power and AI exceed humans in intelligence, thus accelerating the rate of scientific discovery and the rate of technological development.

Machines first reduced the demand for physical labor; soon AI will reduce the demand for cognitive labor. Once those two sources of employment dry up, what’s left? While machines build the cars, plow the fields, manage the currency transactions and conduct the scientific research, what will humans do? Will we revert to a nation of artists, musicians, writers and craftsmen? Perhaps. David thinks there still will be room for philosophers and bloggers. But I’m not confident that the United States can accommodate 320 million philosophers and bloggers. Personally, I think the only occupational category that’s safe is politicians.

Work is so central to our culture — so essential to our standard of living, our status, our self-worth — one can’t help but fear will happen when the AI-enhanced robots take over. Who will control the wealth and power as robots (a form of capital) replace labor? Will the plutocrats rule? or will we distribute material blessings so that all of us are freed from drudgery and toil? And what would a life free from labor and toil be like? Would humans have any purpose? Would life have any meaning beyond the hedonistic pursuit of pleasure? Are we not destined for an existential crisis that will give rise to nihilism, thrill seeking and violence?

As much as I love my time away from paid toil, I see no substitute for work. Ned Ludd wrecked the knitting machines. Maybe it’s time to start purging the algorithms.

Amherst Ordinance Violates Basic Human Right

ex-conby James A. Bacon

I have little sympathy for criminals. I don’t buy into the Officer Krupke school of thought that people “are depraved on account of they’re deprived.” And I’m all in favor in getting tough on crime. But I also believe that once a criminal has served his sentence , government policy should be geared to making it easier, not harder, for him to find a job and reintegrate into society.

Employers are understandably reluctant to hire ex-cons for certain types of jobs, with the consequence that many employment opportunities in government, health care, education and finance are off limits. For some felons, the only employment opportunity is creating one’s own job.

But now comes Amherst  County, enacting an ordinance in May, that allows the Commissioner of Revenue to “withdraw the privilege of doing business or exercising a trade, profession, occupation, vocation, calling or activity by revoking a business license” for anyone convicted of a felony or crime of moral turpitude.

As Eugene Volokh, a California law school professor observes, “This isn’t limited to particular job categories and particular criminal histories (e.g., barring people with child sex abuse records from working in day care centers, barring people with recent DUIs from driving trucks, and so on). If the Commissioner wishes, anyone with the specified kind of conviction could essentially be disqualified from pretty much any job in the County.”

“This sort of discretionary control over people’s lives is not how a free country should work,” writes Volokh.

I agree whole-heartedly. Indeed, I would go further. The idea expressed in the Amherst County ordinance that the right to self-employment is a “privilege” revocable by government is reprehensible in a free society. The ability to freely sell one’s labor and/or skills in the marketplace is, or should be, a foundational human right. I can’t imagine what the Amherst board supervisors were thinking when they enacted this ordinance, but they need to repeal it immediately. And if they don’t, some one needs to file a legal challenge. This is an embarrassment.

(Hat tip: Tim Wise)

Virginia’s Maritime Future Is Now

The Northern Javelin, one of the new-generation container ships visiting the ports of Virginia. Photo credit: Virginia Business.

The Northern Javelin, one of the new-generation container ships visiting the ports of Virginia. Photo credit: Virginia Business.

by James A. Bacon

Virginia’s maritime industry has long anticipated the arrival of the new giant, post-Panamax ships, and now they’re here — a couple of years before they were anticipated, and well before the completion of the Panama Canal expansion that is expected to release the floodgates. As the East Coast port with the deepest channels, Hampton Roads is attracting more than its share. The leviathans pose special logistical problems but the maritime industry is working through them. Virginia Business has the story here.

As author Jessica Sabbath writes, the world’s largest ships can carry twice the number of containers that the big ships of 10 years ago could. These bad boys represent almost 60% of the shipping world’s total cargo capacity. Any port with growth ambitions will have to accommodate them.

The Ports of Virginia planned for the arrival of the big ships by digging 50-foot channels, the deepest on the East Coast, and erecting modern cranes that can reach across the wide-girthed vessels. But by virtue of their enormous size, the post-Panamax ships require more precision in their handling and scheduling. If Virginia’s ports can climb the learning curve faster than other ports, they can create an important competitive advantage even as rivals seek to deepen their own shipping channels.

The big ships must move more slowly to avoid damaging wake. They require especially high-powered tugboats to maneuver in tight quarters. Because the big ships take longer to unload, longshoremen work longer shifts. Even with longer shifts, the maritime industry has added more than 200 longshoremen to handle the increased cargo volume — which increased 8.8 percent to a record 2.5 million TEUs (equivalent to 5 million containers) in Fiscal Year 2015.

The movement of these giants through the ports and their containers through the supply chain creates issues of vessel bunching and equipment imbalance. Shippers often scramble to find available motor carriers. When bunching occurs — it can take more than 24 hours to transfer a container from the ship to a Norfolk Southern railroad train — shippers and motor carriers experience larger demurrage fees. These are the kinds of problems would expect anywhere in similar circumstances, and they take time to sort out. If the maritime community does so successfully, Hampton Roads could well enjoy years of growth and job creation.

Interestingly, one issue that Sabbath did not mention: roads. The McDonnell administration had feared that clogged roads would make it more difficult to ship containers out of Norfolk and Portsmouth. Adding capacity to the Midtown and Downtown tunnels should alleviate localized congestion. But plans for upgrading the U.S. 460 highway connection between Suffolk and Petersburg were sharply curtailed after a funding debacle. Norfolk Southern is accommodating some of the surge in freight traffic with its double-stacked trains destined for Midwest markets. Judging by the article’s silence on the subject, highway congestion has not yet emerged as a bottleneck for the maritime industry’s growth. But if freight traffic continues growing at last year’s pace, congestion could become an issue.

Want Social Justice? Create Jobs.

Photo credit: Buz and Ned's

Photo credit: Buz and Ned’s

by James A. Bacon

I’m all in favor of people earning higher wages. I want to live in a society in which people make enough from their labors to live on without government assistance. I just don’t think that mandating a minimum wage is the way to go about it, for all the reasons that foes of the minimum wage usually cite that don’t bear repeating here. A better way to increase wages is to (a) increase the number of jobs in the economy, which would (b) give employees more options, which would (c) prompt employers to offer better wages, benefits and working conditions in order to hang onto their workforce. Crank up the jobs machine, and the wages, benefits and working conditions will follow.

This forehead-smackingly obvious formula can be seen at work in Richmond’s restaurant community. After years of sub-par economic growth following the Great Recession, competition for skilled restaurant employees in the Richmond region is finally heating up. And guess what’s happening — restaurateurs are raising wages.

Thus, we read in the Richmond Times-Dispatch today that Buz Grossberg, owner of Buz and Ned’s Real Barbecue restaurants, is bumping the starting pay to $12.50 per hour for regular employees and to $8 per hour for servers working for tips. That’s up from $8 and $6 an hour respectively.

Grossberg acted for reasons both idealistic and pragmatic. “This has been on my mind a long time, even before it became current politics,” he said. “It’s just gotten worse and worse. It’s gotten hard for people to repay their bills and see their family without working multiple jobs. … How do you attract people and keep people who can’t afford to feed their family? Pay them a living wage.”

But why did he act on his conscience now? Turns out that it’s getting harder finding and retaining talent, particularly kitchen workers, in Richmond’s increasingly competitive and crowded restaurant scene, according to other restaurateurs quoted in the article. Said Grossberg: “The people who would typically work [in the restaurant industry] are going other places.” Paying higher wages will bring them back in.

Bacon’s bottom line: It’s basic supply-and-demand economics. If the economy creates jobs at a faster rate, wages will rise faster. And how do we create more jobs? Once place to start would be to re-think some of the job-killing policies we’ve enacted over the past 15 years, starting with Sarbanes-Oxley, Dodd-Frank, the Affordable Care Act, EPA regulatory overreach, higher taxes, regulation of the Internet and dozens of other initiatives that collectively have gummed up the economy and slowed growth to a crawl.

Defenders of the current regulatory regime tend to blame mysterious “economic forces” beyond their control. I’m old enough to remember those who claimed the “stagflation” of the 1970s likewise was due to some mysterious change in the nature of the economy rather than the policies of Richard “We’re All Keynesians Now” Nixon and Jimmy “Gas Rationing” Carter. Then along came policies that killed inflation, deregulated major industry sectors, cut taxes and enacted and real government spending cuts, precipitating nearly two decades of job creation. The surge in jobs in the 1980s and 1990s made the minimum wage irrelevant in many parts of the country because businesses were so desperate for labor that they were paying more than the minimum already.

I do feel badly for anyone trying to make a living on the minimum wage. But the answer isn’t more of the same “social justice” economics that have created our moribund economy and depressed wages. The best social justice program in the world is a strong job-creating economy.

Alpha Natural Resources: Running Wrong

Alpha miners in Southwest Virginia (Photo by Scott Elmquist)

Alpha miners in Southwest Virginia
(Photo by Scott Elmquist)

 By Peter Galuszka

Four years ago, coal titan Alpha Natural Resources, one of Virginia’s biggest political donors, was riding high.

It was spending $7.1 billion to buy Massey Energy, a renegade coal firm based in Richmond that had compiled an extraordinary record for safety and environmental violations and fines. Its management practices culminated in a huge mine blast on April 5, 2010 that killed 29 miners in West Virginia, according to three investigations.

Bristol-based Alpha, founded in 2002, had coveted Massey’s rich troves of metallurgical and steam coal as the industry was undergoing a boom phase. It would get about 1,400 Massey workers to add to its workforce of 6,600 but would have to retrain them in safety procedures through Alpha’s “Running Right” program.

Now, four years later, Alpha is in a fight for its life. Its stock – trading at a paltry 55 cents per share — has been delisted by the New York Stock Exchange. After months of layoffs, the firm is preparing for a bankruptcy filing. It is negotiating with its loan holders and senior bondholders to help restructure its debt.

Alpha is the victim of a severe downturn in the coal industry as cheap natural gas from hydraulic fracturing drilling has flooded the market and become a favorite of electric utilities. Alpha had banked on Masset’s huge reserves of met coal to sustain it, but global economic strife, especially in China, has dramatically cut demand for steel. Some claim there is a “War on Coal” in the form of tough new regulations, although others claim the real reason is that coal can’t face competition from other fuel sources.

Alpha’s big fall has big implications for Virginia in several arenas:

(1) Alpha is one of the largest political donors in the state, favoring Republicans. In recent years, it has spent $2,256,617 on GOP politicians and PACS, notably on such influential politicians and Jerry Kilgore and Tommy Norment, according to the Virginia Public Access Project. It also has spent $626,558 on Democrats.

In 2014-2015, it was the ninth largest donor in the state. Dominion was ahead among corporations, but Alpha beat out such top drawer bankrollers as Altria, Comcast and Verizon. The question now is whether a bankruptcy trustee will allow Alpha to continue its funding efforts.

(2) How will Alpha handle its pension and other benefits for its workers? If it goes bankrupt, it will be in the same company as Patriot Coal which is in bankruptcy for the second time in the past several years. Patriot was spun off by Peabody, the nation’s largest coal producer, which wanted to get out of the troubled Central Appalachian market to concentrate on more profitable coalfields in Wyoming’s Powder River Basin and the Midwest.

Critics say that Patriot was a shell firm set up by Peabody so it could skip out of paying health, pension and other benefits to the retired workers it used to employ. The United Mine Workers of America has criticized a Patriot plan to pay its top five executives $6.4 million as it reorganizes its finances.

(3) Coal firms that have large surface mines, as Alpha does, may not be able to meet the financial requirements to clean up the pits as required by law. Alpha has used mountaintop removal practices in the Appalachians in which hundreds of feet of mountains are ripped apart by explosives and huge drag lines to get at coal. They also have mines in Wyoming that also involve removing millions of tons of overburden.

Like many coal firms, Alpha has used “self-bonding” practices to guarantee mine reclamation. In this, the companies use their finances as insurance that they will clean up. If not, they must post cash. Wyoming has given Alpha until Aug. 24 to prove it has $411 million for reclamation.

(4) The health problems of coalfield residents continue unabated. According to a Newsweek report, Kentucky has more cancer rates than any other state. Tobacco smoking as a lot to do with it, but so does exposure to carcinogenic compounds that are released into the environment by mountaintop removal. This also affects people living in Virginia and West Virginia. In 2014, Alpha was fined $27.5 million by federal regulators for illegal discharges of toxic materials into hundreds of streams. It also must pay $200 million to clean up the streams.

The trials of coal companies mean bad news for Virginia and its sister states whose residents living near shut-down mines will still be at risk from them. As more go bust or bankrupt, the bill for their destructive practices will have to borne by someone else.

After digging out the Appalachians for about 150 years, the coal firms have never left coalfield residents well off. Despite its coal riches, Kentucky ranks 45th in the country for wealth. King Coal could have helped alleviate that earlier, but is in a much more difficult position to do much now. Everyday folks with be the ones paying for their legacy.