Category Archives: Labor & workforce

Thumbs up for Virginia Undergrad Business Schools

mcintire

McIntire School of Commerce

The new Bloomberg ranking of undergraduate business programs in the United States provides the following rankings among the top 100:

University of Virginia (McIntire): No. 5
College of William & Mary (Mason): 12
James Madison: 41
University of Richmond (Robins): 46
Virginia Tech (Pamplin): 64

Virginia universities may not be leaders in R&D, but they produce a wealth of human capital. It would be really interesting to know how many graduates of these business school pursue careers in Virginia. The fact that McIntire, Mason and Robins are rated much higher by students than by employers suggests that they are under-recruited by business, particularly out-of-state firms. I would conjecture that a disproportionate number of these grads stay in Virginia. That may or may not be good for them professionally, but is undoubtedly beneficial to the Virginia economy.

— JAB

Coal’s Messy End Game

coal_minersby James A. Bacon

The U.S. coal industry is in collapse. Market forces in the form of cheap, abundant natural gas have put coal at a huge competitive disadvantage while environmental initiatives have gutted demand by compelling the shutdown of coal-fired power plants not worth retrofitting with scrubbers. Earlier this week Peabody Energy, the largest coal producer in the country, announced that it would seek bankruptcy protection. Only one company in the Dow Jones Coal Index, Consol Energy, has avoided that fate.

Writing in Slate Magazine, Daniel Gross poses an interesting question:

When companies file for bankruptcy, the fact that they can’t meet their obligations to creditors like banks or bondholders isn’t that much of an issue. They can absorb the loss and wind up with ownership of the company. But bankrupt coal firms will have a hard time meeting their obligations to the environment, to employees, and to retirees. Which means they will either need a bailout or they will suffer further obloquy when they walk away from commitments.

Coal mining in Central Appalachia is an immensely destructive business, especially strip mining and mountaintop removal, which quite literally moves mountains, alters drainage flows, and releases potentially toxic elements into the water. Federal regulations require coal companies to stabilize the land in order to reduce environmental hazards. When coal was booming a few years ago, that wasn’t a problem. With major coal companies going bankrupt, there are growing questions whether coal companies can fulfill their obligations.

Virginia-based Alpha Natural Resources has $640 million in self-guaranteed liabilities in reclamation costs, reports the Washington Post. Will a western Virginia bankruptcy court judge honor the debts of creditors and suppliers or obligations to the public?

Meanwhile, coal industry pension funds, which have always been shaky, now are in deep doo-doo. The United Mine Workers of America’s 1974 pension plan was said last year to be $2 billion under-funded.  The plan asked for participating unionized companies to increase their contribution by 10% to $6.05 per union employee per hour worked, along with benefit cuts for future employees. But it is questionable how long bankrupt coal companies can sustain such payments. Who, if anyone, will make good promises made to retired coal miners?

Bacon’s bottom line. Coal is a dirty, unsafe fuel, and most of us won’t miss it. But the transition to a clean-energy economy will be messy. For Virginia’s coalfield region, the demise of the coal industry doesn’t mean just the loss of jobs, as debilitating as that will be. It could well mean environmental clean-ups never completed and pensions never paid.

What Charlottsville Needs Is… More Charlottesville

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

There is nothing else in Virginia like Charlottesville’s Tom Tom Founders Festival, which launched a week-long series of events yesterday. Food trucks, craft beer, music concerts, an art bus, murals, films in the park, street dancing, a capella performances, craft cocktail competitions, a chili showdown, crowdfunding pitch night, and celebrations of arts, innovation and entrepreneurship — it’s all packed into one week.

The festival, now in its fifth year, “converges hundreds of bands, start-ups, artists, and visionaries with the purpose of celebrating creative founding,” says the Tom Tom website. “It’s a real opportunity to launch ventures amidst ideas and parties in one of America’s most beautiful and historic small cities.”

Charting a future as an arts-infused, tech-savvy economy was the theme of the Founder’s Forum opening event. “Speakers highlighted the importance of creativity as a means to boost Charlottesville’s attractiveness to businesses through education and culture,” reports Charlottesville Today.

“We will not succeed, I think, by trying to become Boulder or Raleigh,” said Mayor Mike Signer. “We will succeed by … becoming more Charlottesville.”

Bacon’s bottom line: The festival sounds like so much fun I wish I could be there. I’m envious — I want one in Richmond! Any region that can tap into the energy at the intersection of the arts, technology and entrepreneurship will thrive in today’s economy.

When I graduated from the University of Virginia in 1975, my experience at the university was so positive that I wanted nothing more than to move back to Charlottesville. At the age of 30 I managed to do so, taking a job in corporate communications for AMVEST Corporation in an idyllic location five minutes from UVa in the Boar’s Head Inn complex. But I discovered to my dismay that unless a newcomer was connected to UVa or had the bucks to join the Farmington Country Club, Charlottesville was no city for young professionals. It wasn’t long before I moved to Richmond, which I found much more to my liking. But times have changed in the past 30 years. Charlottesville looks like the kind of city where young professionals can sink roots and prosper. I foresee a great future for the region.

— JAB

Has Virginia’s Economy Turned the Corner?

employment_growthGood news on the Virginia employment front. After two years of sequestration-related stagnation, employment in Virginia grew faster than the national rate year-to-year through February 2016 — 2.5% compared to 1.9% — according to figures released by the Virginia Employment Commission. Growth was strongest in the Winchester and Richmond MSAs but it was solid where it counts the most, Northern Virginia, the state’s largest metro. Hampton Roads and Lynchburg continue to lag the state and national economies.

As a resident of the Richmond region, I am particularly heartened by the Richmond numbers. Northern Virginia and Hampton Roads had an excuse for their lagging performance in recent years — their military-dependent economies were hammered by sequestration-related budget cuts. Richmond had no such excuse; federal spending is modest here. As memory serves, this past year is the first in the current business cycle that Richmond has significantly outperformed the national economy.

Not only do the overall employment numbers look good, the strongest growth in the Richmond region took place in the professional and business services sector, a highly compensated occupational category. Growth was up 9.6% of the period, the Richmond Times-Dispatch quotes economist Chris Chmura as saying. State government employment, down 0.4%, was not a factor.

Since getting hammered during the recession, Richmond has been reinventing itself. Dramatic change has taken place not reflected by the overall employment numbers. The economy is less dependent today upon a handful of large employers like Infineon, Circuit City and LandAmerica, all of which disappeared in the recession. A new generation of entrepreneurs is rising to the fore. The region is more vibrant than it has ever been in the 30 years I have lived here.

Mark Warner’s Centrist Democratic Solutions for What Ails Us

Sen. Mark R. Warner. Photo credit: Virginia Business

The Thinker: Sen. Mark R. Warner. Photo credit: Virginia Business

by James A. Bacon

As governor of Virginia between 2002 and 2006, Sen. Mark R. Warner thought deeply and seriously about economic development in an era of globalization and knowledge-intensive industry. Although he is far less visible to Virginians since his election to the U.S. Senate in 2008, he continues ask what it takes for the United States — and Virginia — to adapt and thrive in a competitive global economy. In a lengthy spread in Virginia Business magazine, he expounds upon his thinking about what he calls Capitalism 2.0.

A primary focus is the changing nature of work, and the rise of the “gig” economy, in which people increasingly work on demand, as epitomized by drivers for the ride-hailing company Uber. The super-flexible work model suits the needs of many employers and employees but it creates challenges because current laws and regulations governing the labor market don’t fit the new jobs very well.

“What is the social contract going to be in the 21st century?” he asks.

Our current system basically says there are two classifications of work: You’re an independent contractor, or you’re an employee, and there are certain freedoms or responsibilities that come with each of those classifications. I think there probably is going to need to be either a third or fourth-level classification, and there may be a whole ability to create a set of benefits that will be more portable with you.

As one of those who fall into a nontraditional classification, I couldn’t agree more. Warner is asking important questions, and it’s encouraging to know that someone in Congress is thinking about them.

As a political centrist, Warner does not gravitate toward populist, Bernie Sanders-like solutions (free college for all, to be paid for with taxes on millionaires and billionaires). He worries about the $19 trillion national debt and the budget deficit that is growing again — “we are sitting on a ticking bomb” — and he embraces centrist solutions that entails both tax reform that yields higher revenues and entitlement reform that cuts long-term spending.

Warner also is clear-eyed enough to recognize that some of the legislation he supported like the Affordable Care Act and the Dodd-Frank Act still need work. Obamacare, he says, creates a “huge cliff” between part-time work at 29 hours and full-time work at 30 hours, at which point companies must provide health insurance. The result: Companies don’t want to “tip the scales” to full-time hours, thus dampening the creation of full-time jobs. Likewise, the Dodd-Frank Act imposes tremendous regulatory costs on community banks even though they do not contribute to the systemic financial problems that Congress wanted to guard against. The result: fewer community banks.

But Warner remains a Democrat, and he looks to government to solve society’s ills. A classic case is his take on the burgeoning student loan crisis. Like everyone else, he views the increasing debt load of college students — averaging $26,000 per student in Virginia among those who borrow to pay their college bills — as a drag on the economy and a hardship on the students themselves. What solutions does he propose? Use the power of government to make it easier to borrow money!

Thus, Warner introduced one bill that would allow companies to offer as an employee benefit the ability to pay down student debt with pretax dollars. In other words, share the burden of debt repayment with the taxpayer! Alas, history has shown that making it easier for students to borrow just allows colleges and universities to raise tuition, fees and expenses more aggressively than before. (To be fair: Warner had Republican partners backing the bill, which indicates that Democrats are not the only ones who instinctively turn to government solutions.)

Another bill would streamline the process for students to enroll in income-based repayment programs for federal loans. Warner also believes that federal Pell grants for low-income students should be offered to high school students taking dual-enrollment classes. More free stuff. Call it Bernie Sanders Lite!

The underlying problem in higher education is out-of-control costs, as Warner is well aware:

[When I went to school the] cost of a year of higher education was about the cost of a starter car, a basic Ford, both about $5,000. Now cars are maybe $15,000. You go to a private school today, it’s $50,000. This has kind of gotten out of whack.

Warner has proposed creating more user-friendly websites that would allow would-be college students to compare costs, the average length of time it takes to graduate, how much graduates earn, and the like. Putting more information in the hands of consumers is always a good idea, but the reason that costs are out of control is not insufficient consumer information — there is plenty data available on the Internet — but the availability of easy, subsidized credit.

The Senator also takes it as an article of faith that the U.S. should be investing more in human capital. “In capitalism today,” he says, “if you invest in a piece of equipment, it’s an asset. If you invest in a human being in terms of pay or training, that’s a cost. Is there a way to rebalance that a little bit?

What he doesn’t do (at least not in this interview) is justify the sentiment that the U.S. needs to be investing more in human capital, as opposed to, say, making better use of the massive sums we already invest, often ineffectually, in K-12 education, higher ed, and job training. As with health care, I would argue, the U.S. invests more and gets less for our human-capital “investments” than most other economically advanced nations. Among the most disastrous conceits is that everyone who wants to go to college should be enabled to do so, regardless of how well or how ill prepared they are, and regardless of how many middle-class jobs might go begging because people are unwilling or unable to get the necessary technical training.

While I disagree with Warner on these important points, I applaud him for a thoughtful take on topics in a nation that seems determinedly un-serious about public policy. At least Warner asks good questions, seems open to empirical evidence on what works and what doesn’t, and refrains from demonizing those who disagree with him. In an increasingly polarized country, he looks for win-win approaches to problems. And that’s saying something.

Demographic Mystery Almost Solved

free_blacks

by James A. Bacon

And now for an answer to the fascinating question posed by Hamilton Lombard on the StatChat blog: why African-Americans living in Virginia, Maryland and Delaware have the highest median incomes anywhere in the United States (see “A Demographic Mystery“)…. Ultimately, he says, the answer can be traced to the history of slavery in the Chesapeake region that gave rise to a large population of free blacks.

At the risk of oversimplifying (I urge you to read his full blog post), Lombard’s argument goes like this: With the introduction of tobacco to Virginia in the early 1600s, Virginia was the first state on the North American mainland to develop a plantation economy. Most slaves at that time originated from Angola. Because that region of Africa had been under Portuguese influence since the 1400s, many of the slaves were Christian, which may have entitled them to different consideration than pagans. Moreover, English common law prohibited slavery. Therefore, the first Africans in Virginia, like whites, were engaged as indentured servants and gained their freedom after working for a set time.

(Lombard doesn’t mention this but it fits with his theme: Many followers of Nathaniel Bacon during Bacon’s Rebellion in 1676 were freed African servants and slaves, who made common cause with freed white servants and small farmers.)

The institution of slavery did not cohere into the chattel form with which we are familiar until 1705 when the Virginia House of Burgesses codified a system of forced labor for non-Europeans and non-Christians. By that point, the slave trade had shifted to West Africa where Africans were far less likely to be Christianized.

I would expand upon Lombard’s argument as follows. Chesapeake slavery was built largely around tobacco plantations. By the late 1700s, tobacco cultivation had exhausted the soils, and the industry went into sharp decline, leaving farmers and plantation owners with a large surplus of slaves. At the same time that slaves were losing value as a means of production, many slave owners were feeling the contradiction between their ownership of other human beings and their belief in egalitarian, revolutionary ideas. Manumission became a fairly common practice, peaking around 1800. (I have a Bacon ancestor living in Sussex County, Del., who, according to family lore, granted his slaves their freedom after his death.)

Everything changed around 1800. Eli Whitney invented the cotton gin in 1794, making possible the profitable cultivation of cotton — but not in the Chesapeake states, which were too far north to grow the plant. And then the United States banned the Atlantic slave trade in 1808. The institution of slavery in the Chesapeake region gained a new lease on life as slave owners sold their slaves to markets in the deep south. The end result was a demographic pattern by 1860 in which 10% to 25% or more of the black population in Virginia, Maryland and Delaware counties were free but, outside a few counties in North Carolina, free blacks were almost unknown elsewhere.

That freedom, argues Lombard, gave Chesapeake blacks a head start in the accumulation of property and wealth. A glance at the maps he produces shows that across most of Virginia, the black farm ownership rate in 1920 was over 50% across the state and over 75% for big chunks of it — far higher than anywhere else in the country, even the North. Another map shows that the black home ownership rate in 1940 exceeded 60% in much of Virginia — again, far higher than anywhere else in the country. Lombard suggests that the lack of a sharecropping economy in Virginia may explain the difference.

The analysis at this point gets a little fuzzy because, based upon an eyeballing of Lombard’s maps, the rate of farm- and home-ownership in Virginia were considerably higher than in Maryland and Delaware, so there may have been other factors at work than the percentage of free blacks and/or the lack of sharecropping institutions. Lombard doesn’t address this issue. Could Virginia’s Jim Crow laws been less restrictive than those of Maryland or Delaware? Were Virginia blacks more highly educated? Whatever, the reason, it can hardly be coincidental that Richmond, where many blacks proudly trace their ancestry back to the free black population of the ante-bellum era, became known as the “Harlem of the South.”

Any analysis also need to consider the massive early 20th-century migration of Southern blacks to cities in the Northeast and Midwest, and then the subsequent migration of blacks back to the South, both of which created a large mixing effect. While some Virginia blacks trace their roots back to free blacks living in the state in 1860, how many do?

In sum, Lombard’s argument is incomplete. Not wrong, just incomplete. His hypothesis — positing a link between the percentage of free blacks in the population in 1860 and the economic well being of Virginia blacks today — is fascinating and inherently plausible. It would make a great PhD thesis.

The Decimation of Coal Production and Alienation of the Working Class

coal_production

In rejecting the extension of coal tax credits Friday, Governor Terry McAuliffe noted that the number of coal miners employed in Virginia has tumbled from 11,100 in 1988 to less than 3,000 in 2015.

At one time — the late 70s and early 80s, as I recall — coal mining employed more than 20,000. Since then, many jobs have been lost to automation, and more to declining production. Coal has been mined in Virginia for more than 100 years, and all the thick, easily accessible seams have been tapped out; it’s not easy extracting coal profitably from three-foot-thick coal seams. In the past decade came the fracking boom, which allowed natural gas to displace coal in the utility market, as well as the Environmental Protection Agency crackdown on mercury and other toxic byproducts of coal combustion. The Clean Air Act, assuming it moves forward, likely will be the death knell of steam coal in Virginia, leaving only a handful of mines producing metallurgical coal for steel making.

From 1988 until 2015, McAuliffe said, coal mine operators, electricity generators and other coal-related companies claimed more than $610 million in tax credits. “It would be unwise to spend additional taxpayer dollars on a tax credit that has fallen so short of its intended effectiveness,” stated McAuliffe in a press release.

It seems cruel to kick the coal mining industry when it’s down, but McAuliffe has a point. A 2012 report by the Joint Legislative Audit and Review Commission (JLARC) found that while the credits had slowed the decline of coal production and employment, both declined at the same or even faster rates than were predicted before the credits were created.

If we want to help the economy of far southwestern Virginia, there are probably better ways to do it. If there are only 3,000 coal mining jobs left, there’s nothing much to save anyway!

Not surprisingly, inhabitants of Southwest Virginia are among the most disaffected and alienated in the state, as can be seen by these two maps from the Stat Chat blog showing the percentage of votes that went for Donald Trump in the Republican primary, and, less lopsidedly, to Bernie Bernie Sanders in the Democratic primary.

trump_voters

sanders_voters

Buchanan County, in the heart of Virginia’s coalfields gave 70% its votes to Trump in the Republican primary.

Clearly, alienation is not limited to coal miners — it permeates the southern tier of counties across Virginia where local economies traditionally were built around tobacco, textiles, apparel and light manufacturing. Trump voters have been the losers in the world of globalization and the knowledge economy.

I wish I had an answer for what it takes to salvage Southwest Virginia, but I don’t. The Tobacco Indemnification and Community Revitalization Commission has been throwing money at the problem — workforce development and incentives for light manufacturing, mostly — but doesn’t have much to show for it. The region is just too rugged, too isolated, too hard to get around, and too bereft of workers with skills valued in the knowledge economy to attract much investment.

Sadly, the only long-term solution may be the emigration of young people in search of job opportunities elsewhere.

— JAB