Is Your State Overrated?

Posted May 24, 2013 by Brian Gottlob
Categories: college, Educational Attainment, higher education, Skills Gap, Workforce
Tags: , , ,

My penance (and your burden) for being an absent blogger over the past week or so is a longer post with extra graphics today.

A lot of people, including me, are accustomed to assessing the overall skill level of a state’s or a region’s workforce (and thus its potential to capture growing industries that rely on more highly educated workers) based, largely  on the percentage of the workforce with a college degree.  It is simple, intuitive,  and more than a  little lazy.  It is also becoming a  less useful indicator of the supply of labor that is in demand by businesses.   Populations with higher levels of educational attainment confer a lot of benefits on a state or region but today, having a high percentage of a state’s or region’s population with at least a BA degree probably says as much about the state’s political and cultural sensibilities (as well is its “demand” for services rather than its “need” for services but that is another post)  than it does about its economic performance and potential.

The sense of self-satisfaction we in New England and in New Hampshire enjoy about  having a population with among the highest levels of educational attainment in the country is palpable, but the reality is that more states are increasing their levels of educational attainment and New England and the Northeast stand-out far less than in the past.  Moreover, in an economy that is increasingly rewarding particular skills and degrees more  than  just high educational attainment, it is not as clear that much of the region still has an edge  on the one resource that  it has that is always in demand – talent.

Much of New England and the Northeast has a high percentage of its adult population with a four-year college degree or high (see chart below).

% With BA or Higher

Just looking at levels of educational attainment tells only part of the story.  I can’t blog for too long without talking about the “skills-gap”  so here goes.  Much of the demand for college-trained labor is in fields that require scientific, technical, engineering,  or mathematical (STEM) skills and degrees.  The percentage of a state’s population with a BA or higher degree tells a lot about the availability of STEM skills but for a number of states it tells a lot less.  I calculated the percentage of a state’s population with a STEM degree (based on first college degree earned) and included it above as the dark blue portion of the bar graph.  The official listing of STEM fields is maintained, surprisingly, by the Bureau of Homeland Security ( I categorized 171 college degrees into STEM and non-STEM degrees and I think my my listing is close but not a perfect match).  If you compare  the percentage of the population with a four-year or higher STEM degree (chart below) with the percentage of the population with a BA degree or higher (chart above) it shows a large change in the relative rankings of a number of states, and a some in New England in particular.

% with STEM degrees

The final chart makes just that comparison, it shows the change in ranking  between a state’s position on the percentage of its adult working population with at least a BA degree and the percentage of its population with a STEM degree.  The chart highlights states that may be over and -under rated on the skill level (at least skills in demand) of their workforce.   Vermont stands out as having the biggest drop in rankings between the percentage of its population with at least a BA degree and its ranking on the percentage of the population with a STEM degree.  Maine also fares poorly.  But New Hampshire, Rhode Island, and Connecticut also drop in rankings when measuring “talent in-demand” among the workforce.  Only Massachusetts does not  drop in ranking  ( it is ranked number one on both measures so there is no way it could show anything but a drop in relative rankings).   On the other hand, states that are often derided by Northeastern “elites”, such as Texas, Arizona, Florida and Alabama  have a smaller percentage of college-trained labor but more of them (on a percentage basis) are trained in the STEM fields most in demand.  Still, they  don’t have as high a percentage of their adult populations with a STEM degree as do some New England and some other states, but with population and migration trends, and as more individuals with those skills and more companies that want access to them agglomerate in those states, how long before some take the lead in “talent”?   I don’t think Massachusetts has as much to worry about as do other states in  New England because of their unique higher-education assets.  The question for the rest of us is, can we continue to “beggar our neighbor” and benefit from the Bay State’s ability to churn-out and attract individuals with the degrees and skills in demand?

over and under rated states

As New Jersey, New York, and Connecticut show, having a lot of “talent” in your workforce doesn’t guarantee strong economic growth.  The business, political, environmental, and even cultural and social climates also play an important role in promoting prosperity.  I look at states with a relatively higher  percentage of their college trained workforces as “up-and-comers.”   Most don’t have the history of high educational attainment in their populations that New England does, so their overall ranking on educational attainment tends to be lower.  Some, like Texas and Arizona also have had a large influx of individuals with traditionally lower levels of educational attainment.  Nevertheless, they are accumulating and growing a larger portion of the nation’s “talent” in STEM fields and over the long-haul, that is the biggest threat to New England’s most valuable and most in-demand resource.

 

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“Honest Brokers” and Revenue Estimates

Posted May 14, 2013 by Brian Gottlob
Categories: Fiscal Policy, New Hampshire, State budget, Tax Revenue
Tags: , , ,

Unlike the federal government, states can’t easily budget and spend more money than they take in revenue so revenue estimates play a much more important role in state budgeting than they do  in federal budgeting.  I don’t know how anyone can accurately forecast revenues when the revenue yields are based on negotiations, lawsuits or other non-economic variables but that seems to be the basis  of much of the disagreement among budget writers in New Hampshire. When a comparatively large percentage (compared to many other states) of your revenues are derived from a “Medicaid enhancement tax”  and “tobacco settlement”  money budget writing can become even more politicized than usual.

I don’t pretend to know what these non-traditional sources of revenue will yield in the coming years but I get a sense that those who do are fitting their forecasts to their meet their budgetary goals.  I  don’t think revenue forecasting is that difficult as long it is based on real economic data and trends and it minimizes the use of assumptions about changes in the performance of the economy.   I make forecasts with assumptions all the time but  minimizing their use  in revenue forecasts will mean that even if the forecast is wrong, it won’t appear as though the error resulted from a desire to “coax” a specific result from the forecast.   In January I presented my outlook to the NH House Committee on Ways Means.  At that time I said I thought revenue growth from major, “own-source” revenues would average about 2% each year of the biennium and that businesses tax revenue growth would be a bit higher, but with even modest economic improvement could average 5-6% annual growth.  Now, several months later, based on recent revenue performance, and making  no assumptions about significant changes in economic conditions, I see growth at about 3% in FY 2014 from the eight largest sources of general revenue, and just under 5% in 2015.  Those numbers don’t count the “non-traditional” revenue sources but I think they are important in reflecting the fundamental underlying growth in the state’s economy and a better assessment of  general revenue trends.

NH General revenue forecast

Clearing out some old boxes from my attic  I came across a number of old college tests and papers.  One was from a graduate school class on public finance where I argued that all federal budgeting and budgeting  debates should proceed from a common economic and revenue forecast.  I also found one from an undergraduate class on the philosophy of Marxism in which I wrote phrases like “man should never be a means to end but only an end in himself ” so clearly I was prone to a lot of bad and muddled thinking back then.  In the 1990′s I wrote a column in a publication arguing for a non-partisan revenue estimating committee in NH.  That was a pretty good idea  and it did happen – although my prompt had nothing to do with it -  and it was enacted largely absent the “non-partisan” aspect (or at least “unbiased”).  I still think a true, non-partisan, representative revenue estimating panel would be a good thing for NH, not to bind any actions but simply to serve as a baseline scenario that any policymakers who wishes to deviate from would have to offer solid reasons for doing so.  Some group in the budget debate has to serve as the “honest broker”  but the honest broker role won’t happen if the group is loved too much by some or hated too passionately by others.   The current estimating panel has some of the best and most qualified people I know to do revenue estimating .  It just doesn’t have the  credibility among many policymakers that it could have  if  no one loved or hated it too much, but instead almost everyone complained a little (or a lot) about  it.  It is too bad because we are still going to need an “honest broker” when the NH House and Senate begin negotiations on the next budget.

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More Early Evidence on the Impacts of the Affordable Care Act

Posted May 9, 2013 by Brian Gottlob
Categories: employment, Health Care
Tags: , , , ,

First, let me start by noting that this is not a post about the merits of the Affordable Care Act (ACA), depending on your political leanings either pejoratively or admiringly labeled “Obamacare,” it is a post  about  policy analysis.  I love public policy analysis and I  tell almost everyone who asks me (there aren’t many) that to understand the full impacts of any  proposal it is far more important to understand the incentives inherent in a policy proposal than it is to understand the goals, objectives or intentions of the proposal. Businesses, just like individuals, will respond to changes in public policies according to their self-interests.  In the case of the ACA, businesses wishing to avoid providing health insurance coverage to some or all employees have an incentive to keep employment levels below the employment threshold at which the ACA applies to a business (50 employees) or reduce the number of full-time employees in order to fall below the threshold.

In a prior post I noted that there was some early evidence of the effects of these incentives on retail employment (an industry with a higher percentage of workers without health insurance coverage) but that I thought more evidence was needed to evaluate any impacts from the ACA.  At that time I suggested that the expiration of the payroll tax cut might be more responsible for declines in retail employment than any impacts from the ACA. I promised to follow the issue so here is some additional evidence and unfortunately it points to some negative employment impacts from the ACA.  Whether this will continue and if it is does whether the negative impacts outweigh any positive impacts from the ACA is fodder for future posts.  For now, the chart below shows how the average hours worked in the leisure and hospitality industry has been declining.  This is an industry with the highest percentage of workers without health care coverage and also with a high percentage of employers near the threshold at which the ACA mandates apply.  It is also an industry that employs large numbers of part-time workers, making it relatively easy for employers to reduce the hours worked by employees in order to have them fall below the criterion that would have them classified as full-time employees for purposes of ACA mandates.   As the  chart shows, the average weekly hours worked in the industry (compared to the same month of the prior year) has declined significantly since the end of 2012.

Avg Hours Worked in Leisure and Hospitality Industries

It is still to0 early to make claims about negative employment impacts from the ACA but the evidence is beginning to point to some troubling impacts.  As we move toward the implementation date for the ACA any employment impacts will become clearer as employers looking to avoid mandates get closer to finalizing the employment level averages that will be used to determine their inclusion or exemption from ACA mandates. Empirically it may be too early to make a definitive call on the ACA’s employment impacts, but based on what I see as the incentives inherent in the ACA, it is just a matter of time before the call gets made.

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The Outlook for Natural Gas Prices in New England

Posted May 3, 2013 by Brian Gottlob
Categories: Electricity, Electricity Generation, Energy, Natural Gas
Tags: , , , ,

There is a lot of discussion, debate, advocacy and lobbying about whether New England’s energy future is becoming more vulnerable because of the region’s increasing reliance on natural gas for electricity generation.   Some see the prospect of rising natural gas prices (because of increasing demand in the region and nationally) as a vulnerability and others are concerned about constraints on the pipelines that bring natural gas into the region.  I’ve posted a lot about natural gas and electricity related issues and as I have previously stated my belief that regional increases in demand along with greater U.S. production of natural gas are more likely than not to create scenarios that will increase the capacity of the regional pipeline infrastructure. New England has traditionally been a region with a relatively low percentage of its energy consumption in the form of natural gas.  That is changing rapidly, but increases in U.S. production of natural gas along with demand driven incentives to increase infrastructure capacity in the region should reduce a lot of the volatility of natural gas prices in New England.

Apparently there are other folks who feel similarly.  The U.S. Energy Information Agency (EIA) released its “Annual Energy Outlook” last month and it has a wealth of historical data, forecasts and projections.   Their forecast of natural gas prices across the country are based on many economic, energy demand, production and other variables.  They also produce a range of forecasts based on different assumptions about economic growth , energy demand and prices.  The good news is that their baseline forecast for natural gas prices in New England (chart below) shows that  prices in the region, which are traditionally higher than in most other regions of the country, are expected to align with the national average early in the next decade, and then move lower than the national average over time.  Even better news is that this forecast is not dependent on a much weaker economy in New England than in the rest of the country (which would imply lower increases in energy demand in the region compared to the rest of the country).  I don’t think EIA would be forecasting lower relative prices in New England if they did not see  region’s pipeline infrastructure issue as being addressed.
NE Nat Gas Price vs US Forecast
The EIA also projects that the price of natural gas relative to coal will continue to increase.  Coal will probably almost always be a cheaper fuel than natural gas but today’s typical “combined-cycle” natural gas generating facilities are much more efficient than coal-fired plants.  When the ratio of natural gas prices to coal prices is approximately 1.5 or lower, a typical natural gas-fired combined-cycle plant has lower generating costs than a typical coal-fired plant.   Natural gas-fired electricity generators enjoyed a strong competitive advantage over coal plants in 2012 but natural gas plants will begin to lose competitive advantage over time, as natural gas prices increase relative to coal prices.    The retirement of older coal-fired generating plants, however, will mean that coal continues to generate a smaller percentage of the region’s and the nation’s electricity.

Some see New England’s increased use of natural gas as a concern.  There are issues that need to be addressed but none that are insurmountable or that should have the region reconsider its increasing reliance on natural gas.  Long-range energy price forecasts are notoriously difficult but New England’s energy needs and interests are finally becoming more aligned with the rest of the nation.  For too long New England has been an anomaly as the most oil-dependent and least natural gas-dependent region in the country.  Personally, I would rather have 300 million people concerned about my energy needs than just 15 million.

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The Shrinking U.S. Deficit

Posted May 1, 2013 by Brian Gottlob
Categories: Federal Debt, Federal Deficit, Federal Spending, GDP Growth
Tags: , ,

Annual budget deficits since 2009 have been the largest in a generation. The deficit-to-GDP ratio, which averaged 2.5% from 1980 to 2007, peaked at 10.1% in 2009 as the recession reduced tax revenue and spending rose with the economic stimulus package.   There is still a long way to go but the deficit to GDP ratio has improved each year since 2009 and will likely continue to do so for the next few years. The chart below shows a reasonable proxy of the official federal deficit – it shows the 12-month moving average of the difference between federal revenues and federal spending.  Over the past year this deficit estimate has improved by an average of $28-$30 billion per month, much better than the CBO’s 2013 deficit projections.

Monthly U.S. Deficit Proxu
The deficit is shrinking because of a combination of higher revenues and slower spending. To this point deficit reduction has largely been the result of higher tax revenue resulting from an improving economy, the expiration of the payroll tax holiday (worth about $135 billion this year), and higher tax rates for upper income individuals but spending reductions are beginning to play a larger role.

Lower deficits and a reduction in the national debt as a percentage of GDP will help economic activity in the long run.  Although there are many short-term factors that influence the relationship between federal debt ratios and GDP growth, over the longer-term, higher debt levels are associated with slower GDP growth and lower debt levels are associated with higher GDP growth.

Debt and GDP Growth
The deficit is contracting faster than expected, but the goal of deficit reduction can have negative implications from either excessive taxation or spending cuts that significantly impact demand. The Federal government accounts for roughly 7% of total economic output and has shrunk by an average of about 10% each of the last two quarters.  So while the good news is that deficit-reduction is likely to be greater than expectations in the near term, the cost from tax increases and spending cuts will likely lower real GDP growth by about 1% over the next year.

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There’s No Place Like Home (Your Home State)

Posted April 29, 2013 by Brian Gottlob
Categories: college, Educational Attainment, migration
Tags: , ,

I was surprised by data on the enrollment migration of high school graduates who enter  four-year colleges immediately or shortly after graduation from high school.   As the chart below shows, in most states, a very high percentage of students enrolling in four-year colleges enroll in a school in their home state.

Student Migration

This would not be  unexpected if it were data from 1920 but a lot has changed in the world that should exert a fairly strong influence on the enrollment decisions of high school graduates.  First, anything that reduces the time, cost, or difficulty in travel should contribute to an increase in the willingness of students to travel further to attend college.  The real cost of travel (measured as dollar per airline mile) has fallen dramatically over the past several decades.  In addition, the increased ability to communicate over longer distances and at ever lower prices should also reduce disincentives to enrollment over distances.  Perhaps even more importantly, the information available to students and their parents about schools (including video tours, rankings, and all types of detailed data), should also reduce the barrier of distance from home  to enrollment in a college.   In addition, colleges have more information about students and an increasing ability to target potential students irrespective of their distance from campus.  States with a low percentage of students enrolling in a college in their homes state (NH, VT, CT, MD, DE) all have many college choices in nearby states so many of the barriers that might influence enrollment distance don’t really apply.

We in NH fret a lot about the percentage of students who choose to enroll in an out-of-state college, but almost 90 percent of NH grads enrolling in a four-year institution enroll in a college in New England and on balance we are a slight “net-importer” of college enrollees.   There are tremendous economic and public policy implications related to the supply of young college graduates but we need to be careful that in analyzing the issues we use appropriate metrics.  I am not convinced that in NH’s case, the percentage of students enrolling in-state is a good one.

I need to look at a time series of this data to get a better handle on some of the contributing factors to these data.  For now the only conclusion I can draw is that college-age children simply care too much about their families to want to venture far from home – at least that is want I have wanted to believe for the past several years.

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Give Me Your Huddled, Talented Masses

Posted April 19, 2013 by Brian Gottlob
Categories: Educational Attainment, Labor, Skills Gap
Tags: , ,

This is a week that reminds us of how many people from around the world  want to harm the U.S.  and just how easy it can be.  This is a day when a daughter who was supposed to be coming home for the weekend  is unable to leave her apartment, catch the “T”  or even get a cab to North or South Station where no trains or buses are leaving the city of Boston anyway.  For me at least, its not an easy time to be rationale and analytical.  That is precisely why this is an especially good afternoon to highlight, in one small way, how much the presence in the U.S. of individuals from the rest of the world contributes to our economy, communities, and society.

A lot of attention is focused on the relative inability of the U.S. to produce enough individuals with the education and training needed to fill critical  openings in scientific, technology engineering and mathematics (STEM) fields.  Why that is is the subject for another (or many other) posts.  There aren’t enough individuals in this country with STEM degrees to meet existing demand according to businesses that employ them.  Looking at unemployment rates for individuals with science, tech, engineering and math degrees seems to validate that belief.   But the U.S. would be even further from meeting the demand if it were not able to tap a global labor market.

I’ve been looking at trends that affect recent college graduates so I will focus on the importance of foreign-born individuals to the supply of skilled workers among recent college graduates and younger workers in the U.S..  I sorted data on individuals in the U.S. workforce,  age 24-29, with a Bachelor’s degree or higher, according to the college major of their first college degree, and then by the percentage of individuals in each major that were foreign-born.  The results are striking.  Overall, about 13.6 percent of all workers age 24-29, with at least a Bachelor’s, are foreign-born.  However, the percentage in STEM majors is dramatically higher, comprising  30, 40, to as much as 50 percent of young people and recent graduates in some major fields of study.  By far, the majors with the highest percentage of individuals that are foreign-born are STEM majors.

Foreign Born STEM Grads

The data make clear how important the rest of the world is, and will continue to be, in meeting our economy’s demand for skilled workers.  On an afternoon, in a day, during a week, like this one, data doesn’t have much influence on our thoughts or maybe just not on mine, and that is all the more reason to look closely at it.

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