Macro Roundup

Joseph Spector and Sean Lahman, "NY spends $8B each year on job programs. So where are the jobs?,"Democrat and Chronicle, June 7, 2017,https://www.democratandchronicle.com/story/news/politics/albany/2017/06/07/new-york-job-programs-investigation/102323140/

NY spends $8B each year on job programs. So where are the jobs?

ALBANY — In late 2015, New York announced a sweeping agreement to save four Kraft-Heinz production plants across upstate, vowing to invest $20 million to save the 940 jobs.

Now, less than two years later, the small town of Campbell in the Southern Tier is unsettled. Efforts are teetering to keep open a Kraft cheese plant in the community of fewer than 3,700 people, and the company announced in May it will continue to look for a new buyer until August, leaving 330 jobs in the balance.

"They don’t know if the plant is going to be bought by somebody or if they are just going to close the doors, and everybody just gets laid off -- the unemployment line," said the local union's leader, Rich Dexter.

The plant's fate illustrates the perilous nature of New York's economy as it pours at least $8 billion a year — more than any state in the nation — into dozens of job-creation programs that haven't met their goals.

A six-month-long investigation by the USA Today Network in New York found myriad problems with the state's economic-development efforts, ranging from under-performing programs to a lack of transparency on how taxpayers' money is spent.

And despite the spending, the labor force outside New York City continues to shrink.

Among the investigation's findings, which centered on a dozen economic-development programs that have doled out $13 billion in incentives since 2011 when Gov. Andrew Cuomo took office:

Money went to initiatives that in many cases fell short of the job goals, while others did not set any benchmarks for assessing their success or failure.

The state's Regional Economic Development Councils have pledged more than $4.4 billion to 5,300 projects since 2011, but few have job-creation targets, and potential conflicts of interest emerge.

The state's largest incentive program, tax credits for movies and TV shows, provided more than $730 million for 273 television and movie productions since 2014 — at a cost per job of $42,000.

One effort, the StartUp NY program, which provides tax-free zones to new businesses, dished out nearly $6 million in tax breaks in addition to $53 million in ads to promote it. It initially promised 3,324 jobs, but created a third of that as of the end of 2016.

Local Development Corporations, run locally, gave out nearly $1.3 billion in state and local tax breaks to 1,660 projects between 2010 and 2015. The net number of jobs came in at 1,686 — far short of 9,136 promised.

Nearly half of jobs promised by another type of local body, Industrial Development Agencies, fell short of their stated goals. And while the total cost of IDA projects rose by 22 percent between 2010 and 2015, the tax exemptions for the projects grew by 44 percent.

The review comes as the state Legislature and Comptroller Thomas DiNapoli are calling for stronger laws and better oversight of the massive incentive programs.

Also, a state scandal that led to the arrest of Cuomo's former top aides last September is centered around the state's economic-development efforts.

"I have long said that the best economic-development program the state can have is to improve the job-creation climate for everyone and reduce the cost of doing things in New York," said Assemblyman Robin Schimminger, a Buffalo-area Democrat who heads the Assembly's Economic Development Committee.

"That’s the best economic-development program, but it doesn’t create headlines."

State officials have defended their efforts, saying the Cuomo administration's investment in the New York economy is unrivaled.

"I’m proud to say upstate New York has now had a greater investment from the state government than any administration in the history of the state of New York," Cuomo said April 25 in Rochester. "That’s exactly what upstate needed. We’re now going to continue, and we’re building on that."

Indeed, the state has the most jobs in its history; the unemployment rate is nearly half what it was when Cuomo took office. He also lowered business and income taxes, as well as approved a property-tax cap.

Howard Zemsky, Cuomo's economic-development czar and head of Empire State Development, said the various business programs are aimed at luring in new companies and bolstering existing ones, as well as trying to lower the cost of operating in New York.

The state has committed $1.5 billion to transform Buffalo, is spending $700 million a year on the state's 10 economic regions and investing $10 million a year to revive downtowns. Another $500 million each is going to the Rochester area, the Southern Tier and central New York.

"The economy has gotten dramatically better over the years, and I think we’re putting in place some fundamental building blocks for a continued transformation of that economy," Zemsky said in an interview with the USA Today Network's Albany Bureau.

He said the upstate economy needs time to change a trajectory that for decades was headed downward because of a loss of manufacturing jobs and population.

Tourism, health care and agriculture have been the state's fastest-growing sectors after decades of relying on manufacturing.

"There isn’t any one silver-bullet project or idea can transform economies that have been in some state of either depletion or decimation over a 40-year period," Zemsky, a Buffalo businessman, said. "It’s not realistic to say we will grow faster than the Sun Belt overnight."

Cuomo's office declined to make the Democratic governor available for an interview about the state's programs.

Criticism and lack of transparency

The heavy spending has also been met with criticism, particularly in several recent national studies.

A Pew Charitable Trusts report in May found New York is one of the worst states in evaluating the effectiveness of its tax breaks and grants.

A month earlier, the W.E. Upjohn Institute for Employment Research found New York awarded $8 billion in incentives in 2015 — three times as much as the next three largest states combined.

"The majority of studies suggest incentives are not cost-effective, with either no statistically significant effects or large costs per job created," the report said.

The Citizens Budget Commission, a business-backed group, determined all the spending comes to $8.6 billion a year -- more than half of which came from economic-development authorities linked to local governments.

The USA Today Network's review found many of the state's programs lack clear reporting standards. The regional development councils, for example, have no clear benchmarks to objectively determine whether the $750 million it allocates each year is well-spent.

In one case, renovations to the low-income senior housing Maple Terrace facility in New Rochelle received among the most largest awards issued by the councils: $9.5 million in 2012, but records show no indication that jobs were created or if the work was completed.

The findings from the investigation were buttressed by a report in May by Comptroller DiNapoli.

He said half of Empire State Development's programs failed to meet reporting requirements. The agency had a remarkable 173 subsidiaries under its umbrella, yet only had annual reports for 15 of them. Thirty-six of programs had no reporting requirements at all.

"You need to have transparency in terms of where is that money going and what are we getting in return for it," DiNapoli told the Albany Bureau. "And don’t assume just because you are putting money in a particular program that you are getting the return intended."

Zemsky and state officials have blasted DiNapoli's audits, saying they do a "tremendous amount of reporting" on projects. At a board meeting last month, Zemsky said the reporting is the most in the state's history, blasting DiNapoli's report for being "inept."

Methodology of the investigation

The USA Today Network in New York partnered late last year with the Investigative Post in Buffalo, ProPublica and the Columbia University Graduate School of Journalism to collect data from the state's economic-development programs through Freedom of Information requests.

Then the USA Today Network took the initial findings and expanded it to include additional data and analysis to provide a comprehensive review of the state's incentives.

One of the key takeaways is that for all the money spent, job creation can be limited.

And while some programs have clawback provisions or a limit on tax breaks if the jobs aren't created, the standards are not uniform.

One of the state's largest efforts, the Excelsior Jobs Program, provides tax credits in exchange for jobs. It is often hailed as one of the state's more accountable programs.

Yet even it has drawn questions.

Records showed that between 2012 and 2016, Excelsior committed $708 million in tax credits to 450 companies that pledged to create 45,750 jobs. As of last fall, only $52 million of the credits have been given out, and the companies reported creating roughly 19,000 jobs.

That's a decent return: About 7 percent of the amount pledged was spent, but 46 percent of the jobs were created.

But those job figured have been questioned.

A DiNapoli audit last year found the state could not provide documentation to support many of the Excelsior job claims. In some cases, job-creation goals were changed retroactively, and the state was counting new employees hired, not new positions created, which doesn't account for turnover. The state disputed the findings.

Another program, called JOBS Now program, offers loans and grants to businesses willing to relocate to New York. The projects that received about $36 million in funding pledged 8,450 jobs, but have delivered fewer than half that number to date, the records showed.

Good-government and business groups want the state to create a "Database of Deals" so the public can gauge how their money is spent and crack down on abuse. The state budget approved April 9 included a requirement for the state to create an annual comprehensive economic-development report.

Cuomo's former top aide Joseph Percoco was accused last fall of accepting payments from companies seeking business with the state in exchange for using his influence in government.

Former SUNY Polytechnic Institute president Alain Kaloyeros was charged separately in a bid-rigging scandal involving some of the state's top economic-development projects.

Cuomo has said he was unaware of the alleged activities.

The state Legislature has a series of bills it is considering before its session ends in late June to try to better account for the state's spending.

"We’ve all seen the indictments. We’ve all seen the mounting evidence, and we know that something is wrong here," said Jennifer Wilson, policy director for the state League of Women Voters.

"Millions of taxpayer dollars have been wasted on one of the largest bid-rigging schemes in state history."

The scandals led some of the state's largest projects to falter.

In December, Austrian computer chip maker ams dropped plans for a multi-billion technology campus in Utica with SUNY Poly. A nearly $5 billion SUNY Poly deal with IBM and other computer-chip makers ended in 2016, and now some of the equipment from the sprawling nanocenter in Albany is being auctioned off.

In Batavia, unrelated to SUNY Poly, a massive yogurt plant owned by Muller Quaker Dairy with Pepsi shuttered last year after three years and after hoping to create 200 jobs, leaving one of the largest dairy producing plants in the nation vacant. Later, DiNapoli knocked Empire State Development for lowering job-creation requirements for the project so it could get tax breaks.

In the North Country, an Alcoa plant's future is uncertain after the state brokered a deal two years ago to keep it open through 2019 and save nearly 600 jobs.

"It’s a good place to do business, and I just hope the business we have can compete in the global marketplace," said John Burke, a legislator from St. Lawrence County, where many of the Alcoa workers live.

ESD's Zemsky said the agency has taken over the SUNY Poly projects and has assured companies the scandal won't impact state operations.

A $600 million photonics center in Rochester, for example, is now being headed by the state agency and Cuomo's office, rather than SUNY Poly. And the state is investing more than $750 million in a SolarCity solar panel factory in Buffalo, which had been tied to SUNY Poly.

"We’ve got those deals in much better spots now than they were. They were all in some condition of paralysis or disarray," Zemsky said.

Improving the regions

All the money for the projects, though, hasn't created a widespread turnaround in the economy outside New York City — where three out of four new jobs in the state were created from 2009 to 2014.

While the state's employment rate fell from 8.3 percent in January 2011 to 4.6 percent in January 2017, so too has size of the workforce outside the city, the USA Today Network's review found.

The labor force in the city grew 5 percent during that period while it fell 3.4 percent everywhere else, records from the state Labor Department showed.

A bright spot has been the lower Hudson Valley, where the labor force was up slightly and the unemployment rate was 4.1 percent.

Also, a report this month from the Urban Land Institute showed Buffalo had the 12th largest increase in its population of millennials -- those aged 25 to 34.

Upstate cities, though, continue to struggle with among the worst poverty levels in the nation and slow growth.

Buffalo, Rochester and Syracuse ranked among the worst metropolitan areas in the nation for economic growth between 2010 and 2015, a Brookings Institute Metropolitan Policy Program report in March found.

New York outside the city, particularly upstate, did not have the type of nosedive during the recession that some parts of the country felt. So as other places have grown since then, upstate hasn't, said Alan Berube, the group's deputy director.

"It actually weathered the recession OK," he said. "So while the rest of the country has been picking up steam during the recovery, most of upstate has not."

The labor force has shrunk in part because of the aging population outside the city, ranking New York as the fourth-oldest population in the nation.

Other economists painted a more optimistic picture, as did Zemsky.

The largest job loss in New York has been, ironically, a decline in the government sector, records show, where employment dropped 5 percent between 2010 and 2015 or nearly 69,000 fewer jobs.

Zemsky said he has gotten used to naysayers, but believes in the state's strategy to reverse 40 years of job declines outside the city.

"At the end of the day, you have to take the noise out and say, ‘Do we have a fundamentally sound, go-forward strategy that will make a significant impact in the upstate economy over the long haul?’" he said.

"Because the damage that has been done has no quick fix."

UK government did the exercise we were talking about!

"...Official estimates, published for the first time last month by government statisticians based in Newport, Wales, bear this out. In 2015-16, average Londoners paid £3,070 more in tax than they received in public spending. Smaller net contributions to the national purse were made in the south-east and East Anglia. In contrast, net recipients of public spending ranged from an average of £1,296 for people in the south-west to £5,527 for those in Northern Ireland. If London was a nation state, it would have a budget surplus of 7 per cent of gross domestic product, better than Norway...."

Just as Donald Trump’s America will not prosper by blaming other countries for its own problems and Britain’s woes are not the EU’s fault, the rest of the UK should stop accusing London of stealing its future. Politicians are there to lead. If they think regional prosperity will come from London’s pain, they are leading Britain to la-la land.

Growth cannot be pushed around the country like chips on a roulette table. Numerous attempts to relocate private industries have failed. Moving statisticians to Newport damaged the quality of information without helping much locally. Cities should instead seek to address barriers that prevent local businesses’ success. Manchester’s dynamism shows it is slow work but possible.

For the Tories to bemoan London’s relative success highlights a frivolity in government economic policy. There is every need to improve the performance of all parts of Britain, but setting policy to reduce the gap between the capital and elsewhere threatens universal misery. As the Centre for Cities notes, the most equal cities where gaps between rich and poor have been ironed out successfully — Burnley, Stoke and Mansfield — are also among Britain’s weakest.

Londoners have suffered the most and yet still provide the money to redistribute resources to poorer places and more vulnerable people. The rest of Britain should write a thank-you note.

The idea that London sucks the life out of other parts of Britain is absurd. Equally ludicrous is the notion that the capital’s population has lived the life of Riley while other places have suffered. After housing costs, Londoners’ median household incomes have performed worse than any other region since 2008.

If London was a nation state, it would have a budget surplus of 7 per cent of gross domestic product, better than Norway. It could finance the £30bn cost of the Crossrail 2 transport project with a little over one year of this excess cash. By contrast, Scotland, the West Midlands, Yorkshire and Humberside, the north-west, the north-east, Wales and Northern Ireland would each have budget deficits greater than 10 per cent of their national incomes. Without London, they would soon feel the warm embrace of an International Monetary Fund programme.

Official estimates, published for the first time last month by government statisticians based in Newport, Wales, bear this out. In 2015-16, average Londoners paid £3,070 more in tax than they received in public spending. Smaller net contributions to the national purse were made in the south-east and East Anglia. In contrast, net recipients of public spending ranged from an average of £1,296 for people in the south-west to £5,527 for those in Northern Ireland.

Politicians’ antipathy towards London is bizarre. It is definitively the cash cow that allows them to promise the high quality public services all parts of the country crave.

Of the main parties, the noisiest complaints come from the Conservatives. Displaying an undisguised hostility to the capital, the Tory manifesto talks of spreading wealth and opportunity across the UK, “not just the most prosperous places in London and the south-east”. It calls for arts funding to be redirected from the capital, for Channel 4 television and for civil servants to be relocated by force. “We will ensure that senior posts move too, so that operational headquarters as well as administrative functions are centred not in London but around Britain,” it promises. Labour is less vindictive, but shares the analysis. It complains the UK has “relied too heavily on the financial sector centred on London and the south-east”.

London is under attack. The perpetrators are aiming at its wealth, the opportunities it offers, its cultural vibrancy and its power. These foes are themselves mighty. They are the majority of Britain’s political class.

If the capital were a country, it would have a budget surplus of 7 per cent of GDP

Why London deserves a thank you note from the rest of Britain

Chris Giles, "Why London deserves a thank you note from the rest of Britain,"Financial Times, June 8, 2017, https://www.ft.com/content/ff0df3b4-4aa8-11e7-919a-1e14ce4af89b

how do you say "global wage convergence" in German? (Globale Lohnkonvergenz)

"...Germany introduced aminimum wagein 2015. But some experts argue that in many places it is not being properly enforced. Marcel Fratzscher, head of the DIW think-tank in Berlin, said the least qualified had seen their pay fall:“For people with low qualifications, the hourly rate has decreased from €12 to €9 since the late 1990s..."

Claire Jones, "German wage growth low as workers look beyond pay packets,"Financial Times, June 12, 2017, https://www.ft.com/content/a34ebea0-4b66-11e7-a3f4-c742b9791d43

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“Money is important of course,” said Kim, a 20-year-old student of mathematical economics. “But a job should be good for the soul and fun too.”

At Karlsruhe’s Institute of Technology, a leading technical university producing graduates in sought-after areas such as mathematics, engineering and science, students were happy to talk about their dream jobs — from working for carmakerDaimlerto helping the environment — but none said the size of their pay packet was their main motivation.

Economic prosperity and a rise in the proportion of school leavers going to university are also changing what people expect from their jobs.

Dirk Notheis, managing director of Rantum Capital, a fund set up to provide capital for smaller Mittelstand companies, said: “The problem is more one of a scarcity of workers, and that’s not simply a function of price. It also depends where the company is based. In a big city like Munich, it’s probably less of an issue to persuade a young engineer to join your company. But even if you raise the salary, younger people won’t be willing to move to a smaller place.”

German society is ageingand, with some workers able to retire at 63, the labour market will soon begin to shrink.

As Aluplast’s problems show, another reason why wages are not rising at a faster pace is that staff are not available at any price.

Germany introduced aminimum wagein 2015. But some experts argue that in many places it is not being properly enforced. Marcel Fratzscher, head of the DIW think-tank in Berlin, said the least qualified had seen their pay fall: “For people with low qualifications, the hourly rate has decreased from €12 to €9 since the late 1990s.”

In Karlsruhe’s main train station, Bernd, a florist, lamented the changes. “What does it mean to have low unemployment when inequality stays the same?”

As a result, the days in which less skilled German workers could look forward to regular pay increases seem unlikely to return in the foreseeable future.

Meanwhile the rights of lower-paid workers have been hit by the sweeping labour market and welfare reforms introduced in the 2000s by SPD chancellor Gerhard Schröder. While some credit those changes for the fall in unemployment, critics say they left workers more vulnerable and less able to push for better wages.

Exporters in the motor industry pay 27 per cent more than the average German manufacturer and wages in export-driven groups generally tend to be higher, says Deutsche Bank. But with the proportion of workers covered by collective bargaining dwindling, trade unions have sought to maintain their influence through broader agreements that have given members more job security and benefits such as better pensions and training, rather than focusing solely on wages.

“German companies and workers remember what they had to do to become competitive. They have that in mind now and that will remain in mind in the future too,” said Jonas Prising, head of ManpowerGroup, which researches labour market trends. Manufacturers can easily threaten to switch production to lower-cost countries, he added: “There is an understanding that we live and compete in a global environment.”

Employers and employees alike are reluctant to disrupt years of hard-won competitiveness gains that turned Germany from the “sick man of Europe” into an export champion.

Mario Draghi, ECB president, this month said “backward looking negotiations”, based on low inflation rates seen in previous years, were one reason for moderate wage growth. But other factors range from decade-old labour reforms to employee priorities that go beyond pay packets.

Aluplast’s workers are not covered by collective bargaining and negotiate individually. Mr Seitz said overall salary packages — including wages — had increased on average by more than 2 per cent in 2016.

IG Metall, Germany’s largest union, which represents metal and industrial production workers — many of whom work for export-driven companies — last year agreed a 4.8 per cent pay deal spread over 21 months and worth 2.7 per cent a year.

But the last time that happened in Germany was in 2011. Last year nominal wages rose by 2.3 per cent despite unemployment falling close to post-reunification lows.

Central bank policymakers suggest that German nominal wages need to grow at least 3 per cent annually to reflect the ECB inflation target of just under 2 per cent and a further 1 per cent in productivity gains.

Higher wages would also be in Germany’s interests as by improving the overall eurozone economy, it would make it easier for theEuropean Central Bankto bring an end to its era of ultra-low interest rates — something that German savers have long complained about.

The International Monetary Fund has warnedhigher wage growthin Germany is needed to sustain theeurozone recoveryby increasing the country’s purchasing power and making other countries’ companies more competitive.

The recruitment problems at the likes of Aluplast would seem to make Germany a ripe environment for sought-after workers to demand blockbuster pay increases. In fact the country is struggling to break out of a long period of moderate wage inflation — something of consequence beyond the wallets of its workers.

“We are fighting to hire workers,” he said. “We are collaborating with four training schools in the area. We even went to Greece and Spain and hired about 30 people from there. It is amazing what you have to do to find the right people.”

Aluplast, his manufacturing company, is thriving but Mr Seitz is struggling to add to its German workforce. Unemployment in prosperous Karlsruhe, where the plastics maker employs 600, is just 3.1 per cent.

Germany’s booming economy has given Dirk Seitz a headache.

German wage growth low as workers look beyond pay packets

will read. my guess is that they get causation backwards, low productivity firms have higher debt levels as they can't rely on equity

"...Tight credit conditions and balance-sheet vulnerabilities could be responsible for as much as one-third of the productivity slowdown in advanced economies following the 2008 global financial crisis, according to an International Monetary Fund research paper by Gee Hee Hong, Romain Duval and Yannick Timmer. This slowdown has swept across nations like Japan, the U.S. and France.....The IMF paper shows firms whose balance sheets were saddled by debt saw a larger slowdown in total factor productivity growth—which accounts for effects of inputs like capital and labor—than their more financially fit counterparts...."

On the negative side, very high levels of corporate debt could once again undermine firms’ ability to invest in the event of another crisis or credit crunch. The risks of a corporate debt pileup are evident in the case of oil drillers, who were initially attracted to the bond market by ultralow interest rates. The oil-price plunge, however, spurred a wave of defaults among smaller oil and gas drillers.

That hasn’t happened yet: U.S productivity growth was zero in the first quarter, according to the latest Labor Department figures.

The study has cross-cutting implications for the future of productivity growth. On the positive side, companies no longer have much trouble getting credit, as U.S. corporate debt is ballooning to levels higher than those just before the 2008 financial crisis. That could, in turn, help productivity, if it makes it easier for firms to finance R&D and workforce training.

The lackluster productivity was worse in countries where credit conditions tightened more right after the collapse of Lehman Brothers in September 2008.

These firms were more likely to cut back on investment like research and development, hurting productivity.

The IMF paper shows firms whose balance sheets were saddled by debt saw a larger slowdown in total factor productivity growth—which accounts for effects of inputs like capital and labor—than their more financially fit counterparts.

Firms often raise worker productivity by investing in new buildings, equipment, software and research. Firms that rely on the financial markets may not have been able to fund such investment when credit became scarce after the crisis.

Tight credit conditions and balance-sheet vulnerabilities could be responsible for as much as one-third of the productivity slowdown in advanced economies following the 2008 global financial crisis, according to an International Monetary Fund research paper by Gee Hee Hong, Romain Duval and Yannick Timmer. This slowdown has swept across nations like Japan, the U.S. and France.

Productivity is how much a worker can produce per hour and is the main source of rising standards of living. Its growth has slowed sharply around the world since the financial crisis. Because what employers can pay is closely linked to how much workers produce, this weak growth is a reason for slow wage gains.

Economists have long been puzzling over why productivity has downshifted over the past decade, often blaming waning technological innovation for the pullback. Research, though, points to an overlooked culprit: the shortage of credit to many companies that followed the financial crisis.

One More Reason for the Productivity Slowdown? Credit Conditions

Sarah Chaney, "One More Reason for the Productivity Slowdown? Credit Conditions,"Wall Street Journal, June 12, 2017, https://blogs.wsj.com/economics/2017/06/12/one-more-reason-for-the-productivity-slowdown-credit-conditions/