Thursday, July 29, 2010

Governor Vetoes Farm Worker Overtime Bill

Sen. Florez is right, the differential labor laws for agriculture are discrimination, and it is a shame that the Governor turned down this opportunity to right a historic injustice. 

Echoing the farm bureau's position, the Governor says the veto is justified because agriculture is "different."  However, the biggest difference in agriculture labor from other industries is its history of poverty and exploitation, not the characteristics cited here as excuses not to modernize the industry.  Seasonality, weather, thin profit margins describe many industries, some more than farming which has faired relatively well in the recession.

The Governor touts the importance of leadership when he wants California to go beyond other states in cutting greenhouse gases, but when it comes to farm worker rights, he hides behind the fact that other states exempt agriculture from labor rules.  He should adopt his global warming attitude on this issue, position California as a leader, and as the state with the most labor-intensive agriculture industry we can clearly lead the way in securing equal rights for farm workers in the entire United States.

Yes, I am a mainstream economist, and I agree that this bill will do more than just take money from the pockets of farm owners and put it in the pockets of farm workers.  There will be side-effects such as adjustments to work schedules, incentives for mechanization and other efforts to reduce the increased labor costs created by the bill.  However, some of these side-effects are actually good for the Valley Economy in the long-run and do not overly concern me. 

If this is too costly and burdensome for agricultural businesses, then California labor laws are too costly and burdensome for all businesses.  Once standards are aligned, farmers are free to work with other businesses for relief from the rules.

See a post from a few weeks ago for more comments.

Tuesday, July 20, 2010

The Cost of AB 32 vs Delta Levee Failure

Quiz: Choose the smaller amount of money?
A.  $4 billion to $34 billion
B.  $0 to $1.6 billion

If you answered that A is a smaller number, Congratulations!  You can get a job analyzing environmental policy for the state of California.   If you answered B is lower, you might be pretty upset since A is clearly 20 times larger.  But in California environmental policy, the amount of costs don't matter, it is the issue.

If we are talking about global warming, any cost to reduce greenhouse gases is modest and small.
If we are talking about water supply, any disruption has catastrophic costs.

An open letter from economists released yesterday calls the cost of AB 32 on California "modest."  The Air Resources Board has also called the cost small.  So what is small?  According to the ARBs latest analysis that most economists think is the best standard, the annual cost in 2020 will range between $4 billion and $34 billion.

What about the scenario of the Delta earthquake that floods 30 islands, etc?  We are always told that this would be catastrophic for the California economy, a "$40 billion disaster."  According to the analysis from URS corporation done for the Department of Water Resources (look at figure 6a if you want 1 picture), the range of expected 25 year cumulative costs is between $0 and $40 billion.  The midpoint (50% exceedance probability) looks to be $15 billion cumulative over 25 years.    On an annual basis, the midpoint is $0.6 billion with a range from $0 to $1.6 billion.

Obviously, it isn't a perfect comparison, one event is the estimated cost of doing something (AB 32), whereas the other is the estimated cost if we do nothing in the Delta.  There are other key differences too.

Still, the differences between the adjectives that are used is very revealing.  AB 32 is small and modest, whereas not "fixing" the Delta in the way preferred by water exporters will cause "catastrophe", the economy to "run dry", and cut off the economys "lifeblood." 

(last sentence deleted due to error.  ARB/AB 32 is not funded by the state General Fund)

Thursday, July 15, 2010

Department of Water Resources Says Economic Impact Study Costs $450,000

Is this a joke?  From a Hanford Sentinel article on Juan Arambula's (now co-sponsored by Fran Pavley) bill regarding the sale of agricultural surface water to cities outside the San Joaquin Valley.

Assemblyman Danny Gilmore, R-Hanford, was one who didn't jump on the bandwagon. Gilmore said he sympathized with Arambula. But Gilmore didn't support the cost of putting the bill into action during a state budget crisis. The state Department of Water Resources estimated it would cost $2.3 million a year to oversee the groundwater monitoring and another $450,000 annually to do the economic impact studies.
I can't comment on the groundwater monitoring, but I would bid about $15,000 for our Center to do the economic impact work, and I know consultants who would do it for $3,000 to $5,000.  Heck, I'll do it for free just because I would like to see this bill pass.  Clearly, Arambula's bill reveals true motives even more than I initially realized. 

I am truly stunned by this $450,000 annual cost for economic impact studies of a very small number of proposed transfers.  If this kind of work really paid that well, I would have a house in Aspen.  Seriously.   

The irony is that the water exporters would actually like to use my assessments of water supply economic impacts in this case.  My estimates of water shortage economic impacts have tended to be lower than their estimates and therefore would be more supportive of water transfers.

I suspect the truth is that DWR doesn't want the bill to pass and doesn't want to do te analysis, so they made up some crazy cost figures to give legislators an excuse to oppose it.  Of course, DWR has been incurring the cost to assess the economic impact of the drought, and update it every month for their drought updates.  If they can't bear the cost of assessing Vidovich's "man made drought", then they should immediately stop assessing the impacts of the current drought since it is too costly.  [As a side note, I find it interesting that DWR is now doing the economic impact estimates themselves now rather than quoting the UC-Davis estimates or citing joint modeling projects with UC-Davis as in their previous updates.]

Update: 7/18

The Fresno Bee ran a story on this bill today as well.  It appears that the sellers are required to pay for the economic assessment, not DWR.  Still, their cost assessment is odd.
Assembly Bill 2776 requires water users wishing to make long-term transfers of surface water to pay for an evaluation detailing the economic, social and environmental effects of the sale. Also, users would not be allowed to replace the water with ground water unless the underground basin is strictly monitored.

New Forecast Released

We released our most recent economic forecast today.  Click here for more information, including how to subscribe!

The Highlights of the California outlook are below.  It has not changed much over the past year.  I'll discuss the metro areas tomorrow when the EDD releases new data tomorrow - yes, tomorrow is unemployment Friday!

Highlights of the July 2010 California Forecast

• California remains in the sluggish, early stages of a long, slow five year recovery.

• California unemployment peaked at 12.6% in the first quarter of 2010, and will remain at or above 12% through the end of 2010, and above 10% through all of 2011.

• Payroll jobs bottomed out this winter nearly 1.35 million jobs below their 15.2 million job peak in Summer 2007. Although California will add 250,000 jobs over the next 12 months, this is less than one-fifth the total lost. Jobs will not recover their pre-recession peak until the 1st quarter of 2015.

• After 7.5 years of zero net job growth from 2007 through 2014, the state’s population will have grown by over 2.4 million people, keeping unemployment above 8% through most of 2014.

• Growth in real gross state product will average a modest 3.1% over the next four years.

• Construction has lost 390,000 jobs, by far the most battered sector through the recession, and will lose another 10,000 jobs by year-end. This cyclical sector will eventually bounce back, and should experience almost 11% job growth during 2012 and 2013.

• With the NUMMI closure in the past, manufacturing is growing again. Next year could bring the first annual increase in California manufacturing employment in a decade.

• Retail jobs have bottomed out after declining more than 10%, and are projected to rebound by 47,000 jobs (3%) over the next 12 to 18 months.

• Professional and Scientific Service jobs are projected to increase by 55,000 (5.5%) over the next year after a steep decline in 2009.

• State and local governments, including public schools, will drive most remaining job loss and shed 36,000 jobs over the next year.

• Housing starts bottomed in 2009 at a record low 36,000 units. Although housing starts will recover to 45,000 units in 2010, this is still the 2nd lowest level in 50 years. By 2014, housing starts will be back to normal levels exceeding 150,000 units as foreclosures finally ebb and existing home prices recover to close the gap with construction costs.

• Retail sales are growing again, but will not recover their 2007 level until 2011.

Wednesday, July 7, 2010

Farm Worker Overtime Bill Goes to Governor

It will be very interesting to see whether Governor Schwarzenneger signs SB1121, a bill that would apply the same overtime rules to farm workers that apply to other workers in California. Except for agriculture, California law requires 1.5x regular pay for hours beyond 8 in a day, and 40 in a week. In agriculture, overtime does not apply until 10 hours in a day, and 60 in a week.

Opponents argue that the bill will hurt farm workers, because employers will reduce hours (using larger crews) to avoid paying overtime. I have no doubt that some of this will occur, especially when there is a lot of unemployed labor like there is now, but I don't think that farmers will be able to or want to completely avoid overtime. Thus, the law will increase the total income and reduce poverty in farm workers in the Valley, and will decrease the net income of farms in the Valley. This will be true in total, even if some workers experience a reduction in hours and income and farmers make adjustments to minimize the cost of the law.

The change will probably accelerate the current trends toward less labor intensive production through mechanization, crop choice, advanced irrigation, etc. But this change will not occur overnight, it will occur over years and decades. It will reduce agricultural jobs, but it should increase average wages either through overtime pay or by increasing the productivity of workers in higher-skill, more capital intensive positions. In the long-run, the Valley Economy will be better off if the wage level and quality of agricultural jobs increase, even if the number of farm jobs decreases as a result.

I have listened to the agriculture industry's arguments of why they are different and should be exempted, and I find it unconvincing. Lots of industries have these same characteristics of seasonality, competition from cheaper states/countries, and are family owned businesses with thin profit margins.

I appreciate the economic argument that minimum wage, overtime and other labor regulations can reduce jobs and increase unemployment, although the argument is often over-simplified and exagerrated. It is true that you can't legislate higher average incomes and regional prosperity, and too much government redistribution can reduce total income and prosperity.

There is a case to be made for California to be more like other states and loosen up it's labor-friendly employment regulations, but if it does, it should do so for all industries. Why not reduce overtime rules for industries with higher base pay or have a sliding scale? Shouldn't we be more worried about the international competitiveness of high-wage industries that aren't tied to the land? I can think of other industries and occupations that might have a better argument for exemptions from minimum wage and overtime rules than agriculture.

Although I certainly see the potential downsides, I am in favor of the farmworker overtime bill and hope the Governor signs it. My support is primarily based on equity, and I think it will encourage some long-run changes in the industry and culture that are good for the Valley economy.

If California farmers feel this puts them at a competitive disadvantage with other states, I recommend that they lobby to remove agricultural exemptions at the federal level. If they feel that it makes them less competitive with other countries and increases the costs of business too high, then I recommend they join with other business interests in California and lobby to change state law for all industries.

Saturday, July 3, 2010

Millions and Billions and Carly Fiorina

Mike Taugher quoted me in a story in the CC Times/Oakland Tribune about Carly Fiorina trying to put the Delta Smelt and jobs at the forefront of her Senate campaign.
An ex-HP CEO should know the difference between millions and billions.
I should be careful about being too clever with these comments, but my point is that we need to put the problems of the Central Valley economy in proper perspective. The foreclosure crisis has generated many billions in lost income and wealth in the Central Valley, and the drought impact is measured in millions, and the biological opinion is only a fraction of that.

I am glad that Mike wrote this article, and hope it gets her to be a little more responsible with the rhetoric. In fact, I don't have an issue with any of Fiorina's statements in this article, she is more responsible when a reporter is asking tough questions and questioning her facts. She is right that the ESA has indeed created a thicket of regulations, and it does have real economic costs, but it has benefits too and is nowhere near a top economic problem. In the case of the smelt and salmon biological opinions, there is a salmon fishery among other economic interests that benefit from reduced pumping, so it isn't even clear that California suffers any net economic loss at all.

Fiorina's website on the issues doesn't even mention the housing and foreclosure crisis at all, while exagerrating the impact of the Delta Smelt as Taugher's article points out. That's inexcusable for someone running on the economy and jobs, it's very negative for the Central Valley (of which Westlands is just a corner), and that is why I have written so much about this issue.

If there is a Senate debate about the Central Valley economy, housing should receive 10 times the emphasis of the biological opinions. If moderating a Central Valley economic discussion, I would also give education, workforce skills, the struggle to diversify the economic base, raising agricultural wages, immigration, and even AB 32 - equal or higher billing than the biological opinions.