Category Archives: Labor & workforce

Drip… Drip… Drip… Another Richmond Company Moves from the Burbs to Downtown

Bob Hilb

The Hilb Group, a fast-growing insurance brokerage with more than $125 million in revenue, has made the decision to move its headquarters from the suburban Stony Point office to the Riverfront Plaza in downtown Richmond.

CEO Bob Hilb told Richmond BizSense that he had been looking for a new location for a year in anticipation of the lease expiring on his 5,000-square feet office in 2017. “While it’s a great building, it has turned into very much a medical office space,” he said. “There’s nothing wrong with that; it just doesn’t fit our vibe.”

And what’s that vibe? It’s all about the Millennials.

The downtown office will have a more modern, open layout — “a little less wood and more glass,” said Hilb. The company will move only 17 of its 800 employees into the new 9,000-square-foot digs, but he expects the number to grow as the company continues to roll up smaller, independent insurance agencies around the country.

“A lot of a people in our business, you walk into their office and it’s like you’ve walked into a hunting lodge,” he said. “As we grow, there’s no question that being able to attract millennials and having a really nice progressive office makes a difference.”

Bacon’s bottom line: Technically, the Hilb Group’s relocation is a Richmond-to-Richmond move. But Stony Point, located on the far western edge of the City of Richmond, was developed as a classic suburban office park surrounded by parking lots and trees. Walking to the nearby “pedestrian” mall is impractical. The office park is accessible only by automobile. The Hilb Group’s new location in the Riverfront Plaza will be in the heart of downtown near the James River.

Meanwhile, the urbanization of the City of Richmond continues apace. Union Presbyterian Seminary is moving ahead with the development of a $50 million, 301-unit apartment complex in Ginter Park, a single-family neighborhood, despite stiff opposition by neighboring property owners.

And the city planning commission has signaled its intention to rezone Scott’s Addition, a light industrial area transitioning to mixed-use residential and commercial, under a new, more urban zoning classification. Local businesses, says the T-D, would see changes to parking regulations, square footage restrictions and the allowance of small-scale manufacturing.

Charts of the Day: Job Polarization

Virginia employment change since 2008. Source: StatChat

The good news in the ongoing evolution of Virginia’s economy is that employment in high-paying occupations has increased since 2008. The bad news is that employment in low-paying occupations has risen as well while employment in middle-class occupations is shrinking.

Kathryn Crespin with the Demographics Research Group at the University of Virginia published these charts from Bureau of Labor Statistics data in the StatChat blog.

“Job polarization is certainly not unique to Virginia,” she writes, but the trend has been more noticeable here since 2008 than in the rest of the country. … Although there has been an uptick in middle-wage job growth in Virginia over the past few years, job polarization is a nationwide, long-term trend that has developed over the past few decades and shows no signs of resolution any time soon.”

Virginia employment change since 2008. Source: StatChat

Marriage, Fertility and Male Earnings

North Dakota fracking: higher male incomes did not translate into higher rates of marriage.

One of the great debates in the social science of poverty asks what accounts for the decline in marriage and the increase in out-of-wedlock births. There is a broad consensus among scholars of diverse ideological persuasions that children born into stable marriages tend to fare better in life than those raised by single mothers. The question is why the institution of marriage has declined so precipitously among lower-income Americans even while it remains strong and vibrant among affluent Americans.

In a new paper, “Male Earnings, Marriageable Men, and Nonmartial Fertility: Evidence from the Fracking Boom,” Melisa S. Kearney and Riley Wilson frame the issue this way:

In 2014, over 40 percent of all births in the U.S. were to an unmarried mother, with an even higher rate of 62 percent among non-college educated mothers. A leading conjecture as to why so many less-educated women are choosing motherhood without marriage points to the weak economic prospects of their male partners. The idea is that changing labor market structures and economic conditions have adversely affected the economic prospects of less educated men, making them less “marriageable” from the perspective of the women with whom they sexually partner.

Kearney and Wilson have flipped that conjecture around and hypothesize that improving earnings prospects by non-college educated males would be associated with an increase in marriage and marital childbirth. They tested that hypothesis by examining family formation between 1997 and 2012 in Census micro-areas experiencing a natural gas fracking boom, where non-college educated males experienced a jump in earnings compared to their peers in the rest of the country.

The result: “This analysis does not indicate shift toward marriage in response to an increase in the potential wages of less-educated men associated with localized fracking booms. But both marital and non-marital births increase significantly.”

The authors compared the fracking boom of the 2000s to the Appalachian coal boom of the 1970s and 1980s. Back then, in a different cultural era, increased earnings led to an increase in marriage rates, an increase in the marital birth rate, and a decline in the non-marital birth rate.”

In other words, the conjecture linking men’s income with their marriage prospects may have been valid 4o years ago, but it’s less valid today. Write Kearney and Wilson: “As non-martial births have become increasingly common, individuals are more likely to respond to increased income with increased fertility, whether or not they are married, and not necessarily an increased likelihood of marriage.”

Bacon’s bottom line: The interplay of economics and culture is incredibly complex. But the findings suggest that among a large portion of the American population, marriage is increasingly viewed as optional — regardless of the father’s economic circumstances. Further, out-of-wedlock birth is no longer stigmatized. This research calls into question the idea that blue-collar male earnings are the main stumbling block to family stability. We have passed a cultural Rubicon, and there may be no going back without a major change in values.

The Marketplace is Speaking. Are the Counties Listening?

CoStar is occupying three floors of the Westrock building (on left) in downtown Richmond.

After CoStar Group, a provider of real estate market intelligence, announced last fall its intention to move its research division headquarters to downtown Richmond, the company offered employees from Washington, D.C., Atlanta, San Diego, and Columbia, Md., an opportunity to move to Virginia. A big concern of Senior Vice President Lisa Ruggles was how many would want to make the move. “I had no idea of how many people would be interested,” she said.

She was surprised that 150 applicants responded, Ruggles told Richmond BizSense. After they took part in three-day tours of the metropolitan area, she says, “I told them that they were all welcome to come to Richmond, and the place erupted. Everybody was clapping, people were crying; it was an amazing sight to see.”

AvePoint, a New Jersey provider of Microsoft cloud services, had a similar experience, according to BizSense. “We estimated that when we would be transferring people down here that we might not get a ton of people, because Richmond is very different from New York,” said AvePoint COO Brian Brown. “That’s proved absolutely not to be the case.”

Big selling points: a lower cost of living, shorter commutes and a high overall quality of life. “I think one of the things people are pleasantly finding, especially people who have families, is how cheap it is to find a really nice place to live and how easy the commute is,” Brown said.

Here’s the really interesting thing:

CoStar’s Ruggles said it has been interesting to see where employees have chosen to live in Richmond. Of the 120 employees who made the company’s initial move, she said the majority chose places such as Deco at CNB and other apartment communities in Tobacco Row and Manchester. Only two employees chose to live in Short Pump, said Ruggles, who herself just closed on a house in the West End.

“Coming from D.C., a lot of our employees don’t have cars, and that was not something they were wanting to run out and buy, so a lot of people ended up in locations where they could walk to work,” Ruggles said. “We have found that, because that group relocated from D.C., where they’re used to taking the Metro or walking or riding their bike, they’re continuing to do that here.

Bacon’s bottom line: Richmond’s urban core exerts a strong appeal to highly skilled and educated employees — the affluent, creative-class types who pay more in taxes and spend more in the local economy — from other cities. If the region wants to attract more employees like them, along with the companies that employ them, the city and counties need to facilitate the building of the kind of communities these people want to live in. That means more moderate density, more mixed-use development, more grid streets, more investment in streetscapes, and, where economically justified, more mass transit.

That’s an easy sell for Richmond, most of which was laid out according to the dicta of traditional city planning. It’s a harder sell for Henrico and Chesterfield Counties, built according to the principles of suburban sprawl. The marketplace is yelling loud and clear what it wants. As a Henrico resident with a vested interest in the county’s long-term fiscal viability, I hope county officials are listening. If they’re not the City of Richmond will kick our butts in the economic development game.

Business and Computer Science Majors are the Biggest Bargains in Higher Ed

Graphic credit: “Costs of and Net Return to College Major”

It is widely known that certain college majors offer better career prospects than others. Engineering and business majors earn more money on average than, say, art and English majors. Less well known is the fact that certain majors are more expensive to teach. As seen in the chart above, engineering graduates cost twice as much to educate as library graduates.

The data comes from a new study, “The Costs and Net Returns to College Major,” by Joseph G. Altonji and Seth D. Zimmerman, published by the National Bureau of Economic Research. They drew their cost data from the Florida State University System.

The insight that different majors have different costs has important implications for how state systems of higher education allocate their resources. In Virginia, there has been a big push since the “Top Jobs” legislation of 2011 to increase the number of STEM (science, technology, engineering and math) graduates at Virginia colleges and universities. The shift to higher-cost STEM majors, while arguably justified from an economic perspective, contributes to the rising cost of higher education.

Another way to slice and dice the data is to look on the return on investment for different majors based upon the cost of providing the education and the present value of graduates’ earnings. As seen in the chart below, business majors, who cost relatively little to educate but enjoy high lifetime earnings, represent an extraordinary bargain. By contrast, architects, who are expensive to educate but earn relatively little, are a Return on Investment disaster. Much to my surprise, even engineers don’t look like such a bargain.

Career earnings may not be the best way to measure the social value of a particular major. It is possible that architects contribute far more to social well being than their pay stubs would indicate. (It’s hard to imagine that genders-studies majors have anything worthwhile to contribute to the world, but, hey, that’s me.) But the present value of earnings is a pretty good proxy for a graduate’s economic value.

As lawmakers ponder how to allocate scarce higher-ed dollars, they would be well advised to take into account how much bang for the buck colleges are getting for their investment in different disciplines. Perhaps Virginia colleges need to promote enrollment in business schools and less in architecture. I never imagined myself saying this, but maybe we should be encouraging more kids to enroll in psychology and fewer in engineering!

Fudging Differences between Legal and Illegal Immigrants

Big difference in educational attainment between legal and illegal immigrants.

The big difference in educational attainment between legal and illegal immigrants doesn’t come through in this graph. Credit: Commonwealth Institute

Immigrants residing in Virginia are better educated and more entrepreneurial than commonly perceived, says a new report by the Commonwealth Institute (CI), “Virginia Immigrants in  the Economy.”

That’s true.

Yet immigrants’ contributions to the U.S. economy are often minimized by “some state and federal lawmakers,” adds a press release accompanying the report. In truth, immigrants make our communities and economy stronger, says Laura Goren, CI research director and co-author. “Too many politicians are using scare tactics and divisive rhetoric about immigrants to advance their own agendas.”

Grrrr. I must take issue.

In attributing “scare tactics and divisive rhetoric” to shadowy others, Goren is guilty of the very behavior she decries. Whether due to simple naivete or deliberate obfuscation, I don’t know, she conflates legal immigrants with illegal immigrants. Thus, legal immigrants, who make a large positive contribution to Virginia’s economy, provide statistical cover for illegal immigrants, whose net contribution is problematic.

That’s an turn-off to readers who otherwise might find value in the report, which does contain some useful information. Foreign-born inhabitants now constitute 12.2% of the state’s population, for instance, with the heaviest concentration in Northern Virginia. More than half the foreign-born population has become naturalized.

…Neither does the difference in entrepreneurial vitality.

Virginia immigrants are more likely than native-born Americans to hold a college degree, the report informs us. They have slightly higher incomes, and they are more likely to be self-employed or own a business.

“In sum, Virginia immigrants are relatively young, well educated, fluent in English, and more likely to participate in the workforce,” says the study. “This powerful combination reflects the substantial capacity for immigrants to contribute to the state’s economy.”

But average numbers obscure important differences between different categories of immigrants. Forty percent of Virginia immigrants are well educated (college or graduate degrees) and wind up working in professional and technology fields. But, according to CI’s data, 20% lack a high school degree, a much higher percentage than for the native-born population. In other words, we are looking at two very different groups — one highly educated and affluent (mostly legal) and one ill-educated and poor (mostly illegal).

I know of no respectable voices in Virginia who say we should clamp down on all immigrants. (There might be a tiny percentage of white nationalists who advance that argument, but their numbers are insignificant.) The controversy over immigration focuses on poor, ill-educated immigrants, mostly though not exclusively from Latin American countries, who compete with similarly poor, ill-educated native-born Americans. These immigrants (mostly illegal) drive down wages of unskilled occupations, and put a burden on educational and social services.

I’ve never heard anyone hint that there’s too darn many Indians, Chinese, Vietnamese or Koreans in Virginia. That’s because Asian-Americans quickly learn English, rapidly assimilate to mainstream norms, become educated, launch job-creating businesses, and place minimal stress on the welfare state. Their presence is indisputably a net benefit to society.

By contrast, the Commonwealth Institute concedes that there are “challenges” associated with between 275,000 and 300,000 unauthorized immigrants. Nearly one in five live below the poverty line, and 58% lack health insurance. When one calculates the impact of illegal immigrants on the wage levels of unskilled workers, on schools, on the welfare state, and on the criminal justice system, this sub-set does not look like a net benefit to American society.

The study contends that illegals make a positive contribution, contributing $250 million in state and local taxes. If provided a path to citizenship, they could generate an estimated $100 million more. To the Commonwealth Institute, the problem isn’t foreigners illegally entering the U.S., but the mean people who treat illegals as second-class citizens. Says the report: “Lack of access to health care and threats of deportation and discrimination all make unauthorized immigrants and their families less able to contribute to the communities in which they live.”

I don’t believe in demonizing illegal immigrants for the sin of wanting to build better lives in Virginia. I don’t bear them any animus. I think it is wrong to abuse or mistreat them. But I also believe that a sovereign state has the inherent right to choose who can enter the country and upon what terms and conditions they do so. Foreigners have no right to live in the United States. One can make an argument that the U.S. should expand opportunities for foreigners to enter the country legally, but only on the purely utilitarian grounds that their presence benefits the rest of us. Accordingly, I think we should give preferential treatment, as many other countries do, to those who can contribute to the national wealth and well being over those who cannot.

Having a rational conversation requires that we draw distinctions between immigrants on the basis of education, skills, wealth, age, ability to assimilate, and proclivity to become a burden on the state. It is difficult to have that conversation when we lump all “immigrants” together.

Virginia Ranks 6th in Tech Employment

From the “Cyberstates 2017” research report…

Virginia tech employment (2016): 291,312
National rank: 6
Increase from previous year: 4,145 jobs
Percent of overall workforce: 7.7%

Average tech industry wages in Virginia (2016): $112,014
National rank: 7

What the Obama Giveth, the Trump Taketh Away

Slash and burn

The federal budget sequestration may have kept a lid on escalating federal budget deficits, a good thing, but it was a disaster for Virginia’s economy. The cap on federal spending hammered a Northern Virginia economy built largely around the Pentagon. The ascension of Donald Trump to the presidency signaled a possible return to the region’s glory days as the new president promised to increase defense spending by $50 billion.

But the president has created massive uncertainty with a vow to slash discretionary spending in civilian programs and bureaucracies. The Washington Post is all in a dither:

The cuts Trump plans to propose this week are also expected to lead to layoffs among federal workers, changes that would be felt sharply in the Washington area. According to an economic analysis by Mark Zandi, chief economist for Moody’s Analytics, the reductions outlined so far by Trump’s advisers would reduce employment in the region by 1.8 percent and personal income by 3.5 percent, and lower home prices by 1.9 percent. …

Trump’s emphasis on defense spending might provide a buffer for Northern Virginia, although, as noted previously on this blog, there are some within his administration who believe that the Pentagon civilian bureaucracy needs to be whacked down to size in order to free more resources for fighting forces. Under a serious effort to rebuild the U.S. Navy, Hampton Roads’ military bases and shipbuilders could be big beneficiaries.

We can’t say anything with certainty until Trump releases the details of his plans later this week. But at this moment in time, it looks like the new budgetary policies could be a mild plus for Virginia with boosts in defense spending offsetting cuts in other areas. Conversely, Maryland and Washington, D.C., with their large non-military exposure, could be in for a world of hurt

Adding to Washington’s woes…. The metro area’s job performance in 2016 has been revised downward. Reports the Washington Business Journal: “The D.C. region added 55,600 jobs in 2016, according to final data released Tuesday by the Bureau of Labor Statistics — about 16,800 fewer than the agency had initially counted.”

“We are talking slashing and burning several different agencies on the discretionary, non-defense side. That could have a pretty chilling effect for the local economy,” said Clifford Rossi, a professor of the practice at the Robert H. Smith School of Business at the University of Maryland-College Park.

Rossi agreed that the revised job growth numbers reveal an economy that was weaker than it originally appeared, and that the federal spending cuts proposed by Trump could have a compound effect on the regional economy.

Bacon’s bottom line: Actually, the loss of 1.8% employment and 3.5% income is no worse than what dozens of other metros experienced in the last recession. But have compassion! Washington has never been through anything like this before.

(Hat tip: Rob Whitfield)

For-Profit Colleges and the Student Debt Apocalypse

Graduates from for-profit colleges account for a disproportionate share of student loan defaults.

Graduates from for-profit colleges account for a disproportionate share of student loan defaults.

Tressie McMillan Cottom worked as an enrollment officer at two for-profit technical colleges before she went on to earn a PhD., join the faculty of Virginia Commonwealth University, and write a book, “Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy.”

Cottom says that for-profit colleges get one important thing right: They invest resources in the front-end process of helping students enroll: everything from applying for financial aid to having their textbooks waiting for them on the first day of class. But she, like many other critics of for-profit education, is concerned by the high indebtedness and high default rate of students. Those who attend for-profit colleges represent only 26% of all borrowers but account for 35% of federal loan defaults.

The high default rate is a sign of the trouble graduates have finding quality, high-paying jobs, Cottom told Karin Kapsidelis, higher ed writer for the Richmond Times-Dispatch. For-profit colleges are a varied lot. While some deliver value for the students’ investment, others are marketing machines designed to enroll students and collect revenue with little heed to results. “The profit motive changes everything. It means that instead of helping students, you’re selling students.”

The industry took off when the financial sector figured out how to make money from it, Cottom says. Wall Street underwrote for-profit educational enterprises to “monetize” peoples’ aspirations and their faith in education as the way to improve their lives.

Writes Cottom in the introduction to her book:

Lower Ed refers to credential expansion created by structural changes in how we work, unequal group access to favorable higher education schemes, and the risk shift of job training, from states and companies to individuals and families, exclusively for profit. Lower Ed is the subsector of high-risk post-secondary schools and colleges that are part of the same system as the most elite institutions. In fact, Lower Ed can exist precisely because elite Higher Ed does. The latter legitimizes the education gospel while the former absorbs all manner of vulnerable groups who believe in it: single mothers, downsized workers, veterans, people of color, and people transitioning from welfare to work.

Bacon’s bottom line: No question, the high default rate is a huge problem — student indebtedness is creating a new class of Americans who have little hope of paying back their tuition and, as the law stands now, little chance of discharging their debts through loan forgiveness or bankruptcy like overextended homeowners can do. But I am concerned by how many people, including, Ms. Cottom, it seems, blame the problem on for-profit institutions and the profit motive.

As the Kapsidelis story points out, for-profit colleges account for 35% of all federal loan defaults. But 65% can be traced to non-profit colleges! The driving force behind high defaults isn’t the for-profit status of the school, I would suggest, but the socioeconomic status of the student. Students from poor families are more likely to drop out and default on their debt than students from better-off families. Historically Black Colleges and Universities (HBCUs), which are non-profit, have high default rates, too, as do institutions that cater primarily to lower-income whites and Hispanics.

For-profit institutions are motivated to accept marginal students in order to fill seats and generate revenue. But guess what, so are many non-profit institutions. They, too, have expenses to cover, salaries to pay, and bonds to finance.

The problem, I would suggest, isn’t for-profit versus non-profit, it’s the erosion in lending standards. Anyone who wants a student loan can get one. Because the repayment risk is transferred to the federal government, the college (be it for-profit or non-profit) has no skin in the game. If a college student is unprepared for college, defaults after dropping out, or fails to find a job, the institution suffers no ill consequence. Why would we expect any other result?

 

The Northam/Perriello Rural Poverty Plan

Let there be higher wages! Ralph Northam (left) and Tom Perriello on the campaign trail in Northern Virginia where they promoted a $15 minimum wage.

Let there be higher wages! Ralph Northam (left) and Tom Perriello on the campaign trail in Northern Virginia where they promoted a $15 minimum wage. (Photo credit: Washington Post)

Both Democratic candidates for governor, Ralph Northam and Tom Perriello, have endorsed a statewide $15-per-hour minimum wage, a sign, says the Washington Post, of how much momentum the national “Fight for $15” is achieving. (Virginia hews to the federal minimum wage of $7.25 per hour, which has not increased since 2009.)

Perriello backed the $15 minimum wage shortly after declaring his candidacy, and Northam followed the next day. Both candidates reiterated their support earlier this week when aligning themselves with striking workers at Reagan National Airport. Reports the Post:

“I would challenge anyone out there to go try to support themselves and support their families on $7.25 an hour,” Northam said Wednesday after his meeting with workers. “It is impossible. You can’t do it.” He said he would push to raise the minimum wage as governor by campaigning to unseat Republican lawmakers opposed to it.

“We know we have a long way to go,” Perriello told a wheelchair handler during his Thursday visit, wearing a purple Fight for $15 scarf. “This is about the dignity of work, but it’s also about economic growth in our community.”

Bacon’s bottom line: Economists have haggled endlessly for decades over the effects of the minimum wage, with neither side dealing a knockout blow. But it’s safe to say that the minimum wage would have the greatest impact on labor markets in areas where prevailing wages are the lowest — and in Virginia, those are rural areas.

Start by asking the following question: Why not raise the minimum wage to $30 an hour? Or $100 an hour? Because, even liberal economists will concede, employers will lay off workers who don’t deliver $30 or $100 in economic value. At some point the wages lost by those who lose their jobs will exceed the wages gained by those who received a pay raise. At that point the minimum wage becomes indisputably destructive. The question is at what hourly wage that threshold is crossed.

It is conceivable that a $15 minimum wage will work in the Washington metropolitan area in the sense that wage gains for lower-income workers will exceed the wages lost from employees who lose their jobs. That’s because Washington is already a high-cost-of-living, high-wage labor market, and the differential between prevailing market wages and the $15-per-hour minimum wage is relatively modest. The picture is very different in economically depressed Southside and Southwest Virginia communities where one of the few competitive advantages in the economic-development arena is a lower cost of living and a lower wage base.

The Virginia Employment Commission publishes labor market profiles of the Southwest Virginia Workforce Investment Area here and the Northern Virginia Workforce Investment Area here. Below, I extracted the average weekly wages for the largest occupational categories in Southwest Virginia (excluding government and mining/oil and gas/extraction).

For purposes of comparison, someone earning the current minimum wage and working 40 hours a week would earn $290 per week, while a $15-per-hour minimum wage would equate to $600 per week.

Clearly, such a minimum wage would have a greater impact on SW Virginia workers than NoVa workers where the average weekly wage (and by implication the average hourly wage) is 50% to 75% higher. On the plus side, the pay of SW Virginians would jump more… if they could hang onto their jobs. And there’s the rub. How many could hang onto their jobs after such a massive disruption to labor markets? While some SW businesses might survive by laying off marginal employees, one has to ask, others couldn’t even stay in business. Would a Pizza Hut franchise be able to keep the doors open if its cost of labor doubled? If not, how many business owners, store managers and others earning above the minimum wage also would lose their jobs?

Beyond the immediate impact, what would be the consequences for long-term job development? Would any corporation consider investing in SW Virginia, a region in which 11% of the workforce has an 8th grade education or less and another 12% has “some” high school, if the minimum wage were $15?

The idea of a $15-per-hour minimum wage was born in affluent urban areas with a high cost of living. It is totally inappropriate for poor rural areas with low living costs, low wage structures and high unemployment. I can think of no economic policy that would be more disastrous for Virginia’s rural regions.