Category Archives: Economy

Automation Disrupting Chinese Manufacturing

This is a good reminder that automation is a global economic trend.

Rapidly growing appetite for industrial robots in China is set to hasten the decline in manufacturing jobs, according to the findings of an FTCR survey.

As part of a top-down push, local governments are subsidising companies to produce and purchase robots, while most companies reported productivity gains and forecast a reduced need for frontline workers.

This is not a zero-sum game: companies also cited a growing need for more skilled workers. This is creating demand for vocational skills and the robot revolution will be able to absorb only a minority of such workers.

The increasingly rapid adoption of industrial robots on Chinese production lines is set to hasten the fall in manufacturing employment. Among companies that intend to purchase robots in the coming 12 months, 72.7 per cent said this would mean job losses, according to an FT Confidential Research survey conducted across manufacturing centres in Guangdong in the south and Zhejiang on the east coast.

Massive Oil Deposit Found in Alaska

America’s output can dwarf the Middle East if we allow ourselves to do it.

Some 1.2 billion barrels of oil have been discovered in Alaska, marking the biggest onshore discovery in the U.S. in three decades.

The massive find of conventional oil on state land could bring relief to budget pains in Alaska brought on by slumping production in the state and the crash in oil prices.

The new discovery was made in just the past few days in Alaska’s North Slope, which was previously viewed as an aging oil basin.

General Motors Surrenders Europe

It’s about time.

PARIS (AP) — General Motors is selling its unprofitable European car business to the French maker of Peugeot, marking the American company’s retreat from a major market and raising concerns of job cuts in the region.

With the 2.2 billion euro ($2.33 billion) deal announced Monday, GM is giving up brands — Opel in Germany and Vauxhall in Britain — that have given it a foothold in the world’s third-largest auto market since the 1920s. They have not, however, made a combined profit in 18 years despite multiple turnaround efforts.

Markets Soar After Trump Speech

Make my 401(k) great again.

The Dow soared 303 points to close above 21,000 for the first time ever on Wednesday. The milestone comes barely a month after the Dow hit 20,000 for the first time.

Wisconsin Economy Facing Workforce Drag

This is a problem.

The conversation around workforce has been shifting from just building up the state’s current labor pool to now also attracting new talent to the state. Tricia Braun, chief operating officer of the Wisconsin Economic Development Corp., said there’s been growing demand in the economic development community to address talent attraction at a state level.

Department of Workforce Development secretary Ray Allen put it a little differently.

“Workforce is the new economic development,” he said.

Buckley Brinkman, executive director and CEO of the Wisconsin Center for Manufacturing and Productivity, said the optimistic forecast is for the state workforce to be flat over the next 15 years, while the pessimistic version shows it could be down by 40 percent. Either way, there are examples of companies turning away work because they don’t have the workforce they need, Brinkman said.

“That might be fine for an individual company, but when you start adding those companies together, you have an economy that’s not growing,” he said.

Wisconsin has consistently lost more people than it has gained for years. Part of that is retirees moving to warmer weather, but part of it is that Wisconsin is not attractive. As one of the few immigrants into Wisconsin, I have a different perspective than people who grew up here. Wisconsin has a great culture and great people, but you don’t really know that until you live here for a while. If you are looking in from the outside, it looks like a state with crappy weather, oppressive taxes, and a rust-belt economy. Unless there is a really compelling job or a family reason to move here, most people don’t. The fact that more and more jobs allow virtual offices helps Wisconsin companies fill some knowledge worker jobs, but it also means that Wisconsinites have less of a reason to stay in the state.

Wisconsin can’t do anything about the weather, so it needs to work on what it can to make it more attractive for a smart, mobile, young worker to move to Wisconsin.

Workers Fired for Skipping Work

They have every right to protest to make a point, but they do not have a right to do so free of consequences.

LEXINGTON COUNTY, South Carolina — Twenty-one people were fired from a South Carolina company after taking part in the Day Without Immigrants protest.

The movement closed restaurants and shops across the country to show the contributions immigrants have on the American workforce.

Juvenito Quintana and 20 others all missed work on February 16. The next day, they got a letter from Encore Boat Builders LLC in Lexington.

The letter said they were being terminated for no-show/ no-call-in. Their last day listed was February 16, the day of the protest.

Quintana says some employees got calls from management the day before telling them not to miss or else they’d lose their job. That’s why he said a lot didn’t call in, for fear.

Most of the employees had been working there for years and have small children. Quintana is a permanent resident and feels like the termination was unfair.

It looks like the employer acted in good faith and even warned the employees. On a side note, we should have a Day Without Pasty White Guys and watch every IT department in the nation grind to a halt.

Senator Fitzgerald Questions Self-Insurance

It’s a valid point, but…

On self-insurance, Fitzgerald said lawmakers have always been curious about whether the change would save money. Walker’s proposal would have the state work with several third-party administrators to pay employees’ health claims directly, rather than paying monthly premiums to health insurance companies.

Walker’s office says the move would save $60 million in the next biennium, but Fitzgerald said that was “far less than what most people anticipated.”

The proposal, Fitzgerald noted, would cause some health insurers to lose a major chunk of their current enrollees, raising a possibility that those companies “could falter.”

“Now that you’re not seeing those types of numbers, people are worried about the job loss it could create across the state,” Fitzgerald said.

Self-insurance is a relatively simple concept. When an organization – in this case a government – wants to provide health insurance to their employees, there are a variety of ways to do that. The fundamental issue is the assumption of risk. That’s what insurance is all about. The risk is that the employees being covered will suffer catastrophic health care issues, thus forcing the provider to pay a lot more than the sum of the premiums.

In order to hedge against the risk, most organizations contract with a health insurance company. In that scenario, in exchange for contracted and stable premiums, the health insurance assumes the risk. The organization gets a predictable outflow of cash while the health insurance company gets profit. The profit is the monetization of the risk that the health insurance company assumed.

All self-insurance means is that instead of contracting with a health insurance company, the organization assumes the risk themselves. The organization takes ownership of accepting the premiums and paying out any claims. A few organizations manage all of that themselves, but most still contract with a health care provider for the administrative functions. In the case of self-insurance then, the organization assumes the risk and, as a consequence, saves the profit that they would have otherwise paid to a health insurance company.

Self-insurance is an option for any organization, but it usually only makes sense for large organizations that can spread out the risk. For example, a 10-person shop could self insure, but the costs can vary wildly if one person is pregnant or has a major disease. In contrast, in a 10,000 person shop, the statistical averages come into force and costs become relatively predictable and stable.

Well, there is no larger organization in Wisconsin than state government. The State of Wisconsin can spread the risk among tens of thousands of employees. While it is not a slam dunk decision for the state to self-insure, it is close. The benefits of self-insurance have been proven time and time again, which is why many of Wisconsin’s largest employers like Briggs & Stratton, GM, Kimberly-Clark, Schneider Corp., WE Energies, Rockwell Automation, Kwik Trip, John Deere, Kohler, Washington County, Milwaukee County, Dane County, City of Milwaukee, City of Madison, Madison School District, Kenosha School District, and many more already do it.

The money saved compared to using a health insurance company varies from year to year depending on the expenses, but over the years it will benefit the state to self-insure. After all, if the profit that health insurance companies earn is a function of the risk they assume and they remain extraordinarily profitable most years, it is safe to conclude that the state would benefit from assuming that risk instead of paying the health insurance company to assume it.

Fitzgerald’s point is certainly valid. The state is a massive customer for its health insurance provider(s). If the state self-insured, then those companies would lose a huge customer and the profit that went with it. The consequences of that will almost certainly be some loss of revenue and downsizing. But it is not the role of the taxpayers to prop up private companies. What the taxpayers deserve is the best possible deal that will provide the services required. If legislators do any less, it is a dereliction of their duty to their constituents.

So the JFC should take a good look at self-insurance. But the decision criterion should not be the impact on the companies currently making their profits off of the taxpayers. The decision criterion should be finding the most economical way for the state to provide quality health insurance to its employees.

Droid Room Service

This seems like a great application for automation.

The M Social Singapore hotel is introducing a droid that can deliver room service to guests. It navigates using 3D cameras and can negotiate lifts and manoeuvre around people wandering down the corridors. The M Social is far from the first establishment to employ such robots. The machine, called Relay (pictured), which is made by Savioke, a Californian firm, already does shifts at some Aloft and Residence Inn hotels.

Tom Breedon, the general manager of the Residence Inn at Los Angeles airport, says using the robot for deliveries increases revenue per available room, a key industry measure, by at least 0.5%. This is partly because a robot is cheaper than a human (the Relays are leased for $2,000 a month; they cannot be bought). But it is also because guests are so taken by the novelty of being served by a robot that they order more room service.

Note the price point.

At $2k/month, that’s the equivalent of about $11.5/hour (assuming 2080 work year). And the robot comes without the headaches of recruiting, calling in sick, bad behavior, law suits, benefits, etc. Also, the robot can work almost 24 hours a day, so it is really providing the equivalent of 4.2 FTEs.

On the flip side of that equation, the company that makes the droid is based in San Jose, California, and is likely paying engineers, software developers, technicians, etc. well into six-figure salaries to create these devices.

Creative destruction is not a bad thing. It is essential to economic and human progress.

Army Approves Easement for Pipeline

Good.

The US Army has informed Congress that it will grant permission to complete the controversial Dakota Access pipeline near tribal territory.

[…]

The 1,172 mile (1,886km) pipeline is almost finished except for a section under Lake Oahe in North Dakota, where demonstrators have set up protest encampments.

Trump Moves on Regulatory Reform

Excellent.

In his first order, Trump will issue a broad directive meant to garner input from the heads of federal regulatory agencies on areas for reform. The move won’t make any immediate changes to the agencies or their policies; rather, it will solicit recommendations for changes to the Dodd-Frank Wall Street reform law that was enacted in 2010.
“Everything is going to be looked at,” said a senior administration official, speaking anonymously to preview the order before it was signed.
The official conceded a complete gutting of the law would require Congress to act — “This is not an attempt to undo Dodd-Frank” — but identified areas where Trump could make unilateral changes, like placing his own directors at key regulatory bodies.
Dodd-Frank is one of those well-intentioned laws that was passed after a crisis when lawmakers were under severe duress to “do something.” The result is an incredibly burdensome, expensive, and punitive regulatory structure that often prevents businesses from acting in the best interests of their stakeholders. It also bleeds money away from productive areas of the economy in order to feed the regulatory compliance industry.
But I appreciate the fact that President Trump is beginning with an effort to seek informed advice and the deference to Congress’ authority and responsibility to act.
And then there’s this:
A second action Friday will direct the Department of Labor to cease implementation of an Obama administration rule on retirement investment advisers, which is supposed to take effect in April.
That measure, called the “Fiduciary Rule,” required retirement advisers to always act in their clients’ best interests. But the Trump administration official said the rule was a “complete mess” with a litany of unintended consequences.
This was another one of those land mines that President Obama planted for Trump. It was a sweeping regulation that Obama based in a 1974 law that was intentionally set to phase in after Obama left office. It sounds great on paper. After all, who wouldn’t like to “requires retirement advisers to always act in their clients’ best interests?” What it really did was impose an expensive regulation that would most likely have eaten into the investment returns of middle class investors.
So while the media will follow the Obama playbook and claim that Trump is stripping out regulations to help Wall Street, the reality is that this was an ill-conceived regulation that would have benefited the deep-pocket investors at the expense of the rest of us. This is an area where the regulations are in need of reform, but this was not the reform it needs.

Meijer Hiring

Great.

Big box retailer Meijer is hiring 600 people for its two new stores opening in Greenfield and West Bend.

The Grand Rapids, Mich.-based retailer is seeking candidates in all departments for its new stores, which are expected to open in late spring.

There are 300 positions at each store including clerks, cake decorators, customer service, cashiers, receiving and meat cutters.

Starting pay will be based on experience level and specific skills. Meijer employees have access to health insurance options can contribute to the 401(k) retirement planning.

Union Membership Down in Wisconsin

It’s good to see people freely making choices about the organizations they join.

In 2016, the percentage of public and private workers who were members of unions was 8.1 percent, or 219,000 union members. That’s down by 136,000 members, or 38.3 percent, since 2010 levels, the year before passage of Act 10, according to a report released Thursday by the U.S. Department of Labor’s Bureau of Labor Statistics.

Positioning Wisconsin’s Tax Climate for the 21st Century Economy

The MacIver Institute has a great blueprint for smoothly lowering Wisconsin’s income tax to a flat 3%.

This report sets out to explain why Wisconsin should continue to ratchet down its relatively high individual income tax system and many different rates to one flat rate. Evidence from a variety of sources – economic, social, and fiscal health metrics, as well as academic studies – demonstrates the benefit of a lower and flatter income tax structure. After examining Wisconsin’s position within the Midwest and considering recent reforms around the country, this report will recommend that Wisconsin transform its progressive income tax to a flat 3 percent tax rate for all taxpayers over an eight year period. In subsequent papers, we will continue to build our case through a comparison with Indiana, a state similar in size and demographics to Wisconsin, and will recommend specific steps that Wisconsin can take to make a flat tax a reality.

A systematic glide path to a 3 percent income tax rate would give Wisconsin the most competitive income tax among Midwestern states while greatly improving the state’s attractiveness on a national level. Such a move would have a significant impact on the incomes of all Wisconsinites and most importantly, would allow working class people to keep more of their income. A 3 percent flat tax would be a tax cut for everyone in Wisconsin. Under the current “progressive” tax code, our lowest tax rate of 4 percent for those who make just $11,120 per year is the 4th highest tax rate among the 33 states with a progressive income tax system.

Spacing out the rate reductions over a number of years protects the state budget from sudden and steep revenue drops, giving sufficient time to make gradual adjustments so the transition to the new tax system is smooth.

I’d prefer a glide path to 0%, but maybe we can work on that if Wisconsin can get this done.

Trump Rejects TPP

Again… true to his word.

WASHINGTON — President Trump upended America’s traditional, bipartisan trade policy on Monday as he formally abandoned the ambitious, 12-nation Trans-Pacific Partnership brokered by his predecessor and declared an end to the era of multinational trade agreements that defined global economics for decades.

With the stroke of a pen on his first full weekday in office, Mr. Trump signaled that he plans to follow through on promises to take a more aggressive stance against foreign competitors as part of his “America First” approach. In doing so, he demonstrated that he would not follow old rules, effectively discarding longstanding Republican orthodoxy that expanding global trade was good for the world and America — and that the United States should help write the rules of international commerce.

Although the Trans-Pacific Partnership had not been approved by Congress, Mr. Trump’s decision to withdraw not only doomed former President Barack Obama’s signature trade achievement, but also carried broad geopolitical implications in a fast-growing region. The deal, which was to link a dozen nations from Canada and Chile to Australia and Japan in a complex web of trade rules, was sold as a way to permanently tie the United States to East Asia and create an economic bulwark against a rising China.

 

United Airlines Grounds Domestic Flights

Wow. It’s going to be a rough travel day for a lot of folks tomorrow.

An IT meltdown has caused United Airlines to issue a ground stop for all domestic flights.

 Russians?
UPDATE: Looks like they’ve fixed it.

Millennials Earning 20% Less than Boomers At Same Stage in Life

And then there’s this

With a median household income of $40,581, millennials earn 20 percent less than boomers did at the same stage of life, despite being better educated, according to a new analysis of Federal Reserve data by the advocacy group Young Invincibles.

The analysis being released Friday gives concrete details about a troubling generational divide that helps to explain much of the anxiety that defined the 2016 election. Millennials have half the net worth of boomers. Their home ownership rate is lower, while their student debt is drastically higher.

[…]

Education does help boost incomes. But the median college-educated millennial with student debt is only earning slightly more than a baby boomer without a degree did in 1989.

[…]

Yet compared to white baby boomers, some white millennials appear stuck in a pattern of downward mobility. This group has seen their median income tumble more than 21 percent to $47,688.

Median income for black millennials has fallen just 1.4 percent to $27,892. Latino millennials earn nearly 29 percent more than their boomer predecessors to $30,436.

The analysis fits into a broader pattern of diminished opportunity. Research last year by economists led by Stanford University’s Raj Chetty found that people born in 1950 had a 79 percent chance of making more money than their parents. That figure steadily slipped over the past several decades, such that those born in 1980 had just a 50 percent chance of out-earning their parents.

This decline has occurred even though younger Americans are increasingly college-educated. The proportion of 25 to 29 year-olds with a college degree has risen to 35.6 percent in 2015 from 23.2 percent in 1990, a report this month by the Brookings Institution noted.

Walker to Focus on Workforce Development

It’s a good focus.

“Workforce development is going to be the number one priority moving forward, because if you improve the workforce of the state, we improve the economic vitality of the state, and we improve the ability to expand jobs and prosperity to the state,” Walker told the bankers group.

That statement alone is Economics 101: Most experts agree that having the right workforce in place is essential to the economic health of nations, states and communities.

However, Walker’s previews are revealing a far more comprehensive plan to confront Wisconsin’s demographic crunch through educating, retaining, recruiting, rehabilitating or otherwise cajoling every worker possible.

It’s an all-hands-on-deck approach that reflects the seriousness of the problem.

Like many states, Wisconsin faces a wave of Baby Boomer retirements – only more so. Also, birth rates have declined, as reflected in school enrollment figures, and out-migration of workers (the so-called “brain drain”) remains an issue. Wisconsin is also low on the list of states that attract immigrants, who often fill workforce gaps. Unless trends change within 10 years or so, there could be fewer working adults in Wisconsin than there are retirees.

See my column today for one thing that Walker can address. One of the reasons that Wisconsin struggles to attract workers is because it’s too dang expensive to live here. Bold reforms that truly make Wisconsin’s government more affordable would be a boon to the workforce.

Tax Increase Hits in 2017

Ouch.

For millions of Americans, however, a tax increase will be the first thing they see. About 12 million workers will pay more this year thanks to an automatic adjustment in their payroll taxes. Unlike previous years, this rise in the Social Security “taxable minimum” —the amount of income subject to tax—is a whopper: 7.3 percent, the most in 34 years. That could cost each affected worker as much as $539, and much more if they’re self-employed.

I thought this was actually the most interesting part of the story:

About 12 million will pay more because of the higher minimum this year, the SSA estimates, out of 173 million workers paying into Social Security. In any given year, about 6 percent of all workers make more than the taxable minimum, a number that’s been consistent for decades. The SSA estimates that almost 20 percent of workers reach the taxable minimum at some point in their careers, even if it’s only for one year.

Contrary to the fiction that Americans are locked into an income strata, there is still a fair amount of income mobility in this country. These stats show that 1 in 5 people in America will be in the top 6% of earners at some point in their lives.

Expensive Kids

It’s getting more and more expensive to have kids in America.

A middle-income, married couple with two children is estimated to spend $233,610 to raise a child born in 2015, according to a report released by the Department of Agriculture Monday. And that number only covers costs from birth through age 17 — so it doesn’t include college expenses.

Families can expect to spend between $12,350 and nearly $14,000 a year, on average, to raise a child.

Fiat Chrysler to Expand in U.S.

Good news for America.

Fiat Chrysler Automobiles (FCA) has announced a $1bn (£816m) investment to produce three Jeep models in the US.

Under the plan it will also move the production of a Ram pickup truck from Mexico to the US.

It appears that this was in the works for some time and not a reaction to Trump. Look for Trump to take credit anyway.