San Diego, Small Business, and the Minimum Wage

By: Dr. Lynn Reaser

San Diego Mayor Kevin Faulconer vetoed the City Council’s proposal to boost the minimum wage from its current $9.00 an hour to $11.50 by January 1, 2017. With the Council almost certain to override the veto, the business community is considering mounting a referendum to halt the legislation from taking effect.

The proposed hike wouldSmall-Biz-Sat-1127
put many of our businesses at a significant competitive disadvantage. The San Diego measure would produce a 44% rise in the wage floor in just 2-1/2 years. The statewide minimum wage went from $8.00 to $9.00 on July 1 and would move up in the City of San Diego another $2.50 by January 1, 2017.

This increase would undoubtedly weigh on the profitability, if not viability, of many firms. A faster rise than the state would also put San Diego’s minimum wage 8% above that of its neighbors as of next January 1.

San Diego was recently ranked as 78 out of 82 cities in its friendliness to small business. Let’s not make the situation worse.

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More Jobs, but Should and Can We Do Better?

By: Dr. Lynn Reaser

Job growth has recently been sizable both nationally and locally. U.S. nonfarm payrolls have expanded by 2.5 million persons over the past year, while San Diego County has added about 35,000 jobs.

However, across the country, nearly 10 million people are still out of work, with one-third of them without a job for six months or longer. About 5% of job holders have been forced to accept part-time work, which is double the proportion seen in the 2000-2001 period. Wages are just barely keeping up with inflation.

What can be done to cjobs-sign-chamber-dcreate more jobs? Policymakers desperately need to reform the corporate tax code. They need to listen to businesses and reduce the redundancies or conflicts in various regulations. They also need to find better ways to achieve the goals desired by the public but at a much lower cost in terms of lost jobs.

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“Tax Inversion” and Patriotism

By: Dr. Lynn Reaser

There has been a flurry of mergers and other transactions in recent weeks, with a number of companies reincorporating overseas. This shift allows firms to receive the lower tax rate of the foreign country (“tax inversion”) on that portion of their earnings generated overseas.

Many, including U.S. Treasury Secretary, Jack Lew, have criticized this behavior as “unpatriotic.” President Obama pointed blog picout that companies benefit from the education system and infrastructure in the United States and should help pay for those advantages. However, all companies pay for the part of their earnings generated in the United States.

The spotlight needs to be shifted to Capitol Hill. Companies that have domiciled abroad are only following their responsibilities to their shareholders and employees to be competitive and profitable. If incentives are in place that cause behavior we do not like, we need to change policy, not punish those legally reacting to those incentives.

We are the only major country that taxes earnings from foreign sources and have the highest corporate tax rate of 35%. Congress desperately needs to reform U.S. tax law to remove the handicaps confronting companies, their employees, and all of us.

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Comic-Con Lands in San Diego

By: Dr. Lynn Reaser

The buzz and excitement is all about Comic-Con this week as the event gets bigger and bigger each year. It is hard to imagine summer in San Diego without the crowds of excited fans descending on the famous event, but would the region’s tourist industry go “dark” without it?

The answer is clearly “no.” Comic-Con boosts tourism each July, but the event only lasts four days. San Diego’s various attractions, beaches, facilities, and weather are a major draw for tourists in their own right. The tourist season in San Diego begins well before Comic-Con and extends thereafter. Job gains in recreation and tourism actually are the largest in April, May, and June, but continue through August. Comic-Con is a bright asset in the region’s tourist portfolio, but it is only one piece.

My Favorite Superherosan-diego-comic-con-2010

Since this is the week of the “superhero,” who is mine? Honestly, I would say it is a tie between Dilbert and Garfield the Cat. Dilbert earns high marks for his ability to survive, although certainly not thrive, in the bureaucracy and politics of the office. Garfield is a superhero because of the orange cat’s ability to put everything and everybody in its or their proper place.

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Should We Prepare for Higher Interest Rates?

By: Dr. Lynn Reaser

The Federal Reserve has indicated it intends to end its program of
buying Treasury and mortgage-backed securities before year-end. This
represents a clear signal that it wants to exit from the policy of
extraordinary ease it has followed for the past six years. Its bond-buying spree has ballooned its balance sheet to around $4.5 trillion.

The FedInterest-Rate-300x300 has emphasized that the first explicit interest rate hike
with a boost in the overnight federal funds rate, is unlikely to occur until several months after the last dose of quantitative easing has
been applied. Long-term interest rates, including mortgage rates, and
many other market-determined rates will not wait that long. With the job
market and inflation rates firming, interest rates will be driven higher.

The precise timing of the upward push in interest rates may be in
question, but the trend is not.

Photo Credit: Expat Money Watch

The Children from Central America

By: Lynn Reaser

Thousands of children are being sent to the United States from Central America in hopes that they can escape violence and poor conditions in their home countries and find safety and a better life here. While many may be sent back, thousands will stay. What will be the long-term impact?

plane Although there will be additional demands on the social services and communities receiving these children, the real impact will be on the children themselves. The absence of a family structure in the United States will place many of these children at risk. They may have difficulty finishing school and be drawn into gang activity. They may become permanently dependent on government support for food, housing, health care, and other services. Without some major intervention, their offspring could face a similar plight.

The abandonment of these children into the U.S. is a real human tragedy.

California’s Minimum Wage Jumps to $9 an hour

By: Dr. Lynn Reaser 

California’s minimum wage will rise from $8.00 an hour to $9.00 an hour on Tuesday, July 1.  This 12.5% jump will be followed by another 11% hike in 18 months.  On January 1, 2016, the minimum will advance to $10.00 an hour.

Who will be the winners and the losers?  What will be the overall impact on the economy?

The rise will help low income families whose breadwinners earn only the minimum wage.  It will also help teenagers of high income and wealthy households.  As a result, it is an inefficient means of helping the poor, the people whom sb10064290g-001the wage hike is supposed to benefit most.  The increase is likely to bolster spending by minimum-wage workers, although this potential boost to economic activity will be offset by less hiring by firms affected or reduced spending by consumers facing price hikes by affected firms.

Those companies unable to raise prices to cover higher labor costs can be expected to invest in labor saving devices and reduce their hiring rates if they are growing or cut staff levels if they are not.  The boost in the minimum wage could have ripple effects in labor rungs above the minimum, raising those average pay levels and impacting jobs in those positions as well.  Meanwhile, the hike in the minimum wage is likely to encourage more people to enter or re-enter the workforce.   As a result of slower job growth and more labor force gains, the unemployment rate can be expected to fall at a slower pace.

The minimum wage hike is likely to raise the amount of discrimination in the workplace.  If there are too many potential workers available at the wage firms can pay, remain profitable, and stay in business, firms will use other criteria to select who is chosen for the position.  This will make it even more difficult for individuals with a previous criminal record, language difficulties, little education, limited or no experience, and other characteristics to reach even the first step of the job ladder.

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