Category Archives: Economy

1NT: NC Pandemic Unemployment Benefits

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During the COVID-19 crisis millions of people became unemployed and Congress responded by passing the CARES Act which, among other things, provided extended federal unemployment insurance (UI) benefits for folks in addition to the UI benefits provided by their states. The two types of federal assistance are pandemic emergency unemployment compensation (PEUC) and pandemic unemployment assistance (PUA). PUA benefits are primarily for the self-employed and independent contractors. Here are some North Carolina numbers from an article in the Winston-Salem Journal:

  • $8.16 billion in state and federal UI benefits were paid from late March through Sept. 30
  • $670 million were paid from Oct. 1 through December 5, indicating that many people have exhausted their benefits
  • 31% of the 4.35 million North Carolinians considered part of the state’s workforce as of mid-October have filed a state or federal unemployment claim, according to DES.
  • North Carolinians, at most, could have collected 34½ weeks of state and federal UI benefits, broken down as: 12 weeks of regular state-funded benefits; 13 weeks of federal pandemic emergency unemployment compensation; and between six to 9½ weeks of federal extended benefits.
  • Unemployment insurance recipients who qualified for up to 22½ weeks of federal extended UI benefits likely began exhausting them in early November. Most of the rest will be done Dec. 26 unless an extension is passed by Congress during its current lame-duck session.

Can Poverty Change You Genetically?

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This is a fascinating article, written by a former investment manager and current Truman National Security Fellow, who escaped abject poverty in Appalachia, that looks at the early (as of now) research showing the potential link between poverty and genetics. Basically, the stress of poverty might change your body in a way that can be passed to your children and grandchildren.

Even at this stage, then, we can take a few things away from the science. First, that the stresses of being poor have a biological effect that can last a lifetime. Second, that there is evidence suggesting that these effects may be inheritable, whether it is through impact on the fetus, epigenetic effects, cell subtype effects, or something else.

This science challenges us to re-evaluate a cornerstone of American mythology, and of our social policies for the poor: the bootstrap. The story of the self-made, inspirational individual transcending his or her circumstances by sweat and hard work. A pillar of the framework of meritocracy, where rewards are supposedly justly distributed to those who deserve them most.

What kind of a bootstrap or merit-based game can we be left with if poverty cripples the contestants? Especially if it has intergenerational effects? The uglier converse of the bootstrap hypothesis—that those who fail to transcend their circumstances deserve them—makes even less sense in the face of poverty epigenetics. When the firing gun goes off, the poor are well behind the start line. Despite my success, I certainly was…

Why do so few make it out of poverty? I can tell you from experience it is not because some have more merit than others. It is because being poor is a high-risk gamble. The asymmetry of outcomes for the poor is so enormous because it is so expensive to be poor. Imagine losing a job because your phone was cut off, or blowing off an exam because you spent the day in the ER dealing with something that preventative care would have avoided completely. Something as simple as that can spark a spiral of adversity almost impossible to recover from. The reality is that when you’re poor, if you make one mistake, you’re done. Everything becomes a sudden-death gamble.

Now imagine that, on top of that, your brain is wired to multiply the subjective experience of stress by 10. The result is a profound focus on short-term thinking. To those outsiders who, by fortune of birth, have never known the calculus of poverty, the poor seem to make sub-optimal decisions time and time again. But the choices made by the poor are supremely rational choices under the circumstances. Pondering optimal, long-term decisions is a liability when you have 48 hours of food left. Stress takes on a whole new meaning—and try as you might, it’s hard to shake.

As the author points out, this research calls into question the whole concept of poverty as choice, or poverty as the result of laziness, and asks us to reconsider how we address poverty. One thing’s certain: whether or not you agree that poverty has a biological impact, you have to acknowledge that the programs we’ve depended on to fight poverty until now have not worked. Whether it’s because the programs are misguided, or there was a lack of political will to follow through on those programs that exhibited promising results, or some combination of those factors and more, we’ve failed to pull a huge chunk of our population out of poverty and if we want to change that then we’re going to have to make substantial changes. Soon.

Gown Towns Thrive

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Yesterday I was in a meeting with several people involved with local real estate development and they were asked what the top business priority is for their county (Guilford, NC) going into 2017. Their response, as has been the case for every year in recent memory, was that job growth will continue to be the most critical issue for their businesses. In the course of answering the question quite a few of these people referenced other cities in North Carolina that seem to be thriving – Raleigh, Cary, Charlotte and “even Wilmington” – were the names I remembered. What stuck out, to me, was that no one mentioned Winston-Salem.

Now let me state up front that I’m not prepared to offer any statistics that compare the jobs situation in Winston-Salem to those in Guilford County’s two cities, Greensboro and High Point. But I will say that if you were to poll most people who pay attention to business in the region, they will tell you that Winston-Salem’s economic recovery from the nuclear annihilation that has befallen this region’s traditional economy is further along than its neighbors to the east. For some reason, though, leaders in Greensboro and High Point seem to ignore what’s going on just 30 miles to their west (and in all fairness the reverse is also true), and as a result no one seems to know why there’s a difference between these two very similar neighbors.

A personal theory is that there are a lot of complex and interwoven factors at play here, but one big one is the presence of Wake Forest University in Winston-Salem. The university, and in particular it’s medical school, has been a partner with the city and local companies as the city moved away from it’s traditional tobacco manufacturing base toward a “knowledge economy” with a niche in the area of medical research. Starting over 20 years ago Winston-Salem’s civic and business leaders recognized the need to re-position the city’s economy and Wake Forest played a significant role in those plans. The results are plain to see in the city’s Innovation Quarter, which is booming and is primed for exponential growth over the next 10-15 years.

30 miles to the east Greensboro actually has more schools, including NC A&T and UNCG, but they don’t seem to have had the same effect on the city’s economy. Yet. We’re starting to see much more activity there, including the Union Square Campus that recently opened and is already bearing economic fruit for the city and there’s PLENTY of potential for even more growth. As long as the city’s leaders continue to keep their eye on the ball there’s a very good chance this will happen, as it has in other college towns.

This article in the Wall Street Journal has a lot of data showing how cities in the US that have strong colleges, especially those with research programs, have recovered from the decline in the manufacturing sector over the last two decades. Here’s an excerpt:

A nationwide study by the Brookings Institution for The Wall Street Journal found 16 geographic areas where overall job growth was strong, even though manufacturing employment fell more sharply in those places from 2000 to 2014 than in the U.S. as a whole…

“Better educated places with colleges tend to be more productive and more able to shift out of declining industries into growing ones,” says Mark Muro, a Brookings urban specialist. “Ultimately, cities survive by continually adapting their economies to new technologies, and colleges are central to that.”…

Universities boost more than just highly educated people, says Enrico Moretti, an economics professor at the University of California at Berkeley. The incomes of high-school dropouts in college towns increase by a bigger percentage than those of college graduates over time because demand rises sharply for restaurant workers, construction crews and other less-skilled jobs, he says.

And here’s the money quote as it relates to local economic development efforts:

Places where academics work closely with local employers and development officials can especially benefit. “Universities produce knowledge, and if they have professors who are into patenting and research, it’s like having a ready base of entrepreneurs in the area,” says Harvard University economist Edward Glaeser.

Let’s hope our local leaders take full advantage of what our colleges have to offer, for all of our benefit.

Get Used to the Low Home Ownership Rates

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This is a cross-post of something I wrote for the work blog:

From the 6/8/15 Wall Street Journal:

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.

Demographics tell the story.

Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina (AANC) education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.

34 of 100 Don’t Work for the Man

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It’s no secret that today many more people in our economy are freelancers than in the past, but would you believe that the number is about 53 million people?

I was on the phone last night with Stephen DeWitt, the CEO of our portfolio company Work Market. He was talking about a specific community of people and I asked him how many of them were likely to be freelancers. He said “well the statistics say that 3 to 4 out of every ten people these days are freelancers.”

I thought that sounded high but after reading Mary Meeker’s Internet Trends Report, in which she says that “34 percent of the work force in the United States, 53 million people, now consider themselves independent contractors, short-term hires or other kinds of freelancers”, I think Stephen has it exactly right.

Look around you on the subway, the baseball park, the movie theater, 3 to 4 out of every ten people are freelancers. That’s a big number. And its growing pretty rapidly. Younger people are more inclined to be freelancers. Older people turn to freelancing for flexibility or economic necessity. And employers are more inclined to hire freelancers as technology makes the management and compliance requirements around freelancers easier to handle.

This has me wondering about the implications for things like benefits. I’m not sure about this, but I don’t think that freelancers qualify for unemployment benefits since they are typically tied to the company you worked for. If you don’t work for anyone how would you qualify for benefits? It also feels like we’ve already seen the impact on health insurance – it’s a safe bet that a good chunk of the uninsured are freelancers who don’t have companies to provide insurance. Even if the ACA is pushing many of them to buy their own insurance, they were an available market precisely because they didn’t have company-provided health insurance.

The excerpt above came from Fred Wilson’s blog and I agree with his last paragraph from that post:

It’s a new era we are living in and the nature of work is changing and changing fast. There are tons of opportunities in and around this trend and we are invested in some of them. It’s one of the big megatrends of this century.

Where Are the Young Home Buyers?

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*This is a cross post of something I wrote for the day job.

It’s no secret that there’s a dearth of younger home buyers these days, but why are young adults still slow to move from renting to buying even though the economy is finally growing? Shane Squires of MPF Research wrote about some of the challenges faced by millennials:

For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…

He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:

That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…

Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:

Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.

It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.

Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.

Long story short – rental housing should continue to grow for the foreseeable future.

Jobs and Money

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Why are jobs important? Well, beyond the obvious there’s the added benefit that it helps keep people out of trouble. From the May, 2015 issue of Rotarian Magazine:

Summer jobs can help prevent violence among disadvantaged students, according to a large-scale trial out of the University of Pennsylvania and the University of Chicago Crime Lab. The study involved 1,634 teenagers from 13 high-crime schools in Chicago, and a local program that places youth in part-time paid summer jobs and pairs them with mentors. The job-assignment intervention reduced violence by 43 percent over 16 months, with nearly four fewer violent-crime arrests per 100 students compared with the control group.

From the same issue of the magazine comes this little tidbit of info:

One percent of the global population owns nearly half the world’s wealth, according to a new report from Oxfam, and that share is expected to exceed 50 percent within two years. The richest 20 percent of the population owns most of the other half of the world’s resources, and the remaining 80 percent of people share just 5.5 percent. The combined wealth of the 80 richest individuals in the world has doubled since 2009, and surpasses the combined wealth of the 3.5 billion people in the bottom half.