Undocumented Workforce
Perhaps one of the most discussed matters in recent years is the subject of immigration, particularly with regard to individuals coming into the United States without proper authorization. This very emotional issue has received an enormous amount of media attention, and calls for reform have been escalating.
Undoubtedly, changes must be made in various aspects of the immigration process and border security. Numerous suggestions regarding ways to improve the process have been offered by a variety of organizations, both private and public.
However, reform should be approached with the recognition of the potential economic disruptions that could result if substantial impediments to labor force availability were imposed. If procedures are put in place that resulted in the decreased capacity to move goods and services across the border in a reasonable manner, significant harm could occur to the economy.
In Texas, as well as several other states, the undocumented population is a significant component of the workforce, particularly in certain industries such as construction and agriculture. Without these workers in the Lone Star State, the competitiveness and efficiency of our economy would be notably reduced.
Recently, my firm, The Perryman Group, examined the economic consequences of removing the undocumented population from the state’s workforce. There are, of course, many other aspects of immigration policies that are worthy of consideration, but the magnitude of the effects on business activity and sustainable prosperity cannot be ignored.
The foreign-born workforce in the US is growing at a faster rate than native-born workers. Currently, foreign-born workers represent approximately 15% of the nation’s labor force. However, this group accounted for about half of the workforce expansion from 2005 to 2006.
Texas has almost three million foreign-born residents, the third-largest amount behind California and New York. Currently, around seven out of every 10 non-US natives migrate from Mexico or other Latin American countries to our state.
The impact of immigrants entering the US through legal channels can be seen in their sheer numbers. However, the impact of undocumented immigrants and particularly undocumented immigrant workers is more difficult to determine. According to a special report presented by the Texas Comptroller of Public Accounts last year and data recently compiled by the Pew Hispanic Center, there were approximately 1.4 to 1.6 million undocumented immigrants in Texas in 2005. The number has assuredly increased since that time.
Across Texas, as with the rest of the nation, undocumented workers tend to fill workforce needs in low-wage occupations. The Bureau of Labor Statistics projects continued growth in the need for less-skilled workers in the coming decade.
Immigrants comprise a disproportionately large share of individuals in these kinds of occupations. In 2005, the biggest numbers of undocumented workers were in services occupations (31%); construction (19%); and production, installation, and repair (15%). While farming accounts for about 4% of undocumented immigrants, this industry has the highest concentration of such workers at nearly 25%.
For decades, undocumented workers have been integrated into the production complex of Texas in a significant manner. The pace has accelerated notably in recent years.
Undocumented workers presently represent more than 6% of the total workforce in Texas, as compared with less than 5% nationally. Not only do these persons fill a large portion of low-wage jobs, they are also consumers of both products and services.
Without doubt, any substantial disruption of this pattern would create significant economic dislocations across a broad spectrum of sectors. While all regions of the state would be negatively affected by the removal of undocumented workers, in terms of percentage impacts on the overall economy, the largest effects would be along the Texas-Mexico border.
Overall, a “snapshot” view of the immediate reduction in business activity if the undocumented workforce were removed reveals losses of $53.6 billion in output (gross product) and 833,345 jobs (based on 2006 levels of activity). Given time for market adjustments, an estimate of the economic fallout would be about $50.2 billion in output and a 753,913 loss in employment.
When viewed from the perspective of economic activity generated by undocumented workers compared to their costs to the state, including public education and health care, these individuals are responsible for a surplus across all State and local revenues and expenditures of some $301.1 million. Still, even though the revenue created by their activity exceeds public sector costs, there are distributional issues worthy of consideration in a policy context. In particular, while the State has a sizable surplus, local governmental entities experience a net deficit.
The undocumented workforce is highly important to the state economy, and actions taken regarding this valuable source of labor have the potential to cause significant losses in business activity. Thus, whatever policies might eventually be implemented should be crafted with an eye toward minimizing the potentially enormous economic fallout.
posted @ 07:51 AM CST [link]
Friday, March 23, 2007
Power in Texas—Making It Happen
There is probably no issue in Texas today more confusing and controversial than that of electric power. Why are prices higher here than in other places? Do we need more capacity? If so, what kind? Who’s buying whom? Is the competitive market working? Where do we go from here?
I have been studying these issues for about 25 years and can hopefully shed a little light on the subject. First of all, competition is working! Consumers have multiple choices of providers, product innovations have occurred, and prices are lower than they would have been under regulation. Senate Bill 7 (SB7), also known as the Texas Electric Choice Act, has resulted in significant benefits to the Texas economy. In fact, the gains have escalated each year and now total almost $14 billion in annual spending and more than 66,000 permanent jobs.
That is not to say that prices are low. They are not. The reason they are high, however, is because Texas gets the majority of its power from natural gas sources (while the national average is only 17%). Over the past few years, gas prices have risen much more rapidly than in the 1990s, and electricity costs have gone up accordingly. The recovery of fuel charges occurs in a regulated market as well, and studies by the Public Utility Commission of Texas (PUC) indicate that prices are lower than they would have been in the absence of competition. Now that the transition period is over and all firms can fully compete on price, the savings will only escalate.
We definitely need new generation capacity to meet the growing power requirements of our economy. We want to avoid shortages in the next few years, and, given the state’s anticipated population and economic growth, our long-term requirements are enormous. Moreover, a shortfall in electric power could cause the loss of hundreds of thousands of jobs. Based on a reasonable scenario as to the size of the shortfall that might plausibly occur in the absence of new capacity, Texas stands to lose more than $28 billion in annual output and more than 362,500 jobs.
At the same time, we must become less dependent on gas-fired plants to reduce costs (the folks in the industry call this concept “fuel diversity”). We must develop renewable energy resources, coal-fired plants (using the best technologies available for emission reductions), and nuclear facilities over an extended time horizon. We must also embrace new technologies as they become available and pursue conservation efforts. A stable market climate and a competitive market will assure that providers respond in an efficient and cost-effective manner.
In the midst of all of these issues, an investment group revealed plans to purchase TXU (the largest electric company in the state). In the process, the new group announced lower rates to residential consumers, curtailment of portions of a plan to build coal-fired plants, and efforts to put Texas at the forefront of emerging energy technologies. These investors also offered current TXU shareholders a substantial profit over the market price of their stock.
Transactions of this nature are the norm in today’s vast global economy. Hardly a day goes by without some major deal being made. The investors and all of the entities who will be involved in its financing completed extensive due diligence before making the commitment. The fact that they were willing to go forward is a testament to confidence in the future of the Texas economy and the opportunities it provides.
There is every reason to believe that this acquisition will be beneficial to Texas. In the immediate future, the announced rate decreases alone will stimulate more than $600 million in annual spending and 3,500 permanent jobs. Moreover, it is likely that competitors will respond and bring even additional savings. After all, that is how markets work.
Over the longer-term the “new TXU” can only prosper in the wholesale power market by providing capacity at competitive prices. It can only be successful in the retail market by responding to customer needs in an affordable manner. The greatest opportunities lie in being efficient and innovative and finding ways to offer better services and lower costs than others. In the portion of the business that remains regulated (the “wires” that connect power sources to users), rates will be set by state regulators.
Where do we go from here? Our interests are best served by maintaining a stable framework and allowing competition to flourish. This includes not changing the rules under which business decisions have already been made and not creating barriers to buying and selling assets or other routine market transactions. Some of the legislative proposals which have been set forth in recent weeks, ranging from forcing divestitures on the one hand to blocking voluntary sales on the other, would add enormous uncertainty and risk to the Texas market. The result would be reduced incentives to invest, a less efficient market, adverse outcomes for consumers, and the very real danger of not being able to meet our capacity needs going forward. My firm estimated that if all of the requirements were implemented, the annual losses in business activity would be at least $18 billion in annual spending and more than 99,000 permanent jobs.
Competition brought dramatic reductions in telecommunications costs, transportation rates, and other sectors over the past several years. Beyond that, it is the foundation for the ongoing economic success that the US has enjoyed for many years. It is the right approach for electric power in Texas as well.
posted @ 07:55 AM CST [link]
Friday, March 16, 2007
Gasoline Prices
The traditional “March Madness” begins this week, but there is another March Madness that actually began a few weeks ago. The first, of course, relates to the men’s and women’s college basketball competition that leads to national championships. The activities of these teams representing institutions of higher education from across the nation will be in the public eye for a brief but highly publicized period.
The other March Madness is also a traditional occurrence at this time of the year, and it personally affects millions of Americans every day. While I may have stretched it a bit to tie it to the more formalized moniker usually reserved for the NCAA basketball tournaments, the rise in gasoline prices can seem like a form of madness in March, especially since earlier in the year costs for the fuel at the pump were going down (due to low crude oil prices because of the unseasonably warm weather—crude makes up half the cost of gasoline), and now they are headed north.
Over the past several years, we have become accustomed to seeing gasoline prices climb this time of year as motorists embark on Spring Break excursions and as they get ready for summer vacation expeditions which usually expand the demand by about 5%. This year, however, the upward spiral has been a jump instead of a crawl, and it does not appear that the increase has neared the end.
US retail gasoline prices have generally been rising since the beginning of January 2005 when the national average was around $1.78. According to Energy Information Administration reports for last week, the average motor fuel cost around the country grew approximately 31 cents over the past month to hit $2.51 a gallon. The average US retail gasoline price this week reached $2.55 a gallon, up some 20 cents from February 23 and about the same increase in price as of early March last year. In some areas of the US, particularly California and Hawaii, motorists would probably be happy with that amount, as many of them are now paying around $3.00 a gallon.
Invariably at this time of year, changes in the cost of gasoline occur. There are several reasons. Because of good weather and summer vacation driving, the demand for fuel grows and that, of course, puts upward pressure on prices. In addition, as the weather warms, government regulations require refineries to switch to less-polluting gasoline, which normally adds five to seven cents per gallon at the pump.
The three-week early switch to Daylight Savings Time this year has also played a role. While the change will likely cut energy usage because of the drop in electricity demand during the early evening, gasoline consumption may increase as many Americans use the extra daylight hours to drive.
Additionally, some refineries are still hurting from hurricane damage and others, particularly on the West Coast, have been offline for maintenance more so than usual for this time of year. As a result, supplies have been somewhat curtailed which has caused drivers to fear an upcoming drop in availability of the fuel. This concern is unwarranted as there is a sufficient supply, but markets react to perceptions.
Gasoline, of course, is one of the main products refined from crude oil which has recently seen a hike due to reductions in OPEC production, the onslaught of cold snaps in the Northeast, and growing worldwide demand for the energy source, especially in China. Most of the crude oil increase is being passed on to gasoline consumers.
Even when crude prices are stable, however, the cost of gasoline tends to fluctuate due to competition as well as seasonal demands, supply disruptions stemming from world events, proximity of supply, environmental requirements, and refinery changes or outages. Even without any rise in crude oil prices, the cost of gasoline typically climbs about 10-20 cents per gallon from January to late spring.
Through the years, Americans have generally adjusted to the seasonal fluctuations and even when fuel prices spike, our love affairs with motor vehicles tend to limit our willingness to reduce our driving habits.
Thus, absent significant anxiety with regard to the future economy, most of us will continue to use our vehicles pretty much like we’ve been doing. Of course, it’s going to cost us a bit more than usual, but at least we know why.
Wind Power
Throughout its history, Texas has always been a leader. That’s not bragging about my native state, as some might say; it’s just a fact.
Many things about the Lone Star State’s leadership are renowned and have been widely publicized through the years. However, there are also lesser known things that demonstrate Texas’ leadership.
Wind is one of the greatest natural resources in the US. It has been used since the days of the pioneers to draw water from underground aquifers, and it was undoubtedly the most important energy source in making the settlement of the Great Plains possible. In the more recent past, wind has been sufficiently harnessed to create electrical energy.
In fact, wind power is the fastest-growing source of electricity generation today. Last year, Texas was responsible for almost a third of the new wind power installed in the US. The Lone Star State is currently the largest wind energy producer in the nation.
Wind energy production has grown significantly in Texas over the past few years. Technological advances in the design and engineering of wind turbines have enabled wind-based electricity to become cost competitive with fossil-fueled electricity.
Last year, wind power generating capacity in the US expanded by some 27%. Due to the growing demand, as well as private capital investment and support from federal and state government, the capacity is predicted to climb another 26% this year.
In 2006, wind was second only to natural gas as a new power generation source in the nation. The US now has wind energy installations with generating capacity to provide the needs of more than 2.9 million homes. Texas’ wind generating enterprises comprise 21% of the US total capacity and can provide enough power for approximately 600,000 homes.
The major area in Texas for producing wind energy, of course, is in the western portion of the state, where some say it blows continuously. While that is not exactly true, the Great Plains from Texas to North Dakota do have the nation’s greatest wind power potential. In addition to the Panhandle region, the best wind sources in Texas are the Gulf Coast and specific ridge tops and mountain passes in the Trans-Pecos region.
Currently, more than 2,000 wind turbines are located in these areas of the state and, as development costs drop and technology improves, more will inevitably be installed. The world’s largest operating wind farm is located in the Northwest part of the state.
This week, Texas takes another giant step forward in enhancing this alternative energy source. On the docks in Galveston ready to install in the Gulf of Mexico is the nation’s first measuring platform, a prerequisite for the eventual development of an offshore wind farm.
This platform, constructed from recycled offshore oil and gas platform materials, will soon be set up about seven miles off the coast of Galveston to test wind velocities and conduct avian research. The meteorological towers on the platform will help collect data that will be pertinent to the eventual construction of the nation’s first venture into generating electricity from wind off land.
The wind energy development on the 11,355-acre lease near Galveston, which by the way, was the nation’s first lease agreement for the development of an offshore wind farm, stands to eclipse current onshore developments.
As with gas and oil production on state lands, wind farms pay land usage fees and a portion of acquired revenues to the Texas Permanent School Fund. A substantial amount of money is presently being put in the fund by wind power energy projects now in operation. Revenue from the new offshore project is expected to be at least $26.5 million in royalties over the 30-year lease, thereby providing a notable increment for public education funds.
It is unlikely that wind will replace traditional power sources any time soon, and it tends to blow least during the summer when electricity is most in demand. Nonetheless, this critical source of alternative energy offers enormous promise as one of many approaches that will be needed to meet future requirements.
posted @ 08:42 AM CST [link]
Friday, March 2, 2007
A Winning Concept
Although the cliché “win-win” is used frequently, it’s not that often we really can identify such a situation, at least not on a Texas-size scale. In the case of the Universal Service Fund, it might be more appropriate to say a Texas-wide scale.
It is generally accepted that a major role of government is to collect taxes and other revenues from various constituents and allocate them according to public needs. There is no expectation that public receipts and expenditures match on a geographic basis. Transfers from one area to another are inevitable in the context of governmental activity. And entirely appropriate if they are meeting legitimate and proper needs.
For example, congested areas of the Lone Star State tend to receive more transportation resources than others. Likewise, communities with large public universities usually receive a disproportionate share of higher education funding.
When markets are regulated, subsidies often surface. Remember when banking used to be regulated? During those times, loan revenues often subsidized the costs of checking accounts. And when trucking was subject to extensive rate controls, the heavily traveled routes were used to subsidize deliveries to more remote areas.
In the case of telecommunications, similarities exist. As far back as the 1930s, it was a widely accepted view that providing basic telephone service availability to everyone at affordable rates was a worthy national priority. This approach stemmed in large measure from the impact telecommunications was having on the integration of the nation and the risk that rural and remote areas might be left out of future opportunities.
As with trucking and banking, during the lengthy period of telephone regulation, implicit subsidies arose; service to less-populated areas was partially funded through the rates set for urban areas and for long-distance services. This approach was very important to Texas because of the state’s vast geographic expanse and wide population dispersion.
After the market was opened to competition, these kinds of implicit subsidies were no longer possible. So, in order for universal service to be maintained at affordable prices, an explicit subsidy was required—thus, the Texas Universal Service Fund (TUSF).
The TUSF is funded by a fee that is assessed on all basic telephone customers in monthly billing statements. It provides a mechanism to reduce charges in high-cost areas, as well as programs for low-income and hearing-impaired individuals.
Competition tends to promote the outcomes that maximize economic well-being. However, if a social priority is sufficiently compelling to outweigh the advantages of optimal efficiency (as it sometimes is) it is within the power and responsibility of government to make appropriate adjustments. In fact, such actions are a part of the social contract which underlies the philosophical foundation of Western democracies.
In a recent study accomplished by my firm, The Perryman Group (TPG), we investigated the impact of the TUSF. Our findings noted that the seven most populous counties pay substantial amounts into the fund, thereby contributing significantly to help fund high-cost service, both for large providers and small, rural telephone companies.
However, these costs are more than offset by the public assistance programs (health care, indigent assistance, support for the aged, etc.) for which those urban areas are qualified due to the relatively high concentration of eligible public assistance recipients. So while these ultra-urban counties are helping pay for high-cost phone service to some rural areas, they are also receiving notable benefits from those same areas. It’s a case of give and take. In fact, the net transfer for public assistance is about seven times as large as that going the other way for the TUSF.
There is also more to the story. Another component to the universal service concept is its economic impact. Our economy is linked and integrated in complex ways, and the lack of communication ability in some segments of the state would result in losses across a broad spectrum. Moreover, the telecommunications network of Texas represents a sizeable investment generating a measurable rate of return each year. If a portion of that structure is rendered ineffective, then losses occur.
Should universal service be removed from high-cost areas, the consequences on state business activity, according to the study by TPG, would be a loss of at least $948.7 million in annual total expenditures in the state and a decline in annual gross product of approximately $535.0 million. Furthermore, removing universal service would diminish annual personal income by about $347.4 million and cause a reduction of more than 7,400 permanent jobs. Interestingly, because of the integrated nature of the economy, the aggregate lost spending in the seven large counties would actually exceed their net payments into the TUSF.
When viewed broadly as a part of the overall public assistance matrix, the TUSF does not represent an unfair or inequitable transfer from population centers to rural areas to the extent such considerations are even relevant for a policy that achieves a valid social goal. Rather, it is a key element of maintaining the essential integrity of the infrastructure that knits our economy together. .
It is certainly beneficial to periodically review the underlying costs of the Universal Service Fund and to take necessary steps to assure a more efficient allocation of resources. In doing so, however, it is important to recognize that a program along the lines of the TUSF must be maintained if our state is to fully achieve its long-term economic potential and provide legitimate opportunities to all areas of our expansive territory.
posted @ 08:13 AM CST [link]