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Out of Control Policy Blog Archives: 6.2.13–6.8.13

A Labor Market Mired in Historical Lows is an Unhealthy Labor Market

Today the Bureau of Labor Statistics announced that the headline unemployment rate was "essentially unchanged" at 7.6 percent. Since January, the unemployment rate has remained between 7.9 percent and 7.5 percent. While the May unemployment figures appear to indicate that the employment situation has stabilized, the reality is far less rosy. The number of persons not in the labor force remains has historic levels, and is up nearly two million from May of 2012.

As shown in the graph below, the decline in the unemployment rate (right axis) over the last 3 years closely aligns with the decline in the labor force participation rate (left axis), which has been falling since the recession began in 2008. Remember, a person is not counted as unemployed unless they are actively searching for a job (i.e. part of the labor force). And for May participation in the labor force was also "essentially unchanged" at 63.4 perecent. The evidence continues to show that the relatively "positive looking" unemployment rate has more to do with people leaving the labor force than an improving labor market.

The Obama administration will no doubt try to spin the May unemployment rate proof the economy is on the right track and not getting worse, but this is wishful thinking. With the population increasing every day, and the number of people looking for work falling, the headline unemployment figure is increasingly an unreliable measure of employment.

Looking at the employment-population ratio, we see continued evidence that the labor market is reaching a new normal. This ratio has remained roughly between 58 percent and 59 percent since March of 2009, and for May of this year came in at 58.6 percent--exactly where it was in May 2012. It is possible that the U.S. could be experiencing a new normal unemployment rate of 7.5 percent to 8 percent, which is similar to that of many European countries, rather than the pre-recession normal rate of approximately 5 percent. This is bad news for America. 

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Sasha Volokh on the Implications of the Louisiana Supreme Court Voucher Ruling

Sasha Volokh has a new article on Reason.org discussing the implications of the recent Louisiana Supreme Court ruling on school vouchers. Here's the intro:

This May 7, the Louisiana Supreme Court ruled 6–1, in Louisiana Federation of Teachers v. Louisiana, that a statewide school voucher plan was unconstitutional. The opinion offers a fascinating glimpse into the developing field of non-religious state challenges to school voucher programs. The moral, for those following school voucher controversies, is that, while vouchers are on solid legal ground at the federal level, they can face barriers based on language in state constitutions, sometimes because of the inclusion of religious schools but sometimes for reasons entirely unrelated to religion.

The full article is available here. And all of Volokh's recent legal analyses written for Reason Foundation on an array of privatization-related topics are archived here.

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77 percent of Californians Support Jerry Brown's School Funding Plan: Here Are Three Big Ideas to Make it Better

A new poll by the Public Policy Institute of California found that Californians continue to support Gov. Brown's Local Control Funding Formula. The poll found 77 percent of all respondents, 83 percent of public school parents and 87 percent of Democrats favored it. Even a majority of Republicans (57 percent) supported it. The level of support was 6 percentage points higher than in April.

Californians seem to fundamentally understand that the current school finance system in California is broken.

In my new policy brief, I give Governor Brown's plan a positive review and explain why it needs to go further and have the money follow the child to the school level for more accountability and transparency:  

Three Reasons Governor Brown's School Funding Plan is Better than the Status Quo and Three Big Ideas to Make the Plan Even Better

Governor Jerry Brown proposed a new school finance plan for California in the 2013-2014 budget, called "Local Control Funding Formula." It increases funding to school districts with a larger number of disadvantaged students by financially weighting those students according to need, simplifies current byzantine school finance regulations and gives school districts more autonomy over finances.

But while Governor Brown's plan distributes money to school districts with larger numbers of disadvantaged students, it does not do enough to ensure that the money gets to these students' schools or to the students themselves-aside from threatening audits or sanctions if disadvantaged students fail to meet performance targets. Brown's plan would be greatly improved in this respect by integrating the following recommendations:

  • Distribute all the extra weighted funding for at-risk and English Language Learner students on a per pupil basis to the particular schools in which those students enroll, funneling funding for disadvantaged students directly to them, rather than to the district.
  • Authorize school principals, rather than districts, to spend the funds for their students as they see fit, according to their students' needs.
  • Implement a modern school-level financial reporting system, ensuring that extra funding reaches the disadvantaged student and that school district finance allocations are transparent to the public.
  • If California adopted these recommendations, it would be following in the footsteps of Colorado, which recently passed comprehensive school finance reform legislation along precisely these lines. Moreover, California could easily incorporate such reforms in its school finance plan by adapting the current language in the charter school sections of Assembly bill 88 and Senate bill 69, which are legislative alternatives to Governor Brown's budget proposal.

    Charter school student funding is weighted per pupil to customize to each student's needs, and individual schools are held accountable for how they spend those dollars. For true accountability and equity, every school in California should have to follow these charter-school reporting requirements.

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    Citizens Property Insurance Privatization: Crony Capitalism or Good Policy?

    On Wednesday Citizens Property Insurance, Florida’s state-run windstorm and general insurance provider, will decide on whether or not to transfer a small portion of its existing policies into the hands of the private sector.

    The deal would have Citizens Property Insurance paying private insurer Heritage Property and Casualty Insurance $52 million to “handpick” some 60,000 of the state-run insurer's 1.3 million policies. The deal comes just two months after Heritage Insurance donated $110,000 to Florida Governor Rick Scott’s reelection campaign—money a Gov. Scott spokeswoman says won't be returned.

    It's not the first time Citizens has come under scrutiny. In February, Citizens' board approved a deal with Weston Insurance, which paid the company $63 million to take on 30,000 policies. The deal came after the firm spent more than $250,000 on lobbying this year alone. So is this crony capitalism or a step in the right direction for Florida's state-run insurance program? The answer: maybe a little of both.

    As John K. Ross explains in a recent Reason Hit & Run piece, this may be crony capitalism and a sweetheart deal, but the fact that a portion of government held insurance policies in a high risk state are being shifted over into the private sector is not the end of the world, as some journalists have suggested.

    The bad side of the deal is obvious: the state is subsidizing a private insurer who may or may not have received an unfair advantage to take over insurance policies at the rate of $866 per policy. But the bright side is that the deal offloads millions of dollars worth of risk from the backs of Florida taxpayer’s right as the 2013 hurricane season starts up.

    Critics of the deal can point to the fact that Citizens has been a profitable company the last few years, as it currently holds a $6.4 billion dollar surplus, and there is no need for the shift. The reality is that Florida and Citizens Insurance has just been lucky the last few years. The last time Florida was impacted by a major hurricane (a category three or higher on the Sapphire-Simpson Scale) was in 2005 when the state was hit by Hurricane Wilma, along with two other major storms.

    One can hope that if Heritage Insurance proves as fortunate and profitable as Citizens has been over the last few years, it will spur more insurance providers to come into the state rather than flee it—a trend since the 2004 and 2005 hurricane seasons.

    Shifting more policies into the hands of the private sector is a laudable goal—it's just a shame the deal looks dirty. Someone has to bear the burden of insuring homes in the most hurricane prone state in the union, and it's better for that burden to be shouldered by the private sector than taxpayers.

    Of course, the biggest problem here is the state-subsidized insurance is encouraging people to build and live in dangerous areas. As John K. Ross notes, the fragility of Florida's insurance market is likely to continue until residents realize an inconvenient truth:


    If you cannot purchase insurance from a private provider that is the free market screaming, pleading, tearing its hair out, and repeatedly punching itself in the face all in an earnest attempt to get you not to build where you're building."


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