Energy is a vital sector and a job generator, but it is also important to understand that there are some real challenges for how the development of energy resources and systems benefit the economy.
The Good: Energy is a Job Generator
The 2017 United States Energy and Employment Report (USEER) estimated there are 6.2 million workers in Energy and Energy Efficiency in 2016. This broad definition for Energy accounts for four of every 100 jobs in the U.S. with the largest share in Energy Efficiency Construction. The Energy sectors defined by the USEER report added 300,000 net new jobs in 2016, more than any other sectors than Accommodation and Food Services.
Energy is a common thread woven throughout every aspect of our lives. It is a link between all sectors of the economy, our health, and the environment. Virtually every aspect of our modern industrial lives depend on reliable electrical power and energy infrastructures. Energy is vital for everything we produce but that link is weakening as manufacturing grows more efficient. Gross output in U.S. manufacturing has remained stable or grown since 1998, while overall fuel consumption and energy intensity have decreased.
The Bad: Energy Growth <> Job Growth
Even though energy is essential to our economic life, the development of energy resources does not translate into overall economic growth. At the state level, the development of natural resources and mining has not benefited the host states – there is no relationship between output growth in these sectors and the overall growth of the state economy. The lone exception is North Dakota, where the energy boom fueled growth in a state with about 750,000 people. For other states experiencing an energy boom, such as Pennsylvania, Ohio, and West Virginia, the energy boom has not translated to overall economic growth.
The Ugly: The Workforce Gaps
73 percent of employers reported difficulty hiring qualified workers over the last 12 months. Some of this reflects the difficulty in finding qualified workers willing with the skills and desire to take on a challenging job. However it also reflects the difficulty that some sectors have in recruiting from a broader pool of candidates.
Ethnic and racial minorities are not well represented in the energy workforce. In the U.S., Hispanic or Latino workers make up 16 percent of the workforce but only 14 percent in energy. Black or African American workers account for eight percent of the energy workforce compared to 12 percent. The glaring gap however is that across all sectors of energy women account for a low 22 percent of the workforce in energy efficient vehicles, up to 34 percent for electric power generation, which is still below the 47 percent for the overall U.S. workforce.
We need energy for our economy and it is an important source of job growth. However, the development of energy assets does not guarantee growth in other sectors. Furthermore, more must be done so that the jobs that are created are available to the widest possible pool of eligible candidates.
With changes coming locally in Pennsylvania, with the state’s Department of Health releasing permits for medical marijuana growers and processors as well as dispensaries late last month, it seemed high time to take a look at the economic impacts of marijuana legalization efforts in other states.
Colorado anticipated $70 million in marijuana tax collections per year, but it hit $121 million in 2015 and over $140 million in the calendar year 2016.1 One estimate put the economic impact for the state of Colorado at $2.4 billion.
In Washington, tax revenues are slowly ramping up, but still far short of the estimated $388 million annually estimated in the legalization effort. Excise tax revenues from marijuana were $62 million in FY 2015, $134 million in FY 2016 and expected to hit $270 million for FY 2017.
Whether all states will hit these targets is not yet clear, and there has not been any analysis of whether legalization has offset or increased other public sector costs. We don’t fully know if legalization has produced any savings from reduced drug enforcement costs, or if those savings are offset by increases elsewhere.
It may be some years before we can really examine the impact of legalization on public costs, but there are other impacts that are receiving less attention. The legalization of marijuana at the state level has created a fundamental conflict with federal law where it is still illegal and controlled as a Schedule 1 drug, the most serious category of illegal substances that have no currently-accepted medical use and a high potential for abuse. As a Schedule 1 drug, the funds for research on medical uses are restricted, so it is even harder to get marijuana reclassified (as could happen if research proved that its medical use was beneficial). As recently as August of 2016, the DEA rejected reclassification based on the recommendations of the FDA.
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) indicated in what is known as the Cole Memo that they would not charge a bank with federal crimes for accepting marijuana money if the financial institution ensures that all state laws and the directives of the Department of Justice have been followed. This situation puts a significant resource burden on institutions that effectively makes accepting these deposit not profitable. Some credit unions and “money service businesses” such as PayQwick are entering the marijuana market, but the uncertain legal patchwork they operate under provides a limited solution.
As a result, marijuana businesses that are legal in their home states cannot use banks or many traditional banking services.They have to pay all of their bills, taxes, and payroll in cash. They can’t get loans or mortgages, and they can’t build credit.
These problems can also extend to companies that supply marijuana businesses and all of their employees. If your income comes from an activity that is not allowed by federal law, then you as an employee may be barred from using a bank or getting credit. Furthermore, since these businesses are paying their workers in cash, any individual with a bank account would be subject to additional scrutiny for making large amounts of cash deposits. This is such a new industry that the potential problems facing employees in these businesses have not yet surfaced, but it is something that policymakers should be considering before significant problems emerge.
1. See Joseph Henchman, Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington, Tax Foundation Special Report (Apr. 20, 2016).↩
At Fourth Economy we have been tracking the news about retail store closures. These store closures often can leave significant redevelopment challenges for local community and economic development officials. In future posts we will highlights some of the ways that communities are dealing with these buildings. According to Business Insider more than 5,000 store closures have been announced so far, with the potential for nearly 9,000 store closures by the end of 2017. These store closings are the most physical manifestation of the challenges facing the retail sector.
As a resource to the community, Fourth Economy has started to identify and compile a list of retail store closings. Tracking down the locations has proven to be a challenge, but we have identified 1,768 of these closings so far. You can see the results in the above Working Map of Retail Closings, created in Tableau Public. We are providing this as a resource to the community and will continue to update it as closings are announced and locations identified. If you know of any closings in your area, please send them to firstname.lastname@example.org and we will update the map.
Stay tuned for more.
A great American poet once said, “For the times they are a-changing.” That is especially true today in our economy. Underneath the radar of the rhetoric and public spotlight, the changes in the economy are generating a ripple effect for how industries and people use land. Land use is not a topic that is top of mind for most people, but a few local governments are waking up to the reality that a number of forces are beginning to change the need for land, and ultimately its value. Local governments care deeply about land use, or they should, because the value of land translates into the property tax revenues they need to maintain the community. Continue reading “New Economics of Land Use”
Much attention has been paid to Pittsburgh’s burgeoning cohort of tech startups — but, more broadly, how is the climate for startup businesses in Pittsburgh, and what does it indicate about our city’s entrepreneurial culture? The Kauffman Index is one of the most prominent rankings of entrepreneurship and startup activity. Its release is often used to measure how Pittsburgh is doing compared to other metropolitan areas–and how we’ve progressed over time.
The 2016 Kauffman Index shows that entrepreneurship in the Pittsburgh region continues to lag behind other major metropolitan areas. Pittsburgh ranks 40th in startup activity in 2016, unchanged from our 2015 ranking. However, our rate of new entrepreneurs slipped from 150 new firms per 100,000 adults in 2015 to just 120 in 2016. By way of comparison, Austin, which ranked first in 2015 and 2016, saw its rate of new entrepreneurs go from 550 per 100,000 in 2015 to 600 in 2016. This means that Austin generated five times as many new firms per 100,000 adults as Pittsburgh did last year. Continue reading “Checking Up on the Health of Pittsburgh’s Startup Economy”
Knowledge is not an excludable good.
I have been thinking a lot lately about what drives economic growth and who shares in it. There are a lot of explanations out there, and I expect that we will hear a lot more theories about uneven growth in the months and years to come.
Thinking about what powers our economic growth, education exerts an increasing influence on the distribution of benefits (Figure 1). Earnings are higher and unemployment is lower as the level of individual educational attainment increases. Continue reading “Education and Growth”
I recently had the opportunity to appear on the Workforce Central podcast, where I discussed the current state of the economy, trends that workforce boards should be aware of, and my thoughts about the impact of the upcoming election on the overall U.S. economy. Workforce Central is the official podcast of the National Association of Workforce Boards. The podcast is hosted by Ron Painter, President of the NAWB.
Back in February, a Gallup poll found that both Republican and Democratic voters generally agreed on the most important issues in the nation. Two of these issues are explicitly economic, but the other two have profound economic implications.
Figure 1: Excerpted from Top Issues in the U.S. Election (Gallup)
The Governmental Accounting Standards Board (GASB) has implemented new guidelines for disclosing tax abatements with the requirements taking effect for financial statements for periods beginning after December 15, 2015. These new regulations will require a significant change in the operating procedures and record-keeping of many economic development organizations and local governments. Chances are many are not ready to meet the requirements of the new GASB standards. Continue reading “GASB Shines a Light on Tax Abatements”
The ripple effect of big data and analytics is hitting economic development. There has been a resurgence in new tools that package economic data to make it more accessible to a wider audience. A lot of these tools are using aggregated data that is useful but it is often not granular enough to inform an individual EDO or city about how to improve its economy and what is working.
To do that we need better data that is more granular with details about specific projects and specific companies. Big Data relies on and pushes for this kind of transactional data. Much of this kind of economic data does exist but it is walled off by various bureaucratic walls. We are a long way from incorporating Big Data into economic development, and there are real risks with a pure Data Analytics approach to understanding economies and creating development strategies. Continue reading “Measure Up!”