South By North Strategies, Ltd.

Midweek Humor: Export Edition

The Daily Show reports on one of America’s least appealing export industries.

High Cost, Few Benefits?

Economix blogs about new research that calls into question the effectiveness of tax breaks aimed at encouraging retirement savings.

In studying the tax data, the Danish and American researchers identified two main types of savers. About 85 percent of Danes were “passive” savers, who tended to be less responsive to government policies and less wealthy. The remaining 15 percent were “active” savers, who were more responsive and richer.
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When the government reduced a tax break for retirement savings, passive savers barely changed their behavior. By contrast, automatic savings programs had more impact on them, causing the passive savers to put away more money for retirement, said Mr. Chetty, who recently won a so-called genius grant from the MacArthur Foundation.
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Active savers also responded to tax breaks that change — but by shifting money between accounts that come with tax advantages and other accounts, not by changing the amount they put away. The automatic savings programs also had little effect on active savers’ overall balances.

Around The Dial – December 4, 2012

Economic policy reports, blog postings, and media stories of interest:

• Wonkblog rounds up key questions about coverage under “Obamacare.”
• The Atlantic looks at why states should expand their Medicaid programs.
• MDC, Inc. looks at how community college can respond to the jobs crisis.
• Lynn Parramore identifies some CEO lies told to justify upward redistribution.
• Off the Charts mulls when switching inflation measures for benefits makes sense.

The Case For The Minimum Wage

The “Free Exchange” column in The Economist lays out the case that “moderate minimum wages can do more good than harm.”

This new evidence leaves economists with lots of unanswered questions. What exactly is going on in labour markets if minimum wages do not hurt employment but reduce wage gaps? Are firms cutting costs by squeezing wages elsewhere? Are they improving the productivity of the lowest-wage workers? Some of the newest studies suggest firms employ a variety of strategies to deal with a higher minimum wage, from modestly raising prices to saving money from lower turnover.
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Policymakers face practical issues. Bastions of orthodoxy, such as the OECD, a rich-country think-tank, and the International Monetary Fund, now assert that a moderate minimum wage probably does not do much harm and may do some good. Their definition of moderate is 30-40% of the median wage. Britain’s experience suggests it might even be a bit higher. The success of the Low Pay Commission points to the importance of technocrats rather than politicians setting wage floors. Britain’s small, regular changes may be easier for firms to absorb than America’s infrequent but hefty minimum-wage increases. Whatever their flaws, minimum wages are here to stay.

Service Activity In The South Atlantic: November 2012

From the Federal Reserve Bank of Richmond’s latest survey of service-sector activity in the South Atlantic (District of Columbia, Maryland, North Carolina, South Carolina, Virginia and West Virginia):

Service sector activity expanded in November, although employment remained soft, according to the latest survey by the Federal Reserve Bank of Richmond. Revenues rose at retail and non-retail services businesses. Shopper traffic increased and retail inventories flattened. However, big ticket sales dropped. Retailers expected softer sales during the next six months, while services providers anticipated continued business improvement.
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In service sector labor markets, the number of employees fell while average wages continued to advance. However, the pace of increase in wages slowed somewhat compared to last month.
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Price growth ticked up slightly overall. Looking ahead six months, survey respondents expected prices to advance more quickly, with much of the push coming from retail price growth.