Unemployment Up in Eastern Coal Counties; Western Counties Seeing Declines

“Unemployment Up in Eastern Coal Counties; Western Counties Seeing Declines”

By Chris Ritchie

Increase in Federal Minimum Wage Would Provide Much-Needed Boost to Kentucky Families

An increase in the federal minimum wage to $9.80 an hour would raise wages in Kentucky by $606 million over the next three years and benefit one out of every four of the state’s workers, according to a new report by the Economic Policy Institute (EPI). Contrary to stereotypes, increasing the minimum wage would primarily benefit adults whose families depend on these jobs to make ends meet.

The report examines the impact of legislation introduced in both houses of Congress to incrementally raise the federal minimum wage from its current $7.25 an hour to $9.80 an hour over three years. The proposal would also raise the minimum wage of tipped workers to 70 percent of the regular minimum wage.

EPI estimates that in Kentucky the increase would directly affect the wages of 296,250 workers and indirectly affect the wages of another 135,101 workers whose wages are just above the new minimum wage, for a total of 431,350 workers impacted (25 percent of the Kentucky workforce). Those workers would receive an average annual wage increase of $607 upon full implementation of the legislation.

EPI’s report debunks the stereotype that minimum wage increases primarily help teenage part-time workers from middle and upper-class families. As the report outlines, in Kentucky:

  • 89.7 percent of workers who would benefit are at least 20 years old.
  • 56.1 percent of the family income of affected workers comes from the affected worker.
  • 39.5 percent of affected workers are married and 29.7 percent are parents.
  • 79.4 percent of affected workers are in families with incomes of less than $60,000.
  • 40.3 percent of affected workers have at least some college education.
  • 55.9 percent of workers who would benefit work full-time, while only 12.9 percent work less than 20 hours a week.

A minimum wage increase is an especially important policy right now because continued high unemployment is putting downward pressure on wages, making it particularly difficult for workers to meet their families’ needs. As the report outlines, increasing the minimum wage would also provide much-needed stimulus to the U. S. economy, increasing gross domestic product nationally by $25 million and resulting in the creation of approximately 100,000 net new jobs.

For the report’s state level data, including the impact of a minimum wage increase in Kentucky, click here.

Reducing Federal Deficits Without a Significant Revenue Increase Would Cost Kentucky Billions

Reducing Federal Deficits Without a Significant Revenue Increase Would Cost Kentucky Billions

22% reduction in federal aid to Kentucky under Ryan budget would mean more painful cuts to schools and other vital services

If significant new revenue isn’t included, upcoming efforts to reduce federal deficits would almost certainly damage Kentucky’s economic recovery and future economic growth by making drastic cuts to federal investments in schools, roads and bridges, safe communities, and family economic security.

The House-passed budget from Congressman Paul Ryan is an example of the kind of approach Congress would take if it rejects deficit reduction that includes revenues. Under Ryan’s plan, Kentucky would lose an estimated 22% or $330 million in federal funding for education, clean water, law enforcement, and other state and local services in 2014 alone (and $2.9 billion over the next nine years), according to a report released today by the Center on Budget and Policy Priorities, a non-partisan policy research organization based in Washington, D.C. Ryan’s plan also would shift other very large costs to states by reducing sharply federal funding for Medicaid (in addition to repealing the health reform law), and likely by cutting deeply funding for highway construction and other transportation projects.

“A deficit reduction plan based narrowly on budget cuts would harm Kentucky’s economy in the short- and long-term,” said Jason Bailey, director of the Kentucky Center for Economic Policy. “Unless Congress takes a balanced approach that also includes new revenues, it will damage Kentucky’s ability to educate our children, build roads and bridges, and have clean water and safe communities.”

Federal funding for states, counties, and cities very likely would be decimated by an unbalanced approach to deficit reduction in the next decade. That’s because there’s broad bipartisan agreement that significant deficit reduction is needed, but federal policy makers also agree in broad terms that deficit-reduction savings from other major parts of the budget – defense, Medicare and Social Security – should be limited during that period. Federal funding for states and local areas would thus be one of the few remaining sources of large potential savings.

These cuts likely would bring federal aid to state and local governments to historic lows. By 2021, under the Ryan budget, federal grant programs for states, counties, and cities likely would be less than half the average of the last 35 years.

These cuts would add to deep cuts Congress already made to state and local aid last year and severe cuts that Kentucky has made as a result of the recession to education and other services vital to economic growth. Kentucky’s 2013-2014 state budget included 8.4 percent cuts across state government with only a few exceptions. And the cumulative impact of 11 rounds of cuts to the state budget since 2008 is substantial—funding for many state functions has been reduced 15-30 percent or more.

Ryan Budget Cuts to Federal Funding for Kentucky Far Worse Than “Sequestration”

The funding cuts to states, counties, and cities under the Ryan budget proposal would far exceed the automatic cuts scheduled to begin in January, often referred to by the term sequestration. In 2014, the Ryan budget cuts would be three times as deep, inflicting far more damage than sequestration. In later years, as the sequestration cuts diminish but the Ryan cuts remain as deep, the difference would be even larger.

Specifically, the Ryan budget proposal likely would reduce federal funding in these areas in Kentucky:

  • Education. Head Start, teacher quality programs, special education, and schools in high-poverty areas (Title 1) likely would face deep cuts.
  • Transportation. Likely cuts would hurt Kentucky’s ability to build and repair roads, bridges, airports, and public transportation systems.
  • Public safety. Kentucky would likely have less funding for disaster assistance and grants programs that help local police departments hire, train, and equip officers.
  • Community development. Funds that help improve water and sewer systems and revitalize deteriorating neighborhoods likely would face cuts.
  • Housing. Kentucky likely would be less able to provide rental assistance and heating and cooling assistance for low-income people, many of them elderly.
  • Workforce. Kentucky would have fewer resources for workforce training and placement services and childcare assistance for low-income working parents.
  • Health. Funding cuts would hinder Kentucky’s ability to keep community health centers open, provide mental health and substance abuse services, and give nutrition support to low-income mothers and young children.

“It is important that Congress work to enact a balanced deficit-reduction package that both includes new revenue and replaces the automatic budget cuts scheduled for January,” said Bailey. “Congress should avoid any unbalanced plans that would further deepen cuts in federal aid to states and hinder Kentucky’s ability to grow.”

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The Center’s full report can be found here.

Agenda to Reduce Taxes and Workers’ Rights No Path to Prosperity

Hardly a month goes by without the release of another index supposedly ranking states on their economic competitiveness. One prominent such report comes from the American Legislative Exchange Council (ALEC), a controversial national corporate lobbying organization. But a new analysis by a University of Iowa economist shows that ALEC’s prescription of tax cuts for the wealthy and corporations, reductions in public services and curtailment of workers’ rights has no correlation with state prosperity.

Professor Peter Fisher, a leading expert on state economic development policy, looked at the economic performance of states five years after the release of ALEC’s first edition of its report Rich States, Poor States: The ALEC-Laffer State Economic Competitiveness Index. ALEC’s prescription for economic growth is for states to have no individual or corporate income tax, no estate tax, no state minimum wage, caps on taxes and spending, and “right-to-work” laws designed to limit unions.

Fisher’s analysis finds no correlation between ALEC’s policy prescriptions and the economic performance measures that the ALEC report relies on—growth in state gross domestic product, growth in nonfarm employment, and growth in per capita income. In fact, as shown in the graph below, the worse a state did on the ALEC index the better it actually performed in per capita income over this period.

 ALEC

Fisher concludes that ALEC’s policy proposals “are not a recipe for growth and prosperity. If anything, they are quite the opposite: They are a recipe for economic inequality, low wages, and stagnant incomes that at the same time deprive state and local governments of the revenue needed to maintain the public infrastructure and education systems that are the underpinnings of long term economic growth.”

Kentucky policymakers should be very wary of the indices touted by entities like ALEC and the Tax Foundation. They provide insight into a vision of the world these organizations would like to see realized, but fail to explain what it really takes to make a state’s economy grow.