Is Overregulation Driving U.S. Companies Offshore?

CATHERINE RAMPELL

Dollars to doughnuts.

As my colleague Richard A. Oppel Jr. reported on Thursday, Gov. Rick Perry of Texas is arguing that companies are sending work abroad primarily because of overregulation in the United States, and not because labor is cheaper abroad.

Dollars to doughnuts.

“They did not leave to begin with just because they could find cheap labor somewhere,” said Mr. Perry, who is running for the Republican presidential nomination. “That may have been part of a formula, but it is not the reason they left. I would suggest to you they left because they were overregulated, and the cost of that regulation and the tax structure that we have in place in this country is what drove the masses away.”

Is that statement true? Are American regulations so burdensome that they are driving companies abroad?

Certainly the United States tax code is impenetrably complicated, and companies do have to deal with plenty of regulations. But even so, the United States is far friendlier to business than are emerging markets like India and mainland China, according to international analyses of regulatory climates.

For the last nine years, the World Bank has been grading countries on 10 measures of business regulation: getting electricity, enforcing contracts, protecting investors, dealing with construction permits, trading across borders, registering property, resolving insolvency, paying taxes, getting credit and starting a business.

Based on these criteria, these are the top 10 countries where it is easiest to operate a business:

That’s right: The United States comes in fourth.

Hong Kong beats the United States, but mainland China — that bugaboo of American employment protectionists — does not. Instead, China comes in 91st. Despite the higher regulatory burden, American-based multinational companies have increased their employment in China by 161,400 from 2007 to 2008, a gain of about 20 percent, according to the Bureau of Economic Analysis. (The most recent data are for 2008.) In fact, American employment in China rose 77 percent in the prior decade, from 1998 to 2008.

India does even worse, with a ranking of 132nd. Edward L. Glaeser has written for Economix before about India’s struggles with having a stable and transparent regulatory system and public sector.

As they have done in China, American companies have ratcheted up their employment in India by 43,000, or about 13 percent, from 2007 to 2008. From 1998 to 2008, the number of people in India working for American companies rose by 54 percent, according to the Bureau of Economic Analysis.

In another measure of business climate and competitiveness put out by the World Economic Forum, the United States ranks fifth, again ahead of China (26), India (56) and a host of other countries where American companies are adding jobs.

Presumably, then, American companies are not attracted to these places because the business climate is more favorable.

Who Gets Unemployment Benefits

Casey B. Mulligan is an economics professor at the University of Chicago.

It’s commonly assumed that unemployed people not receiving unemployment benefits have been unlucky enough to go without a job for so long that their benefits have run out. But often more important are limited work histories and a low propensity to take benefits that are available.

Today’s Economist

Perspectives from expert contributors.

Historically, many unemployed people have not collected unemployment payments because of ineligibility, lack of awareness or simple unwillingness to collect benefits. But some of those patterns changed during the recent recession.

Perspectives from expert contributors.

The chart below shows the number of unemployment compensation beneficiaries per unemployed person, for people 16 to 24, people 25 and over and all people 16 and over. This ratio can be less than one for all of the reasons mentioned and because some unemployed people may exhaust their benefits sometime during the calendar year.

Not surprisingly, more than three-quarters of young unemployed people do not receive unemployment compensation, in large part because they are much less likely to have the employment history that is required for eligibility. Young people are disproportionately represented among the unemployed, and their limited work histories are the primary reason why a large fraction of the unemployed does not receive benefits.

More striking is the increase to 85 percent from 50 percent among people 25 and over. Before the recession began, about a quarter of unemployed people that age had been unemployed for more than 26 weeks, when unemployment benefits were typically exhausted.

The remaining quarter of the unemployed did not receive benefits for a variety of other reasons: they may not have been interested in or aware of benefits, or they may have been ineligible because they quit their jobs (rather than lost them).

By 2010, unemployment was lasting much longer, but the time for receiving benefits had increased even more. Ninety-two weeks was a typical unemployment benefit period in 2010 (in some states it was 78 weeks, in others 99 weeks), yet only 12 percent of the unemployed 25 and over were unemployed that long.

That means as many as 88 percent of the people that age who were unemployed could have received benefits. That 85 percent received benefits tells us how rare it was for eligible people to forgo benefits during the recession.

The recipiency rate change from 2007 to 2010 is thus a combination of a decreased likelihood of exhausting benefits and an increased propensity to receive benefits early in the unemployment spell. These two factors change so much that even though the average weekly number of unemployed people 25 and over increased by more than six million from 2007 to 2009, the average weekly number of those people not receiving unemployment insurance actually fell by 700,000. (For the purposes of this calculation, I assume that, consistent with the law, nobody received unemployment benefits for a week that she or he was employed.)

This absolute decline in nonparticipating unemployed suggests that people are more willing (equivalently, less unwilling) to collect unemployment benefits than they were before the recession began.

Unemployment insurance is known for its ability to expand eligibility as a recession gets going, whether through the “extended benefits” that take effect at given jobless rates or through legislative action beyond that. But an adjustment almost as important has occurred in the labor force itself: during the recession, people increased their propensity to take advantage of available benefits.

Californians pessimistic about economy, plan lighter holiday spending

The vast majority of California residents say the state is on the wrong track, with an economy that they consider to be just fair or poor with no signs of recovering.

Nearly 9 in 10 say that job opportunities aren’t good and almost half say that those living in California are worse off than people in other states, according to a new report from Citibank.

Still, 63% believe that the state is an excellent or at least good place to reside, according to the survey.

But that doesn’t mean they’re shielded from recessionary winds. Nearly 60% said they’ve forever changed their spending and saving habits. Nearly three-quarters are eating out at restaurants less, with two thirds avoiding premium foods and other gourmet offerings.

More than 70% have backed off credit card purchases, and nearly the same number are now using coupons. Four in 10 Californians have shaken up their living situation to save money.

During the holiday season, only 12% plan to spend more money than they did last year.

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Photo: Tim Boyle / Getty Images

First nationwide test of Emergency Alert System set for Wednesday

This is a test. This is only a test.

At 11:00 a.m. Wednesday, nearly all U.S. radio stations and television channels (including cable and satellite) will simultaneously pause for the first nationwide test of the Emergency Alert System.

For 30 seconds, "This is a test" will be heard, and on many televisions the message will appear on the screen.

The test will be conducted by the Federal Emergency Management Agency, better known as FEMA, in coordination with the Federal Communications Commission and National Oceanic and Atmospheric Administration.

Over the last 15 years, state and local governments have used the Emergency Alert System, also called EAS, to send weather and emergency alerts to residents. But there has never been a national activation of the system, according to FEMA’s website.

The purpose of the test Wednesday, FEMA said, will be to evaluate how well the system will be able to deliver a nationwide message. FEMA chose Wednesday because it falls between the end of hurricane season and the usual start of severe winter weather, although a late-October storm that slammed into the Northeast jumped the gun this year.

The California Emergency Management Agency urges state residents to use the occasion to remind themselves to get ready for emergencies. Information on preparedness can be found at www.calema.ca.gov.

Just remember, this is only a test.

-- Rosanna Xia

Inflation and property prices ease in China

Inflation in China eased for the third consecutive month in October on government policy tightening that has also started to drive residential property prices down with greater momentum.

China’s annual inflation rate fell to 5.5%, the country's National Bureau of Statistics said Wednesday, down from 6.1% in September.

The decline potentially gives the central government room to ease new credit after months of strict controls aimed at cooling down the country’s overheated economy.

Looser bank lending may soon be necessary to blunt the effects of another global recession and carefully guide economic growth down from unsustainable annual rates of 9% to 10%.

“Weakness in the export sector will be the main hindrance to economic growth in the coming quarters,” Jing Ulrich, an economist for J.P. Morgan, said in a research note. “However, with falling inflation clearing the way for policy easing, we believe that China will manage a ‘soft landing,’ achieving respectable GDP growth of 8.3% in 2012.”

That will require delicate policy tinkering as signs are growing that China’s frothy property market has begun its long-awaited correction.

A national index of property prices in 100 cities has declined two consecutive months as cash-strapped developers are experiencing steep declines in sales.

Tight credit and rules targeting speculators could drive prices down 10% to 30%, according to Barclays Capital.

That’s a relief to potential homebuyers priced out of the market and to a government worried a property bubble was stoking social instability.

So far, only angry homeowners have openly protested changes in prices. Last month, hundreds gathered outside the offices of a Shanghai developer that cut prices, demanding refunds and contract cancellations.

The government risks sinking prices at its own peril. Real estate accounts for a fifth of China’s economy, according to some estimates, and contributes up to half of local government revenue in the form of public land sales.

Still, Premier Wen Jiabao remains committed to driving residential prices down.

“We aim to lead housing prices back to a reasonable level and promote a healthy development of the real estate industry at the same time,” Wen told reporters Sunday.

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Photo: Two women look at buildings under construction in Chongqing, China. Credit: Getty Images

Ex-Oregon congressman Wester Cooley pleads guilty to tax evasion

Former Oregon congressman Wester Cooley pleaded guilty in Los Angeles federal court to a tax charge related to the allegedly fraudulent sale of stock in an online auction site.

Wester Cooley, who served in Congress from 1995 to 1997, had been charged with seven felonies surrounding the sale of more than $10 million of private stock in Tujunga-based Bidbay.com and related companies from 2000 to 2003.

Under an agreement with federal prosecutors, Cooley, 79, pleaded guilty to the single tax fraud charge Monday before U.S. District Judge Dean D. Pregerson.

Cooley, who is free on bond and living in Oregon, agreed to return to court Feb. 27 for sentencing. The charge carries a maximum sentence of three years in federal prison, but defense attorney Steve Escovar said he would request a lesser sentence to be served under house arrest.

The former congressman has a heart condition and dementia, his attorney said.

“I don’t think anything would be accomplished by imprisoning Mr. Cooley,” Escovar said. “He’s demonstrated acceptance of responsibility and remorse.… We’re hopeful it will be something less than 12 months.”

The plea agreement calls for Cooley to pay $3.6 million in restitution to investors. However, Cooley has no assets to repay them, Escovar said.

Prosecutors accused Cooley and two associates, George Tannous and De Elroy Beeler Jr., of falsely telling investors that they could make substantial profit because Bidbay was about to be acquired by EBay. In truth, EBay had no plans to acquire Bidbay and had sued the company for infringing on its trademark, prosecutors said. 

About 400 victims invested more than $10 million in Bidbay before the fraud was discovered, prosecutors said.

Cooley was accused of diverting more than $1.1 million of investor funds for his personal use.

Tannous, a former Internal Revenue Service agent, and Beeler have also pleaded guilty to charges related to the scheme. They were listed as potential witnesses against Cooley, according to a government trial brief.

After leaving Congress, Cooley launched a vitamin company called Rose Laboratories Inc. He became a vice president for Bidbay in 2000 and served as a director on the company’s board. After allegations of the fraud were leveled in a 2002 lawsuit, Cooley sought to hide his illicit profit by giving the money to a third party to invest, prosecutors alleged.

The tax fraud charge alleged that Cooley claimed a false deduction on his 2001 tax return and failed to report $494,000 of income. The guilty plea marked the second time that the former Republican lawmaker has been convicted of a criminal charge. He was previously convicted of making false statements about his military record in an Oregon voter guide.

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Photo: EBay headquarters in San Jose. Credit: Paul Sakuma/Associated Press

 

 

California shifts unemployment insurance payments to debit cards

The unemployment insurance checks aren't in the mail.

But that doesn't mean that eligible out-of-work Californians don't get benefits.

On Tuesday, the Employment Development Department, the state government agency that runs the unemployment and disability insurance programs, announced that it's completed the process of issuing 1.8 million debit cards to people receiving benefits.

The cards, which can be used to draw cash from Bank of America and some other ATM machines, are more convenient and secure than old-fashioned paper checks, the agency said.

"This unprecedented transition to paperless benefits is one of the largest pre-paid card roll-outs in the country," said Employment Development Department Chief Deputy Director Pam Harris. "It modernizes the purchasing power of our customers and puts them on par with the rest of the buying public."

Since December of 2010, the agency has paid out $3.7 billion in benefits for the disability and unemployment insurance programs.

The agency's debit cards provide recipients and the state with a number of benefits:

- They have no ATM fees, if used carefully.

- Beneficiaries without bank accounts do not have to pay check-cashing fees.

- They can't be lost in the mail or not delivered in the event of natural disasters.

- They can be used for most purchases anywhere that Visa debit cards are accepted.

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Photo: Unemployed people at the Westminster job center in Orange County. Credit: Jaec Hong/Associated Press