About Susan Steward

Susan Steward is an Economist at the Regional Economics Studies Institute (RESI). She is responsible for establishing methodologies for research, forecasts, and impact analyses completed by RESI for clients. Her interests in economics range from labor to banking as well as making connections to the areas in between through historical trends. Susan’s blog posts focus on current news and impacts on the economy.
susan steward

Susan

Loyalty programs have been around for ages. The idea behind them is to gain information about consumers, then tailor a store’s offers to them to increase their spending in store and to ward off competition. Often, these programs were done on a store-by-store basis and offers were targeted for their stores alone. However, in the last few years the economy has witnessed the emergence of cross-store loyalty programs. For example, gas rewards and grocery stores.

 

Currently there are several versions of this program.  For example, the grocery chain Giant has partnered with Shell and, similarly, Safeway has partnered with Exxon/Mobil. Under these programs, a consumer purchasing their weekly groceries at Giant or Safeway can swipe their “Bonus” or “Rewards” card and redeem savings on their groceries. Then, the additional cross-store rewards begin. The store states that for every dollar a consumer spends, they will receive a specific number of gas rewards points. Using their newly accrued rewards points, grocery consumers can proceed to the pump and enter their card number, redeeming these points to reduce their per gallon price for gas.

 

As Morgan and Hunt (1994) state in their research, these programs operate under the assumption that both the consumer and the retailer are committed to specific brands. However, as Liu (2007) points out, the consumer preference for grocery stores and gasoline brands may be relatively low and therefore the tradeoff between brands is relatively easy for consumers. In a review of consumer loyalty programs, Liu (2007) does find that over a period of time consumers will often continue to shop at the same retailers and increase spending levels under loyalty programs. According to Kim, Shi, and Srinivasan (2001), the increased demand through loyalty programs has an advantage for stores as well because this will inadvertently increase their tradeoff between firms for the same goods.

 

Savings at the Pump and Increased Disposable Income

At RESI, one of our favorite things to do is to consider general, everyday issues in relation to Maryland’s economy. Often, this results in us doing a bit of background work and then determining inputs for our REMI model. Thinking about gas rewards programs and their impact on Maryland’s economy, some questions arise.  Taking into account the gas rewards savings on an annual basis across households, what would this translate into for Maryland’s economy? What would this increased annual savings across households look like in REMI?

 

Disposable Income Changes

RESI always needs some primary data, and, given the short timeframe, the group needed a guinea pig. Thankfully, at least one employee shops at one of these grocery stores weekly and saves their receipts. This same employee visits the pump at least every two weeks, and happened to save their receipt this week.

 

Image credit: RESI

Image credit: RESI

 

The photo above shows the receipt on the bottom as the employee’s current rewards amount, and the receipt on top was their savings at the gas station that week from rewards over a two week timespan. It’s unlikely most people will save $0.60 per gallon every time they go to the gas station, but it is reasonable to suggest a $0.10 savings given the employee’s current gas rewards points.

 

RESI then took this $0.10 savings and multiplied it by 15, as the average fuel tank size in Maryland is 15 gallons. Therefore, if most people fill their tanks at the close to empty mark this translates to roughly $1.50 in savings on each trip. Over one month, this could equate to roughly $6.00 in savings.  Over a year, these savings would increase each consumer’s disposable income by $72.00. Although this isn’t much to a consumer, there are roughly 2,598,000 automobiles registered in Maryland as of 2009 according to the U.S. Federal Highway Administration. If at least 50 percent of those vehicles were to take part in this loyalty program and save $72.00 a year that would increase Maryland’s total household disposable income by $93,528,000 a year.

RESI ran this increased disposable income in REMI and found the following:

Jobs Output Wages
172.0 $19,567,000 $7,782,000

Source: REMI PI+, RESI

The reallocation of the disposable income from consumers supported 172 jobs, $19.6 million in output, and $7.8 million in wages in 2013. What does this do to prices? According to RESI’s analysis, although the price of consumer goods would increase, the change would be relatively small across the economy. Areas such as transportation services, motor vehicle fuels, and food and beverage purchases for off-site consumption (grocery) would see relatively small increases (less than half a percent).


susan steward

Susan

Baltimore has long been in a state of transformative flux. The late 1950s gave rise to a growing desire to leave urban areas for suburban ones. Baltimore was one of many urban causalities; recent population estimates for city residents has yet to match that of the late 1950s. However, new economic incentives could reverse this trend.

 

High and long-term unemployment has been a problematic issue for Baltimore for several years. As of 2013, Baltimore had the third highest unemployment rate in Maryland, at 10.1 percent, well above the national average for 2013. A paper released by the National Bureau of Economic Research (NBER) noted that unemployment among lower paid workers could be decreased if labor opportunities within their respective regions were increased, supporting the belief that spatial mismatch can lead to long-term unemployment.
 

800px-Bmore_skyline_inner_harbor

Image credit: Wikimedia Commons

What is spatial mismatch?
It occurs when location of low-skilled, low-wage jobs is so far from the potential employment base that long-term unemployment within urban areas occurs creating a mismatch between employment opportunities and employee availability. The theory was formulated around the rise of suburbia after World War II. Essentially, demand increased for suburban living, and demand for shopping in those areas also increased. Businesses that once thrived in the city began to move away to be closer to their customer bases. Overall, the flight of these employers resulted in a decrease in the availability of lower-skilled, relatively low-wage jobs in cities.

 

Census records of Baltimore’s population from the 1900s to the present outline this specific trend, with record high population for the city in the 1950s, followed by declines through the 1960s with minor increases in the last twenty years. Getting back to spatial mismatch, the theory suggests that long-term unemployment and joblessness among lower paid workers is attributable to the following factors:

  1. Cost of traveling,
  2. Information accessibility about job openings, and
  3. Search incentives for jobs farther away.

What initiatives are being used to combat spatial mismatch?
Looking at Baltimore’s current dynamics, we find that there are opportunities for public transit to lower travel costs for these lower paid workers. Information about jobs openings is becoming more easily accessible through One Stop Career Centers promoted by the Department of Labor, Licensing and Regulation. As for search incentives, Baltimore has plans to further expand its rail lines while also continuing to offer business tax credits for companies to develop mixed-use and residential areas in the city. The tax credits offered to businesses are aimed at shortening the distance between employee and employer within Baltimore.

 

Some of these credits are being utilized to redevelop the Baltimore area. Employment opportunities from new businesses such as the Horseshoe Casino as well as the redevelopment of Old Town Mall are on the horizon, in part from these newly developed opportunities. Additionally, companies are seeking to become part of the city’s culture. A few names include Columbia-based Pandora, First National Bank, R2Integrated, and Lupin Pharmaceuticals.  If this trend continues, Baltimore might be on track for an economic renaissance in the near future. As the gap begins to close, the potential for lowering unemployment durations within the city may increase with these new opportunities.
 

Image credit: Bmore Media

Image credit: Bmore Media


susan steward

Susan

April marks a few beginnings for Maryland this year. House legislation increasing the minimum wage passed, Noah was set adrift from the top of the box office by Captain America, the weather hasn’t been negative twenty degrees, and baseball returns to Camden Yards. Of course, to get into the mood for the season, I like to pull out my collection of baseball movies. This would include the following:

 

 

  • Major League (if you ask, you don’t get it),
  • 42,
  • The Sandlot,
  • A League of Their Own, and
  • Moneyball.

The last one in the list is a new addition to the collection for a variety of reasons. At first glance, most understand the first three films. The last two, however, are always the head scratchers. If you were to categorize my favorite baseball films, there’s humor (Major League), drama (42), childhood (The Sandlot), and economics (A League of Their Own and Moneyball). You may ask, do economics really feature in A League of Their Own and Moneyball? Well, it’s pretty evident in Moneyball, but A League of Their Own?

 

At the core, baseball is a business. In A League of Their Own, the women’s team starts because owners are losing money as men are being enlisted for WWII. Moneyball reflects on the challenges faced by managers with restricted budgets trying to make money and increase their teams’ standings. Baseball franchises pay employees (players) a salary for performing a job (scoring runs).  As a business, the goal is to get the most from players and therefore make a profit.

 

There are a number of factors that go into making baseball profitable. One can be location of the team. If there are two teams within a state, then for every one mile closer the teams are, there will be a 0.07 percent decline in the original, existing team’s attendance. A locational advantage limits the competition of places people can go to see baseball games. Another factor is having a competitive team with a come-from-behind season, because everyone loves an underdog.  Let’s take a look at the current American League East (AL East) standings as of April 14.

 

Rank Team

Wins

Losses

1 NY Yankees

7

6

1 Tampa Bay Rays

7

6

1 Toronto Blue Jays

7

6

2 Baltimore Orioles

5

7

3 Boston Red Sox

5

8

Source: MLB.com

 

In the table above, Forbes marks the Yankees as the most valuable team, followed by the Red Sox, Orioles, Blue Jays, and the Rays. However, when looking at the money on the field since the beginning of the 2014 season, here are the rankings from lowest to highest.

 

Rank Team

Total Salaries of Players on Field

1 Tampa Bay Rays

$36.457 million

2 Boston Red Sox

$65.416 million

3 Baltimore Orioles

$66.446 million

4 Toronto Blue Jays

$70.773 million

5 New York Yankees

$112.467 million

Source: Sporttrac.com

 

The team spending the least amount of money, Tampa Bay, is tied with the team spending the most amount of money, New York, in the AL East rankings. Is it possible to make a winning team on a smaller budget? Well, if the current standings suggest anything, then the answer is yes. Additionally, Boston has been applying a Moneyball type of framework for several years. Apparently, this strategy seems to be functioning just fine for the 2013 World Series Champs.

 

Does a team need to spend like the Yankees to be contenders? At the current standings, Tampa Bay spends nearly half of what the Orioles and Red Sox spend. At the time of this blog, with the roster the Tampa Bay has, the team has recorded 44 scoring runs and 95 times on base, scoring 46 percent of the time they get on base, proving efficiency has its merits on the field. Where does that leave our Orioles?

 

The Orioles’ efficiency for scoring is around 43 percent, above that of Boston and New York (the big spenders). However, competitors like Toronto, which has a 52 percent scoring ratio, and Tampa Bay are spending less and scoring more frequently when on base. If the Orioles can hone in on stopping people from getting on base (especially their AL rivals), and in turn position themselves on base more frequently, then they could have a shot. Additionally, rooting for the home team could help. Ticket sales indicated nearly 2.3 million visitors to Camden Yards last year, an attendance that is closer to the team’s 2003 annual attendance. If supporting the home team can increase runs, then Baltimore rooting for the home team just might yield some positive results this year.


susan steward

Susan

The debate over changing Maryland’s minimum wage from $7.25 an hour to $10.10 has been ongoing since late 2013. The Maryland Minimum Wage Act of 2014 (H.B. 0295) passed in Maryland’s House in February, but concerns regarding community health workers have stalled its progress within the Senate.

 

To date, several studies have analyzed the minimum wage. However, no clear, concise conclusion has emerged from the vast empirical knowledge base. Researchers such as Card, Krueger, Hoffman, and Neumark are some of the bigger names cited when economists discuss the potential impacts associated with changes to the minimum wage. Recent studies of Maryland’s current minimum wage proposal include that of Dr. Stephen Fuller from George Mason University.

 

Dr. Fuller’s team used a version of REMI’s PI+ model to determine the potential impacts associated with changes in Maryland’s minimum wage. However, their analysis looked at the effects of the minimum wage change occurring all at once. The last minimum wage change in Maryland occurred in a series of three-year increments, rising by $0.70 each time until finally reaching $7.25 in 2009. RESI had a brainstorm: “What would happen if they repeated the same technique between 2015 and 2017 to raise the wage from $7.25 to $10.10?”

 

That brainstorm is how this blog post began. RESI used estimates from Dr. Fuller’s report (more specifically, Table 1), data from the Bureau of Labor Statistics to determine industry breakdowns of minimum wage earners, and some good, old-fashioned mathematics.

 

RESI first determined that the increase in wage rates would not be effective until 2015, allowing for changes in the bill before it passes. The second assumption that RESI made: the amount that the minimum wage would increase each year would be $0.95, or the difference between $10.10 and $7.25 spread equally over a three-year period. Third, tipped workers would continue to be paid at 50 percent of the rate of minimum wage. Fourth, full-time employment is 30 hours per week (per IRS definition for the Affordable Healthcare Act). Finally, RESI made some tough decisions about the weights applied for each sector in the model based on annual employment. RESI decided to run the model for an increase in production costs with a simultaneous increase in wages to offset both sides of the economy, producers and consumers.

 

RESI’s analysis suggests that impacts on Maryland’s economy are less negligible compared to Dr. Fuller’s analysis. RESI looked at the changes in the forecast given the policy change from the baseline scenario using full time equivalents. Under the baseline scenario, Maryland’s initial workforce including both full-time and part-time workers in 2020 is about 3.45 million. Under RESI’s analysis, the workforce by 2020 would be 3.44 million if RESI’s assumptions hold true. When comparing full-time (as the data was calculated) to full-time, RESI found that the total overall change is -0.3 percent in potential employment growth for Maryland by 2020.  When looking at the full-time equivalency loss of employment from 2014 through 2020, RESI found that the jobs not realized by 2020 would be 2,900.

RESI_MinimumWage

The above chart shows that, under RESI’s phase-in between 2015 and 2020 (where the final minimum wage change occurs in 2017), private payrolls would be unrealized from their initial forecast by 2,900 full-time equivalent jobs. The sectors falling short of reaching 2020’s current forecasted employment due to the minimum wage change include Retail Trade, Hospitality, and Personal Services. The change is marginal at best, and losses reflected in RESI’s analysis are changes in the current baseline forecast.


susan steward

Susan

I’m not opposed to healthy competition among states for industries. In fact, sometimes, I think it’s necessary to create a competitive atmosphere for business growth. The growth of some small businesses, though, may rely on the incentives offered by lawmakers in a given state. Tax credits, rebates, grants, and interest-free loans have often been methods used by state legislatures to create thriving business cultures. However, when a governor shows up in a state and starts handing out statements about taxes like he’s Kris Kringle, the discussions about business climate comes full circle.

 

Last month, Rick Perry, Governor of Texas, visited our state to share information about the business climate of his state. I love Texas for many reasons, but taxes are usually not the first reason to come to mind. For example, Texas has a state sales tax of 6.25 percent and, in state fiscal year 2013, was the largest source of government revenue. Although Governor Perry brings tidings of good cheer to the business community, I notice something I’m not familiar with in Texas’s tax records. According to the 2013 budget, Texas collected Franchise Tax revenues of more than $4 billion.

 

Image credit: AP/Alex Brandon

Image credit: AP/Alex Brandon

What is franchise tax? Does it only impact franchisee owners? I thought Texas didn’t have business taxes. The last statement is true. Texas does not have a corporate income tax. However, the state does have a franchise tax (or margin tax) based on gross receipts. So, Texas does have a business tax? Well, no, as the Texas Taxpayers and Research Association points out that the U.S. Census Bureau categorized the tax as a “fee.” Therefore, Governor Perry is correct in that phrasing of the moderate tax line item.

 

To get up to speed, Texas has a tax (that is not a tax) between 0.5 and 1 percent on the marginal revenue of business for transactions exceeding $300,000. That about sums it up, but the question remains: Is the business climate in Texas better than that in Maryland? Let’s take a look at the entities to which that tax applies: partnerships (general, limited, and limited liability), corporations, limited liability corporations (LLCs), and committees, to name a few. For more details regarding to whom the law applies, look at the Franchise Tax FAQs on the Texas government’s website. Compared to Maryland’s flat 8.25 percent corporate income tax, a 0.5 to 1 percent fee feels like a refreshing idea.

 

However, the low tax rate is merely the shiny wrapping paper on the package. Papers by lawyers, tax groups, and academics have questioned the tax’s ability to raise funds for the government. The new franchise tax is a modified “version 2.0” of the previous franchise tax of 4.5 percent and has dropped out some of the exemptions, including operating with an entity outside the state. Effectively, the tax, or “fee,” still operates much like a tax. It accounted for nearly 4.8 percent of the total tax revenue last year.

 

In my opinion, one mistake that Perry makes in his argument is focusing only on taxes and discounting all the benefits that Maryland provides. Factors such as a good school system, venture capital access, and a highly educated and skilled workforce are also important metrics to consider. While the ads and the PR stunt may have been catchy. It begs to ask the question: If Texas was so great why the need for such a massive (and expensive) campaign.

 


susan steward

Susan

RESI was recently invited to attend the 2013 Maryland Climate Change Summit at the Maritime Institute in Linthicum Heights. The Summit announced the official release of Maryland’s Greenhouse Gas Reduction Act Plan, which RESI has been a part of since 2009.

 

Since 2011 RESI has worked with the Maryland Department of the Environment (MDE) to produce a comprehensive report about the potential economic impacts from all the programs encompassing the plan. The 2011 results were released as Chapter 7 in the plan in 2012. At that time, RESI used IMPLAN to do the analysis. IMPLAN is a static model that is exceptional for modeling a single change for a single period. During the first report, this was sufficient, given that the majority of the analysis was based on the effects on Maryland’s economy once the plan was implemented. The investment for programs was analyzed on a per $1 million basis, so results read as “For every $1 million invested, this is the impact on jobs/wages/output…”

 

Image credit: suphakit73

Image credit: Free Digital Images

The report released last month is a more comprehensive analysis, looking at both the short-term investment period and the long-term savings from the programs. RESI decided this level of analysis needed a more dynamic tool and optioned to use the REMI PI+ model. REMI gave RESI the ability to use a model that allowed for dynamic effects from the previous year investment levels to carry through years, and the ability to change investment levels every year. This was one of the main challenges faced in the first iteration of the report and one RESI hoped to capture in more detail during this analysis period.

 

For this more defined analysis, RESI worked with several state government agencies to determine the levels of funding currently devoted to the programs associated with the plan or the estimated levels needed to implementation. The REMI model offered a few advantages in conducting this refinement—the first being interactions. IMPLAN is a wonderful tool, but since it is a snapshot of a period, it doesn’t capture the effect from industry interactions and price changes over time. In the most recent report, Maryland can see the scope of the investments across industries and over a given period with residual effects built in. The overall analysis concluded that, by 2020, Maryland’s Greenhouse Gas Reduction Act Plan will support more than 37,000 jobs and add $1.6 billion to Maryland’s economy.

 

RESI will continue to work with MDE this year to refine the programs in more detail for investment levels and extending the period to reflect benefits after 2020. The green industry is growing in Maryland; the Bureau of Labor Statistics reported in March 2013 that green employment accounted for 3.7 percent of Maryland’s total employment in 2011. This figure was up from 2010 and, with the support of the Greenhouse Gas Reduction Act Plan, could expand further by 2020. As the refinement analysis continues, RESI will be looking to capture changes in programs and the new gas tax’s impact on the Greenhouse Gas Reduction Act Plan through 2020.


susan steward

Susan

Whether it is a mortgage payment or a rental payment, the largest bill most households pay every month is the one for housing. According to the Consumer Expenditure Survey, between 2010 and 2011 Baltimore residents spent just over $20,000 on housing annually. Of total household expenditures, that is approximately 37.4 percent of a household’s annual budget. After the 2007 housing crash, the question that followed was, “When will the housing market recover?”

 

One of the largest expenditures (and investments) for most families suffered a major setback in value, and last year interest rates fell to a low of 3.35 percent for thirty-year mortgages, according to Freddie Mac. Recent news has suggested that the housing market may finally be bouncing back as median home prices for Maryland increased from May 2012 by 5.3 percent. According to the latest data from the Maryland Association of Realtors, homes sold and under contract are both up from May 2012 as well. All signs are pointing to a potential recovery within the housing market. To quote RESI’s Executive Director, Dr. Daraius Irani, “it’s crawling.”

 

Housing Recovery

 

Despite the good news of some recovery, some counties have reported negative home sales data between May 2012 and 2013. Places such as Baltimore City experienced little to no change while more western Maryland regions and eastern shore regions experienced negative change in median home sale prices during that period. Frederick and Prince George’s Counties experienced the highest and second-highest growth in median home sale prices during that period. This trend is not uncommon when regions and countries come out of a recession. During the recession, the hardest hit places were rural communities; as a result, these areas may be the last to recover.

 

A new Washington Post article suggests that fewer baby boomers are migrating from urban to rural areas, causing a decline in demand for housing in the more rural counties of Maryland. The stabilizing population and job market may also be contributing factors to more families’ decisions to stay within or move into the Baltimore metro region. Other factors may include the shift in economic focus from manufacturing to research and development. Research and development is experiencing more growth, according to the Department of Labor, Licensing and Regulation’s April 2013 Labor Review. Scientific research fields typically benefit from being closer to major metro regions, like the I-270 Technology Corridor. However, with sequestration impacts still looming, the true test of the recovery is yet to come.


susan steward

Susan

Lately, you can’t go three minutes without hearing the word “sequestration,” or some new item about the federal budget cuts that took effect on March 1. The closer you get toward Washington, D.C., the more lively the discussion becomes these days—primarily from the contractors’ perspective. Although nearly a month has passed since the sequestration officially began, the effects appear to be minimal at best.

 

In economics we discuss the ideas of “lagged” effects, and sequestration might be experiencing that effect. Immediate effects may start to appear on a smaller scale (more furlough days, etc.), but for many companies, the effects of sequestration may take up to a year before they are realized in payrolls or profit margins. Most government contracts awarded in fiscal year 2012 are projected into fiscal year 2014, allowing some major employers like Lockheed Martin and Northrop Grumman more time to reconsider their business models.

 

Copyright Milt Priggee. Click the image to view more.

Copyright Milt Priggee. Click the image to view more.

 

The shifts in branding and marketing of these companies can already been seen in some of their latest annual reports. Ahead of the sequestration, Lockheed began to grow its international business from 15 percent in 2010 to 17 percent in 2011. The movement to increase its international portfolio of clientele demonstrates one way the company may be easing the financial sting from sequestration by moving to more private and international contracts. However, last week’s announcement of two Navy contracts would indicate Lockheed is not worried about losing all government work.

 

Cybersecurity professionals are also gearing up to begin taking on more private industry work. One of the fastest growing professions in the last five years, cybersecurity is becoming a major component of Maryland’s economy.  Durable goods manufacturing reports indicated an increase (net transportation) in the demand for durable goods in January, signaling that companies are not leaving the market just yet. One argument for the increase may come from private consulting firms looking to pick up some of the potentially released government employees with high security clearances in this field. The level of expertise and dealing with major networks would allow these consulting firms to become more competitive and, with the struggling economy, pick up someone with high credentials at a lower cost. The security clearance would also be a perk for government contracts still available to cybersecurity professionals.

 

We can speculate all we want regarding the future of sequestration, but the flip side of the short-term pain may be a long-term gain in competitiveness. Companies that once relied heavily on federal contracts may seek to compete globally and diversify their workforces. For the next 60 calendar days following sequestration in firms with over 100 employees, only one layoff notice has been filed with the Department of Labor for Maryland (although the firm has not specified a date for when the layoffs will occur). Perhaps the second quarter of 2013 will bring more light to the true effects of sequestration on Maryland.