Iowa’s Economy

An economy on the rebound with unemployment falling, state tax revenues increasing, but thousands of unfilled jobs across the state. We take the economic pulse of Iowa on this edition of Iowa Press. (music)    Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com. (music)   For decades Iowa Press has brought you politicians and newsmakers from across Iowa and beyond. Celebrating nearly 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, July 2 edition of Iowa Press. Here is David Yepsen. (music) Yepsen: At the halfway point of 2021, the economic situation in Iowa is a top focus for government and business leaders. State tax revenues are on the upswing as overall unemployment figures are decreasing. But thousands of Iowa businesses are searching for workers as the overall workforce shifts to a post-pandemic reality. To gather some economic insight we gathered a pair of Iowa experts. Peter Orazem is Economics Professor at Iowa State University and Bill Boal is Professor of Economics at Drake University. Gentlemen, welcome to the program. Thank you. Thank you. Yepsen: Thank you for being with us. Across the table is Linh Ta, Des Moines Reporter for Axios and Kay Henderson is News Director at Radio Iowa. Henderson: Bill Boal, I'll start with you. This Friday jobs report out. What did the tea leaves show you? Boal: Well, hiring is up and yet unemployment is unchanged and participation is unchanged. So it seems there are still lots of people sitting on the sides not looking for work. Henderson: Peter Orazem, do you see the same thing? Orazem: Well, what is interesting is that people are going from out of the labor force directly into employment as opposed to having to search for jobs. And so it looks like you have a relatively large number of people who are considered out of the labor force but still, according to the Bureau of Labor Statistics, want a job. What is different is they are not actively searching for jobs but when they start searching they are able to find them very quickly. Henderson: Peter Orazem, in regards to the state policy that changed about a month ago, nearly a month ago, the Governor said we're going to get rid of this federal addendum, the extra $300 that unemployed Iowans were getting. Do we yet know what impact that has had since it went away? Orazem: We know that this is the largest increase, monthly increase in employment that we've had in many, many -- we don't know in Iowa yet. The Iowa numbers are going to come out in mid-July. And we know that about half the states have decided to forego the $300 supplement to the unemployment benefit. One assumes that that would increase incentives to take jobs. It is consistent with a sudden surge in employment growth nationally, but we don't know where that growth is geographically yet. We'll know in two weeks. Henderson: Bill Boal, do you have that assumption? Boal: Yes. But we do know that there are some people who are ineligible for unemployment benefits who are, actually Peter has pointed this out before, who are out of the labor force, meaning they're not searching, and if you're not searching you can't get benefits. So there's a lot of those people too. Ta: Bill Boal, we started 2020 with strong participation rates here in Iowa. But over the pandemic we saw an abnormally high amount of people exit the workforce. Who are they? And where are they? Boal: I don't know who they are but you're absolutely right. It has been striking, even more striking than the national numbers. It has been a big increase and it hasn't really changed. There are still a lot of people out of the labor force who were in the labor force a year ago. Ta: Peter Orazem, your thoughts? Orazem: Well, you would think maybe it's related to the fact that we're a relatively low wage state. And so a $300 supplement to the unemployment benefit would go farther than it would in New York City. But, South Dakota has not experienced the same shortfall in labor force participation, Nebraska has. And so you get these really strange patterns state by state in terms of the drop off of labor force participation. Iowa is relatively unusual in how large their reduction in labor force participation was given the relatively smaller employment loss in Iowa. Ta: And kind of considering that, do you think that Iowa is an attractive place for young people to come here and live here and work here? We'll start with you, Bill Boal. Boal: I think so but not uniformly. I think the cities are attractive, that is my impression from talking to my own students. Other parts of Iowa perhaps a little bit less I would say. Orazem: If you look at where the job losses have been least in Iowa it is Des Moines at just a little over 2% job loss compared to a little over 4% nationally. If you look at some of the smaller metros they have actually been hit a lot harder. And so Des Moines looks relatively attractive, the smaller metro areas don't look quite as good. Yepsen: Let me follow up on Linh's question. Peter Orazem, both of you, you both work on a campus, talk to young people. The business community is worried that we are not an attractive place because of hostile activities taken by politicians, some of the anti-gay rhetoric that comes from some politicians, the racial climate in the state. What do you think? Do you think Iowa is -- I'll start with you, Bill Boal -- do you think Iowa is turning off young people to this state with some of this activity? Boal: Well, yeah, I actually am involved with recruiting faculty and we have a lot to brag about in Iowa, but that is a concern. Faculty members, my colleagues who are minority, even who are Jews have told me there are parts of Iowa where they have encountered hostile comments and that is a negative. Yepsen: Peter? Orazem: Well, the things that make us attractive are relatively low cost of housing and relatively low cost of living. Pay isn't as strong in Iowa as it is elsewhere and we don't have the very large metro areas that a lot of young people find more attractive. I'm not sure that it is very easy to know how the politics of Iowa matters for people who are looking for work. We've had trouble keeping young people in Iowa long before we had problems with a more polarized political climate. And you find polarized political climates pretty much everywhere in the United States. And so I think there's a lot of reasons why we would like to return to a more civilized discourse in politics. But I don't think that it's going to change the incentives for a young person to stay in Iowa. Henderson: Bill Boal, also news this week that the state of Iowa ended the fiscal year with about half a billion dollars of surplus. Governor Reynolds in the middle of June as she was signing a bill that cut a variety of taxes said she'll be back next year asking for additional cuts in Iowa's personal income tax. How would that impact the state's economy? Boal: Well, it's surprising actually that state and local governments throughout the pandemic, their revenues have held up pretty well, more than I would have expected, except for the second quarter of last year when the pandemic was at its worst. So I would guess that a change in the income tax rate will not have a huge effect. But it is heartening to know that there is plenty of money. Henderson: So, if Iowa got rid of the personal income tax, which is something that is a goal of some republican legislators, how would that impact the labor market? Would it impact population shifts? Boal: It might attract a few people who would like to be in a state where they weren't taxed. But of course they would probably have to raise the sales tax a little bit. Henderson: Well, Peter Orazem, how much would you have to raise the sales tax if you get rid of the income tax? Orazem: You'd have to raise it substantially. My own experience is that doing work on firm entry compared to other places is the property tax rates are much more serious. If you're starting up a business you may not have any income and you may not have any sales, but you're going to have property and you have to pay that tax right up front. So putting more burden on the least competitive tax structures in Iowa, I don't think the income tax is particularly unattractive in Iowa. It's probably counterproductive. Yepsen: So you think it would be better -- excuse me, Kay -- you think  it would be better to focus on lowering property taxes than going to an 11% or 12% sales tax? Orazem: I think an increased sales tax that would place less burden on property taxes would make a lot of sense. I think that some of the tax policies that prevent local governments from adjusting their tax rates would make a lot of sense to try to remove those constraints. You look at Lincoln, Nebraska that paid for all this public entertainment space with an entertainment tax and we're not allowed to have an entertainment tax in Iowa. I think that we have sort of made way too many restrictions on how local governments fund themselves and then put too much burden then on state support for those local efforts. And that is one of the reasons we have a relatively uncompetitive tax structure overall. Henderson: So what is your guess, Peter Orazem, what happens when the state scales back and ultimately ends the payments it was making to local governments to replace lost commercial property tax revenue? What happens then? Orazem: Well, there are two things. You're going to have the quality of local services suffer because most of the urban areas, most of the metro areas that are the places that are most attractive for bringing people in Iowa already capped in terms of what their property tax rates can be and so you're going to have a reduction in the quality of those services. The places that can still raise tax rates are obviously going to likely have to put more pressure on property taxes. And as I said, if you compare Iowa to its neighbors, it is our property tax rates that are the most destructive in terms of say looking at which side of a border new firms enter. Yepsen: In addition to being an economist you spend, what, 10 years as a member of the Ames City Council? Orazem: Oh, 8 years but it seemed like 10. (laughter) Ta: Bill Boal, we'll move to you. More public and private agencies are investing in cybersecurity insurance but we're also seeing a high rise in these rates, some of them by 50%. What does this mean just for the everyday consumer when we're dealing with these higher prices for these very 2021 issues? Boal: Well, there's higher costs and that is going to get passed through into prices for sure. There's no getting around that. Ta: Especially for municipalities that are investing in these insurance, these different insurances and are having to deal with these higher rates. What do you think that may mean for residents? Boal: Well, something has got to give, so fewer services or more fees or taxes and things like that. Henderson: In 2001 after the terrorist attack, Iowa's insurance industry made an appeal to federal officials because they said they couldn't cover terrorism. Is, Bill Boal, in your view there a larger role for the federal government in this cybersecurity area and picking up the costs that businesses bear rather than shifting it to the insurance industry? Boal: Well, I think there is a role for the federal government in sort of research and promotion of best practices and so forth. But I don't think it makes sense for them to pick up the costs beyond that. Henderson: Peter Orazem, there's, as David Yepsen likes to say, a lot of federal pandemic money sloshing around in state and local governments. What happens, is there a cliff ahead in the economy when all of that gets spent? Orazem: Well, what's interesting is that, for example, look at the sort of relatively massive income transfer payments that occurred over the last 16 months. A lot of it was saved. And if people can't figure out what to do with that money they sit on it. Now, you're going to see some of that re-entering the labor market. But I think that what has actually happened is a lot of this money hasn't really been spent, it's sort of sitting on the sidelines. What you hope is that it is not going to all enter the marketplace at once and you're going to get this very large surge in customer demand or consumer demand because that is going to have upward pressure on prices. I think that actually people use those resources to basically insure themselves against potential future shocks and a lot less of it actually ended up in the marketplace. Henderson: So, Bill Boal, what is the answer here for someone who is an individual, got the stimulus check? Americans usually spend stuff, we're a consumption society. Have we gotten to sort of a demarcation point where we may start saving more? Boal: Well, I think there is a bit split. Some people lost their jobs in the pandemic and so they spent the money pretty quickly. But the people who didn't lose their jobs didn't have opportunities for travel and things like that and so they saved it. Now, we're seeing some of this money flow into the real estate market where prices nationally are going up at around 12%, 13%, 14% a year, although in Iowa I think it's only about 6% or something like that. So that is one workplace that money is going I think. Henderson: So, Bill Boal, as an economist when you look at the pandemic what is the thing that you want to research the most, as an economist? What intrigues you the most from a 30,000 foot perspective? Boal: Well, the labor market is surely the most peculiar thing we've ever seen in my lifetime and I'd like to know what happened. Did people just stop looking for work? Why were there so many people sitting on the sideline all of a sudden? Yepsen: Could it be that we've changed our attitudes to life, not just work, but everything? The pandemic made us all aware that life is precious, life is short, many people lost friends. We've had tens of thousands of people die. That I'm not just going to race out and get any old job anymore, I'm going to think about this. This condo collapse in Florida, talk about abrupt. Do you think it has had an effect on people psychologically that I'm not going to rush out and start working again, I'm going to take it easy and enjoy life a little more? I'd like to hear from both of you on this. Orazem: I think that there's another side to this. A University of Chicago economist looked at what happened to incomes for people who lost their jobs versus those who retained their jobs in the first 8 months of the pandemic. The people who lost their jobs actually did better than the people who retained their jobs holding constant previous earnings. So you take people who had the exact same pay before the pandemic, some lost their jobs and they qualified for unemployment benefits with the supplement, their incomes actually went up. But people who retained their jobs, their income didn't go up much. There were some repayment bonuses or wage bonuses that were paid. But literally losing your job in the pandemic actually on average increased your income and I think that has an effect on your incentives to take a job. Savings for the people who lost their jobs also increased more than the savings for people who retained their work and would have only gotten the $1200 stimulus. Yepsen: Bill Boal, same question. Have people changed their attitudes towards work here? You're both labor economists. Boal: Well, I think your question is quality of jobs and I don't really know the answer to that. But there was a survey done by New York recently that showed that the wage expectations have gone up in the last say 6 months, maybe 8 months, especially for people it turns out who do not have a college degree and these have been people who have been losing ground for quite a while. Henderson: So are we in a post-minimum wage period? Boal: Well, we're in a period where the minimum wage affects hardly anybody, at least in Iowa, and for much of the country, the federal minimum wage at least. Henderson: Peter Orazem, we're seeing people get paid $15, in some instances $30 just to get somebody at a position in a restaurant -- Orazem: The pace of wage increases in the U.S. over the last 16 months is the highest in the last 20 years. And so clearly the returns in the labor market have improved. And I suspect that we're going to see that a surge in the number of people who are interested in taking advantage of that over the next few months. Henderson: So, given all the economic data you have at present, does this compare with anything before? Orazem: This will be the strangest recession we've ever had. We're expected within 2 years of the initiation of the recession to return to the unemployment rates that we had at the beginning. And we had very strong labor market as of February of 2020. You had a sudden spike in unemployment rates, the highest spike in unemployment rates over a very short period of time in March and April of 2020 and then the sharpest decline in unemployment rates immediately thereafter. Remember, it took us 7 years to return to the pre-recession unemployment rates in the Great Recession. We're going to be, at current projections, back to our previous unemployment rates within 30 months of the start of the recession. Yepsen: Linh? Ta: Bill Boal, we're talking about these rising wages. What does this mean for the everyday Iowa consumer then? Boal: Well, I think it means that the wages paid to people who don't have college degrees, who might be I imagine in retail and things like that, it means that those costs will get passed through to consumers. Ta: And Peter Orazem, your thoughts? Orazem: Yes, I think we're going to see at least for the near-term a surge in inflation, we've already seen it. The question is how long is it going to last? Ta: How long do you think it's going to last? Orazem: If you look at wage expectations remember that is how we had the stagflations of the 1970s, obviously the Fed is I think privately nervous if they're not publicly nervous about whether or not expected inflation is going to get passed through into wage expectations and then you get a cycle of long-term inflation. Yepsen: Do you have a question? Ta: Yeah. So one of the solutions to all of this, President Biden and the democrats have talked about really having strong labor unions. What do you think is the future of labor unions here in the U.S. and specifically here in Iowa? Peter, we'll start with you. Orazem: Well, let's let Bill, he's a union expert. That is his area of research. Boal: I don't think there's much political support for that so I don't see that coming. In fact, the fraction of workers that are members of unions has held roughly constant through the pandemic but that was mostly because there was less of a decline in union jobs than there were in other jobs. So I don't think unions, despite the figures I don't think they're making much progress. Ta: Do you think it would make a difference though if the labor unions were stronger here in Iowa with some of these issues that we're talking about and attracting workers? Boal: Hard to say. It's hard for me to say really. I'm not sure. Yepsen: I'll start with you, Bill Boal. Some of this has to do with the respect paid to workers and the attractiveness of jobs. For years we've heard everybody has to go to college and get a degree and now we're discovering that there's a lot of money to be made as a plumber in San Francisco, for example, six figure incomes. Do we need to think about the dignity of work a little bit more? Boal: Well, I'm sure that is what workers are looking for in addition to higher pay. Yepsen: Deere workers are quoted in the paper as saying they're the best paid blue collar workers in the state, that they don't like this business of laying off people on a seasonal basis, they would rather, again, the dignity of work, a full-time job. Boal: Well, I'm sure there is a demand for that too. Yepsen: Peter? Orazem: Well, at the end of the day people need to be able to make enough money to have a livelihood. And I think that is what dignity really means is being able to raise your family and to do work that you find meaningful. I don't think that has changed any. And to be honest, I'm not sure if you have a six figure income as a plumber, remember a plumber is a very skilled worker and so I think that the average education in the United States now is 14 and a half years, it's more than an associate's degree. We're a very skill intensive economy and I think that those skills make you much more mobile. If the firm isn't going to treat you well, you're going to leave. The quit rates in the United States have really skyrocketed in the last three months and one suspects it is related to how well they feel they are being treated at their current companies. Henderson: Just about 10 seconds left. Is Iowa destined to be a warehouse mecca? Orazem: I think that transportation is a solid. I think that we're likely to have an increase in warehousing, wholesale and transportation, yes. Yepsen: And I have to call a halt. We're out of time, gentlemen. Thank you both for being with us today. Thank you. Yepsen: And we'll be back next week with another edition of Iowa Press at our regular times, 7:30 Friday night and Noon on Sunday. For all of us here at Iowa PBS, I'm David Yepsen. Thanks for joining us today. (music) Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.