New York State Minimum Wage: What About Affordability?

Greenlar, Michael, and Mike McAndrew. Paid Family Leave for NY Workers in State Budget Deal, Cuomo Says. Digital image. Syracuse.com. Syracuse Media Group, 31 Mar. 2016. Web.

Greenlar, Michael, and Mike McAndrew. Paid Family Leave for NY Workers in State Budget Deal, Cuomo Says. Digital image. Syracuse.com. Syracuse Media Group, 31 Mar. 2016. Web.

Among the set of all economic discussion topics, the minimum wage increase certainly stands as one of the most polarizing. Slogans are chanted from “Fight for 15!” to “Fight for Zero!” with considerable controversy as to the true potential impacts of a minimum wage hike to $15/hour. Economists of course recognize the generality of such an argument. For one, a sweeping $15/hour policy inherently generates a massive disparity in purchase power parity (PPP) between different localities. In other words what $15 buys you in NYC may be drastically different than what it buys in Potsdam NY. This also ignores the implementation timing. The 2016-2017 New York State Budget includes the following proposals:

  • For workers in New York City employed by large businesses (those with at least 11 employees), the minimum wage would rise to $11 at the end of 2016, then another $2 each year after, reaching $15 on 12/31/2018.
  • For workers in New York City employed by small businesses (those with 10 employees or fewer), the minimum wage would rise to $10.50 by the end of 2016, then another $1.50 each year after, reaching $15 on 12/31/2019.
  • For workers in Nassau, Suffolk and Westchester Counties, the minimum wage would increase to $10 at the end of 2016, then $1 each year after, reaching $15 on 12/31/2021.
  • For workers in the rest of the state, the minimum wage would increase to $9.70 at the end of 2016, then another .70 each year after until reaching $12.50 on 12/31/2020 – after which will continue to increase to $15 on an indexed schedule to be set by the Director of the Division of Budget in consultation with the Department of Labor.

One would hope detailed research from respected economic scholars would help to stymie such controversy but as with most political discourse, it does so to no avail. The Institute for Research on Labor and Employment at the University of California, Berkeley released their policy brief just before the NYS Budget Deal was reached last month. The brief details their estimates on the state-wide economic impacts of the Governor’s then $15/hr minimum wage proposal.

For the sake of brevity I have left the link available for those who wish to read further into the details. The primary highlights of the brief are:

  • Our results indicate that a $15 statewide minimum wage would generate a 23.4 percent average wage increase for 3.16 million workers in the state. This improvement in living standards would greatly outweigh the small effect on employment. And the increase in wages would help reverse decades of wage declines for low-paid workers.
  • How can such a major improvement in living standards occur without adverse employment effects? While a higher minimum wage induces some automation, as well as increased worker productivity and higher prices, it simultaneously increases worker purchasing power. In the end, the costs of
    the minimum wage will be borne by turnover reductions, productivity increases and modest price increases.

In speaking with a friend and local business owner recently however, I began to ponder how would this affect her and her business specifically. One can conceive without much loss in generality that the average fast food franchise could absorb the added labor cost increase in their margins and maintain positive cash-flow. In other words, they have the freedom to play the higher price vs. hit to the bottom line game and have little worry about keeping the doors open. A local small business however is far less predictable and very often runs on much smaller margins. Small businesses cannot take advantage of the economies of scale a franchise can offer and without teams of highly skilled management, inevitably leave cash on the table in terms of operations inefficiencies. The question is, can one then conceive of a minimum wage increase “affordability index”?

It is my objective to obtain nameless and addressless payroll and business income tax records to make wage increase comparisons. For what percentage of businesses is the proposed increase in minimum wage easily absorbed by current cash-flows and for what percentage does this pose a larger problem? Can a metric therefore be created to gauge the “affordability” of a minimum wage hike for any given business?

While such a study may provide less insight or value to the discussion as the IRLE study, the concept of affordability for small businesses should not be negligible irrespective of the net effects to the economy. Food for thought!

-JS

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An Investigation Into the Effects of a Smart Grid Based Real-Time Pricing Retail Electric Market on the Financial Outlook of Distributed Generation Solar Power Systems in New York State

Link to PDF 

Abstract

Recent research has suggested that increases in the development and implementation of “smart grid” technologies could allow for a transition from load-profile pricing to real time spot pricing in retail electric supply markets. The following report attempts to investigate the potential effects such a market design could have on the solar value of consumer owned distributed generation (DG) on-site solar power systems in New York State. The study was conducted utilizing data from January, 1, 2014 – December, 31, 2014 to provide a full year analysis. The results of analysis appear promising as they support the initial hypothesis, that spot pricing based electric markets financially favor DG solar panel system owners. Over the stated period, the analysis suggests that a shift from load profile to spot pricing could result in an overall improved solar value of 16.35% depending on the market design criteria used. More specifically, results also appear to indicate a multifaceted correlation with both daily peak prices and seasonal effects.

Continue reading

9/15/15 Update on Smart Grid Solar Research

An exciting insight today! I’ve been having difficulty in handling the data recently which has delayed some analysis. The program I have been utilizing which provides the performance output for an average solar power system in NYS, outputs data based on statistical averages for the type of system and geographical location for every hour of every day of the year. The Location Based Marginal Pricing (LBMP) data provided by NYISO however, provides data with a time stamp mostly every 5 minutes throughout the year. When you consider the fact that means it provides you with 105,120 data points, manual translation into hourly data points is not exactly a trivial task. Whilst I work to do that in a more efficient software based fashion, my eagerness to get a glimpse of results prompted me to manually translate the data for the first effective week in July of 2014 (7/1-7/7).

Spot_Pricing_vs_AC_Power

The results a tremendously enticing. The hypothesis in layman’s terms more or less states from a visual standpoint that the peaks and valleys should align. While this is not immediately obvious from the graph, further analysis of the data proves this to be the case, at least for this small section of data.

Utilizing the following formula, one can infer the effective “Solar Value”. Solar value in this context would mean the value of the electricity being produced by the solar panel system.

 Solar_Value_Formula

Where SV(t) refers to solar value, P(t) refers to price, and EG(t) refers to the energy generated. Load Profile pricing was taken from the US EIA data averages. Spot Pricing is generated using Location Base Marginal Pricing (LBMP), which is in essence today’s spot price for wholesale electric markets. To convert to projected retail prices, LBMP was multiplied by (AVG(Load Profile) / AVG(LBMP), thus making up for the retail price margins.

The results are that the solar value for the State of New York over this time period under load profile pricing equaled  $613,542,392.38 . Likewise under spot pricing, solar value increased to  $731,326,131.29. Why is this an intriguing find you may ask?? Because what this suggests is that with zero change in gross margin to electric prices, no additional solar incentives or tariffs put in place, if a smart grid utility system were realized and our market design shifted from load profile pricing to spot pricing, this would results in a 19% better return for solar panel system owners!

Stay tuned as I continue to build on these findings by analyzing the remaining data from 2014, and look to see how this price change could affect adoption rates.

Can Smart Grid Energy Infrastructure Increase Demand for Distributed Generation Solar?

As an entrepreneur int he solar industry, I’m very happy to report the frankly surprising growth figures.

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

It’s quite astonishing. In fact when an adviser of mine just recently retired from the solar installation firm he founded, he mentioned how the last installation project he was part of was larger than the capacity of the entire industry when he started the company in 1998.

All said and done however, solar still accounts for just over 2% of all energy capacity in the US, the World’s second largest CO2 equivalent emitting nation. While the battle on Capital Hill still mindbogglingly rages about the existence of Climate Change, many policy makers and research are still pushing for the best legislative options be it Carbon Taxes, a tradable performance standard, or investment tax credits.

My current research takes an additional perspective focusing on the potential benefits of a fully integrated Smart-Grid system. Unfortunately the economics of the energy and utility industry are nonetheless complicated than the technology behind it, but the highlights are not terribly difficult to comprehend. Electricity, much like many other commodities such as gold, oil, rare earths, etc. is subject to major market fluctuations when traded at the whole sale level. End consumers (i.e. rate payers) are never really made privy to these because we pay our electric bills based on something known as “load profiling”. This is what allows utility companies to display the electric supply rate as a constants $/kWh figure on your bill each month. In the whole sale market, spot pricing takes place where you have “real time” price fluctuations based on supply, demand, congestion, and a variety of other cost figures.

Under a Smart-Grid system, where all generation, transmission, and demand points (often referred to as nodes), have the ability to communicate with one another at the speed of light, the economic concept is that those spot prices will be able to translate into the retail prices that everyone would be then subject to as rate payers. The average person may be wondering “why would I want to change from a constant price model to one which fluctuates?” There are a number of efficiency reasons for this, but mostly because it allows consumers the ability to lower their overall energy costs as electric prices will more accurately reflect the real time costs of generating and transmitting it.

In my current research however, I am exploring the effects of a what a potential Smart-Grid could have on the solar market. The hypothesis being that all else being equal (i.e. maintaining a control of variables such as solar incentives), depending on what the spot price trends tend to look like during solar panel production hours, customers may actually reap a greater benefit out of a solar panel system than they would under a load profile system. Why is that? Well imagine if the typical spot price trends were that electric prices are low at night but high during the day.  Under load profiling, a customer would not notice this and pays the same rate regardless of what time of day, and so when their solar panel system is putting energy onto the grid, or saving you from drawing electricity off the grid, the effective savings are based on the load profiling electric rate. Under spot pricing, if electric costs where high during the day when your solar production is highest, you may in effect save more money since the energy you’re producing at that time is “worth more” i.e. has a higher price.

Thanks to multiple advisers and NYISO, I’m well on my way to researching this point and will be sure to make a post when more info is available.

GDP vs. True Societal Success

GDP Definition

Gross Domestic Product (GDP for short) for those unfamiliar or just wondering about the specifics of its use, is the “The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.” Mathematically:

GDP = C + G + I + NX

Where “C” is equal to all private consumption, or consumer spending, in a nation’s economy, “G” is the sum of government spending, “I” is the sum of all the country’s businesses spending on capital, and “NX” is the nation’s total net exports, calculated as total exports minus total imports. (NX = Exports – Imports)”

GDP is seen as a macroeconomic indicator, a performance metric if you will used to compare total activity in a nation’s economy over time. You’ll often hear GDP figures in news report for this reason as its often the most salient indicator used by economists, the finance industry, politicians, etc. to judge the “health” of the economy.

Historical use of GDP

Like so many aspects of US culture and political policy, GDP, or Gross National Product (GNP) as what was used then, is largely a carry over of prewar and WWII era America. Not until Black Tuesday was our government ever in such a need to constantly measure the health and growth status of the national economy. The nation needed to get back on its feet from the depression meanwhile transitioning itself into a well oiled war machine to fight off our enemies in Europe. GNP offered the most comprehensive and effective way to measure our economic resurgence and defer resources to the war effort abroad.

Post Keynesian economic expansion and WWII, GNP was suddenly found to be fantastic comparative tool with the Soviet Union, which itself utilized Gross Social Product and Total Gross Output of Industries, until 1988 when it formally adopted the compilation of GNP statistics. Not until 1991 was GNP out-shined by GDP, which then took great international prominence during the 90’s economic boom.

Overall, GDP and GNP have played an instrumental role in our economy since the 1930’s. The creation of such a powerful and salient metric at economists and policy makers disposal, proved to really bring about an econometric revolution. While economic policy is nevertheless highly politicized, GDP was a profound catalyst in establishing the highly analyzed and quantitatively measured world of economics we now live in. In the 1950’s GDP “led to the development of official ‘input–output’ tables, capital stock estimates, and more detailed local personal income estimates. In the 1970s, accelerating inflation prompted the introduction of new measures of prices and inflation-adjusted output. In the 1980s, the internationalization of trade in services led to an expansion of this component into the calculation of national income.” (AtKisson 2013) We now have a greater ability to analyze the results of policy changes rather than theorize and fall back on political rhetoric to defend positions. It is arguably one of the more important economic advances in history.

The use of GDP however, is not without its negative consequences or sweeping assumptions of course. Economic discussions and analysis in the media rarely include the various subcultures and divisions of labor. We now focus on “producers” and”consumers” which many argue has lead substantially to the largely materialistic culture of today. It has also encouraged an economic trend dubbed by President Eisenhower as the “Military Industrial Complex”, where a substantial portion of the economy is now dependent upon military spending.  There is a profusion of discussion relating to the dangers of an over-reliance on GDP and its short coming.  Of greater relevance here is that GDP makes an inherent and somewhat audacious assumption that consumption is the true driver of prosperity. Is this necessarily the case however?

GDP vs. Happiness

As wonderful as GDP has proven historically speaking to demonstrate economic health,  let us not forget that much like any other aspect of human civilization (culture, social acceptance, technology, etc.) , our economy has likewise evolved and should now serve a higher purpose. The original intent of an economy was to serve as an organized system of exchanges and divisions of labor which individuals contributed to and drew resources from to provide for their basic human needs. As Adam Smith, author of An Inquiry into the Nature and Causes of the Wealth of Nations, once said “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.”

Today however, an economy is more than a system of production and consumption but rather, a way of organizing a society itself whereby government plays an important role as a check on markets and to serve the needs which markets cannot (creating and enforcing laws for instance). In today’s world, we expect more than to simply have our lower level physiological needs met. We strive for ideas even higher up the chain of Maslow’s Hierarchy. This is where GDP has its short fall as I think was summarized well by then Presidential candidate Robert Kennedy’s remarks at the University of Kansas on March 18 1968.

Just as in any form of management, it’s important we as a society step back every once in a while and examine ourselves, our current path, and the ways in which manage ourselves chiefly our government and our economy. Pertaining to the later, how does our current economic system perform relative to many consider the only goal of life which is itself not a means to an end, happiness?

“And of this nature Happiness is mostly thought to be, for this we choose always for its own sake, and never with a view to anything further: whereas honor, pleasure, intellect, in fact every excellence we choose for their own sakes, it is true, but we choose them also with a view to happiness, conceiving that through their instrumentality we shall be happy: but no man chooses happiness with a view to them, nor in fact with a view to any other thing whatsoever.” – Aristotle

There have been a number of attempts in recent years to represent GDP vs. Happiness (or some metric designed to capture happiness/life satisfaction). Many of the most credible of these findings tend to illustrate fairly minimal correlations compared to what many economists expect. In 2011, the US was by far the worlds largest economy by GDP yet ranked 31st in the Quality of Life Index (QLI), and 29th in Mercer’s Quality of Living Survey. Even the Economist has demonstrated a fairly minimal relationship. Their results went as far as to gauge Mean Life Satisfaction versus GDP per capita at PPP (Purchase Power Parity). Only until plots are done in logarithmic scale does it approach anything near liner which by definition would indicate an exponential relationship between the two.

The Economist. Rep. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.

The Economist. Rep. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.

Although there are certain arguments to be made to the contrary and disputes are inevitable in any social scientific discussion, GDP as the reigning global economic indicator still stands despite its many critics. This then begs the question, if the relationship, while certainly present, appears fairly weak between the two, perhaps our idea of success should strive to be more comprehensive?

Social Success Metrics

The small Southeast Asian nation of Bhutan thinks so. In 1972 they actually went so far as to implement a new measure called Gross National Happiness (GNH), which still carries forward to this day, albeit with a few revisions. While my colleague Griffin Kearney and I felt GNH represents a fantastic starting point, it leaves much to be desired from a free market, democratic, and analytical perspective to truly serve well as a comprehensive indicator.

In keeping with these mathematical and philosophical constructs and as part of a greater research proposal we’ve been developing, spawned 6 key social success metric concepts, each design to represent a specific scope of societal success.

  • Wealth
  • Health
  • Safety/Security
  • Social Capital
  • Education
  • Freedom

Inspired by the Legatum Prosperity Index, it is our intent to develop a more concise grouping of economic based metrics designed to be analyzed by economic researchers and policy makers as a set. The individual metrics will themselves be made of indicating measures that have already been fairly well established in their respective fields. It is our intention that the inherent propinquity of the grouping of these metrics will inspire unique affiliations and a more cohesive societal aim. Keep tuned for developments on the specifics of these metrics on the My Current Research page.

While there is much still to be discovered about the best individual metrics best suited for this grouping, the methodology behind the grouping itself still stand. Much like the grouping of Maxwell’s equations, the foundation of each of these metrics is by and large well established independently but conceivably, when put into a greater, high-order context, they can have new meanings, interpretations, and inspire a greater connectivity. If it is our life’s aim to be: wealthy, healthy, safe, socially prosperous, educated, and free, perhaps that should be the new measure by which we judge ourselves then.

 

 

References:

  • “Gross Domestic Product (GDP) Definition | Investopedia.” Investopedia. N.p., 19 Nov. 2003. Web. 13 July 2015.
  • AtKisson, Alan. “Chapter 1 The History of GDP: From Crisis to Crisis.” Gross Domestic Problem : The Politics behind the World’s Most Powerful Number. N.p.: Zed, 2013. N. pag. Print.
  • Burton, Neel. “Aristotle on Happiness.” Psychology Today. N.p., n.d. Web. 13 July 2015.
  • “Money Can’t Buy Happiness – or Can It?” The Economist. The Economist Newspaper, 30 Nov. 2010. Web. 13 July 2015.
  • “Money and Happiness.” The Economist. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.
  • Rothkopf, David J. “Redefining the Meaning of No. 1.” The New York Times. The New York Times, 08 Oct. 2011. Web. 13 July 2015.
  • Frey, Bruno S. Happiness: A Revolution in Economics. Cambridge, MA: MIT, 2008. Print.
  • “The 2014 Legatum Prosperity Index.” Prosperity Index 2014. The Legatum Institute Foundation, n.d. Web. 31 May 2015. http://www.prosperity.com/#!/explore-data?opts=2Ekxmx-UmA2y1