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2006 December 24 Sunday
Non-Profit Employment Growing Faster Than Economy

In the United States employment in non-profit organizations is growing faster than employment in the overall economy.

Employment in the U.S. nonprofit sector has grown faster than overall employment in 46 of the 50 states, according to a new report by the Nonprofit Employment Data Project at The Johns Hopkins Center for Civil Society Studies.

As of the second quarter of 2004, the latest year for which data on nonprofit employment are available, American charities employed 9.4 million paid workers and engaged another 4.7 million full-time equivalent (FTE) volunteer workers for a total workforce of more than 14 million workers.

Between 2002 and 2004, the nonprofit workforce, including paid and volunteer workers, grew by 5.3 percent, with both the paid and volunteer portions of the nonprofit workforce growing by more than 5 percent. By contrast, overall employment in the economy declined by 0.2 percent during this same period.

"The nonprofit workforce, including volunteers, now represents 10.5 percent of the country's total workforce," said Lester M. Salamon, director of the Center for Civil Society Studies within the Johns Hopkins Institute for Policy Studies and a leading expert on nonprofits. "Put in perspective, this means that American charities boast a larger workforce than the utility, wholesale trade, and construction industries combined."

But the wages in those other industries combined are much larger. See below.

Do the Northeast and Midwest have more non-profit hospitals? Did the rapid population growth of the southeast give for-profit hospital chains the opportunity to build lots of new hospitals and pick up market share?

1. The nonprofit share of the total workforce is especially high in the Northeast and Midwest, where it ranges from 10.7 to more than 14 percent. In the South and West, as well, the nonprofit workforce still accounts for a considerable 8.1 to 9.5 percent of the total workforce.

2. Nonprofit-paid workers received $321.6 billion in wages in 2004, more than the wages paid by the utility ($50.1 billion), construction ($276 billion), and wholesale trade ($283.7 billion) industries, and almost as much as the finance and insurance industry ($355.8 billion).

More than half of non-profit employment is in health services. That probably explains the rapd growth in non-profit employment.

3. Charitable nonprofit employment is scattered across a wide variety of fields, from information and scientific services to religion and civic affairs. The bulk of this employment, however, is in human services, with hospitals alone accounting for one-third of all nonprofit employment, and other health providers, such as clinics and nursing homes, accounting for another 21 percent.

4. The average weekly wage in the nonprofit sector, at $627, was well below the $669 average in the for-profit sector. However, in the fields where nonprofits and for-profits are both actively engaged, average nonprofit wages were actually higher. For example, average wages among nonprofit hospital workers were 7 percent higher than they were among for-profit hospital workers, and average wages among nonprofit social assistance workers were 25 percent higher than their for-profit counterparts.

A doctor in private practice who also sees patients at a non-profit hospital makes far more money than the nurses working in that same hospital. I suspect that doctors who see their patients in hospital aren't showing on as employees of those hospitals. Likely the hospitals pay the doctors for services billed corp-to-corp rather than as employees. So those wage figures are misleading. All the other service providers that non-profits use similarly do not show up as employees. The prevalence of out-sourced information processing services means software developers and computer administrators aren't going to show up on the employment rolls of many non-profit hospitals and clinics either.

Since over half of non-profit sector workers are in the medical industry and medical spending is rising rapidly we should epxect a continued rapid growth in the non-profit sector.

In 2004 (the latest year data are available), total national health expenditures rose 7.9 percent -- over three times the rate of inflation (1). Total spending was $1.9 TRILLION in 2004, or $6,280 per person (1). Total health care spending represented 16 percent of the gross domestic product (GDP).

U.S. health care spending is expected to increase at similar levels for the next decade reaching $4 TRILLION in 2015, or 20 percent of GDP (2).

In 2006, employer health insurance premiums increased by 7.7 percent - two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $11,500. The annual premium for single coverage averaged over $4,200 (3).

Effectively, a growing fraction of the economy occurs in institutions that are exempt from the corporate income tax. I wonder if this fact has been modelled by economists to project future corporate income tax revenue. I suspect this just translates into more wages for employees of the non-profits and since they pay taxes on their income the effect might be a wash.

By Randall Parker    2006 December 24 10:10 AM Entry Permalink | Comments (1)
2006 December 07 Thursday
Dot Com Bubble Excesses Seen As Exaggerated

The Wall Street Journal reports on some researchers who have found the dot com failure rate was not out of line with other industries in their formative years.

A recent paper suggests that rather than having too many entrants, the period of the Web bubble may have had too few; at least, too few of the right kind. And while most people recall the colossal flops of the period (Webvan, pets.com, etoys and the rest) the survival rates of the era's companies turns out to be on a par, if not slightly higher, than those in several other major industries in their formative years.

The paper is being published in a coming issue of the Journal of Financial Economics. As noteworthy as the findings are, even more interesting is the process that led to them. The work is an outgrowth of the Business Plan Archive at the University of Maryland. Its goal is to become a kind of Smithsonian Institution of the Internet bubble, saving for posterity every business plan, PowerPoint presentation and venture-capital term sheet -- the more frothy and half-baked, the better -- that it can get its hands on.

Perhaps then the venture capitalists have not increased the availability of capital to the extent that we are led to believe. If they really had increased the availability of capital then as a result I'd expect a higher rate of new business failures. Though another interpretation is that the VCs increased the availability of management talent so that the amount of capital invested could increase without higher rates of business failures.

Quite a few of the start-ups still exist but are smaller firms.

The study suggests, though, that the dimensions of that crash might be misunderstood. Nearly half of the companies they studied were still in business in 2004. Prof. Kirsch says that most people believe just a few percent made it through.

The study found that the attrition rate for dot-com companies was roughly 20% a year, which is no different from what occurred during many other industries, such as automobiles, during their early boom periods.

So the dot com boom was just a typical period of irrational exuberance. Nothing out of the ordinary.

By Randall Parker    2006 December 07 05:58 PM Entry Permalink | Comments (2)
2006 September 04 Monday
Real Estate Commissions Under Pressure From Internet

The internet ought to reduce the labor and cost involved in buying and selling homes. But the real estate industry fights to protect the 6% commission.

The Justice Department and the Federal Trade Commission have fought these tactics in Texas, Kentucky, Tennessee and Oklahoma, among other states, and the department is suing the National Association of Realtors, the powerful trade group of agents and brokers, over what it calls anticompetitive rules.

...

Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.

“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”

Realtors spend most of their time trying to get and keep listings. Therefore real estate sales is a colossal waste of labor. When sales and prices rise more people become realtors and so more labor is wasted by too many realtors chasing too few listings. An end to the price fixing would reduce the cost of home selling and also drive a lot of people out of real estate sales into more productive forms of work.

By Randall Parker    2006 September 04 06:21 AM Entry Permalink | Comments (1)
2006 April 08 Saturday
Housing Construction Costs Rising

Flipping through cable TV channels looking for something to watch last night I came across a Fox TV News panel arguing about immigration and housing costs. One lady on the panel claimed that labor alone accounts for 60% of housing costs. She also claimed that union home construction workers make an average of $37 per hour while non-union make $20 per hour. Are these claims true? The 60% for labor costs seems too high to me and definitely wrong in coastal California and other areas where land costs are very high. How can materials plus land cost less than labor?

I found a neat site called Building-Cost.net where I costed out a 3000 square feet house with additional space for basement and attic (put it in Cheyenne Wyoming just for kicks) made with highest quality components, Labor costs came in at 37% of the total and that total did not include land costs or fees. I did another one in Juneau Alaska with 4000 square feet and high quality components and labor was 48% of total cost. Again, that total did not include land costs. Then I backed up a couple of pages in the browser, kept all other settings but changed the locale to Santa Barbara California. The labor costs rose to 51%. Though both the labor and materials costs were higher in Juneau and materials costs dropped more in Californian than labor costs did. Labor costs droppped from $250k to $215k. If that cost drop is due to masses of illegal alien construction workers in Santa Barbara then the savings from cheap illegal alien labor on total housing costs are pretty small.

Anyone else want to go that site and try out a hypothetical housing design to see how your costs break down? Choose the "Start Calculator" button on the first page and follow along making choices for your dream house. You might get a higher percentage of total costs from labor if you choose a different locale or cheaper components.

Materials costs are probably rising faster than labor costs as materials costs have been rising very rapidly.

The price of steel, diesel fuel and concrete, along with such materials as pipes and wiring, has driven up the costs of building a high-rise tower, said Ken Simonson, chief economist for the Associated General Contractors of America.

The cost of a cubic yard of concrete rose 10 percent to 15 percent last year and will see a similar increase in 2006, he said. The average cost for diesel fuel used in construction trucks is up 36 cents a gallon from last year. The cost of gypsum, the main ingredient in wall board, rose 42 percent since 2004, and copper used in wiring and fixtures rose about 70 percent in two years, Simonson said.

``We'd have to go back to the '70s to see prices that were rising so rapidly,'' he said, adding that strong demand, shortage of supply and a shift to a global marketplace were responsible for the increases.

Costs are way up in Naple Florida.

In a month — from January to February — the cost of cement went up 3 percent and gypsum 4.6 percent, said Ken Simonson, chief economist for the Associated General Contractors of America, which represents more than 3,200 contractors nationwide. In the last year, cement jumped 14.2 percent and gypsum 24.6 percent. Simonson added that he expects cement to continue rising by about 12-15 percent this year.

Cost increases for materials like cement and gypsum — key components in concrete — have a particularly strong impact on Southwest Florida, where the building codes require and encourage the use of concrete in construction because of hurricanes.

...

Over the past 12 months, diesel fuel has gone up 31 percent, asphalt 27 percent, concrete products 9.3 percent and plastic construction products 2 percent, according to the Bureau of Labor Statistics. Overall costs were held down by decline in steel products of 5.5 percent and wood — lumber and plywood — by 2.7 percent.

Costs have risen by more than a quarter in the last year due to Hurricane Katrina, oil price increases, and other causes.

Bottom-line cost increases for projects in the design and construction pipeline, cited anecdotally within the building industry, are running a whopping 25 percent. A project realistically budgeted at $40 million at the end of 2004 today could cost $50 million.

...

But on the supply side, the availability of labor and materials has not kept up with demand. Thus costs have risen just as economic theory predicts.

But material prices also have been exacerbated by other factors, in particular this year's devastating hurricanes that curtailed U.S. petroleum supplies. Energy costs shot up, adding to the costs of manufacturing and transporting construction materials.

Highway construction costs have risen as well.

Until 2004, highway-material costs nationally were fairly steady, with a 12-year average annual increase of 1.8 percent, according to the U.S. Bureau of Labor Statistics. But those costs rose 12.5 percent in 2005, the bureau said.

A report from Bradenton Florida shows road construction costs which might have almost doubled.

In 2003, it cost an average of $1.4 million a mile to improve 63rd Avenue between U.S. 41 and 15th Street East. A similar project now underway on 57th Avenue, also between U.S. 41 and 15th Street East, is averaging $2.76 million a mile.

"Every project we've got, we've had to revise cost estimates upward because of escalating prices," said Tim Hochuli, Manatee's project management director.

I doubt that wage increases in construction are to blame.

Did anyone else notice when a tornado recently touched down in Tennessee and injured some construction workers the construction workers interviewed on TV in Tennessee were Mexicans? I suspect blue collar workers are being denied good times from the housing boom as materials costs rise but Mexicans are brought in to keep labor costs down. What's going to happen when the construction boom ends?

Update: What I'd like to know: Which types of building materials are now selling with such high profit margins that we can expect manufacturers to scale up production to the point that prices will fall? Is there an easy way to find out the profit margins for manufacturers for doors, windows, concrete, and other parts? My guess is that wood production has long lag times for scaling up production because trees take a long time to grow.

Also, will China's growth shift up world demand for wood and other products less amenable to production increases? Will we therefore go through an extended period of higher construction costs? Will those costs be furthered worsened for the United States due to a future drop in the value of the dollar? The US trade deficit has to get closed somehow. High costs for housing in the US could be one of the ways that deficit gets closed.

By Randall Parker    2006 April 08 12:03 PM Entry Permalink | Comments (21)
2006 February 21 Tuesday
Why Is US Economy More Stable At Macro Level?

Robert Samuelson says the economy has become more stable at the macro level and less stable within industries.

Hardly a week passes without layoffs from some major company, which is "downsizing," "restructuring" or "outsourcing." And yet, the broader economy has undeniably become more stable. Since the early 1980s, we've had only two recessions, lasting a combined year and four months and involving peak unemployment of 7.8 percent. By contrast, from 1969 to 1982, we had four recessions lasting altogether about four years and having unemployment as high as 10.8 percent.

The obvious question is why? My guess is that computer tracking of inventories has a great deal to do with it. Many recessions in the past were periods where companies gradually sold off excess inventories until they needed to start producing new goods and started hiring again. But just-in-time delivery, computerized reporting of sales in individual stores, computerized tracking of shipments, computerized tracking of orders, and computerized warehouse inventories allow companies at all steps in supply chains to rapidly adjust orders and production rates.

We can all identify the usual suspects. Globalization. Deregulation. Greater domestic competition. In a series of papers, Comin, Philippon and various colleagues have shown that, for most businesses, sales, profits and employment have all become more volatile in recent decades. They bounce around more from year to year, suggesting greater industry instability. Competitive pressures have dramatically intensified. One telling statistic: In 1980 a firm in the top fifth of its industry had about a 1-in-10 chance of losing that position within a five-year period; by 1998 the odds had increased to 1 in 4.

Why has the power of incumbency decreased in business? Information travels more rapidly. That includes prices, reports of product quality problems, and reports of newer and better products. You can do web searches that compare products and that will turn up product problems from customers who complain online. Also, technogical competencies are a lot more portable. A company can find needed technical skills in the internet and is less tied to particular geographic locations in order to draw on a specialized skill base. So a competitor can pop up in more places.

Are development costs a larger fraction of total costs today than, say, 50 years ago? If so, that'd make economies less susceptible to inventory recessions. Product design rates aren't going to get adjusted in response to every increase and decrease in the rate of new orders. Also, software is a major part of the economy. Well, inventory shortages and surpluses aren't a problem with software. Production costs are very small portion of total costs. The software industry doesn't contribute to inventory recessions.

By Randall Parker    2006 February 21 08:41 PM Entry Permalink | Comments (5)
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