SciencePhoto.com

Labor Day marks the unofficial end of summer, and for many teens and young adults, it also means the conclusion of the worst summer for finding seasonal employment in decades.

Our affiliate, the Employment Policies Institute (EPI), has released an analysis of new Census Bureau data showing unemployment among people ages 16 to 19 at or above 20 percent in 35 states through July 2011. Seven states and the District of Columbia were even worse, averaging more than 30 percent. (That should come as no surprise for anyone who spent the summer fruitlessly job seeking.)

In a press release, we delivered the grim news:

“The nation’s teens have just experienced their third summer in a row with an unemployment rate above 20 percent,” said Michael Saltsman, research fellow at the Employment Policies Institute. “As a result, thousands have missed out on the valuable career experience that comes from an entry-level job.”

Unfortunately, just because the school year is starting doesn’t mean that the job outlook is improving for students looking for after-school work. Wage mandates that were theoretically designed to help less-experienced workers earn more money have backfired, locking teenagers out from jobs and making the employment-seeking environment even more hostile to unskilled workers. Lawmakers need to reconsider the broad effects of minimum-wage laws and evaluate how they have affected the very constituents that needed the most help.

Kaiser Family Foundation

The New York Times yesterday published a review of the Kaiser Family Foundation’s analysis of health-insurance premiums across the nation on its Prescriptions blog, which covers health-care issues. However, there is an economic fallacy lurking in its analysis worth pointing out.

The blog says:

If you live in Massachusetts or Vermont, the average monthly premium topped $400 a month in 2010, compared with just $136 a month in Alabama. The average across the country was $215 per month.

The authors of the analysis point out that some expensive states have higher insurance premiums because they make it easier for people with potentially expensive pre-existing conditions to get coverage.

The authors believe that the new federal health care law will probably reduce the variation in premiums, although they note that a state’s cost of living and overall cost of health care also contribute to the differences in premiums.

While it’s true that the Affordable Care Act will make premiums more uniform regardless of where you live, that idea is misleading. They’ll be more uniformly high — and covered up by subsidies for households between 133% and 400% of the poverty level, which puts the financial burden squarely on taxpayers. Additionally, the new law glosses over the reasons that certain states’ premiums are higher than average, like existing mandates for guaranteed coverage.

All of which leads us to question: “affordable care” for whom?

MSNBC.com

Last weekend, D.C. Mayor Vincent Gray granted an audience to high-school and college students in the Nation’s Capital to discuss the high teen-unemployment rate. At the beginning of the summer, the Bureau of Labor Statistics reported that teen unemployment had skyrocketed, with half the states showing unemployment rates above 25 percent. Even more depressing, the jobless rate for minority teenagers is 42.1 percent nationwide.

The D.C. government attempted to pre-empt this trend by spending more than $20 million to place 14,000 District youths in jobs at government agencies and local businesses. Still, many young people were left disgruntled at the reality of being unemployed for the summer, leading one 17-year-old to tell The Washington Post: “I think it’s not anyone’s fault. We need to go out there and get jobs, but at the same time, they could come to our schools and make it easier for us to sign up.”

However, we feel that sentiment misses a key economic point. With such a high teen-unemployment rate, the demand for summer jobs has clearly outstripped the supply. Teens who wish to work must show some initiative in pursuing the jobs that do exist, and lawmakers could rethink minimum-wage policies that tie employers’ hands in hiring less-experienced workers such as the young people who attended this town-hall meeting.

Beyond that, there are plenty of ways that teens can stay busy and earn money outside of traditional employment. If you’re looking to drum up a little extra cash before school is back in session, check out our tips post here.

Today’s expert is Antony Davies, a professor at Duquesne University and a Mercatus-affiliated Senior Scholar at George Mason University. At Econ4U, we talk a lot about managing your own money—but what about the federal government’s money management skills? We asked Davies for three things you should know about the national debt.

1. The debt is yours. It is tempting to think of the government’s debt as the government’s problem. But remember that every dollar the government receives comes from taxpayers or is borrowed and must be paid back by taxpayers. That means that children today will be paying for today’s debt in the form of future higher tax rates. It’s the same as if your parents took out a credit card in your name and went on a spending spree. It doesn’t matter that your parents are doing the buying — you’re the one on the hook for the bill.

2. Don’t expect the rich to pay the debt. Even if the government taxed earnings over $250,000 at one-hundred percent, it wouldn’t raise enough money to fund its operations — let alone pay down the debt. The debt is so large that the only way to pay it down without cutting spending is to raise taxes at all income levels.

3. It isn’t going to get better. Even if the government pursued the politically unpopular course of raising taxes on the middle class, it wouldn’t raise enough money to pay down the debt and continue operating at its current level. If the government were a household earning $50,000 a year, it would be spending $85,000 a year and (so far) have racked up $320,000 on its credit card. The only way the government can hope to tackle its debt is to dramatically reduce spending –by dramatic, I mean cuts close to one-trillion dollars per year.

Note to Readers: Curious about just how big a trillion is? Click here to find out more.

Today’s expert is Mark C. Schug, a professor emeritus at the University of Wisconsin-Milwaukee and a national consultant on economic and financial education. The high price of a gas is a common complaint, but who’s responsible for those prices? And is that gas station boycott you heard about in a forwarded email really going to help matters?

1. Your local gas station isn’t responsible for rising gas prices. Most economists agree that gas prices are set by the laws of demand and supply.  Local gas stations are “price takers” and not ”price makers”—which means they’re paying the same high price you are. In fact, most retailers are only earning 1 to 3 cents in profit for each gallon sold.
2. High gas prices are painful for your wallet, but they do serve an important purpose. High gas prices are signals to oil producers that demand exceeds supply—which means they need to find more oil and come up new technologies.  Some oil companies are using new technologies in the old oil fields of the Texas Permian Basin; North Dakotans are aggressively developing oil deposits in the Bakken formation. Such new oil supplies may eventually bring oil prices back down.
3. Boycotting gas stations will not reduce the price of gas. Local gas stations are merely reflecting changes in the market—they have no more say over the price of gas that your local grocer or family doctor. What will reduce the price of gas is an increase in supply, which is why some elected representatives have discussed expanding supply by obtaining oil off the coast of Alaska, California, and Florida.

DOE.gov

The New York Times had an article Thursday about the Obama administration’s proposal to cap health-insurance rate increases at 10 percent to begin in September. On its face, this may sound like a great plan: Who wouldn’t want to put a cap on prices to keep consumers from paying more?

But the trouble with capping prices for the health-insurance industry (or indeed, any kind of business)is that it does nothing to address the reasons why prices are rising. In the price paid by the business continues to rise, but the price they can charge is capped at a set amount, a shortage of the business’ good or service is inevitable. In fact, government-mandated price controls have been attempted by a presidential administration before — with spectacular failure.

In 1973, President Richard Nixon enacted price controls on the cost of gasoline, capping what gas companies were permitted to charge per gallon of fuel. Since gas stations couldn’t raise their prices to reflect their true costs, they simply operated fewer hours per day. It immediately lead to rationing as consumers lined up for hours to buy the limited remaining supply of gas so they wouldn’t be left with an empty tank. Those who didn’t have the time or inclination to wait in line chose instead to pay exorbitant prices for fuel on the black market.

It’s not unreasonable to believe that the same thing will happen with health insurers faced with a cap on rate increases. To keep expenses down, insurance companies will likely choose to scale back services or reduce the quality of their coverage. Other companies may decide to stop providing coverage altogether.

None of these consequences would benefit consumers, as the law presumably intends. Consumers, insurance companies, and regulators would do better to address the root causes of price increases rather than invent economically short-sighted laws solely for political purposes.

Econ4U.org

If you caught our new billboard in New York this week or are just new to Econ4U, we have some great resources to help you make a budget — whether it’s your first or your twenty-first.

Here’s a crash course in parsing your paycheck and making the most of what you earn:

• It won’t take long for you to figure out the difference between your gross pay and your net pay — in other words, the wage you think you make compared with the pay you get to take home. Your gross pay isn’t terribly helpful since a big chunk of that is money you will never see, so for budgeting purposes, calculate your net pay and work from that.
• The Federal Insurance Contributions Act (FICA) is a federal tax that funds Medicare and Social Security. In most years, it is the 7.65 percent taken out of the paychecks of everyone who works, no matter how little they make. (In 2011, the Social Security portion of the tax has been reduced from 6.2 percent to 4.2 percent; Medicare, which provides government-paid health insurance for Americans over age 65, has stayed firm at 1.45 percent.) Your employer has to kick in a matching amount on your behalf.
• The town you live in can make a big difference in your bottom line, based on localized tax laws. Check here to see if you’d save a bundle by moving across state lines.
• Got bad spending habits? Here’s your quick cure for quitting them. You’ll see ways to boost your savings immediately.

Once you’ve got a handle on all that, stop on by our Budgeting 101 page and get started!

FemTalks.com

We’ve written before about unintended consequences and banking restrictions or consumer credit. But there are plenty of other places where they show up. What if the new health-care law — meant by lawmakers to reduce medical costs for Americans — actually increased them for the average family’s household budget? An article in the Wall Street Journal suggests that that’s exactly what’s happening when it comes to getting a tax break for over-the-counter drugs.

Many of you may take advantage of a flexible-spending account (FSA) through your workplace, which allows you to spend pre-tax earnings on over-the-counter medical supplies ranging from Tylenol to contact lenses to ace bandages. It used to be that you could buy such things with a prepaid debit card or simply submit your receipts for reimbursement from your FSA manager.

However, legislation went into effect this year that requires all purchases to be authorized with a prescription, and the unintended consequences are creating hardships for consumers, reports the WSJ:

Patients are demanding doctors’ orders for over-the-counter products because of a provision in the health-care overhaul that slipped past nearly everyone’s radar. It says people who want a tax break to buy such items with what’s known as flexible-spending accounts need to get a prescription first.

The result is that Americans are visiting their doctors before making a trip to the drugstore, hoping their physician will help them out by writing the prescription. The new requirements create not only an added burden for doctors, but also new complications for retailers and pharmacies.

“It drives up the cost of health care as opposed to reducing it,” says Dr. Chung, who rejected much of a 10-item request from a mother of four that included pain relievers and children’s cold medicine.

The law means not only are patients faced with the prospect of making appointments (and taking off work) for trivial reasons, but health-insurance companies are being forced to pay out hundreds for unnecessary office visits so that health consumers can take advantage of a tax perk that used to cost just a few dollars.

Should the government return the law to what it was previously? Share your thoughts in the comments below.

You may have heard the words “quantitative easing” or “QE II” thrown around on the news (and even here at Econ4U). But if you don’t fully understand the economic ramifications of this concept — involving the Federal Reserve’s plans to print an additional $600 billion to buy government bonds back from banks and other bondholders — there are a couple of places on the web worth checking out.

• These adorable snarky puppies explain what QE II means in simple terms, but not without taking some cheap shots at the Federal Reserve and its chairman, Ben Bernanke. (Possibly NSFW due to infrequent cursing.)
• John Feehery at TheHill.com doesn’t mince words about why quantitative easing is riling up Chinese lenders, the German finance minister, and domestic fiscal conservatives in all different ways.
• However, Bloomberg News gives a rosy report about how the strategy is paying off before it even begins, and that investors in bonds are encouraged by the prospect of increasing inflation.

Clearer now? Whether you agree with the decision or disagree, it’s a good opportunity to learn about the economics principles that can have a personal impact on every citizen.

SecState.wa.gov

Have you voted today? If not, the following three facts about how Election Day may have an impact on the economy (and on your finances in particular) could be the nudge you need to get to the polls before they close in a few hours.

• Stocks and commodities have steadily rallied for the past two months. Why? Because traders are expecting a potentially more conservative Congress to cut down on regulations, a move that may boost corporate profits.

• But in that same timespan, the dollar has fallen 5 percent. Federal Reserve Chairman Ben Bernanke is expected to announce tomorrow a plan to further quantitative easing — which means pumping more cash into the economy. Which means inflation. Which means the money in your wallet won’t go as far as it used to.
• Just remember, there are limits to how much good government can do. For example, customers who were so fed up with overdraft fees demanded increased regulations on banking practices. So what happened? The ensuing legislation spelled the end of free checking at many of the nation’s biggest banks, which are trying to make up the difference in revenue by imposing monthly maintenance fees and high minimum balance requirements.

Just remember: Your voice counts, so get yourself to the ballot box to make sure it’s heard.