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.

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.

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.

CampusSolutionsInc.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

Gossip Girl and Animal House notwithstanding, college students are usually a lot smarter than their parents give them credit for. But with personal finance education so woefully lacking at the high-school and university level, young adults may easily fall into dangerous money habits before they’ve even received their diploma. Here are some of the most serious:

1. Cosigning on a credit card for a friend. New laws went into effect this year to require every credit applicant under age 21 to obtain a co-signature on the account. When parents are unwilling or unable to cosign, younger students are simply turning to their friends who are of age. This can almost certainly spell disaster for the cosigner, who will be left responsible for the sum total of the debt if the credit-holder defaults.
2. Misusing your student loans. There are myriad ways that people abuse their student loans, from going out to eat to using the money to buy a house. Student loans offer an opportunity to learn about budgeting — something you’ll have to get good at if you want to pay them off quickly.
3. Opening credit cards for freebies. Whether it’s a 10 percent discount at your favorite store or just a tee-shirt, many credit companies offer free stuff to entice students to open new cards. Retail cards are especially insidious because the APR is often much higher than average. Don’t be seduced by freebies unless you know you can pay the bill in full every month.
4. Buying an engagement ring you can’t afford. Roughly 15 percent of college graduates met their mate on campus, according to a 2004 study. But going into debt to buy an engagement ring when you have little to no income and possibly loads of student debt is no way to start a marriage. Avoid the temptation to put a diamond on credit, even if the jeweler (or your future spouse) is more than happy to accommodate you.
5. Not getting work or internship experience. More and more employers are now looking for relevant work experience for even entry-level jobs. If you don’t have any by the time you get your degree, you’re at a serious disadvantage in the job market. Position yourself well by holding down part-time work while you’re still in school or using your summers off judiciously.

As Consumer Reports summarizes:

Overdraft programs are really high-cost, short-term loans with quadruple-digit APRs. Most banks charge flat overdraft fees. So if your balance goes to zero purchasing even a $1 pack of gum with your debit card could trigger a fee of $35 or more. Once you’ve exceeded your balance, every purchase you make could generate another fee. And, some banks still impose long hold times before you can use the money from checks you deposit, which increases the possibility that you will overdraw your account.

To the extent that you can avoid overdrawing, you should take every precaution to maintain a safety cushion of at least $100 in your checking account. But since that isn’t always possible, there are better options out there for short-term loans if you find yourself in a pinch.

The Wall Street Journal

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

It’s an important debate and a key lesson in economics. Banks aren’t going to willingly make less money, so if the feds restrict overdraft fees, the affected banks will then kill free checking to make up the difference. But what happens when lenders can’t make it up elsewhere? If, say, there’s a limit on interest rates, lenders will simply stop offering that credit option rather than taking the loss. It’s already happening: Cap interest rates on short-term loans, and the government is effectively taking away the highest-risk consumers’ access to credit.

In an update on the old saying, the road to (financial) hell is paved with good intentions — and unintended consequences.

What’s a housing lottery? In major cities that have large income disparities and limited desirable neighborhoods, the government has set aside a small number of affordable housing options for people who fit strict eligibility requirements (often prioritizing disabled, elderly, or low-income residents). Apartment dwellers pay rent based on a sliding scale — usually one-third of their income — and the housing authority picks up the rest. But because demand far exceeds supply, you can only get in on this deal through a lottery.

The result is known as an economic shortage.

In New Orleans, for example, 4,000 vouchers were awarded among 28,865 applicants, so lots of people walked away empty-handed based on nothing more than bad luck. And in New York, city workers are also included in that priority pool, leading to accusations of nepotism (a common side effect of shortages).

The smart economic solution would be to do away with housing lotteries and let rent prices achieve an equilibrium where the number of willing buyers equals the number of coveted apartments available. It may not be the feel-good solution, but why should getting the apartment of your dreams be a matter of having your name picked out of a hat?