Author: Dwight Steward, Ph.D.

Dr. Steward regularly writes and speaks on topics involving business and individual economic damages, employment audits, and the analysis of payroll and time data in wage and hour investigations. Dr. Steward has also held teaching positions at The University of Texas-Austin in the Department of Economics and in the Red McCombs School of Business, The College of Business at Sam Houston State University, and at The University of Iowa. He has taught numerous courses in statistics, corporate finance, labor economics, business policies, managerial economics, and microeconomics.

The economics of ending oil export bans: who wins and who loses

A recent article in the New York Times explored the brewing debate concerning the current U.S, ban on exporting oil outside of the U.S.

In a nutshell, the producers want to export oil while the refiners want to keep the oil in the US

The refiners: The refiners want to keep the oil in the US so they have more oil to refine. Keeping the oil in the U.S. also keeps refining competition from abroad in check.

Keeping the export ban would possibly lower prices for oil and gas products, refiners argue. To refiners exporting oil cuts into their bottom line.

Oil producers: On the other side of the equation the oil producers are concerned that having the restriction to only selling the United States will eventually lower their profits by reducing the price of crude oil in the U.S.

Natural gas in the price of natural gas has seen that same type of phenomena over the last decade as Shale and hydro-fracturing has led to much lower natural gas prices in the US

The concern among oil producers is that the lower price (that results from the export ban) would eventually cut into their bottom line as more and more crude oil is put on the market with the new discoveries in South Texas and other places in the United States

In the long run producers are concerned that there would be an exit of producers and or a reduction of new finds in the United States. Since the price that they would receive for crude oil would be lower.

The natural gas market is a good example of the potential impact that crude oil producer see. The natural gas industry faced and continues to face lower prices in part due to the fact that it is not as easy to export natural gas. As a result of not being able to export natural gas readily from United States the large number of hydro-fracturing finds in the United States have stayed in United States. As a result the price of natural gas products has fallen. That is clearly the concern that is clearly the concern of the crude oil producers in United States.

The well-worn stock price event study methodology could regain importance in securities class action litigation

As reported by numerous news outlets, there may be some significant changes in the way securities fraud class actions are handled and how economic studies of stock prices, or event studies, are used in these types of cases.

Stock prices event studies are used in these cases to statistically measure the $ effect of an event, such as change in management or other major event that affects the company, on the firm’s stock price.

In my research, for example I have used event studies to look at the effect that a merger has on the target and acquiring banks stock price. In securities class actions, event studies are used to determine the impact of the alleged fraud committed by the defendant firm. The basic premise is that the fraud can be measured by the change in the firm’s stock price.

According to the WSJ,

The Supreme Court removed that requirement in 1988 when it adopted the “fraud-on-the-market” theory of reliance in Basic v. Levinson . According to the new theory, the price of shares traded on efficient secondary markets reflects all publicly available information, including any misrepresentations. Because the market sends information to the investor through a market price, the courts assumed that an investor relied on the integrity of the market price—and therefore on misinformation. Specific proof of actual reliance was no longer necessary.

The theory became the bedrock of securities class actions brought against companies that allegedly made a false statement to public markets. All investors who traded in the public market at issue could join a class action without proof that each investor actually heard or read the misstatement.

One set of law professors, has proposed having the requirement of an event study that shows some impact on price be performed before a class can be certified.

Paying exempt workers a varying amount each paycheck – Minimum guarantee plus extras 29 C.F.R §541.604(b)

Many of us think of an FLSA OT exempt salaried worker as receiving the same amount of pay each and every week. However some employers have their OT exempt workers pay tied to productivity measures such as the amount of hours worked. Assuming all the other conditions are met, 29 C.F.R §541.604, indicates that these types of pay arrangements can be acceptable and do not violate the salary basis of the FLSA. 29 C.F.R §541.604(b) in particular, provides some guidance on the issue.

The regulation indicates that the employee’s earnings can be computed on a varying basis ( hourly, daily, shift etc.) if the employment arrangement includes a guaranteed minimum amount and a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee. 29 C.F.R §541.604(b) provides an example of a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee. (Some employers provided the stated guarantee amount in the employees pay statements or other work documents)

The example in 29 C.F.R §541.604(b) suggest that a salaried employee who is receiving varying pay, but who has a stated guaranteed salary of at least 2/3 of the employee’s normal pay could be correctly classified as OT exempt. In the example, the employee has a stated guaranteed amount of $500 in a given week regardless of how much work is performed in the week. Further, the employee typically works four to five days (shifts) a week.

The regulation suggest that if the employee is paid at least $150 a shift then they are correctly classified according to the salary basis requirement. Using the assumed amount of $150 a shift, results in a ‘reasonable stated salary guarantee to pay relationship’ floor of 2/3. That is, the stated salary guarantee divided by the actual salary is 2/3. In this example, $500/(5 shifts)x($150) = $500/$750 = .66666 = .67 or 2/3.

Keystone XL Pipeline gets a powerful new supporter and loses a powerful adversary all in one day.

The Former head of the US Geological Survey (USGS), now editor-in-chief ofScience magazine (Marcia McNutt), looked at the economics and re-evaluated her position on the Keystone XL project. She now endorses building a pipeline to transport crude oil from Canada’s oil sands to the United States.

Listen to the full NPR interview with Ms. McNutt.

Marcia McNutt discusses in the interview with NPR, that if the Keystone XL pipeline were not built, the oil would be carried by rail and road tankers, which would be more environmentally damaging.

Why the economic doom and gloom? St. Louis Fed puts the probability of another recession at near zero percent!

Actually a number of studies on consumer sentiment are painting a similar picture of optimism for the economy in the coming months. See for example the Roanke University study.

Details on the Recession graph and data calculations from FRED:

Notes:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

For additional details, including an analysis of the performance of this model for dating business cycles in real time, see:
Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008, 26, 42-49.
(http://pages.uoregon.edu/jpiger/cp_realtime_2_020907.pdf)

For additional details as to why this data revises, see FAQ 3 athttp://pages.uoregon.edu/jpiger/us_recession_probs.htm.

East Austin update: One of the last old line businesses leaving East Austin as the area continues to develop economically and change culturally

Austin American Statesman reports that, Arnold Oil is moving out of East Austin and will move into a industrial area near the airport.

Co-owner Jim Arnold said the company needs more space and that what started as a two-man operation has outgrown Central East Austin, and vice versa. “I said there will come a time when this business will no longer have a place in East Austin, and that time has come,” Arnold said Tuesday. “We need to expand … and this doesn’t belong in East Austin on Friday nights and Saturday nights. It’s a changed place.”

The area east of I-35 in Austin, continues to change economically and culturally. Since the 1990 the area has renovated older housing stock, added housing and new businesses. A study by the UT-Austin LBJ School done in 2007 documents some of these changes. Recent activity has only continued the trends identified in the study.

Here are a few of the highlights:

There is a significant demographic change in the racial and ethnic composition of East Austin
There is overall increase in median family income and decrease in poverty levels in East Austin
East Austin’s population is becoming younger and better educated.
There is a substantial increase in housing values

People are regaining employment faster; Unemployment duration continues to fall

While we’re not back at the levels before the great recession unemployment duration has definitely fallen in the last few months.

As the graph shows unemployment duration has fallen from about 25 weeks to about 16 weeks for the average person. Of course there are certain jobs where the unemployment duration has fallen more than others.

In any event this graph is a good indication of how unemployment duration has improved in recent months.

Younger women significantly narrow the gender pay gap while education attainment outpaces men

A new study by Pew Research suggest that young women are ‘leaning in’ more and more as earnings and education attainment level increase for women. A study by the Pew Research center shows that for younger women, the so called Millennial generation, the unadjusted gap between what women an men earn is significantly smaller than women from other generations. The survey, which is based on U.S. Census data, finds that:

this group of young women are the first in modern history to start their work lives at near parity with men. In 2012,

The study found that among workers ages 25 to 34, women’s unadjusted hourly earnings were 93% those of men. By comparison, for all working men and women ages 16 and older, the study found that women’s hourly wages were 84% those of men.

The study does not adjust for factors such as the type of job. Accounting for these types of employment factors would likely decrease the earnings gap even further.

The study also found that women in the Millennial generation outpaced men in terms of educational attainment. The graph below shows the % of men and women enrolled in college and those earning Bachelors’ degrees.

ADP employment levels almost back to pre-Great Recession levels

Going to Harvard from the comfort of your couch? It is a good idea that many start but few finish

Want to go to Harvard or Stanford without all the travel? Massive open online courses (MOOC) may be what you are looking for. So far, however MOOCs are a good idea that many people start but few actually finish. Prof. Robert Grossman of Marist discusses the MOOC movement in HR Magazine. Prof. Grossman writes that MOCC’s are

Designed for large-scale participation and free access via the Web, a typical MOOC lecture is self-paced, short—maybe 10 or 15 minutes—and spiced with multimedia components. Professors highlight issues as well as pose and answer questions based on “crowdsourcing” of information that participants submit. After each session, students take quizzes to verify that they understand the material. They also discuss content among themselves; interaction often leads to Facebook and LinkedIn chats or even face-to-face meetings. Students take exams and a final, submit reports, and grade other students’ essays. Anyone can sign up, and there are no prerequisites. MOOCs are free, although some require fees for certificates of completion or charge tuition for college credit

A number of big named universities as well as business leaders have signed on to the idea of online learning. While there are clearly a number of advantages, such as cost and accessibility, to this type of learning environment there are a number of downsides to MOOCs. Most notably, hardly any students actually finish MOOCs..

McFarland says the 3.48 percent completion rate is typical among MOOCs. Published reports claim about 10 percent of students finish such courses.