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Black workers see marginal decline in unemployment, but still have a long way to go

After being unemployed since December 2014, Akim St. Omer thought that the February’s typical hiring drag would pass by spring. Most schools, whether private or public, usually slow down on hiring during February to decide on returning staff contracts, then resume hiring by March and April. He lost his job as a program coordinator at Harlem Children’s Zone after spending cuts forced the after school center to cut positions. He spent nine months looking for work before he was hired by the Dalton School as the diversity coordinator.

“With the economy shifting, more people are about shifting their job positions as well,” he said.

In April, the black unemployment rate was 9.6 percent, down from 10.1 percent in March. It decreased nearly a whole percentage point since February, and has continued to decline since then. In the first quarter of 2015, the black unemployment rate has declined to pre-recession levels in six states that previously held some of the highest in the country.

However, the decline in the unemployment rate is not slight, but pretty large. The jobless rate for blacks has consistently been nearly three times that of white workers before and during the recession, and roughly twice that post-recession. The unemployment rate for white workers in April was 4.7 percent.

These state of affairs is primarily due to the decline of manufacturing jobs, particularly in urban areas, the struggle black college students face in finding employment, and most of all, racial discrimination.

As a result, unemployment in states like Wisconsin and Michigan, whose workers once dominated the manufacturing sector, have seen the worst rates of black unemployment. Detroit, whose population is 82% black, has the highest rate because manufacturing jobs at car factories like Toyota are now gone. Both states have high populations of black residents that are likely to remain unemployed.

“You’ll find a high black unemployment rate because that’s largely who remains in the city,” said Valerie Wilson, the director of the Economic Policy Institute’s program on Race, Ethnicity, and the Economy (PREE).

Low-wage jobs are more volatile because of cyclical employment changes. Black workers primarily fall into four categories: nursing and home health aides (comprise 25%), bus drivers (27%), and security guards (27%). These four professions are relatively low-earning ones: nursing and home health aides earn an annual salary of $25,020 and $22,400 respectively, bus drivers earn $32,190, and security guards earn $28,080.

Education is a key factor in jobless rates: black males still graduate from high school at a lower rate than whites do. Compared to those with less than a high school education, better-educated workers have greater access to less cyclically sensitive and higher-paying occupations in service and skilled trade. Low-wage jobs are more volatile because of cyclical changes in employment.

College students still face hiring problems even after graduation because their lack of professional experience is less attractive to employers than older workers with more experience and a broader skill set. In addition, many black students are the first in their families to matriculate from college, which provides them with less networking opportunities compared to those who come from families where both parents are college-educated.

“Especially when there’s a slack labor market, relatively new african american graduates take longer to find employment,” she said.

Albeit a 72% increase in college enrollment among blacks, job prospects don’t improve after graduation.

According to a 2014 report released by the Center for Economic and Policy Research, black college graduates have the highest rate of underemployed workers, those who graduate with a degree that are unable to find work in their field of study, with an underemployment rate of 11.5 percent compared to only 5.7 percent of white graduates. They have the largest increase in underemployed workers with an 8 percentage point increase since 2003, and a 7.1 percentage point increase since the start of the recession in 2007.

In the fast-growing sectors of STEM professions, only 7 percent of African-american students obtained a degree within a related field in 2009, according to the National Center for Education Statistics. Black students are less likely to choose a STEM major because of the long time perception of math and science being too difficult. In the south and midwest, 77% of blacks attend with predominantly black students. These underfunded schools make up a significant portion of undereducated students, which hinders their confidence to pursue a career in STEM.

Degrees in majors with high-paying jobs are helpful, but still not enough to improve hiring rates for black workers.

“Getting a degree isn’t solving the problem for black employees,” said Judith Fields, a labor economics professor at Lehman College. “Students who choose majors with high-paying salaries are having trouble finding jobs in their field of study.”

Chantel Gordon, a graduate student at Drexel University was unemployed for six months after graduating from Smith College in 2012. Though she majored in pre-med and engineering, she wasn’t able to find a job in either field because most of the available positions were offered to prospective employees with more experience or competing applicants that had hiring connections through family. Ms. Gordon is now enrolled in a BS/MD program at Drexel University’s College of Medicine to become an obstetrician.

“I tried applying at several hospitals right after graduation, but none of them hired me,” she said. “I ended up finding a tutoring job until I started graduate school last August. Hopefully that improves my job prospects.”

Less affluent social networks are a huge factor in black unemployment. 91 percent of CEOs are white and 90 percent of management positions are held by white workers. In her 2013 book “The American Non-Dilemma: Racial Inequality Without Racism”, Nancy DiTomaso claims that informal networks allow whites to keep a racially homogenous workplace by offering job positions to family and friends instead of a qualified black worker.

“It is definitely true that who you know is very important for finding jobs,” said Alec Levenson, research scientist at the Center for Effective Organizations at USC’s Marshall School of Business. “People who are going to college for the first time don’t have those kinds of connections.”

A 2003 study done by sociologist Devah Pager showed that white applicants with criminal records were more likely to receive callbacks compared to similarly qualified black applicants with clean records. In Milwaukee, black prospective employees were less than half as likely to receive a callback than qualified whites.
“A Bachelor’s degree has value, but this is not about effort,” said Judith Fields, a labor economics professor at Lehman College. “Discrimination remains a major feature of the labor market. The threat is corporations allowing this behavior to continue on an individual level.”

To get a visual sense of black unemployment, click here.

A Bloc in Need of Visitors

Link to data visualization

As summer progresses and spring shifts into the rearview, travelers and tourists have begun to flock to major tourism and leisure markets across the globe in search for a place to unwind.

The world tourism industry, like any other industry is driven by demand. The Eurozone, which is the global leader for tourist arrivals, again has reason to be excited this travel season despite the recent economic turbulence.

The opportunity for leisure or business travel in the euro area couldn’t be better. A weak global economy, the steep fall in the euro and the fall in oil prices can be seen as a positive. These factors will work to pull more inbound travel to the euro area this season and could be a welcomed economic boost for the 19-country bloc.

“(European) tourism has grown substantially over recent decades as an economic and social phenomenon,” said Dr. Larry Dwyer, who is a professor of International Economics at the University of New South Wales, for the Sustainable Tourism Cooperative Research Centre (STCRC).

Europe has a very robust tourism industry, what with the presence of some of the world’s best markets, cities and attractions.

The region accounted for 41 percent of worldwide international tourism receipts in 2014, which generated $509 billion in exports, according to a United Nations World Tourism Organization (UNWTO) report. The euro area alone accounted for 30 percent of world tourist arrivals in 2013.

Despite its place as the world leader in travel and appeal, the region may need the travel sector now more than ever.

The euro has been falling steadily against the dollar since July of last year, and as of Monday afternoon, it was trading at $1.09, down from trading at around $1.50 in 2008, which opens up the door for a spending spree by inbound tourists with stronger currencies traveling to the continent.

Shockingly, some economists and researchers believe the euro might dip to around $0.80 by the end of the year, which could lead to larger inbound travel numbers during the holiday season and, subsequently, more consumer spending and a happy economy.

“The benefit of the stronger dollar will be experienced by Europe both this year and next year, provided that there’s not a reversal in value,” said Sacks, who is the president of Tourism Economics.

It’s worth noting that if the Federal Reserve decides to raise interest rates later this year, foreign investors will more than likely shift to U.S. markets, strengthening the dollar even more and making that much easier on U.S. outbound tourists at the expense of other sectors of the global economy.

“What we’ve seen historically, is that exchange rates do effect traveler decisions,” Sacks said. “Generally speaking, when we’ve seen a movement of 10 percent on an exchange rate, it drives an incremental change in travel of 2 percent.”

The tourism sector is important in that it will increase exports, boost headline prices and effectively work to create jobs—albeit some temporarily, in the short term—for some major euro markets that are lacking in labor force figures, such as Spain and possibly Greece.

According to the European Commission, the travel sector employs around 9.7 million people in 1.8 million businesses. And, according to the UNWTO, international tourist arrivals worldwide are expected to increase 3.3 percent per year from 2010 to 2030 to reach 1.8 billion by 2030, which can only help both long-term and temporary job prospects in the region.

The enduring weakness in the Eurozone economy can also be beneficial through domestic travel. With a weak euro, European tourists will be less likely to travel abroad and outbound travel numbers will fall. Instead, tourists will travel in the region, generating more revenue for the sector.

“Economic weakness within the Eurozone itself can actually be a benefit,” Sacks said. “What it does is it tends to internalize travel. Instead of Europeans traveling outbound to other parts of the world, they tend to travel within the region.

“Costs are less for travel and they can also do shorter length trips, which reduces costs as well.”

Also, hotel occupancy and room rates as well as length of stay for inbound tourists and domestic tourists play a fairly significant role, adding to jobs numbers and increasing revenue.

“Rates have been badly battered over the financial crisis,” said Sophie Perret, who is a director at HVS Global Hospitality Services, a hospitality sector consulting firm. “We’re in the phase of recovery, I would say.

Perret said there was a 3 percent increase in demand and an increase of 8 percent in rates among hotels consulted by HVS in March.

“Over 10 percent more revenue should be available for hotels at the European level. Occupancy hasn’t changed much but the focus should be on the rate,” Perret said.

There were around 562 thousand tourist accommodation establishments active and providing over 30 million beds within the entire European Union in 2013.

“It will always be a positive thing to have,” Perret said. “The more leisure you have the more occupancy you have and the more you can increase your rates.

“So yeah, it can only do good.”

 

The American Tourist in the Eurozone

 

Caroline Kruis is a New Yorker currently traveling in the Eurozone for the second time “just cause.”

She and a friend decided to take three months vacation and are currently traveling through Portugal and Spain and plan to venture north to France within the next week.

Kruis’ first stint in Europe was in 2011. She spent about a month studying in Paris before traveling to Amsterdam and then Venice.

At the time of her first visit, the euro was trading at around $1.44.

“I studied in Europe about four years ago and the exchange rate was much worse,” Kruis said in an email.

As of right now, Kruis said she’s been to Lisbon, Portugal and three different markets in Spain.

“We’ve been in Spain the most, but not one specific place very long. The longest was Malaga, which was very cheap, and in Lisbon, which was pretty cheap as well.

“Rural areas and Portugal we’re say cheaper than Barcelona and Madrid,” she said. “But Ibiza has been very expensive. Ibiza is a huge tourist place for Europeans also, which I think accounts for the price jump.”

Despite the nice exchange rate, Kruis still looks for a deal. She said she’s turned to using cash primarily because she gets a better rate from the ATM.

“The exchange rate is becoming more and more favorable to the dollar and definitely people have more incentives to travel and we’re talking about the majority of tourists,” said Marvia Bortolin, a spokesperson for the Italian National Tourist Board.

As a result of the massive fall in energy prices, gas prices plummeted, which has put more disposable income in the pockets of U.S. consumers. Steady, low prices and a forecast that shows a continued boom in the U.S. dollar makes it easier for consumers to purchase foreign products and services and travel abroad.

“Essentially… the benefit of the exchange rate makes this a better value since last year,” said Andrew Brown, who is a sales director at Post Office Travel Money. “Plan a tour of Europe as it’s got to be the best time in a number of years to do so.”

There were 68.3 million outbound tourists from the U.S. traveling overseas in 2014, up from 61.6 million in 2013, according to the U.S. Office of Travel and Tourism Industries. The number has gone up each year since 2011.

“The incidence of travel has continued to increase to record levels within the U.S.,” Sacks said. “That’s why the travel sector of the economy whether you’re looking at lodging, recreation, food and beverage or air transportation, these sectors have been leading growth in the U.S. economy partly because consumers are traveling at a higher rate than they ever have before.”

For United States consumers, the global economic conditions haven’t been this ripe in years, and now would be the time to follow Kruis’ lead and explore a Eurozone vacation.

“Last year, the Eurozone hosted over 15 million American visitors,” Sacks said. “That was 4 ½ percent of all international visits to Eurozone countries.”

The Eurozone has seen a 67 percent increase in U.S. tourists and visitors from 1995 to 2015, according to Tourism Economics.

“At the end of the day, people are interested in different markets because every single market has different dynamics,” Perret said.

Sacks said his firm “absolutely” expects the number of U.S. travelers to go up in 2015.

“We’re already seeing it in some of the early data for the year,” he said. “Growth in the range of 5 percent for U.S. travel to Europe, which is pretty good. It’s above trend; it’s been trending closer to 3 percent.”

 

According to a recent report from the U.S. Office of Travel and Tourism Industries, American tourists have already begun venturing out in force: just over 840,000 U.S. citizens traveled to Europe in March, up from 500,982 in February.

According to data compiled by online travel company hipmunk.com on its bookings and travel searches so far in 2015, U.S. consumers have been finding bargains across the board for European travel.

Airfare prices are down for flights to the Eurozone from virtually all U.S. major cities and hotel rates have decreased from a year ago and are expected to keep falling with the predicted steady decline in the euro over the course of the year.

Airfare prices to Italy, overall, have increased since last year, according to hipmunk.com. Currently, the average price for a flight to Rome, among rates found in 24 major cities, is $1,631. The cheapest flight on average is to Dublin, Ireland at $1,108 with the cheapest flight listings being reported from New York City, surprisingly, at $871.

Despite a murky future for the euro area headlined by a global economy that’s on crutches, a positive from the surge in the dollar can be tourism and its potential benefits on the Eurozone economy.

A Strong Dollar and A Stronger Economy Pressurize the U.S. Manufacturers

The strong U.S. dollar signals economic growth, but it is also hurting American businesses overseas, especially manufacturers, who face falling sales, squeezed profits and prospects of major job cuts.

Caterpillar Inc., for example, the world’s largest construction and mining equipment maker, faced stiff competition due to the strong U.S. dollar and the plummeting oil prices that led to a tough energy equipment market since last year.

“Sales and revenues in Asia-Pacific were down 13 percent, with the most significant decline in Construction (equipment) Industries at 21 percent,” said Mike DeWalt, Caterpillar’s vice president for finance services. “Construction Industries were down substantially in China and lower in Japan as a result of the stronger dollar versus the yen. Our sales in Japan, which are in yen, essentially translated into fewer dollars.”

Caterpillar Inc., announced last month, it would lay off 150 full-time production workers at its plant in Decatur, Ill. The indefinite layoff beginning this month resulted from weak demand for mining equipment.

For U.S. Steel, the strong dollar has reduced profits from its sales in Europe, and competition from South Korean steel has put pressure on the company to lay off 2800 U.S. employees in 2015.

Other corporate giants like Coca-Cola, Pepsi Co., Colgate-Palmolive, Johnson & Johnson and Mattel have indicated the strong dollar is playing a major part in their earnings last quarter.

Some smaller domestic companies Midstate Berkshire, manufacturer of aerospace, defense, power generation and oil and gas industry products, said in a press release that the company would lay off almost a third of its 250 workers to stay in the competitive market.

Exports comprise about one-eighth of U.S. economic output and were instrumental in the recovery from the 2008 recession. Though other sectors are improving, the trade deficit is at a six-and-half-year high, according to a recent report released by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis through the Department of Commerce. Manufacturers projected that exports for the first quarter of this year were down from last year.

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The top exporting industry groups created only 300 jobs in April compared to 11,000 in January. The primary metals producers, including steel makers lost 1800 jobs in the first few months of this year. In April, machinery producers cut 5,200 jobs.

Even if companies increased sales overseas, the revenues are smaller when converted to the stronger dollar. This can lead to mismatch between costs and revenues, and the export-oriented companies find it difficult to compete.

Admittedly, the West Coast port strike also weakened exports in the last few months. Though that strike has been settled, its effects continue to challenge the exporters.

“I have met with manufactures in the last couple of weeks who continue to complain about that there are still items they haven’t received or items they haven’t been able to ship out,” said Chad Moutray, chief economist for the National Association of Manufacturers. “I think the backlog of the port issue will take a while for it to make its way to the system.”

But the fundamental factors hurting exports continue even after the strike is over.

The dollar has appreciated around 19 percent since June last year because the U.S. economy is doing better than the rest of the world’s, despite a weaker-than-expected first quarter. At a time when other central banks are cutting rates, the Federal Reserve is expected to raise interest rates this year, further strengthening the dollar.

The dollar is going to stay strong all of this year and move into 2016 with a strong value.

Since the strong dollar makes exports expensive abroad, larger companies can manage their profits with the currency swings. But smaller companies cannot afford to do so, said Bruce Phipps, founder and owner of MPI Incorporated, maker of wax-room equipment. Though his company hasn’t yet seen a big difference in sales, he predicts the strong dollar will impact his business.

“I think it will absolutely hurt long-term, especially in some of the Asian countries we sell to,” he said.

Weak exports are only a small part of the bigger story. The strong dollar’s impact is also felt in the durable goods orders. Boeing, an American multinational corporation, is competing against Airbus, a France-based aircraft manufacturer, in price, and the strong dollar certainly gives Airbus an advantage over the other. Airbus has beaten Boeing to win a big order from Delta Airlines of 50 jets worth approximately $6 billion at market price. The decisive factor of the deal was that Airbus agreed to deliver the order earlier than Boeing, which has unfilled orders for 850 Dreamliners.

Among the few winners is Nerak Systems, which designs, manufactures, installs and maintains vertical conveying equipment for powder and bulk materials and unit loads or packaged items. Simone Wakefield, executive vice president, who imports raw materials from Europe for domestic businesses, said the strong dollar and the weaker Euro make it easier to earn more for her money.

While the dollar is gaining strength, the euro is weakening because of Europe’s dwindling economy.

“Right now the world economy is a bit precarious, and we will probably see fewer exports,” said Bill Watkins, executive director, Center for Economic Research and Forecasting at Cal Lutheran University. “But that’s not all because of the dollar, but also because our customers are suffering through.”

Some economists say the manufacturing sector will continue to weaken as the strong dollar weighs down on exports.

“I think overall growth should pick up in the second quarter,” said David H. Sloan, senior economist for 4Cast Inc. “But manufacturing should be fairly subdued and flat.”

How well do you know U.S.A.’s manufacturing sector? Learn more and check out your knowledge with the quiz.

UAW’s Goal to Close Wage Gap Might Further Push Automakers down South to Mexico

By Danni Santana

For the better part of a decade, newer autoworkers in the U.S. have earned half the wages of their veteran co-workers who do the same job.

In September, the United Auto Workers is determined to close the gap when union leaders negotiate new contracts with U.S. automakers.

UAW eyes wage increases for both entry-level tier 2 workers and veteran tier 1 workers who have not seen a raise in a decade. Automakers, however, will walk into negotiations with a settlement number in mind to keep labor costs down.

“It’s difficult for companies to plead poverty when they are making money,”  said Arthur Schwartz, professor of labor relations at Wayne State University and former negotiator for General Motors. “Unions want to narrow the gap between the two tiers, but depending on what they ask for it’s going to put too many jobs in jeopardy.”

The two-tier system, established in 2007 to help Detroit’s Big 3 cut labor costs ahead of The Great Recession, has aided GM, Ford and Fiat Chrysler in hiring at least 39,000 tier 2 workers as of mid-February.

After a record low 10.4 million vehicles sold in 2009, the lowest output since 1982, the U.S. auto industry has been booming. Sales have increased each of the last five years, topping out at 16.4 million units sold in 2014. Some economists project over 17 million vehicles sold for automakers this year, the most since 2001.

Automakers are also more profitable. Each of Detroit’s big 3 reported strong earnings in 2014; General Motors leading the way at $6.5 billion. Ford Motor and Fiat Chrysler reported earnings of $6.3 billion and $3.9 billion as well. Union leaders now want a piece of the profits.

“I truly believe that our companies know that we can be both creative and thoughtful,” said UAW president Dennis Williams, at the union’s two-day bargaining convention in March. “But make no doubt about it, they also know, that as we share in the bad times, we must equally share in the good times.”

Despite increased revenue, the problem for U.S. manufacturers remains cutting labor costs, which account for wages and health benefits paid hourly per worker. Second tier workers cost $35 to $42 per hour while first tier workers cost $58 to $64.

GM, Ford and Chrysler rank second, third and fifth among major automakers in labor costs. Mercedes-Benz costs are highest , at $65 per hour, followed by $58 at GM, $57 at Ford, $49 at Honda and $48 at Chrysler, According to the Center of Automotive Research. Chrysler has benefited the most from the new system.

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“Chrysler has been able to hire over 40 percent of their current workforce since 2007 and therefore has a blended average hourly labor cost that is very much in line with the international producers’ costs,” said Kristin Dziczek, director of the Industry & labor group at CAR. “Ford and GM have hired relatively fewer workers and are not yet in that territory.”

According to Dziczek, the second tier makes up 45 percent of Chrysler’s current labor force, 20 percent of GM’s and 25 percent of Ford’s. In all, about 137,000 of UAW’s members are second tier.

Tier 2 workers were originally not supposed to work on the assembly line. They were to only deliver product and clean up plants, thus could be paid less. Now they work side by side with veterans assembling cars, often at half the pay.

“The guy next to me on the line makes $14.50 an hour, I make $30,” said Steve Lanier, an autoworker at GM’s plant in Fort Wayne, Indiana. “Unions have always been in support of the middle class, but as long as the two-tier system exists that lifestyle is not possible. You can barely afford the product you make.”

In addition to wages, potential added costs of healthcare for employers will be a hot-button topic in September.

Cadillac taxes, as part of the Affordable Care Act, will take effect in 2018. Under the provision, companies are only allowed to spend $10,200 on an individual’s health care and $27,500 on an entire family. Overspending warrants a 40 percent tax by the federal government, which aims to limit usage of healthcare by employees to cut spending.

“Companies will try to alter health care to avoid the tax, but UAW has been very reluctant in the past to modify it,” Schwartz said.

According to Schwartz, Union members might also ask for a cap on the number of tier 2 workers hired by companies. He believes If the goal is still to better compete in labor costs, the two-tier system is as good of an idea now as it was before. Companies will and should fight against a cap.

“The problem facing automakers is we have a lot of history. We pay for a lot of retiree’s pensions. It’s hard to manage costs because of that.”

Achieved wage increases for union workers might prompt automakers to further outsource jobs down south to Mexico where hourly wages range from $5.35 to $8.24 per hour compared to $14 to $19 for tier 2 workers and $28 for tier 1 workers.

Mexico is now the world’s seventh largest automobile producer, thanks in large to a 40 percent rise in auto-making jobs since 2008, according to IHS Automotive. There are currently 18 manufacturing plants in Mexico; five more will be built by 2019 when the country is expected to move to fifth.

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“The whole industry seems to be moving to Mexico. That’s all workers in Michigan and Ohio are talking about in the plants right now,” said Sean McAlinden, a chief economist at the Center for Automotive Research. “The giant sucking sound of NAFTA has started again. Automakers are saving more money by going south.”

With no better alternative to the two-tier system in place, negotiations in the fall are unlikely to result in the elimination of it. Heavy criticism of the system will also not result in any additional third tier automakers might ask for.

Instead, McAlinden and other CAR experts predict assembly wages for tier 2 workers will rise to $25 per hour. A combination of smaller wage increases and lump sums as opposed to annual raises is a possible alternative automakers will suggest. The gap between the two tiers, however, is not likely to close until the next round of negotiations in 2019.

Rising demand for H1-B visas raises questions on immigration reform

Some say they steal American jobs. Others say they spur the economy. But there is one thing immigration experts across the board agree on: the rules to bring and keep high-skilled immigrants to the US need to change.

The demand for high-skilled worker visas, called the H1-B, reached a record high last April in only five business days: while in 2015 there were 233,000 requests for H1-Bs, the number was 175,000 in 2014 and 124,000 two years ago.

But there is an annual cap on the H1-Bs, set at 85,000. When applications exceed it, a lottery is drawn, which means that two-thirds of the 2015 requests won’t be granted.

chart1h1b

 

Source: US Citizenship and Immigration Service

This surge demand for H1-Bs is good news in the sense that it shows that the job marketing is warming up again, but it happens in a politically charged moment: right after the House stalled Obama’s comprehensive immigration bill and a little before the impending 2016 election, in which the subject should play an important role in the presidential candidates’ platforms.

Part of Obama’s plan was to raise the H1-Bs to up to 180,000 depending on the demand from companies, but the president wouldn’t push a law that wouldn’t address other immigration issues as well, according to Neil Ruiz, senior policy analyst in the Brookings Institute. “The high-skilled immigration was the chip holding everything together,” he says. When the Representatives couldn’t agree on the rest of the bill, the H1-B proposal went down with it.

Senator Orrin Hatch (R-Utah) is trying to salvage the H1-B part of the bill. He reintroduced his I-Squared Act in late January, which proposes more flexible rules and also raises the visa cap according to business demands and economic activity.

As it is right now, both advocates and opponents of raising the visa cap say the law as it is doesn’t help neither businesses nor American workers.

That’s the view of the Economic Policy Institute, a left-wing Washington think tank that works closely with unions. Vice-president Ross Eisenbrey says that the H1-Bs are often used to outsource American workers with cheaper and more docile labor.

Eisenbrey is against raising the visa cap, but the law needs changes nevertheless. “The program should not allow American employees to be replaced with H1-Bs, the H1-Bs should be allowed to move on to other companies and they should be hired at higher salaries than the Americans,” he said, in a phone interview from Washington.

Others say that raising the cap and giving more freedom to companies to hire whomever they want is only going to help the economy.

“People don’t shoot for the most mediocre person for the job, they look for the best person for the job,” says Neena Dutta, a corporation immigration attorney based in New York, who is strongly in favor of lifting the cap. “This regulations are getting in the way of U.S. companies’ growth.”

countries1h1b

 

Source: US Citizenship and Immigration Service

Take the case of Andres Blank, a MIT MBA graduate in his second startup. He sponsored over 20 H1-Bs while he headed his first company Pixable, a social network aggregator from 2009 to 2012, which he later sold to Singtel. “Back then, you had a 100% chance of getting the visa,” he remembers. “Now, it’s only about 30%. It’s risky and time consuming.”

For his new company, Caliber, a business messaging app, he said he didn’t bother sponsoring, although he prefers to work with foreigners. He says they are just as skilled as Americans, but are more motivated and loyal.

He might have given up on sponsoring visas, but that didn’t mean he hired locally. Right now, Caliber consists of five people and himself. Four of them, his development team, work remotely from their native Argentina — jobs that didn’t go to American works as EPI hoped for.

The Partnership for a New American Economy, a lobby group of businessmen and politicians led by Michael Bloomberg and Rupert Murdoch to reform the H1-B visa regulations, argues that each H1-B awarded between 1995 to 2008 brought three more jobs for US-born workers at the same company during that period and 1.83 more jobs for Americans in the following seven years.

And many of the visa applicants are not outside looking in as one might expect.

Andrey Morozov came from Russia on a tennis undergraduate scholarship, and finished his Master’s degree in Marketing at Temple University in 2014. He was allowed to work one year after graduation on his student visa, and then he would have to try get a company to sponsor his H1-B. Insurance startup Goodscout offered him a job, but the weeks leading up to the lottery were unnerving.

In mid-April, the good news came: his application was picked in the lottery. “I probably got into the masters reserve,” he explained, mentioning the 20,000 visas reserved in the cap for applicants who hold a master’s degree from an American university.

For Ruiz from Brookings Institute, U.S.- educated workers and entrepreneurs starting companies in the U.S. are the ones being hurt by the current H1-B law. “We need a smarter visa system to retain those immigrants, and that can be adjusted to our economic needs.”

While that doesn’t happen, some states, like Massachusetts, are trying to work around the visa restriction by setting up programs that sponsor visas for US-educated foreign entrepreneurs that wish to set up companies in the country. There is a loophole in the law that allows universities, nonprofits and government agencies to sponsor H1-B visas without being subject to the cap.

“There are a lot of advantages to keeping someone here as part of the economic fabric,” says Dutta. “The person that comes rents a house, buys a car, milk, groceries. They also pay U.S taxes,” says Dutta.

The U.S government loses money in the process as well. The filing fees for each H1-B application run from $1,575 to $3,550, and they are returned in case the applications are not drawn in the lottery, which means that the United States Citizenship and Immigration Services will return $344 million to rejected applicants. That is a waste of money, according to Dutta. “That money could have paid for a few federal jobs.”

Speculative homebuilding may cause a single-family housing shortage

Last spring, Vince Phelps, a homebuilder in Lynchburg, Virginia, wanted to build a single-family home “on spec” – industry parlance for a dwelling built without an owner in place. But Phelps was soon frustrated: he couldn’t find a bank to loan him the money he needed to break ground – even though apartment-complex and townhome builders in his area were hard at work, finishing their own speculative constructions.

“Lending standards are extremely tight for builders who are trying to build a speculative single-family home,” said Phelps. “And most people can’t afford to fund their own projects, so they’re much more reliant upon the banks.”

Since the housing market collapsed in 2007, lending standards have been tight – especially for builders like Phelps who need credit to start a speculative project. However, in certain areas across the country that have experienced significant population growth, banks and other financial institutions have been willing to fund speculative construction for apartment complexes, townhouses and condominiums.

The problem: as the economy improves and potential homebuyers enter the market, builders across the country may realize that they have created an oversupply of multi-unit dwellings and a shortage of affordable single family homes.

The cause: Dodd-Frank and other government lending regulations have dissuaded banks from lending to builders for speculative work. “And there’s good reason for that” said John Councilman, president of Association of Mortgage Professionals. “Rampant spec building was a major contributor to the housing bubble.”

https://soundcloud.com/cuny-radio-class-svs-2014/tight-lending-requirements-from-a-homebuilders-perspective-1

Since the markets crashed in 2008, fewer homes have been built – especially single-family units.

Multi-unit permits have caught back up to their pre-recession totals – over 380,000 were built in 2014, the same amount built in 2005, the U.S.-housing-boom peak. But single-family permits are still way behind: single-family permits totaled 634,600 in 2014, a decline of more than 1 million permits from its 2005 total.

In the mid-2000s, speculative single-family homebuilding reached unsustainable levels. A large portion of the drop-off in single-family permits today can be attributed to banks refusing to lend for speculative single-family dwellings.

The relative strength of the multi-unit sector shows that banks are more comfortable funding speculative multi-unit projects today because multi-unit dwellings are almost always built speculatively – the apartment complex builder will very rarely have a buyer in place for each of the housing units in his building.

Single-family housing permits used to outpace multi-unit permits nearly 3-to-1 during 2005. Now, that ratio is about 2-to-1.

A small, local bank – the kind of bank Phelps relies on to fund his speculative project – is especially unlikely to fund a speculative single-family home because it can’t afford to fund a project that goes belly-up, said Councilman, the mortgage professional.

That’s why local banks in areas with growing populations often favor a multi-unit dwelling over a single-family home: in theory, the builder will rent out multiple units, turn a quick profit and pay the bank back. With a speculative single-family dwelling, the bank has to hope that the builder can find a homebuyer who can afford the house and does not care that it is not custom built.

Houses not as affordable as they once were
Houses not as affordable as they once were

Phelps has seen that logic come to fruition in Lynchburg.

“There are so many apartments and townhomes being built speculatively around here,” said Phelps. “I really think there is going to be a shortage of single-family homes.”

During the last 10 years, about 12,000 people moved to Lynchburg. And since the housing market started to recover in 2009, banks in Lynchburg have favored speculative multi-unit dwellings and townhomes to meet the new demand for housing, said Phelps.

“Seven years ago, all these houses were going up,” Phelps said, referring to the mid-2000s housing boom. “Eventually, there was no one to buy them. The same thing is going to be true of the apartment craze – eventually, there’s going to be no one to rent them. And some people are going to take a bath.”

In Williams County, North Dakota, the fastest growing county in the nation with a 43 percent increase in four years, rampant speculative multi-unit homebuilding has caused an oversupply of townhomes and apartment complexes and a shortage of single-family houses. The surge in population was caused by an influx of oil workers.

Despite layoffs, oil workers with secure jobs want single-family homes, but can not find them because construction has been primarily in multi-unit complexes, said David Nordenstrom, owner of Nordenstrom Custom Homes Inc. in Williams County.

“But now, many multi-unit projects are lagging in occupancy as the slowdown in oil continues,” said Nordenstrom.

The Williams County department of Building and economic development found that demand for single-family housing in county is high, according to a recent survey.

“79% of the respondents indicated that single-family housing was needed in the city and county,” said Melody Mileur, Williams County communication officer at the building department.

There are many apartment buildings still under construction in Williams County, but there is already an oversupply of these dwellings, said Mileur.

“What we need is affordable single-family homes because, right now, there’s a shortage,” said Mileur.

In Lynchburg, Phelps, the home builder, says that although much has been made of declining homeownership trends, he still believes the homeownership ideal is alive and well in America and unless banks lend to builders to meet that impending demand with speculatively-constructed single-family homes, many people will be left out in the cold.

“I’m not completely convinced that nobody wants to own a home anymore,” he said. “This still America – we still have that American dream to own a home. I don’t think people want to live in apartments and townhomes their whole lives – I just don’t buy it.”

MARCH DEFICIT EXPECTED TO INCREASE WITH END OF PORT STRIKES

February’s unusually low trade deficit will not be seen in March.

The consensus forecast for the March trade deficit is $42.0 billion, up 11% from February’s revised deficit of $37.8 billion.

The resolution of the West Coast port strike and a strong dollar will account for much of the trade imbalance.

The West Coast Port Employers and Union reached a five-year agreement in February after a nine-month standoff resulted in billion-dollar losses for exporters and importers. Delayed goods cost retailers millions of dollars.

Roughly 50 percent of all clothing is imported into the U.S. through Los Angeles and Long Beach. The ports are the entry for the majority of Asian imports, which includes soybeans and televisions.

Marcia Garcia, a clothing store owner in the Bronx, says that business has been slow the last two months due to delayed product shipments. Most of the clothing she purchases for her store comes through the West Coast ports.

“I order straight from the China warehouses,” she said. “Everything was held up in California because of the labor arguments. I’ll be playing catch up for the next couple of weeks.”

With business at the ports returning to normal, consumer spending should increase the number of imports to widen the deficit.

“If you’re looking at real terms, consumer spending has accelerated by 4.4% in Q4, and probably another 2 percent this quarter,” said Mike Englund, economist at Action Economics.

Since the end of winter’s harsh effects on sales, consumer spending is expected to return to normal by June, as seen by April’s strong auto sales. Since the end of the port strikes, U.S. factories have experienced an 2.1 percent increase of orders. U.S. durable goods exports will increase for March, particularly in the auto sector. Automakers can breathe a sigh of relief after posting low auto sales in February.

“February production has been quite low, we were producing at a rate of about 11.1 million cars,” said Paul Ashworth, a senior economist at Capital Markets. “We’re slowly starting to see a pickup in March.”

Exports also decline in March because of the strong dollar. Since last summer the dollar has appreciated 15%, making U.S. exports less competitive abroad and imports cheaper domestically. As it continues its gain against the Euro and the Pound, American exports are becoming expensive in EU countries like France, which imports California wines. International trading partners are less likely to import U.S.-produced goods now that they are more costly.

“The strong dollar is a tail wind for importers, making imports relatively cheaper,” said Stephen Stanley, an economist at Amherst Pierpont securities. “Both will widen deficit, all else remaining equal.”

Slow growth and manufacturing cutbacks in China have kept the dollar afloat, making American imports more expensive. China is considering devaluing the Yuan in order to keep exports cheap and entice U.S. consumers to continue importing Chinese goods. However until the Chinese officially depreciate the yuan, the trade balance between the U.S. and China will continue to widen as the country exports less to Asia and imports more. Should the U.S. Treasury choose to buy Chinese debt in response to the yuan’s devaluation, it could lower the deficit further and increase GDP by $420 billion annually.
If domestic companies put more money towards research and development instead of investing in overseas manufacturing, it could increase GDP by 1%. Should the U.S. trade deficit increase in March, the larger trade deficit will shift investment in manufacturing and service activities in the global market to the domestic market.