No, the capital gains tax is needed to fund Washington’s new child care legislation.

Washington recently received some good national recognition  for its investments and policies to advance early childhood education. The Seattle Times writes,

The accolades come after state lawmakers greatly expanded child care initiatives the 2021 Legislative session by passing the Fair Start for Kids Act. The state is also shifting its focus to making the business of child care more sustainable for providers. 

In a blog post Emily Makings with the Washington Research Council reminds us that no new tax was required to support the program. Moreover, there are some issues with the accounting. We’ll quote her generously, including her pullout from the ST.

According to the Times, regarding the Fair Start for Kids Act,

The state is looking at multiple sources of funding for these initiatives. It’s currently using some $300 million in federal pandemic relief funding to, in part, provide child care stabilization grants intended to help centers stay open. A new capital gains tax is expected to bring in around $400 million in net revenue annually, which will help the state budget for early childhood programs under Fair Start for Kids. The law would take effect in January, with the first returns due in 2023.

The tax, however, is being contested in courts over its constitutionality, and the case could ultimately be heard by the state Supreme Court. [Sen. Claire] Wilson said in an email that the Fair Start funding “is not contingent on the capital gains tax revenue being collected, and it will be funded regardless of what the courts decide.” If found unconstitutional, the state will have to fund the early childhood programs out of its general fund.

In writing about the enacted 2021–23 state operating budget, we identified seven particularly troubling issues. The Fair Start for Kids Act featured in two of them. First, the budget used one-time federal relief money to fund the bill’s ongoing programs. Second, the cost of the bill bow waves beyond the four-year budget outlook.

As I showed in this post, in 2021–23, the Fair Start for Kids Act is expected to cost $321.9 million. Of that, $310.2 million was covered with federal relief money. Only $9.0 million is from funds subject to the outlook (NGFO). In 2023–25, the cost to the NGFO will jump to $303.4 million. But many of the programs aren’t fully implemented until after 2023–25. Further, the bill delayed full implementation of the Early Childhood Education and Assistance Program (ECEAP) from school year 2022–23 to SY 2026–27—beyond the four-year outlook. The cost of the bill in 2025–27 will be much higher than $303 million.

Still, Makings concludes,

the state does not need its revenues to fund the Fair Start for Kids Act. It is a costly bill (and will be more costly down the road), but, as I wrote in April, “A new tax is not needed to fund the state’s paramount duty, as the Supreme Court stated. Early learning and child care could also be funded within current revenues, if the Legislature so chooses.” (Note, too, that the revenue forecast has increased substantially since the Legislature left town.)


Unemployment claims down, inflation up. Labor shortage and supply chain disruptions continue to stall recovery.

A mix of recent news reveals the ongoing pressure on the national and state economic recovery. 

Nationally, unemployment claims filings are down to the lowest level since spring 2020. (The state Employment Security Department is shifting to monthly claims releases. The weekly data are available on the ESD website.)

In the week ending October 9, the advance figure for seasonally adjusted initial claims was 293,000, a decrease of 36,000 from the previous week’s revised level. This is the lowest level for initial claims since March 14, 2020 when it was 256,000. The previous week’s level was revised up by 3,000 from 326,000 to 329,000. The 4-week moving average was 334,250, a decrease of 10,500 from the previous week’s revised average. This is the lowest level for this average since March 14, 2020 when it was 225,500. The previous week’s average was revised up by 750 from 344,000 to 344,750.

The advance seasonally adjusted insured unemployment rate was 1.9 percent for the week ending October 2, a decrease of 0.1 percentage point from the previous week’s unrevised rate.

That low unemployment rate, remember, is partially (largely?) attributable to the many workers and potential workers who are no longer in the labor market. The Associated Press reports,

Unemployment claims dropped 36,000 to 293,000 last week, the second straight drop, the Labor Department said Thursday. That’s the smallest number of people to apply for benefits since the week of March 14, 2020, when the pandemic intensified, and the first time claims have dipped below 300,000. Applications for jobless aid, which generally track the pace of layoffs, have fallen steadily since last spring as many businesses, struggling to fill jobs, have held onto their workers.

The decline in layoffs comes amid an otherwise unusual job market. Hiring has slowed in the past two months, even as companies and other employers have posted a near-record number of open jobs. Businesses are struggling to find workers as about three million people who lost jobs and stopped looking for work since the pandemic have yet to resume their job searches. Economists hoped more people would find work in September as schools reopened, easing child care constraints, and enhanced unemployment aid ended nationwide.

The AP notes wages are up.

Average hourly pay rose at a healthy 4.6% in September from a year earlier, and for restaurant workers wage gains in the past year have topped 10%.

The Wall Street Journal, in a good paywall-protected story, also writes on the labor shortage and points out the inflation connection to rising wages, as well as the supply-chain problems.

Companies are holding on tightly to employees at a time when few other workers are available and prices are rising in wholesale markets facing supply constraints, both factors contributing to higher inflation.

Shortages of materials are driving up the cost of goods, while the tight labor market is pushing up wages.

And, yes, the producer price index is up today.

The Producer Price Index for final demand increased 0.5 percent in September, seasonally
adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.7
percent in August and 1.0 percent in July. (See table A.) On an unadjusted basis, the final
demand index rose 8.6 percent for the 12 months ended in September, the largest advance since
12-month data were first calculated in November 2010.

Nearly 80 percent of the September increase in the index for final demand can be traced to a 1.3-percent rise in prices for final demand goods. The index for final demand services moved up 0.2 percent.

Prices for final demand less foods, energy, and trade services moved up 0.1 percent in September after increasing 0.3 percent in August. For the 12 months ended in September, the index for final demand less foods, energy, and trade services rose 5.9 percent.

The AP writes,

Economists said that the jump in wholesale and retail prices reflected impacts of the pandemic as strong demand is running up against supply chain problems.

“The demand impact will fade further over coming months,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “But there is a risk of more persistent headwinds from broken supply chains that could keep goods prices and inflation high for longer than expected.”

Yesterday, we saw another increase in the consumer price index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in
September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all
items index increased 5.4 percent before seasonal adjustment.

The indexes for food and shelter rose in September and together contributed more
than half of the monthly all items seasonally adjusted increase. The index for
food rose 0.9 percent, with the index for food at home increasing 1.2 percent.
The energy index increased 1.3 percent, with the gasoline index rising
1.2 percent.

As the AP reports, these increases are not trivial.

Another jump in consumer prices in September sent inflation up 5.4% from where it was a year ago, matching the largest increase since 2008 as tangled global supply lines continue to create havoc.

U.S. consumer prices rose 0.4% in September from August as the costs of new cars, food, gas, and restaurant meals all jumped.

The annual increase in the consumer price index matched readings in June and July as the highest in 13 years, the Labor Department said Wednesday. Excluding the volatile food and energy categories, core inflation rose 0.2% in September and 4% compared with a year ago. Core prices hit a three-decade high of 4.5% in June.

Challenging weeks ahead.

10.4 million open jobs nationally, a drop from last month, but still too few takers.

Job openings in August fell to 10.4 million across the nation, a decline from the record setting 10.9 million posted in July. The U.S. Bureau of Labor Statistics reports,

The number of job openings declined to 10.4 million on the last business day of August following a series high in July, the U.S. Bureau of Labor Statistics reported today. Hires decreased to 6.3 million while total separations were little changed at 6.0 million. Within separations, the quits rate increased to a series high of 2.9 percent while the layoffs and discharges rate was little changed at 0.9 percent. 

Yesterday’s newsletter focused on the labor shortage and the mismatch between slow hiring and record numbers of unfilled jobs.

Bloomberg reports today’s numbers represent the first decline in job openings this year.

U.S. job openings declined in August for the first time this year — though remained near a record high — as demand for labor wavered slightly amid rising Covid-19 cases during the month.

The number of available positions eased to 10.4 million from an upwardly revised 11.1 million in July, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Tuesday. The median projection in a Bloomberg survey of economists was for 11 million openings.

The high number of voluntary quits remains a concern. Calculated Risk writes,

Quits were up 43% year-over-year to a new record high.

Bloomberg notes,

Meantime, more people voluntarily left their jobs, underscoring how wage increases, sign-on incentives and a plethora of job vacancies are fueling significant turnover. The quits rate, or the number of quits in the month as a percent of total employment, increased to a record 2.9%.

Despite the pullback in job vacancies, the still-elevated level of openings points to a persistent mismatch between labor supply and demand in the economy. Businesses ranging from manufacturers to restaurants are desperate for workers, but workforce participation remains depressed amid ongoing virus fears, choppy school reopenings and built-up savings accounts.

Washington Post columnist Karla L. Miller has more on what she calls “the great resignation.”

Another disappointing monthly jobs report: Only 194,000 jobs added in September.

The September Employment Report from the U.S. Bureau of Labor Statistics is in and, again, it disappoints. 

Total nonfarm payroll employment rose by 194,000 in September, and the unemployment rate
fell by 0.4 percentage point to 4.8 percent, the U.S. Bureau of Labor Statistics reported
today. Notable job gains occurred in leisure and hospitality, in professional and business
services, in retail trade, and in transportation and warehousing. Employment in public
education declined over the month.

The report did increase estimates for the previous two months.

The change in total nonfarm payroll employment for July was revised up by 38,000, from +1,053,000 to +1,091,000, and the change for August was revised up by 131,000, from +235,000 to +366,000. With  these revisions, employment in July and August combined is 169,000 higher than previously reported. 

Calculated Risk reports the September numbers were well below expectations.

The Associated Press writes,

The economy is showing some signs of emerging from the drag of the delta variant of the coronavirus, with confirmed new COVID-19 infections declining, restaurant traffic picking up slightly and consumers willing to spend. But new infections remained high as September began. And employers are still struggling to find workers because many people who lost jobs in the pandemic have yet to start looking again. Supply chain bottlenecks have also worsened, slowing factories, restraining homebuilders and emptying some store shelves.

The proportion of Americans who either have a job or are looking for one — known as labor participation — declined in September from 61.7% to 61.6%, well below the pre-pandemic level of 63.3%, Friday’s report said. Many economists had hoped that the reopening of schools, the expiration of federal unemployment benefits and a quickening pace of vaccinations would have led more to search for jobs. That didn’t happen last month.

Last month’s drop in labor participation was reflective entirely of women, suggesting that many working mothers are still caring for children at home. For men, labor participation was unchanged.

From The Wall Street Journal:

The figures add to evidence that fears about the virus and global supply constraints continue to hold back the economic recovery. The biggest factor behind last month’s weak payroll gain was a decline in public-sector jobs, mainly at schools. Employment in private-sector industries rose by 317,000 in September, with modest gains across several industries.

The spread this summer of the Delta variant, a particularly contagious strain of Covid-19, likely spooked would-be job seekers and impeded speedier job growth in September, despite many companies being desperate to hire, economists and business leaders say.

“Ramped up production may be necessary, but you can’t find the employees to ramp it up,” said Ann Silver, head of the local Chamber of Commerce in Reno, Nev. “We’re hearing that from every sector—hospitality and touring, healthcare, you name it. People can’t be found. Everybody’s quick to say, ‘Wow, the economy is rebounding.’ Well, it can’t without human beings.”

Right. Once again, the ADP employment report proved to be of scant predictive value.


Unemployment claims fall nationally and here in Washington.

One positive sign that the labor shortage may be improving is a decline in weekly unemployment claims. If so, then today’s unemployment reports should be seen as good news.

The state Employment Security Deportment reports a 2 percent decline in claims.

During the week of September 26 to October 2, there were 4,814 initial regular unemployment claims, down 2.0 percent from the prior week. Total claims filed by Washingtonians for all unemployment benefit categories numbered 86,615 down 10.8 percent from the prior week.  

  • Initial regular claims applications are 69 percent below weekly new claims applications for the same period last year during the pandemic.
  • The 4-week moving average for regular initial claims was 4,860, a decrease of 98 from the previous week’s 4-week moving average. During the same time in 2019, it was 5,488.
  • Decreases in layoffs in accommodation and food services and retail trade contributed to a decrease of 100 regular initial claims over the previous week.

Nationally, the U.S. Department of Labor also reported a decline in claims, the first drop in four weeks.

In the week ending October 2, the advance figure for seasonally adjusted initial claims was 326,000, a decrease of 38,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 362,000 to 364,000. The 4-week moving average was 344,000, an increase of 3,500 from the previous week’s revised average. The previous week’s average was revised up by 500 from 340,000 to 340,500.

From the Associated Press report on the DoL numbers, a more positive spin than we’ve typically seen.

The number of Americans applying for unemployment benefits fell last week, another sign that the U.S. job market and economy continue their steady recovery from last year’s coronavirus recession.

Unemployment claims fell by 38,000 to 326,000, the first drop in four weeks, the Labor Department said Thursday. Since surpassing 900,000 in early January, the weekly applications, a proxy for layoffs, had fallen more or less steadily all year. Still, they remain elevated from pre-pandemic levels: Before COVID-19 hammered the U.S. economy in March 2020, weekly claims were consistently coming in at around 220,000.

After hitting a pandemic low of 312,000 in early September, claims had risen three straight weeks, suggesting that the highly contagious delta variant was at least temporarily disrupting a recovery in jobs.

The AP acknowledges the labor shortage.

So far this year, employers have been adding 586,000 jobs a month, and this month’s employment report, due Friday, is expected to show they tacked on another 488,000 in September, according to a survey of economists by the data firm FactSet.

Companies are now complaining that they can’t find workers fast enough to fill their job openings, a record 10.9 million in July.

Those concerns, of course, have been sounded for many months.

Labor shortage seen as major problem by corporate CEOs and small business owners.

A pair of surveys shows corporate executives and small business owners share a common concern: the labor shortage threatens their business plans.

The Business Roundtable reports:

When asked to identify the most significant impediments or threats to their company’s U.S. investment, hiring and growth plans over the next year, CEOs cited continued difficulty finding and retaining qualified workers, adverse changes to U.S. corporate tax policy and slow progress in global vaccinations as their main concerns.  

The finding comes from the BR’s CEO Economic Outlook Survey, which also finds a lowering of expectations.

The overall CEO Economic Outlook Index decreased in the third quarter to a value of 114, down 2 points from Q2 2021. The three subindices were as follows:

• Plans for hiring increased 5 points to a value of 108.

• Plans for capital investment increased 2 points to a value of 108.

• Expectations for sales decreased 14 points to a value of 126.

In their fourth estimate of 2021 U.S. GDP growth, CEOs project 4.8 percent growth for the year, a 0.2 percentage point decrease from their estimate last quarter.

Similarly, today’s NFIB monthly jobs reports finds the labor shortage to be top concern for small businesses.

Fifty-one percent (seasonally adjusted) of small business owners reported job openings they could not fill in the current period, up one point from August and a record-high reading for the second consecutive month, according to NFIB’s monthly jobs report. The number of unfilled job openings continues to exceed the 48-year historical average of 22%.

“More and more small business owners are struggling to find workers for their open positions,” said NFIB Chief Economist Bill Dunkelberg. “For most small employers, labor costs are the largest operating outlay and owners will be compelled to pass those costs on to their customers by raising prices.”

A net 42% (seasonally adjusted) of owners reported raising compensation, up one point from August and a 48-year record high reading. A net 30% plan to raise compensation in the next three months, up four points from August’s record high reading.

Overall, 67% of small employers reported hiring or trying to hire in September, up one point from August. Small business owners’ plans to fill open positions remain at record high levels, with a seasonally adjusted net 26% planning to create new jobs in the next three months, down six points from August and the fifth-highest reading in the 48-year history of the survey and well above the historical average reading of a net 11%.

Calculated Risk, in a preview of tomorrow’s jobs report, reminds us of how much employment has declined during the pandemic.

…currently there are still about 5.3 million fewer jobs than in February 2020 (before the pandemic).

Perhaps with the fall sidelined workers will re-enter the job market. Outstanding opportunities exist throughout the state and national economies. 

Walla Walla U-B editorial endorses regional minimum wage, again.

With Washington’s minimum wage set to climb to $14.49 per hour in 2022, an increase of 5.8 percent, the Walla Walla Union-Bulletin editorial board offers a proposal that would address the challenges the wage presents for rural economies.

We believe the best way to determine wages should be through market forces — supply and demand — and especially allowing it to be set regionally, not at the state level.

Washington’s higher-than-average minimum wage has been mostly positive for employees, resulting in a starting wage being a fair wage.

Yet, the concern is that Washington state’s annual increase in the minimum wage — as mandated by voters with the passage of Initiative 1433 in 2016 — is putting a squeeze on employees and employers, particularly in rural areas and especially during the pandemic.

The U-B made a similar recommendation in 2019. That same year, U.S. Rep. Dan Newhouse, R-Sunnyside, also wrote in an op-ed

In Washington state, we have already seen how mandating a higher minimum wage is negatively affecting our economy. With a statewide minimum wage of $12 per hour, Washington mandates one of the highest rates in the country, and it will increase by another $1.50 in January 2020. In an attempt to address wage disparity in large cities like Seattle, which already institutes a $15 minimum wage, this sharp, mandatory increase has led to businesses filing bankruptcy, and it is already having a harmful effect on small businesses and nonprofits in Central Washington.

This year, the editorial says,

Regionalizing minimum wage is not a new concept. We need only look to Oregon to see it in practice.

Exactly what the difference in the minimum wage should be for the various regions of Washington state is not clear, but the basic concept is sound.

The overall wages for those living in urban areas are higher — often much higher — than they are in Walla Walla, Dayton, Richland, Pasco and Kennewick for work that is similar. Employers must pay that much more to attract qualified people because of the cost of living.

The minimum wage should work the same way. It should be based on the cost of living for the area.

It’s an idea worth investigating. The Washington Research Council also looks at the minimum wage, pointing out,

Washington’s current minimum wage is the highest state minimum wage in the country. It will likely keep that title next year. Some cities have higher minimum wages, including Seattle and SeaTac. Neither has yet announced their minimum wages for 2022. In 2021, SeaTac’s minimum wage for hospitality and transportation industry employees is $16.57 per hour (it will increase by inflation next year). In 2021, Seattle’s minimum wage is $15.00 or $16.69 per hour, depending on the size of the employer and whether employees receive medical benefits or tips. Under Seattle’s ordinance, the minimum for small employers who pay towards medical benefits or whose employees earn tips will increase to $15.75 per hour in 2022. The minimum for other employers will be $16.69 increased by inflation.

Clearly, there’s already regional variation, but only, it appears, on an upward ratchet. The argument for an adjustment for lower living costs in rural communities is compelling. 

ADP reports 568,000 private sector jobs added in September, well above projections.

Payroll processor ADP reports the private sector added 568,000 jobs in September

Private sector employment increased by 568,000 jobs from August to September according to the September ADP® National Employment ReportTM. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by the ADP Research Institute® in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual data of those who are on a company’s payroll, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.

The pandemic remains heavily involved in the recovery, but ADP is bullish.

“The labor market recovery continues to make progress despite a marked slowdown from the 748,000 job pace in the second quarter,” said Nela Richardson, chief economist, ADP. “Leisure and hospitality remains one of the biggest beneficiaries to the recovery, yet hiring is still heavily impacted by the trajectory of the pandemic, especially for small firms. Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”

The segment of the ADP infographic we’ve pasted in above shows most of the job growth is in large companies and in the services sector. Last month, remember, ADP reported a disappointing 374,000 new jobs. That report preceded the Department of Labor’s dismal jobs report for August, which showed just 235,000 new jobs.

Calculated Risk writes of the ADP numbers.

This was well above the consensus forecast of 430,000 for this report.

The BLS report will be released Friday, and the consensus is for 460 thousand non-farm payroll jobs added in September. The ADP report has not been very useful in predicting the BLS report.

Let’s hope that this time the strong ADO numbers presage a similarly strong BLS report.