Real Estate, The Economy, and News: Local News

Showing posts with label Local News. Show all posts

Friday, May 29, 2015

Potential Issues Caused by Inflation Indexing

5/29/15 - The national minimum wage was first created by Congress in 1938, under the Fair Labor Standards Act (FLSA). It was developed to protect workers and ensure that they receive some standard level of pay for their hourly labor. The FLSA banned child labor, set a maximum workweek of 44 hours, and made the minimum rate of pay 25 cents per hour. As inflation has made prices for everything else increase, the minimum wage has increased as well, to its current $7.25 per hour. Many states, however, have their own minimum wages, with some as high as $9 or $10 per hour. In a very controversial decision among business owners and economists, the Los Angeles City Council recently started drafting a plan that would raise the minimum wage annually, raising it to $15 by 2020 and even higher in years to come. Tiffany Hsu and Andrew Khouri, in their LA Times article, address the debate over the wage increase, describing the points made on both sides of the argument.

Raising the minimum wage has always been a difficult undertaking. Through this plan, the minimum wage would go up automatically in response to inflation, which would benefit workers. Unfortunately, inflation also makes rent increase, which will make it more difficult for entrepreneurs, especially owners of small businesses, to be able to afford the higher wages. This would force them to either raise prices or lay off workers. However, prices can only go so high before consumers go elsewhere to make their purchases. This will affect the small businesses most drastically since larger businesses have more flexibility to lower prices without losing as much profit. This competition could potentially lead to a clearing of the market, forcing small businesses out.

This procedure, called inflation indexing, seems to be working well for the twenty-or-so localities with their own wage policies, according to UC Berkeley's Institute for Research on Labor and Employment. Inflation indexing allows the wage to respond directly to increases in the cost of living, without the need for intervention by policy-makers. In an ideal sense, indexing would increase the wage in a gradual manner, rather than shocking the system with large spikes. Int his way, businesses could adjust more easily to changing costs and respond accordingly. Still, consumers and business owners are wary.

Richard LoGuercio, the owner of Town & Country Event Rentals, would only have to raise wages for about 100 of his 430 workers under this policy. However, he fears that he will have to raise wages across the board to keep everyone happy. If minimum-wage laborers are receiving $15 or more per hour, everyone else will want to be paid more for their contributions to the business. As wages increase for the lowest-paid level in a company, wages in the higher levels will likely increase proportionally, which would force price increases and contribute to inflation. Thus, raising the minimum wage continuously in response to inflation could turn into an endless cycle of wage increases.

All in all, the major effects of the minimum wage increase will come down to the actions of consumers. Businesses could lay off workers in response to their increasing costs, but in the end, they will have to raise their prices. Consumers are only willing to spend so much before they decide that a product just isn't worth it. So, as long as consumers are willing to spend a few extra dollars per product, the effects of the wage increases may not be so bad.

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Tuesday, May 19, 2015

Major Theater Chains Face Investigations Into Anti-Trust Violations

4/17/15 - Competition is a necessary part of economics. Without competition, a company or group of companies could gain control of a market and charge outrageous prices for goods and services, against which consumers may have no recourse. When competitors arise, such companies are forced to lower prices since consumers will be able to choose. As supply increases, prices must decrease, or the companies risk allowing demand to decrease.

A monopoly is when a single company gains complete control of a market or commodity. A cartel is when a group of companies have control over the market and agree among themselves on what prices to set. A trust is a group of companies that work together to force other, usually smaller, companies out of the market. Each of these is regulated by the federal government and is prevented as much as possible, so as to allow smaller companies the ability to be economically competitive. In his article, Richard Verrier looks into recent investigations into anti-trust violations by several major movie theater chains like AMC, Regal, and Cinemark.

Many complaints and lawsuits have been filed over the years by owners of smaller theaters, who claim that the major theaters have been involved in a practice called “clearance,” in which the smaller theaters are prevented from playing newly released movies. Is this practice considered a violation of anti-trust laws, though? While a Supreme Court decision in 1948 required that movie studios give up ownership in movie theaters, larger theaters still have the financial clout necessary to have some control over where popular movies will be played first.

Thus, the Department of Justice's anti-trust division has been spurred into action in an attempt to determine if clearances are against federal law. To the large chains, it's simply a matter of economic reasoning. The film studios have the supply, and the movie theaters have the demand. If a company like AMC wants a specific movie from the studio, it will effectively be providing more revenue to the studio, because the purchase of the film will involve hundreds of theaters across the country, while the purchase by a small company like IPic Entertainment will only involve a dozen or so. The studio will be more willing to give in to AMC's requests, because AMC provides more business.

With the Department of Justice on the case, we can assume that the matter will eventually be settled. The conclusion of this argument, however, could mean big things for small businesses. If the DoJ concludes that the major theater companies are not breaking any laws, then the small companies will be at a distinct disadvantage. If the DoJ rules that the major companies are breaking anti-trust laws through the use of clearances, then governmental entities may get more involved in economic issues that are out of their jurisdiction. What will it come down to: the natural order of economics, or the imposed order of government regulation?

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Labor Force Participation Rates Declining

12/19/14 - To the average observer, it would appear that California’s economy is steadily recovering. Unemployment rates are down, and new jobs are being introduced at a constant pace. Yet, in Tiffany Hsu’s L.A. Times article, it is revealed that the labor force is much smaller than it may seem.

Unemployment rates are measured based on the number of people receiving unemployment benefits from the government, not necessarily based on the number of people actually without work. Once someone has given up and stopped looking for work altogether, they are no longer considered “unemployed,” since they no longer qualify for unemployment benefits. So, “unemployment rates” tend to be quite misleading.

According to Hsu’s sources, the more accurate measurement of the labor force’s stability is the “labor force participation rate” – the number of people working or actively looking for work in proportion to the number of working-age individuals in the population. This, compared to the “unemployment rate” is more accurate in that it takes into account individuals who have given up on finding employment. The currently falling labor force participation rate has dramatic implications on the state of the economy.

A drop in the participation rate could mean that the jobs available are not the jobs people need. For many with college degrees and experience in well-paying fields, a plethora of jobs in the fast food industry means very little. Even for those who are willing to “lower their standards” and accept jobs for which they are “overqualified,” like a barista or salesperson, such positions have so much competition that the odds of gaining employment are slight. In the end, many individuals simply prefer to stay unemployed rather than risk losing such government benefits as Supplemental Security Income or Social Security Disability Insurance.

No matter what the reason, a decrease in the participation rate can’t be a good thing. With more seniors continuing to work well into their sixties and seventies, and new graduates looking for work straight out of school, only so many positions are available to recently laid-off workers. If higher-paying positions are unavailable in California, job-seekers will look elsewhere for employment, and that can have consequences.

While a decline in unemployment rates may seem like a positive sign, Hsu shows why this positive impact is limited. Statistics are misleading, but the bottom line is this: we need to get people back into the labor force. The state has been creating new jobs, but mainly in lower-paying fields. Workers, especially those with college degrees, want to work in jobs “worthy” of their skills. Thus, to bring the workers back in, the creation of better jobs must be a priority.

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Low-Paying Jobs Filling the Southland

12/5/14 - According to recent data, job creation in the Southland has steadily been making its way back to higher levels. However, this data can be misleading. While new jobs are being created, thus allowing more unemployed workers back into the labor force, most of these jobs are in food service and retail sales. Such low-paying jobs, while better than nothing, don't provide the kind of increased domestic productivity that our economy so desperately needs. In his L.A. Times article, Chris Kirkham looks into the effects that this trend may have on the ongoing economic recovery.

Kirkham's sources point to two possibilities for this trend: 1) a decrease in the availability of jobs in higher-paying industries; or the more likely option 2) a lack of individuals with advanced education forces such industries to look elsewhere for employees. As Kirkham points out, many of the industries that once provided the opportunity to advance, manufacturing and construction in particular, have gone through changes that allow for a decrease in the amount of necessary employees. New technology, while helpful to society as a whole, removes the necessity of several positions in the industries, thus lessening the availability of such industrial jobs.

More than just the influx of new technology, though, is the fact that most higher-paying jobs require that those holding the jobs have some form of higher education. The bare minimum for these positions is usually a bachelor's degree, but some require further knowledge as gained in graduate school or beyond. The main problem, it seems, is that only 30% of workers in the Southland, compared to over 40% in the Bay Area, have a bachelor's degree, and that just isn't enough to fill the growing need for skilled employees. Without workers to fill these positions, many companies are forced to move elsewhere to find employees.

With a trend toward lower-paying jobs comes a marked decrease in median household income. Just as the Southland has more individuals lacking college degrees, nearly 18% of families in Southern California fall below the poverty line, a dramatic difference from the Bay Area's 11%. According to experts, the way to boost income levels in the Southland is to get more of the population into post-secondary schooling options.

A variety of high-paying jobs are indeed available in Southern California. From healthcare to construction, and everything in between, there are plenty of job opportunities for those with the necessary skills. All we need now is for people to gain those skills.

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Hands-Free Phone Systems Pose Distractions

11/7/14 - A hands-free phone system for use while driving became a required accessory under California state law, in the hope that a lack of physical distraction would reduce the general distraction of a driver and thus prevent accidents from occurring as frequently. While such hands-free systems do, for the most part, prevent drivers from needing to take their hands off of the steering wheel, a recent study performed by the American Automobile Association and the University of Utah provides compelling evidence that the complicated and error-prone systems may actually cause more distraction than they prevent. Jerry Hirsch, in his L.A. Times article, summarizes the results of this study and theorizes as to how such systems could be made more safe.

The study tested cognitive distraction, focusing on the mental strain of such systems as compared to simply the physical or visual distraction that any phone system could bring about. If one is thinking about too much, one tends to block out seemingly “irrelevant” stimuli, which can slow down one's reaction time and thus lead to a car accident. In much the same way, frustration at a voice-controlled system's mistakes or confusion related to the many features of such systems can lead to more distraction than even taking one's eyes off of the road. This, of course, does not imply that one should be using hand-held phone systems while driving either.

As the study concludes, no matter what kind of hands-free phone system one's car may have, the only real way to avoid distraction and be safe while driving is to avoid cell phone use entirely. To reduce distractions caused by hands-free phone systems, one should make sure that they fully understand how to use the system before trying to use it while actually driving. While Hirsch does quote sources that claim that the study shows little about the relationship between phone systems and distracted driving, most of his data shows that distracted driving is dangerous driving. Any distraction, no matter how slight, can have a drastic impact.

From errors in voice recognition to overly-complex programs, hands-free phone systems can be quite distracting. However, research shows that this doesn't have to be so. Manufacturers could, in future years, develop simpler, and thus safer, hands-free systems to prevent distractions while driving. Any form of distraction, whether physical, visual, or mental, reduces general safety, and due to this, it is always safer to just ignore one's phone while driving.

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Using Economic Principles to Reduce Water Shortages

10/15/14 - Economics is all about supply and demand, cost and benefit analysis. Yet, when it comes to water, one of the world's most necessary goods, government subsidies and and reduced costs lead to people treating this resource as if it has an unlimited supply. In his article in the New York Times, Eduardo Porter discusses how treating water as a commodity could reduce the effects of the drought nationwide.

As with any product in a healthy economy, as price goes up, demand goes down, and as price goes down, demand goes up. Across the United States, water prices are very low. These low costs, combined with a high personal benefit, lead people to purchase more water, and thus consume more. It's one thing to ask nicely for people to reduce their water consumption, but a higher cost would be a more successful deterrent for many consumers.

The scarcity of water is not going to change. No matter how many icebergs are towed to land for human consumption, no matter how many desalination plants are built, we have a limited amount of water in the world. Water costs around the country are commonly reduced to a point at which water companies would be losing money if the government wasn't providing subsidy funds. But that isn't how it should be. If water cost more, people would be more careful about leaving a faucet running while doing dishes, or would think twice before deciding to drain and refill a swimming pool.

While many homes, even in the middle of a drought, pay a flat fee for their water usage each month, there are a few places, Irvine Ranch for example, that charge more money per unit of water as the number of units increases. Some states require the purchase of already-existing water rights from an owner of such rights before beginning a new building construction. In that way, only a specific number of people can own water rights at any given time.

According to Porter, farmers are the worst cause of water shortage in America, accounting for about 80% of the total national consumption at a fraction of the price of most consumers. Due the government's reduction of water prices for farmers, such farmers commonly perform “flood irrigation,” a process by which the entire field is flooded with water, in which much of the water goes to waste. While the actual, unsubsidized cost of an acre-foot of water might be $2000 and the sale price of an acre-foot of alfalfa that uses this water would be $920, which makes no sense economically, this is the way water is being used currently. If farmers were to be charged the actual cost of the water, they would realize that the benefit doesn't outweigh the cost.

Water is a necessity, but it is also a good. If prices are raised, if water is is treated economically, then people will be forced to reduce water use. In general, people understand cost-benefit analysis; we perform it on a daily basis. If wasteful usage of water were to lead to higher costs, then people would stop wasting it. While everyone likes low water costs and would likely be upset if those were to end, increased prices and reduced subsidies may be the only way for us to scale down the negative effects of this drought and any others in our future.

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Los Angeles: A Leader in Technology

10/8/14 - When many people think about the relationship between California and technology, Silicon Valley tends to be the first connection to jump into their minds. Santa Clara County, home to Silicon Valley, does indeed have plenty of technology-based jobs, but is it really Number One? According to Tim Logan's article in the L.A. Times, the real leader, at least in sheer numbers, is Los Angeles County.

A study performed by Los Angeles County Economic Development Corporation produced results showing that L.A. has over 368,000 jobs in the technology sector, more than both Santa Clara's 313,000 and Boston's 361,000. While Los Angeles was once a powerhouse for careers in entertainment, jobs involving technology, including aerospace, architecture, engineering, and software design, have become much more common in the Los Angeles of today.

Not only is the number of jobs in technology growing; the pay rate for these careers is on the rise as well. Jobs in the high tech industry can pay approximately $87,000 per year, a difference of over $30,000 compared to the lower-paying jobs in non-technological industries. As Logan's article states, while 9% of the country's jobs are in high-tech industries, 17% of all wages in the country go to those employees in such industries.

In summation, Los Angeles is in the midst of a technological boom. With the push for faster production, in a world of instant gratification, technology is the way of the future. As people need the creation of newer innovations, high-tech industries will continue to grow. With the evolution of newer technologies and better jobs, this trend may, in the long run, have a dramatic effect on the economy as a whole, not just for those individuals in the high-tech industries.

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Buying vs. Renting: Pros and Cons

9/19/14 - Prior to the Great Recession, the question of buying versus renting was never really an issue at all. If you could get a mortgage, then buying was the best way to go. Even after the housing market crash, there was still plenty of interest in buying rather than renting. If people had some money to do it, then buying was generally their course of action. However, with real estate prices, especially in Southern California, on the rise, and very few “bargain homes” available, potential buyers are being much more careful in deciding whether they really want to enter the market. In a Los Angeles Times article, Tim Logan discusses the potential positive and negative aspects of either buying or renting.

The decision is a hard one for many. Yes, the housing prices have gone up dramatically, but the interest rates on mortgages are lower than they have been in years. Renting makes it easier to pick up and leave, but owning a home has a huge payoff in the long term. According to Logan, a survey of renters showed that most do plan to buy, but are unsure as to how soon. Furthermore, some statistics presented by Logan show that, over the span of seven years, buying can cost you over 20% more money than renting.

The prices of homes are not the only thing deterring potential buyers. It's all about location, location, location. In some areas in Southern California (Lancaster, San Bernardino, etc.), foreclosures make the monthly mortgage payments lower than average rent payments. In other areas (San Marino, Newport Beach, etc.), the return of seven-figure price tags make rent much more affordable than mortgage. Besides the costs of homes and apartments in certain areas, differences in construction choices can limit a home-hunter's options. For example, some areas are busy building new apartment buildings, while others are designing condos and houses. If there are very few houses available in your area, then buying might not be an option. According to Logan's sources, new construction has been mostly for rental properties, likely due to developers' fears of another housing crash.

Apparently, members of the younger generation are statistically more likely to want to rent, not yet willing to “tie themselves down” to something like home ownership. However, even “prime” first-time buyers (married, early 30s, income of at least $95,000) have lately become hesitant toward buying property. Logan's sources claim that this hesitation is due to the housing crash. These first-time buyers witnessed the colossal blow that the recession made on their parents' financial situation, and are leery as to how good of an investment home ownership really is.

As Logan states, this hesitation can be a good thing, preventing buyers from jumping into the realm of home-ownership without the necessary means to make their monthly payments. By making sure that they know what they are getting into, this new, more realistic, outlook of buyers will hopefully prevent another crash in the near future.

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Downtown Properties Undergoing Revitalization

8/29/14 - Over the last several years, many of downtown Los Angeles' old buildings have been revitalized by investors looking to breathe some life back into the surrounding community, to produce better job opportunities as well as new shops, apartments, and restaurants. One of the largest of such projects to be undertaken involves the former May Co. department store on Broadway, more well known as the “Broadway Trade Center.” A recent article by Roger Vincent of the L.A. Times discusses the implications that this renovation may have on continued development of the downtown area.

Seemingly following the same approach used on New York's Chelsea Market, these investors are looking to bring the old, run-down building back to its former glory. The renovation of such a large building could provide space for new apartments, office buildings, shops, and markets, all of which could be put to good use in the populous downtown area.

With over 1 million square feet of space to fill, Waterbridge Capital and real estate developer Jack Jangana, who acquired the six-story building for about $130 million, are looking for tenants in the realm of technology. While they may also want to devote the first few floors to retail uses, such as restaurants and stores, the rental of upstairs space to a major technology company could draw in “creative” jobs historically present mainly in the Santa Monica and Hollywood areas.

Such introduction of creative and technology-based companies could lead to the addition of new, well-paying jobs to an area currently being filled with new homes and restaurants. According to Vincent, even the addition of technology companies to the Broadway Trade Center may not be enough to fill its enormous potential. Such other possibilities include a grocery store, roof garden, or post office, among a plethora of other ways to fill retail space in the massive building. While it may take as long as 24 months for planned renovations to be completed, this project by New York investors holds great potential to benefit downtown Los Angeles and the surrounding community.

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Rush Hour: A Thing of the Past?

8/4/14 - Don't you hate sitting in rush hour traffic on the 405 and 101 freeways, spending hours a week staring at brake lights and bumpers? Wouldn't life be so much easier if there were a bus or train able to bypass all of that congestion? Up until recently, the San Fernando Valley was a “no fly zone” when it came to light rails, a form of public transportation designed in a such a way that, since it has its own system of rails, it doesn't have to deal with the gridlock on surrounding freeways. An article by Laura Nelson of the L.A. Times discusses Governor Jerry Brown's reversal of a bill that, since the early 1990s, has prevented the development of a light rail in the San Fernando Valley.

Although Brown's signature has overturned the so-called “Robbins Bill,” Nelson states that this is only the first step on a long road to the development of a Valley light rail. The Valley, which contains only two of Los Angeles' 80 commuter rail stations, needs something more than buses to lessen traffic and convince drivers to choose more environmentally-friendly transportation options. According to this article, officials are looking into the costs and level of difficulty that would be present in attempting to connect the Valley's already existing Orange Line bus system, which is very similar to a “light rail” with the Red Line and Gold Line of other areas.

The possibility of a light rail, while exciting, is also not likely to bear fruit for quite a while. For such an immense project to be undertaken, according to Nelson, over half of Metro's directors would need to agree to the request for a light rail. While the Orange Line was a clever way to get around the restrictions against light rails, its use of a separate road and avoidance of traffic congestion has attracted so many new customers that it is seen by many as “overcrowded and inefficient.”

A light rail, while beneficial to its users, could also have a dramatic impact on drivers of the 405 and 101 freeways. With a high speed, zero congestion transportation option available, many commuters may choose public transportation, thus reducing gridlock on the freeways. The light rail, now a possibility, may still take years to approve, and years more to develop. Thus, the best option at present, especially for those living in the San Fernando Valley, seems to be such transportation options as the Orange Line, which is about as close as we will get to a light rail at the moment.

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