The Great Debate

No quotas for women on corporate boards

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Although women moved into the workforce in great numbers in the 1980s, they still have to catch up to men in terms of leadership positions in corporate America. The New York human resources firm Catalyst found that women hold 16.9 percent of officer positions in American corporations, and only 11 percent of senior leadership line roles.

The question is, why are there so few women corporate board members? Those who have a proclivity to assume sex discrimination might fear the worst. Others might simply assume that relatively few qualified women were available for board slots, or that boards with women performed poorly in the marketplace.

Earlier this month the London School of Economics released a new study showing that publicly-traded companies with more women on the boards of directors do better in terms of firm management but worse in terms of economic performance. The study, entitled Women in the Boardroom and Their Impact on Governance and Performance, was just published in the Journal of Financial Economics.

The authors, economists Renee Adams of the University of Queensland, Australia, and Daniel Ferreira, of the London School of Economics, conclude that additional women improve the governance of the firm. Female board members were more likely to be assigned to audit, nominating, and corporate governance committees and they had higher attendance at board meetings. Chief executive officers of companies with female directors are held to a higher standard of accountability.

Surprisingly, the authors claim to have statistical results that reveal precisely this politically incorrect result: firms with women on board have lower return on assets than firms without women board members. The firms are less profitable and have lower financial performance.

If that result seems counter-intuitive, you may be correct. The statistical results presented by the authors are not robust to changes in specification, and many of the key estimated parameters are not significantly different from zero. Even more troubling, some of the statistical techniques employed appear to be poorly chosen.

Are women paid less than men?

— Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

One of the concerns of working women is the “pay gap” – the alleged payment to women of 78 cents for every dollar earned by a man.  But there are more behind these numbers than first meets the eye, because women work different hours, major in different subjects, and choose different careers.

The 78 percent figure comes from comparing the 2007 full-time median annual earnings of women with men, the latest year available from the Census Bureau.  The 2007 Department of Labor data show that women’s full-time median weekly earnings are 80 percent of men’s.

Just comparing men and women who work 40 hours weekly, without accounting for differences in jobs, training, or time in the labor force, yields a ratio of 87.2 percent, with a smaller pay gap.

These wage ratios are calculated from government data and do not take into account differences in education, job title and responsibility, regional labor markets, work experience, occupation, and time in the workforce.  When economic studies include these major determinants of income, rather than simple averages of all men and women’s salaries, the pay gap shrinks even more.

A report by Jody Feder and Linda Levine of the Congressional Research Service entitled “Pay Equity Legislation in the 110th Congress,” declared that “Although these disparities between seemingly comparable men and women sometimes are taken as proof of sex-based wage inequities, the data have not been adjusted to reflect gender differences in all characteristics that can legitimately affect relative wages (e.g. college major or uninterrupted years of employment).”

Many academic studies of gender discrimination focus on the measurement of the wage gap.  Dozens of studies have been published in academic journals over the past two decades.  These studies attempt to measure the contributing effects of all the factors that could plausibly explain the wage gap.  The remaining portion of the wage gap that cannot be explained by measurable variables is frequently termed “discrimination.”

Reduce the high cost of medical malpractice

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

The next time you take your child to a doctor, scrutinize carefully the doctor’s bill.  What it won’t tell you is that an average of 10 cents out of every dollar you pay goes to the malpractice insurance doctors must have to protect themselves in case a patient sues them.

Malpractice premiums cost some doctors many tens of thousands of dollars a year, not because an individual doctor has a history of making mistakes, but because in some states juries make excessively generous awards knowing that insurance companies pay.

Medical specialties with the highest premiums include obstetrics and neurosurgery.  Malpractice insurance premiums for obstetricians range from $200,000 per year in high-cost states to $20,000 annually in low-cost states.  Resolving a suit takes at least three years, taking physicians’ time away from the practice of medicine.

According to Towers Perrin, a global professional services firm, malpractice litigation costs $30 billion a year, and, since 1975, direct costs of litigation avoidance have grown at more than 10 percent annually.

But that’s less than half the story. To avoid being sued, doctors view patients with two sets of eyes.  One set is the caring, compassionate, medical professional.  The other set is a defensive strategist, looking at an individual who tomorrow may call a lawyer to sue.  And, to be fair, sometimes doctors make avoidable, even negligent mistakes and injured patients are entitled to be compensated for their losses, and perhaps for some pain and suffering.

The defensive strategist dominates medical practice today.  Doctors use excessive tests and other procedures to avoid lawsuits, and stay out of certain areas of medicine—most notably obstetrics.  The net result is higher costs for medical care.

Is America ready for single payer healthcare?

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

President Barack Obama has repeatedly said “First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.”

But America’s Affordable Health Choices Act of 2009, the bill under discussion in the House of Representatives, would result in the demise of private health insurance in America.

The 1,018-page bill would result in unprecedented regulation of America’s health sector. Among other provisions, it includes an 8 percent tax on employers who do not offer health insurance to employees, a mandate for everyone to have insurance, and requirements on whom insurers must cover, what benefits must be provided, the extent of variation in premiums, and how much profit is permitted—with excess profits returned to enrollees.

This would solidify government control of all health care in America, force most private insurance companies out of business, and lead to a single payer health system, like Britain or France.

The bill’s focus is to drive people to the new public health-care plan or to Medicaid, the federal-state plan for low-income people. It would motivate many employers to drop insurance and pay the 8 percent tax, effectively steering employees to the new public plan.

The bill would create a new Health Insurance Exchange, where “qualified health benefit plans” are allowed to advertise their health insurance plans to individuals and firms. Only qualified health benefit plans are permitted to participate. In order to achieve the status of a qualified plan, an insurance company has to offer a certain package of benefits, meet guidelines on who can sign up, and agree to limits on profitability. It is unlikely that insurance companies can meet these requirements and stay in business.

Gender equality: From sports to math and science

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

The Obama administration is considering a proposal to use federal regulations to expand women’s participation beyond college athletics to the selection of courses, especially in mathematics, science and engineering.

The proposal to apply so-called Title IX gender-equality to selection of courses and majors was discussed at a White House conference on June 23, and endorsed by Valerie Jarrett, senior adviser and assistant to the president, and Russlynn Ali, assistant secretary of education for civil rights.

Title IX, passed in 1972 as an amendment to the 1964 Civil Rights Act, has been interpreted to mean that universities which accept federal funds cannot have more male athletes than female, even though more men than women generally want to play sports. Hence, many collegiate men have not been able to participate in intercollegiate athletics, and men’s sports teams have been terminated all over the country.

Title IX was intended to protect against sex discrimination, but not to allow the use of quotas. Indeed, it specifically prohibited arbitrary leveling of student numbers by gender. Yet the courts have required universities to adopt a proportionality standard for college sports if they wished to avoid lawsuits. If 52 percent of the students are female, then 52 percent of sports slots have to go to women.

In a telephone conversation yesterday Ali told me that although the administration will extend Title IX to math and science, it does not intend to argue for proportionality. Instead, the administration will make sure that secondary schools and universities do not discriminate against girls and women when it comes to selection of courses and majors, citing anecdotal evidence that some girls and women are counseled against taking courses in math and science.

Since Title IX is already law, congressional approval is unnecessary. The new initiative will not require new formal regulations, just a change in enforcement.

Getting a summer job: Entrepreneurship for teens

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

It’s July, teen unemployment has risen to 24 percent, and you—or your teenage children—still don’t have a summer job. This is a peculiarly American problem.

In Nepal, according to Hudson Institute research assistant and Nepalese citizen Astha Strestha, “teens just hang around all summer and spend their parents’ money.”

In France, summer vacations are shorter, only 6 weeks, and teens try to stay with relatives outside the city.

In America, summer vacation lasts the better part of three months, and teens work either to earn spending money, contribute to college tuition payments, or simply because they think that they should have a job.

These days summer jobs are less plentiful due to the economy and to increases in the minimum wage.

It’s easier to be employable at a wage of $5.15, the 2006 minimum, than to find someone to hire you at $7.25, the new federal minimum effective on July 24. But just because no one has hired you, it doesn’t mean that you can’t earn money. You can start your own business. If it grows, you can employ friends and siblings, and perhaps keep it going for the rest of the year.

What will the climate change bill do to your job?

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Next Thursday, just in time for the July 4 holiday weekend, America’s unemployment rate is forecast to rise from 9.4 percent to 9.6 percent, well above rates in other industrialized countries.

Yet today the House of Representatives is rushing to pass the American Clean Energy and Security Act of 2009, even though the bill was incomplete yesterday and congressmen have not yet had the opportunity to analyze it. The bill would send America’s unemployment rate even higher.

The 1,200-page bill, cosponsored by Henry Waxman, Chairman of the House Energy and Commerce Committee, and Edward Markey, Chairman of the House Energy and Environment Subcommittee, would increase the price of energy by setting allowances for greenhouse gas emissions and mandating new standards for energy production and use.  The bill would raise $846.6 billion over 10 years while adding $821.2 billion to federal spending.

The bill requires that greenhouse gas emissions in 2012 do not exceed 97 percent of 2005 emissions, declining to 17 percent of 2005 emissions by 2050.  Meeting these standards now is technologically impossible without radically reducing our standards of living, but Congress is hoping that technology will magically appear as needed.

The mechanism for this is a “cap-and-trade” program under which allowances to emit greenhouse gases would be issued by the Environmental Protection Agency at a steadily declining rate through 2050.  When emissions exceed a firm’s allowance, or cap, it would have to purchase allowances from the government or other firms, a tax under another name, driving up costs that would be passed on to consumers.

Electric utilities have been given free allowances to encourage them to support the bill.  Oil and gas would be particularly hard hit, because they are responsible for 35 percent of emissions yet are allocated only three percent of the free allowances.

Starting a trade war with “Buy America”

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

When Congress inserted “Buy America” protectionist provisions that required some goods (such as steel, cement, and textiles) financed by the stimulus bill to be made in America, our government invited a trade war with important economic partners.  Now China and Canada are imposing their own protectionist regulations, potentially destroying well-paid American jobs in the export sector.  Other countries may follow suit.

This week China reported that the government now requires stimulus projects to use domestic suppliers when possible, even though in February it promised to treat foreign companies equally.  The Chinese $585 billion stimulus package has resulted in a World Bank growth forecast of 7.2% for China this year, far above other industrialized countries.

And on June 6 the delegates at the Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, [to] procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”

The tragic losers of “Buy America” are free trade agreements and potential job growth in the American economy. Seductively, “Buy America” promises workers they can have it all — cheap goods from China, oil from Canada, as well as protection from global competition. But real life just doesn’t work that way.  In reality, “Buy America” is shorthand for fewer jobs as other countries retaliate.

Many markets no longer have national boundaries but global reaches. America sits at the center of global markets for technology, equipment manufacturing, finance, banking, fashion, and advertising — to name but a few. When international markets expand, America grows. When barriers are erected to trade, jobs — and also wages —shrink.

A better way to fund roads

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Just as motorists began the summer driving season, U.S. Department of Transportation Secretary Ray LaHood told Congress that the Highway Trust Fund will run out of money by August.   Rising gasoline prices and the recession mean less driving, and less driving means lower revenues from gasoline taxes for the Highway Trust Fund.

At the same time, President Obama wants to spend $13 billion as a downpayment on high-speed rail, an expensive form of transportation that will reach only small segments of the country and that will not substitute for highways.  The money would be better spent on developing a more stable  source of revenue for highways, based on miles driven rather than gasoline used, that would help to reduce traffic congestion and greenhouse gas emissions.

When the Highway Trust Fund ran out of money in 2008, Congress transferred $8 billion to the fund from general revenues as a repayment from 1998, when the fund was in surplus, and $8 billion was moved into general spending.  This year, if Congress transfers money, it would be a direct expenditure, with no fig leaf. Without a transfer, work on many projects would stop or slow down.

The federal government financed the interstate highway system by means of a fuel tax because that was the best method available. Legislation passed in 1956 provided that, on completion, the federal tax would be repealed and funding restored to the states. The highway system is now complete, so there is no rationale for continuing federal involvement in financing state roads.

The $13 billion allocated for high-speed rail would be better spent to encourage the states to adopt a new way of charging for road use.  Driving is the primary method of transportation for Americans. They own about 235 million registered passenger cars, vans, pickup trucks and sport utility vehicles, and drive over 2.5 trillion miles a year.

Mechanisms for improving road finance were addressed earlier this year in a pathbreaking bipartisan report by the National Surface Transportation Infrastructure Financing Commission entitled Paying Our Way: A New Framework for Transportation Finance.

The health insurance reform stakes begin

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Health reform season kicked off this week with a meeting between President Obama and 24 Senate Democrats at the White House in preparation for congressional hearings and debate on health care in the weeks ahead.

Obama declared: “So we can’t afford to put this off, and the dedicated public servants who are gathered here today understand that and they are ready to get going, and this window between now and the August recess I think is going to be the make-or-break period. ”

At issue is how best to use the $250 billion plus pot of money that could result from taxing the value of employer-provided health insurance. Currently, health insurance provided by the employer to workers is free of income tax. When Senator McCain suggested eliminating tax-free employer-provided health insurance and replacing it with an individual tax credit to be used for health insurance purchases from any company, Obama accused him of raising taxes.

Now, according to Senate Finance Committee Chairman Max Baucus, one of the attendees at the White House meeting, President Obama is open to ending the tax break—without substituting an alternative individual tax credit—in order to finance health care reform. Removal of the tax exclusion would break Obama’s campaign promise not to raise taxes on Americans making less than $250,000 per year.

The tax benefit for employer-provided health insurance has prevented the development of a private health insurance market and tied Americans to their jobs for fear of losing coverage. No one complains that losing a job will mean termination of auto or home insurance, because these policies are purchased independently of employment and numerous companies compete to offer the best deals.

The additional $250 billion a year—as estimated by the nonpartisan Congressional Budget Office—could be a substantial downpayment to the $634 billion that President Obama’s budget sets aside for health care reform.