– 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.

The authors used data from 1996 to 2003 collected by the Investor Responsibility Research Center, a group that funds research on corporate governance, and ExecuComp, a database that tracks compensation of the top five directors in S&P 500, S&P 400 MidCap and S&P SmallCap 600 indexes. The sample contained data on 1,939 firms and, within these, 86,714 directorships.

On average, these firms had slightly more than 9 board members each, but 39 percent of the annual observations are firms with no women. Moreover, 40 percent of observations were firms with only one woman on the board. Thus, fully 79 percent of the observations are firms with boards with either one or no women on the board. On average, fewer than 10 percent of all directors are women.

Professor Ferreira explained his results this way in a press release issued by LSE, ”Our research shows that women directors are doing their jobs very well. But a tough board, with more monitoring, may not always be a good thing. Indeed we see that increased monitoring can be counter-productive in well-governed companies.”

He continued, “When you meddle in boards there may be unintended consequences. This is particularly important to bear in mind in the current context when companies are under increasing pressure to change the composition of their boards.”

As the global economy struggles to recover from the recession, this conclusion is worth bearing in mind. Women will only be harmed if it is perceived that they have gained their directorships through a system of quotas. Rather, they need to make sure that they put in the hours of work and go for the tough negotiating strategy so that they move to the top on their own and gain board seats on their own merit.

— 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.”

Generally, the more information about women that is included in the analysis, the more of the wage gap that can be explained, and the less is the residual portion attributable to “discrimination.”  An analysis that omits relevant information finds a greater unexplained residual, and concludes that there is more discrimination.

Simple wage ratios do not take into account other determinants of income.  A female nurse might earn less than a male orthopedic surgeon.  But this would not be termed “unfair” or “discrimination” because the profession of surgeon requires more years of education, the surgeon might work different hours from the nurse, and the nurse might have fewer continuous years of work experience due to family considerations.

Baruch College economics professor June O’Neill, in an article published in 2003, shows that when data on demographics, education, scores on the Armed Forces Qualification Test, work experience, child-related factors, and percent female in the occupation are analyzed, the wage ratio becomes 97.5 percent, an insignificant difference.

In another study, Professors Marianne Bertrand of the University of Chicago and Kevin Hallock of Cornell University found almost no difference in the pay of male and female top corporate executives when accounting for size of firm, position in the company, age, seniority, and experience.

Lower pay can reflect decisions—by men and women–about field of study, occupation, and time in the workforce.  Those who don’t finish high school earn less.  College graduates who major in humanities rather than the sciences have lower incomes.  More women than men choose humanities majors.

Employers pay workers who have taken time out of the work force less than those with more experience on the job, and many women work fewer hours for family reasons.  When women choose jobs that allow more flexibility and less travel in order to accommodate family, they find that they end up earning less.

Yet a choice of more time out of the workforce with less money rather than more time in the workforce with more income is not a social problem.  A society that gives men and women these choices, as does ours, is something to applaud.

Although documented cases of discrimination exist, and are rightly settled in the courts, when all the factors behind the pay numbers are calculated, men and women earn about the same.

–- 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.

In 2006, the Congressional Budget Office reported that states that had placed limits on malpractice awards in 1986 saw health care spending per person decline steadily through 2000, reaching lower levels than in states without caps.

One example is Texas.  According to Grace-Marie Turner, president of the non-partisan Galen Institute in Washington, D.C., Texas is showing  how to get malpractice costs under control.  Since the state legislature passed a series of malpractice reforms several years ago, medical malpractice costs have plummeted, and the number of doctors moving into the state has soared.

“There is a cause and effect here,” Ms. Turner told me. “Premiums with one malpractice insurance company have fallen by more than a third, allowing doctors and hospitals to reduce their costs.  About 7,000 physicians have moved into Texas over the last four years, and the state has a backlog of applications from other physicians wanting to move there.”

Congress could use health reform legislation to give incentives to states to reduce the costs that lawyers’ fees place on the health system, while still protecting patients.  Fear of lawsuits can diminish patient safety, as hospitals and physicians become wary of keeping records of errors—records that could result in safer procedures being put in place.

Approaches to lowering costs of malpractice insurance include:

Limiting non-economic and punitive damages. Juries now award patients not just real economic damages, representing lost opportunities, but also non-economic compensation for pain and suffering, or mental distress, or punitive damages to teach doctors a lesson.

Limiting lawyers’ fees. Most lawyers take malpractice suits on a contingency basis, where their fees are percentages of their clients’ awards.  This encourages them to seek larger awards.

Modifying or eliminating “joint and several liability.” Now, even if physicians or hospitals are only partly responsible for damages, they can be required to pay the entire amount.

Shortening the statute of limitations. Patients normally have years after the injury happened or was discovered in which they can file lawsuits.  This interval could be shortened.

In his speech before the American Medical Association in Chicago on June 15, President Obama specifically acknowledged the problem: “Now, I understand some doctors may feel the need to order more tests and treatments to avoid being legally vulnerable. That’s a real issue.”

All Americans, even those receiving satisfactory treatment from their doctors, have to pay more because of the threat of lawsuits.  As we look at reducing healthcare costs, Congress should not only look at cutting reimbursements to doctors.  Lawyers should take cuts too.

–- 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.

The basic benefit plan for insurance companies who want to participate in the Exchange comprises inpatient and outpatient hospital services, as well as physician services and equipment and supplies used for treatment. In addition, it includes services that can by no means be considered basic, such as dental, vision, and hearing care for children, and mental health and substance abuse services.

Men would have to pay for maternity services and baby and child visits even if they are single and childless. People who do not abuse drugs would have to pay for substance abuse. This basic plan is like making everyone pay for a Cadillac when they would be glad to drive a used Ford.

Insurers would be required to accept all applicants, no matter how sick, and would be always required to renew coverage. With the exception of age, everyone, no matter how sick or healthy, would be charged the same premiums. When pricing by age, the highest premiums could not be more than twice as high as the lowest.

This means that in order to stay in business the prices charged by insurers would necessarily have to be very high. Companies would be required to cover a broad range of services, to accept anyone who applies without regard to sickness or health, and to keep premiums within a narrow range.

In addition, if companies were to make more than a certain level profit in a particular year, they need to return funds as rebates to enrollees. This prevents insurance companies from building up a reserve in some years to guard against losses in other years.

This pricing mechanism would quickly force private plans in the Health Exchange out of business—and leave consumers with the public plan.

In order to prevent insurance companies from offering plans outside the Health Exchange, Americans who receive financial help in paying for insurance would be required to buy plans in the Exchange. They could not select “bare bones” or catastrophic insurance plans sold on the open market.

Some Americans would be given “affordability credits,” credits to lower the price of their insurance, to be spent only within the Health Exchange. Individuals would be eligible if they earn too much to qualify for Medicaid—over 133% of the poverty line, now $29,000 for a family of four—but less than 400% of the poverty line, now $88,000.

Hence, health insurance assistance would be extended well above the median income for American households, now $55,000. These individuals would be forced to join plans in the Exchange in order to take advantage of government assistance.

Employers are also driven towards the Exchange. Beginning five years after passage of the bill, they would either have to offer health insurance comparable to plans in the exchange, or pay an 8 percent tax specifically designated towards subsidizing coverage in the Exchange.

Although President Obama repeatedly says that Americans who are happy with their medical insurance plans will be able to keep them, the House bill will make these plans disappear. Then, it’s a short step to a single payer system. Is America ready?

–- 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.

Ali explained that college athletics were a special case because male and female programs were segregated, whereas math and science classes are open to all, so gender parity—the same number of women as men in a physics class, for example—is not the goal “at this point.”

The question is, of course, at what point, if ever, the administration will decide that gender parity is the goal. Is the administration’s initiative the first step down a slippery slope that will eventually lead to men being shut out of physics classes the way that they are shut out of swimming and diving at the University of California at Los Angeles? Or will the administration be content to monitor discrimination without resorting to quotas?

Measuring discrimination is tough, because differences in outcomes are not necessarily evidence of discrimination. In 2006 women earned 20 percent of all bachelor’s degrees in engineering and 27 percent in math and computer science. But there’s no evidence that women who wanted to major in science were turned away—or are now.

The Education Department’s prospective focus on counseling sidesteps the issue of what constitutes constructive advice. Is it permissible for a girl who gets Cs in math and science to be counseled not to major in these subjects in college? Or is that evidence of discrimination? What if schools and colleges never counsel females to stay away from science—and women fail courses, then taking longer to get degrees? How is the Department of Education going to measure discriminatory counseling, and how are schools and colleges going to defend themselves against lawsuits?

Students from around the world go to great lengths to come to American universities to study. Let’s hope that universities will not be discouraged from accepting male scientists, because it distorts the gender balance. Would Albert Einstein have been able to come to America under Title IX?

American universities have long hailed academic freedom for both students and faculty as the hallmarks not only of education but of American society. Applying Title IX to students’ majors and courses could be the beginning of the end.

–- 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.

Computer assistance. You may not know it, but you have a comparative advantage in computers. This can be used by helping older adults, who grew up when computers were larger than cars and programming meant putting a pile of cards in a machine. You could help people set up email or social networking accounts, figure out their iPods, build a Web site, organize digital photos on a computer, or construct spreadsheets for bills and expenses.

Tutoring. You may not get straight As in school, but you probably know more about a subject than kids two or three years younger than you. And some of them might want to review material from last year, or get a head start on their classes for next year. Even more likely, parents might think their kids need help. Your slogan can be “Give Your Kids the Best—the Power of Summer Tutoring.”

Bicycle Repair. It’s remarkable how people throw out bicycles that–with a little cleaning, grease and tube repair—can be almost as good as new. Some people have old bikes in their basements that they would like collected, and some cities are even willing to have discarded bicycles removed from their dump. With the help of a bike repair manual you can mend them and sell them on Craigslist.

Yard Service and Car Maintenance. What people value most is their time, and some don’t want to spend their time mowing their lawn, weeding, or washing their cars. In suburbia there are endless opportunities which can carry over into the school year with leaf clearing and snow shoveling.

Summer Camp. One step up from babysitting is setting up informal week-long summer camps for small groups of neighborhood children. The themes could be sports, arts and crafts, reading and writing—wherever your skills may lie. In order to start a business, you need enthusiasm for a publicity drive through word of mouth; flyers through neighbors’ doors; notices with tear-off telephone numbers at grocery stores, houses of worship, community centers, and libraries; or internet sites, such as your Facebook page and Craigslist.

The object is to let everyone know that you’re available. Since businesses generally spread through word of mouth, you could ask the first few clients to act as references, perhaps even giving them a discount to do so. Valuable references and good will are some of the best assets your young company can have. That means always being courteous and cleanly-dressed.

Pricing can be a challenge. Until you find the right price, you might want to ask your clients to pick the price—“pay me whatever you like to mow this lawn”—so that people don’t think that you’re out to exploit them. In some cases, your clients might pay you more than you would have dared to charge on your own.

Just as large businesses collect information about potential customers, you want to keep a good database of your clients by recording names, addresses, telephone numbers, and email addresses.

Then, if business is a little slow, or if you go on vacation and return to town, you can call your clients and politely ask if they need your services. The advantages of starting your own business are numerous. You work for yourself, not a boss. You set your own hours. You don’t have to put up with cranky co-workers. If you’re not interacting with your clients, you can dress as you choose: no one cares if you build a website in your pajamas.

On the other hand, entrepreneurship is unpredictable and has its ups and downs. You might need several tries to get clients. One teen I know intended to spend his summer tutoring full-time and fixing bicycles on the side, yet ended up fixing bicycles full-time and tutoring on the side, since he had more bike customers than students.

Teens, there’s a job out there for you. You just have to go out and make it.

–- 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.

Just as the increases in oil prices in the 1970s brought about an increase in unemployment, the energy provisions in the Waxman-Markey bill could usher in years, perhaps decades, of lower economic growth and higher unemployment than would be the case otherwise.

The effects of the oil price increases between 1972 and 1988 have been extensively analyzed by economists Steven Davis of the University of Chicago and John Haltiwanger of the University of Maryland.  Although their research deals with the effects of oil price increases, it is also applicable to increases in the price of energy, which would be the effect of Waxman-Markey.

Davis and Haltiwanger find that oil price increases resulted in more jobs lost than jobs gained in almost every industry sector of the economy.  The largest oil shock, in 1973, caused an estimated eight percent decline in manufacturing employment over the following two years.

Oil price increases have larger effects on economic activity than oil price declines, Davis and Haltiwanger calculate, a finding shared by other economic studies.  In other words, when energy prices increase firms lay off workers, but when prices decline the workers are not hired back as fast.

Davis and Haltiwanger also find that higher energy prices are more likely to suppress employment than monetary shocks. Many politicians fret over the harmful effects of recent American monetary policy, but overlook the even greater danger to employment from the Waxman-Markey bill.

Supporters of the bill claim that the new regulations will create jobs, because people will have to be employed to produce the new technology.  But the funds for the new expenditures have to come from somewhere, and money spent on new products is money that cannot be spent on other activities, such buying clothes or food, or anything else that Americans would otherwise buy.  This would drive down employment in those industries.

In fact, not only does the bill penalize American firms through higher costs, it gives firms a financial incentive to move abroad through “offsets,” activities that supposedly lower carbon emissions elsewhere.  Since Congress knows that firms cannot meet the standards in the bill, legislators are allowing firms to meet 30 percent of their 2012 greenhouse gas reduction obligations, increasing to 60 percent by 2050, by buying offsets. Half of these offsets can take place abroad.

The offset provisions allow firms to shift economic activity abroad to countries with laxer emissions standards, further damaging U.S. job creation. A plant’s emissions might exceed its U.S. allowances, yet its technology might produce lower emissions than the norm in a developing country, allowing the relocation to count as an offset.

The American unemployment rate now exceeds those in France (8.9 percent) and Germany (7.7 percent). With unemployment climbing even without the Waxman-Markey bill, the question for Congress is the following:  how high do you want the rate to go?

–- 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.

Trade creates jobs not just through investments of foreign companies at home, but also by increasing employment at exporting firms. This effect, though less obvious, is far more significant. That’s why “Buy America” hurts employment.

Andrew Bernard, a professor at Dartmouth College, together with economists Bradford Jensen and Peter Schott, find that firms that trade goods employ over 40% of the American workforce. They conclude that approximately 57 million American workers are employed by firms that engage in international trade.

They analyze American imports and exports using customs documents that accompany shipments of goods crossing the border, along with reports of firms’ employment. The resulting information provides the most precise picture available of the employment effects of American trade.

Back in February, Caterpiller spokesman Jim Dugan declared, “Our position is that, while ‘Buy American’ may sound good, in fact we’re very concerned that if this stimulus legislation contains the ‘Buy American’ provision, other nations and regions of the world would follow our lead and pass similar provisions.”  He was right.

Trade also benefits millions of families who cut their shopping bills by buying low-cost imports. To take just one example, the amount that Americans spend on clothing has declined by 21% in real terms over the past 20 years, yet our closets are fuller than ever.

The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.

Trillions of international dollars pass through America each year not because we are isolated, but because we are the hub of the world. Terrorists twice attacked the World Trade Center because the building symbolized international trade. They destroyed a building and murdered thousands of innocent Americans, but they failed to vanquish world trade. Sadly, politicians who erect barriers to trade are hostile not only to trade but to our country and to our jobs.

–- 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 Commission concluded that America should move away from gasoline taxes as a way to fund roads.  With more efficient cars, motorists will be able to travel further using less gasoline while still imposing wear-and-tear on roads. Hence, maintenance and repair should be funded through direct user charges that are based on miles traveled on all streets and roads, rather than on gasoline purchased.

House Committee on Transportation and Infrastructure Chairman Jim Oberstar regards a vehicle mileage charge as one of a number of options under consideration as a complement or alternative to a gasoline tax, but he is not committed to any course of action, according to the committee communications director Jim Berard.

Ideally, a vehicle mileage charge would require a tamper-proof device that would track not only miles and time of day driven but also the route selected.  This would allow states and local governments to vary the charges based on route taken and time of day driven.  Motorists who travel on congested roads at peak times of day could be charged more, encouraging them to shift their travel away from rush hour.

Since the change in road financing cannot be made immediately, the Commission recommends setting up a user-charge system that would work in conjunction with the Highway Trust Fund until 2020, at which point the new system would be in place to take over.

Full transition to this new revenue system would require research, the purchase of technology, and pilot projects, all of which would be a better use of stimulus funds than high-speed rail. With prices of transponders and global positioning systems falling, sophisticated and efficient road pricing systems are now possible. GPS devices could be given to drivers who choose to participate, and drivers could pay as easily as they now pay for cell phones or E-ZPass tolls.

To make road user charges more politically palatable, participating motorists could be exempt from registration fees, but would pay road charges instead, charges that could vary by type of road used and time of day.  Technologies exist to ensure that detailed information on trips is not sent out to motorists so that privacy is preserved.

The vanishing Highway Trust Fund is a wake-up call to use new technology to make our roads flow better.

–- 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.

Democrats want the federal government to use the $250 billion for a national plan to insure the 47 million uninsured. In contrast, Republicans want to use the funds to give each family a refundable tax credit, worth about $2,300 for individuals and about $5,700 for families, with an extra $5,000 for poor families, to purchase health insurance and to expand tax-free health savings accounts.

Coincidentally—or perhaps not—Democrats and Republicans are both proposing to set up “exchanges” as the path to better health care. But there are major differences between the two proposals.

A new Council of Economic Advisers report entitled The Economic Case for Health Reform (view pdf) proposes the creation of an “insurance exchange” to improve the operation of markets for health insurance. This national exchange would coordinate health plan participation; negotiate premiums with employers; disseminate information about different plans; and facilitate enrollment.

During the campaign, President Obama proposed using the insurance exchange in combination with a new public plan. Those Americans who wanted to sign up to the new plan could do so, and private insurance plans would be regulated by the new insurance exchange.

State-based health care exchanges are a crucial feature of the leading Republican health care proposal, “The Patients’ Choice Act of 2009,” (view pdf) proposed by Wisconsin Congressman Paul Ryan and Oklahoma Republican Senator Tom Coburn, a physician who goes home and delivers babies on Mondays. This state exchange would be used as a portal where Americans could take their tax credits and choose private insurance. All insurance plans that are licensed in the state could participate in the state exchange, and premiums would be set by the different companies.

Under Dr. Coburn’s plan, health insurance plans could include high deductible plans combined with health savings accounts, or more traditional managed care or fee for service plans. Those with chronic illnesses, such as hemophilia or diabetes, would be placed in special plans.

Politicians from both parties are open to ending the tax-favored status of employer-provided insurance and putting in place some type of exchange. The question in the months ahead is whether to use the funds for another government health plan and further federal government regulation, or for an individual tax credit encouraging increased consumer choice of plans.