Steps one, two, and three — agree or disagree?
So, readers, I would love to pound out an article about Illinois’ recent minimum wage hike and its future effect on the state economy. For reference, here’s the Chicago Tribune’s summary:
Under the law, on Jan. 1 the statewide minimum wage increases from $8.25 to $9.25 per hour. The minimum wage again will increase to $10 per hour on July 1, 2020, and will then go up $1 per hour each year on Jan. 1 until hitting $15 per hour in 2025.
That’s a big jump.
Minimum wage supporters cite all manner of beneficial effects — a New York Times article floating around twitter today claimed that
A $15 minimum wage is an antidepressant. It is a sleep aid. A diet. A stress reliever. It is a contraceptive, preventing teenage pregnancy. It prevents premature death. It shields children from neglect. But why? Poverty can be unrelenting, shame-inducing and exhausting.
Its supporters also marshall studies to claim that it will have only beneficial effects on the economy — but skeptics point to the fact that studies finding this are unsatisfactory for a variety of reasons, for instance, a boost in the minimum wage in one locality in a region where wider economic effects might be offset by lower minimum wages in surrounding areas. And I’m not going to try to produce an analysis of the literature, nor to make any particular claims of expertise as an (armchair) economist.
But I do want to use my platform, however small it is, to point to the magnitude of the increase. To be sure, in the event that there is significant inflation, some of that increase will be moderated, but at today’s low inflation rates, $15 per hour in 2025 dollars won’t be that much different than $15 per hour in 2019 dollars.
So consider this:
The median wage in the Chicago metro area is $19.67.
In Springfield, Illinois: $18.35.
In Peoria: $18.14.
(You can use the main BLS link to view all all metro area median wage data.)
In other words, once you leave metro Chicago and the midsized cities of Illinois, median wages drop to very nearly the level of the future minimum wage.
The BLS link also provides median wages for particular occupations — and the occupations with median wages below the new minimum extend far beyond fast food and retail workers.
In the West Central Illinois nonmetropolitan area:
Ushers, Lobby Attendants, and Ticket Takers earn a median wage of $9.10.
Childcare workers, $9.38.
Hairdressers, hairstylists, and cosmetologists: $9.74.
Court, Municipal, and License Clerks: $10.43.
Tax preparers: $11.12
Nursing assistants: $11.54.
Pharmacy aides: $11.77.
Butchers and Meat Cutters: $13.50.
Emergency Medical Technicians and Paramedics, $14.30.
and so forth.
What happens when the state mandates a minimum wage in excess of the wages that each of these occupations, at median, actually pay in this part of the state? I simply lack the imagination to forsee the impact, but it’s surely not as simple as each of these occupations in fact paying $15.00. These are in many cases jobs requiring specialized training; I find it difficult to imagine that EMTs would accept a wage that’s equal to what a McDonald’s worker gets the first day on the job, without specialized training. And I likewise can’t fathom a situation in which every wage-earner’s wages are simply boosted by $6.75, across the board, and prices similarly simply reset at the level necessary for businesses to cover their costs.
Now, looking at this list of occupations, I seem to have selected service occupations which are connected up with the local economy, rather than the sorts of jobs associated with manufacturing or other industries which stretch beyond the local area. And I am limited in my understanding of the nature of the economy in these sorts of small towns and rural areas, but — well, to the extent that it depends on the sorts of small manufacturing facilities scattered throughout middle America, those manufacturers will have to cope with a changed dynamic that could well lead to them leaving or automating, and to the extent that they provide a support structure that ultimately works its way down to the family farm, well, farmers are self-employed, aren’t they? And their earnings won’t increase as a result of a minimum wage law, only their costs.
And, yes, I have selected the lowest-wage region from which to list by-occupation median wages. Of course those numbers are higher in Springfield and Peoria, for example. Childcare workers in Springfield, for example, earn $10.75 at median, pharmacy technicians, $13.77, and phlebotomists, $16.66.
So I don’t have an answer. I’m not going to and I’m not able to build out a model of precisely which bad things will happen. But I do think that looking at these sorts of BLS listings is a useful way of, even as a non-expert, getting a sense of the magnitude of the increase, and the potential for far-reaching unintended effects.
Image: Marseilles, Illinois, population 5,094. https://commons.wikimedia.org/wiki/File:Marseilles_IL_downtown1.jpg; IvoShandor [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D.
Illinois politicians are treating pension funds like pyramid schemes. What next?
Yeah, I know, I’m being excessively clever, like the time in my multi-employer pension plan rabbit hole series (to be revisited soon!) that I proclaimed Central States to be fully-funded, because, in addition to the troubled, nearly-insolvent plan by that name, another plan with the same exists, is 108% funded, and offers some instructive comparisons.
And with respect to healthcare, too: every Democratic presidential candidate and all manner of interest groups have proposals for “Medicare for All,” though, by and large, they don’t actually intend to simply provide the same benefit provisions as Medicare includes (Part A deductibles, Part B coinsurance, Part C Medicare Advantage, Part D drugs) to the under-65 American population, but have concluded that it’s a way of speaking about a public healthcare system/single-payer system that generates more positive polling than the words “public healthcare system” or “single-payer system.”
A recent article that came across my twitter feed purports to be “The Only Guide to ‘Medicare for All’ That You Will Ever Need” and differentiates between what it deems to be the “bad” M4A bills, which allow some sort of buy-in to Medicare or Medicaid or another “public option,” and the “good” M4A bills. To meet author Timothy Faust’s requirements, such a program must compel all residents to participate, ban any sort of private health insurance, and cover every form of health/medical care, including “medical, dental, mental, vision, reproductive, long-term, and more,” and Faust notes that “long-term” encompasses all forms of elder care, including in-home services; the system’s expenses would be managed by “negotiation” (which the article itself makes pretty clear means dictating prices to providers).
And Faust acknowledges that this exceeds the norm in the rest of the world, but makes the expansive claim that “we are capable of, and should, provide a higher standard of care than any currently-existing single-payer program on the globe.”
But it does matter what happens elsewhere. It is important to understand what “universal healthcare systems” actually look like in the rest of the world. In a prior article I shared an OCED chart on health care expenditures in developed countries, split by payor, and made some general comments on a number of countries.
So — getting back to my title — there is a real “Medicare for All” system in the world today, because “Medicare” is the name Australia gives its public healthcare system.
And according to that chart, Medicare covers 67% of healthcare costs. Who pays the rest?
20% comes from out-of-pocket charges. 10% comes from private health insurance, which nearly half (46%) of Australians elect. And 2% comes from “other” sources.
Here’s the scoop:
Australian Medicare covers public hospitals and doctor’s visits, as well as x-rays and other diagnostic tests, surgery, eye exams, some dental surgery, at a rate of 100% of the scheduled fee, for general practitioners and 85% of the scheduled fee for specialists. Doctors may choose to accept these rates as payment in full and bill Medicare directly, or if they charge in excess of these rates, bill patients directly, who then seek reimbursement from Medicare (for instance, through a mobile app) for the covered amounts, and pay the excess themselves. Medicare does not cover ambulance services, most dental care, most therapy services, glasses, hearing aids, or home nursing. Drugs are also only covered with a patient cost-share.
Private health insurance is a very popular option to cover these additional charges. In addition, Medicare-only patients cannot choose their own doctors, but private health insurance provides this option. Private health insurance also affords patients the ability to have a private room rather than a multi-bed room (shared with as many as five others), and to receive treatment, in general, at a private hospital, with charges equivalent to what public hospitals would cost, covered by Medicare, and the rest paid by the insurance/out of pocket. Finally, private health insurance allows patients to skip waiting lists. For example, public patients waiting for knee replacements waited for 203 days on average, but everyone else had a wait of 67 days. An Australian I know shared his personal experience when I said I was drafting an article:
The private insurance is essentially to get you to the front of the queue for elective or non essential surgery, or to get you a private room in a private or public hospital. It also helps a lot with the stuff that isn’t covered by Medicare.
As an example our son was 18 months old and barely saying a word. We applied through the public system for speech therapy but it was a 3 to 6 month waiting list. So we went to a private speech therapist and got seen within a week. The private health insurance covers part of the cost of speech therapy. In the end he was seeing both speech therapists because one was free on the public system and the other we weren’t out of pocket all that much for.
But as much as private insurance systems are reviled by single-payer promoters in the U.S., in Australia, the government encourages its citizens to purchase private health insurance, through the Medicare Levy Surcharge, an extra tax of 1% of income or more for anyone with over AUD 90,000 (about USD 64,000) in income without a private insurance policy, and through the Private Health Insurance Rebate, a means-tested government subsidy of 26% of the premium, for those with less than AUD 90,000 and younger than age 65, increasing to 36% for the older 70s, and phasing out to 0% at AUD 140,000.
One other noteworthy element of the Medicare system is that the government wholly circumvented any constitutional battles similar to what we’ve faced, by actually amending their constitution in1946, to give their federal government the power to provide hospital and medical services.
(Information on the system can be found at the following links: PrivateHealth.gov.au, the Australian Government Department of Human Services Medicare website, and Wikipedia. I also referenced two links provided by my Australian friend, “Benefits of Private Health Insurance,” and “Do you really need private health insurance? Here’s what you need to know before deciding,” which spell out some of the practicalities from an Australian perspective.)
This is the primary point I want to drive home: the dream of having the government pay for all healthcare consumed by its residents simply doesn’t exist. Markets for private-sector health insurance continue to exist even in “universal health care” countries, for multiple reasons. To refer back to the OECD chart, even among the most generous countries, government spending seems to top out at 85%, almost as if there’s some sort of economic law that means it’s simply not possible to exceed this. (And there is likewise not a communist utopia to point to, either, though that’s a subject for another time.)
“Medicare for All” advocates think this is a bad thing. In fact, it’s not.
Now, for the time being, I’m going to sidestep the question of whether any form of “Medicare for All” or “enhanced Obamacare” or whatever you’d like to call it, is a good idea in general.
However, if we take a shift to a more state-paid system as a given, a hybrid system solves many problems with respect to wait lists, rationing, etc., while still providing a base level of care to all.
Yet, at the same time, the demon of path dependency may well prevent it — not only in terms of the existing healthcare infrastructure (e.g., the new hospitals with all-private rooms, and semi-private the norm everywhere) and the untold number of employees who would not stand, politically, for losing their jobs or having their salaries halved, but also because of the expectation we have that, whatever might ail our system, wait lists or determinations that a procedure is not cost-effective are too high a price to pay.
Image: http://www.dodlive.mil/2017/10/03/usns-comfort-how-the-hospital-ship-helps-during-disasters/(U.S. Air Force photo by Staff Sgt. Courtney Richardson). public domain.
Yes, readers, I know: I might be overly fond of rhetorical questions in headlines. But Betteridge’s Law of Headlines says
Any headline that ends in a question mark can be answered by the word no.
so maybe I’m actually signaling some optimism here.
Here’s the scoop:
I’ve written on my Forbes platform about Chicago’s pension funding woes (with links in a single Jane the Actuary post), and in particular on the prospects of any of the mayoral candidates having a solution to the problem. Separately, I wrote an article at this site observing that, had Paul Vallas won the 2002 primary instead of Blago, Illinois might have had a very different history indeed – one fewer governor in prison, in any case.
So I wanted to share with you some of the things I learned from a conversation I had with Paul Vallas, on such topics as ethics, government reform, and the election itself. I will caveat this by saying that I am not an expert in Chicago politics, but I will remind readers that I grew up in the Detroit area in the era of Coleman Young and Robocop. I understand that cities can be deeply troubled. But — well, here’s an experiment to try: go to your favorite search engine and type in Chicago machine, then Detroit machine. The latter brings up machine tool companies; the former, links about machine politics (as well as links to Chicago Machine, an ultimate Frisbee club). Google “pay to play” and attach Detroit or Chicago to the search terms; for the former, you’ll get articles about ex-mayor Kwame Kilpatrick’s conviction in 2012; for the latter, you’ll get hits pointing to far more instances of pay to play accusations or convictions, up to the present day. Perhaps Chicagoans can be Chicago-y about it and say, “woo-hoo, our corruption is so much more organized than elsewhere!”
Oh, and let’s not forget that the University of Illinois at Chicago’s political science department issued a report (Anti-Corruption Report #11 at the link, a download) deeming Chicago the most corrupt city, as measured by judicial districts (in this case Northern Illinois) with the most federal public corruption convictions from 1976 to 2016; on a per-capita basis, Illinois as a state ranks third after Louisiana and the District of Columbia, out of 94 total such districts — and that’s not even including the expected future convictions for Burke and unknown others.
So, to begin with, I asked Vallas how to make sense of the election with its double-digit number of candidates, 14 in total. (For the benefit of non-Chicagoans: the election takes place on February 26th, but will almost certainly require a runoff election on April 2nd.) In his view (and perhaps this is common knowledge among those better-versed in Chicago politics), this is a result, at least in part, of the interplay between machine politics and Mayor Rahm Emanuel’s late decision, on September 4th of last year, not to run for re-election after all. The first dynamic was that it was a given that Emanuel would not have the support of the black community due to his administration’s handling of the Laquan McDonald shooting, so the multiple black outsider candidates who announced their candidacy before Emanuel’s surprise announcement (I looked it up on wikipedia: Willie Wilson, Lori Lightfoot, Neal Sales-Griffin, Amara Enyia, as well as later-disqualified Dorothy Brown) were welcomed by the Machine because they’d split the vote, instead of a single consensus candidate emerging and posing a risk to Emanuel. At the same time, the candidates who are now leading the polls hung back, waiting for “their turn,” but when Emanuel made his announcement, there was no “default” candidate and each of them — Toni Preckwinkle, Susana Mendoza, Bill Daley, Gery Chico — decided that it was indeed their turn.
Then, since he is running as that candidate, above all others, willing to reform city government, I asked him how he would repair Chicago and undo its history of corruption and what he called its “for-profit political system” that drains the city’s finances. After all, at the candidates’ forums I watched via livestream, candidates generally professed their desire to do away with aldermanic privilege, that is, the ability of the alderman to control what can and can’t be built in his/her ward. But how much can a mayor, however reformist, persuade aldermen to vote to undo a system which profits them?
Here was his answer:
First, he was optimistic about the new aldermen coming in, even if simply due to retirements. The new faces will be a boost for ethics reform.
Second, Ald. Ed Burke will be gone.
Third, aldermanic privilege is not, as I had thought, the result of any city ordinance. It’s just an established practice that they approve or reject projects in their wards. A mayor could simply choose to overrule an alderman’s action without needing any sort of enabling legislation and, Vallas said, “banning that will take an important component of pay-to-play out of the equation.”
Fourth, while aldermen’s service as such cannot be restricted by term limits, the duration of their control of committees can be.
Fifth, to prevent conflicts of interest, individuals appointed to the various boards can be prohibited from representing anyone as a client who receives contracts from the city or other agencies.
And finally, there is so much corruption in the system simply because the process to appeal property taxes, zoning, signage, etc., is so onerous that people have to hire a middleman. If these processes were simplified so that people could do this on their own, it would “take the profit out of it.”
Beyond these issues of corruption, I’ve also heard repeated promises by candidates to return to an elected school board, rather than one in which the mayor appoints members, as has been the case since 1995. So I asked Vallas what he’d do. He first provided a few words of context, that in the days of elected school boards, the public schools were in a state of “financial crisis” and “academic failure,” though, at the same time, the mayoral appointed school boards have been a mix of good and bad. The key, though, is for the mayor to have “skin in the game,” and have some control over the management of the schools in order to be held accountable for their success, rather than being able to duck education issues while using the schools as a source of influence and a means of enriching cronies through contracts.
At the same time, though, there should be “civilian representation” to ensure transparency and accountability, to avoid a repeat of prior apparent conflicts of interest. Vallas’s proposal is a hybrid system, in which half the school board would be mayoral appointees and half community elected. What’s more, the elected members would come from a pool of candidates made up of members of local school councils, and should be selected by those local school councils, so that they have a stake in the system. Likewise, each advisory board, such as the police board or the McCormick Place board, should be a mix of experts and civilians, to maximize both expertise and accountability/transparency. Further, he proposes new boards, such as one for the environment, and one for people with disabilities.
So what’s Vallas’s pitch to voters, when it comes down to it? It’s three-fold, he told me.
First, he’s got a track record of going into challenging situations and solving problems — during his tenure at Chicago Public Schools, in Philadelphia, New Orleans, and in Haiti. There is, he says, “no one better equipped to get a handle on the city’s finances.”
Second, he says, beyond merely stabilizing the city financially, his “whole approach to government has been to take the resources available and develop long-term plans that are investment vehicles to create conditions for growth and prosperity,” for instance, by being smarter about TIFs and opportunity zones, deploying, for example, the $2.5 billion that was intended as incentives for Amazon to locate in Chicago.
And, third, he says, “no one has demonstrated more independence of the play to play culture than me.”
Longtime readers on my various platforms will not be surprised that I like Vallas’s combination of ethics and policy expertise. It’s simply not enough, for a city with problems as complex as those of Chicago, to profess you’re the best candidate because you care the most or have the most longstanding ties to the city.
At the same time, I simply don’t know how to make sense of the dynamics at play with so many candidates statistically tied. After all, in a more normal race, you’d be asking yourself not just who the best candidate is, but, of those candidates who have a chance of winning, who is the least-bad, even if not your favorite. Can you do that, in this case? (Was that, in fact, the Chicago Tribune‘s reason for endorsing Bill Daley?) I don’t know whether the election outcome will in the end bear any resemblance to the polling results which themselves are so variable. Will it all come down to turnout and the GOTV efforts of campaigns?
And, as a final reminder, I am not a Chicagoan and by no means an expert on Chicago politics. But even though, again, I grew up in the Detroit suburbs and so am accustomed to the idea that a metro area can do well economically even as the city core goes to pot, Chicago’s success or failure still matters, not just to city residents but to Chicagoland and to the state of Illinois.
Image: from the Vallas campaign Instagram account https://www.instagram.com/vallasforallchicago/?hl=en.