Helping the Poor Without Hurting the Recovery

March 4, 2013

The president’s recent proposal to increase the minimum wage to $9.00 is not the way to help low-income households. Raising the minimum wage is more likely to increase unemployment for some of the least skilled American workers and further impede a historically slow recovery. Research from the Mercatus Center shows that regulatory reform would help low-income families without causing more unemployment or slowing the recovery.

Regulation raises the cost of living for all Americans, but the cost of regulation falls disproportionately on the poorest families. The relevant research and policy proposals to help the poor through regulatory reform are summarized below.

THE MINIMUM WAGE HURTS LOW-INCOME FAMILIES AND SLOWS GROWTH

Mercatus Center senior research fellow and former commissioner of the Bureau of Labor Statistics Keith Hall explains how minimum wages hurt the intended beneficiaries by increasing unemployment.

When employers are compelled to pay higher mandated wages, they will want to hire fewer people and will choose to hire more experienced workers. This hurts low-skilled workers, who suffer the most from the subsequent curtailment of on-the-job training opportunities. Raising the minimum wage is particularly harmful during a slow recovery, when many unskilled workers cannot find employment and many more may need retraining. More than half of all people earning minimum wage are workers under 25, and only 46 percent of these are currently employed.

THE REGRESSIVE COST OF REGULATION

In a new study from the Mercatus Center, Diana Thomas demonstrates that regulation redistributes from poor families to high-income households.

High-income households, who are willing to pay more for higher quality, will want these regulations more than low income households. The majority of these regulatory costs are passed on to households in the form of lower wages and higher costs to consumers. Thomas finds that when regulatory costs are spread across all households, the poorest households will pay up to six to eight times more as a share of income than the wealthiest households, whose preferences the regulation serves.

When regulations force low-income families to pay for public risk mitigation, they have less money to pay for private risk mitigation, such as moving to a safer neighborhood, by which they could achieve an equal increase in overall safety for one-fifth the cost.

SOLUTIONS

Instead of hurting low-income families by raising the minimum wage, policy makers should find ways to reduce the regressive costs of regulation and raise real incomes for the poor. Whereas a higher minimum wage will reduce employment, reducing the regulatory burden will have a positive impact on small businesses. According to the federal Small Business Administration, the cost of regulation is disproportionately felt by small business and their customers and employees. These businesses are responsible for 65 percent of all job creation.

Avoid Passing Inefficient Regulation

• The most effective way of reducing regulatory costs is by using more and better benefit-cost analysis in evaluating regulations prior to enactment.

• Regulators often fail to perform basic benefit-cost analysis before enacting regulations that
can adversely affect the poor. For more detail, see the Mercatus primer “Ready, Fire, Aim!” and “Regulatory Oversight: The Basics of Regulatory Impact Analysis” by Jerry Ellig and Richard Williams.

• Mandating regulatory analysis of all significant rules by statute, and requiring Congress to approve major rules, would force regulators to consider the costs of regulation. See “Blueprint for Regulatory Reform: First, Lay the Cornerstone” by Richard Williams and Sherzod Abdukadirov for more detail.

Eliminate Obsolete Regulations

• In “Regulatory Overload” Andrew Hale, David Borys and Mark Adams demonstrated that too many regulations are often counterproductive. Reducing the number of regulations can actually improve safety and leave low-income households with more resources for private risk mitigation to further enhance their safety.

• Regulators should evaluate regulations once they are enacted to determine if they really achieve their stated goals. See “How Well Do Federal Regulations Actually Work? The Role of Retrospective Review” by Randall Lutter.

• Joshua Hall and Michael Williams evaluate several examples of eliminating obsolete regulations in “A Process for Cleaning Up Federal Regulations.” They show how the method used successfully to shut down obsolete Cold War bases in the early 1990s could also be applied to eliminate ineffective regulations.

Public Interest Comment on Notice of Proposed Rulemaking to Set National Emission Standards for Hazardous Air Pollutants for Area Sources: Industrial, Commercial, and Institutional Boilers

August 23, 2010

The Regulatory Studies Program (RSP) of the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. As part of its mission, RSP conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. Thus, this comment on the Environmental  Protection  Agency’s  (EPA) Notice of Proposed Rulemaking does not represent the views of any particular affected party or special interest group, but is designed to assist EPA in improving the quality of the Regulatory Impact Analysis used for decision making.

The Environmental Protection Agency (EPA) has proposed new regulations setting emissions standards for boilers for some 30 hazardous air pollutants. While the Regulatory Impact Analysis submitted by the agency finds an overall benefit to the proposed rule, the agency does not use the analysis to maximize net benefits. Only 5 of the 30 pollutants EPA expects to reduce will be regulated, and EPA only presents quantified benefits for one pollutant which is not directly regulated. The analysis performed by the agency does not identify the benefits associated with reductions in individual pollutants or the changes in benefits and costs associated with varying levels of stringency. As a result, the economic analysis for this rule cannot serve its purpose of presenting policy makers with a menu of alternatives.

EPA has proposed new emissions standards for boilers operated by businesses and institutions such as schools and churches as part of a series of actions setting emissions standards for heating and incineration devices. The proposed rule will establish separate measures for new and existing boilers, including mandating technology to capture airborne pollutants released by boilers and setting operating standards aimed at improving energy efficiency and reducing the emissions of pollutants. The rule establishes existing technologies as a benchmark for performance, but other technologies which are equally effective at reducing emissions may also be used.

Although the rule is aimed at reducing levels of some 30 Hazardous Air Pollutants (HAP), the proposed regulation will set emissions standards for only five pollutants: particulate matter, carbon monoxide, mercury, hydrogen chloride and dioxins/furans. The predicted benefits are expected to come from reducing emissions of only one narrow groups of pollutants which are not directly regulated (fine-grained particulate matter). To achieve the benefits predicted, EPA is assuming that reductions in the regulated pollutants will lead to reductions in other pollutants. For this reason, the agency may have overestimated net benefits.

EPA was unable quantify the direct benefits associated with reducing carbon monoxide emissions or mercury emissions. All of the calculated benefits of the proposed rule will come from expected reductions in fine-grained airborne particulate matter known collectively as PM2.5 (2.5 refers to the size of the emitted particles). The regulation only addresses emissions of PM2.5 indirectly, assuming that emission of PM2.5 will be reduced by reductions in overall particulate matter and by reductions in other pollutants.

Current scientific literature used by EPA finds that the benefits of reducing particulate matter emissions vary greatly depending upon the type of particulate matter and also on the location of the reductions. In the Regulatory Impact Analysis prepared by the agency, emissions are assumed to be reduced by a constant amount, across emissions types and location. This reduces the ability of the agency to make accurate determinations about the scale of benefits generated and may lead to an overestimation of total benefits.

If benefits have been overestimated then an alternative approach may be justified, but EPA does not consider a full range of alternatives. Rather than using benefit-cost analysis to justify the proposed rule, as the agency has done, the analysis should weigh various alternatives, allowing policy makers to determine which of these alternatives should become the rule. The analysis should consider the benefits of regulating each type of pollutant separately and show policy makers the costs and benefits of a range of options, including options which may require actions by Congress or by the states. By following best practices in this way, the agency may be able to increase total net benefits.

Continue Reading

Regulatory Overload

February 8, 2012

Regulations are supposed to keep Americans safe, but a growing rulebook may actually be making us less so. The vast number of rules alone overwhelms businesses and individuals, diverting attention away from regulation’s end goal—improved safety—and placing the focus on compliance. Regulators can make Americans safer by writing clear, simpler rules and eliminating ineffective regulations. Instead of telling businesses how to solve problems with prescriptive regulations, regulators should define outcomes and let businesses devise their own solutions.

GROWING REGULATION

In 2011, American businesses had to comply with 165,000 pages of federal regulations, 20,000 pages more than in 2007. 1 As experts and politicians of both parties have recognized, this vast array of regulations imposes a substantial burden on the U.S. economy and has a particularly acute effect on small businesses. 2 Yet this number continues to grow as regulators write increasingly specifi c rules and expand the scope of regulation to fi ll perceived gaps in the existing code in the belief that more extensive and detailed regulation would protect workers, consumers, and the environment. 3 However, studies in psychology, economics, and organizational science suggest the opposite is true. 4

THE COST OF OVERLOAD

Reduced Compliance. Regulations are effective only when people follow them. As the regulatory code grows, people fi nd it harder to discover, let alone recall, all the rules they are supposed to follow. They are more likely to make mistakes and are often less motivated to comply. 5 A study by nuclear power industry experts Michael Lavérie and Roger Flandrin found that large and complex regulatory codes reduced safety as additional regulations, even relatively good ones, distracted nuclear workers from the most important rules. 6 The effect of overload applies equally in the home. Economists Kip Viscusi, Wesley Magat, and Joel Huber found that consumers forgot important information about safely using and storing household chemicals when the chemicals’ labels contained too many warnings. 7

Overload not only makes it harder to comply, but it also often harms the motive to comply. Businesses that operate in only one industry may not need excessively complicated procedures as experts can easily solve problems as they arise. However, regulators who cover broad areas of law, such as environment or occupational safety, must somehow try to predict every circumstance facing every business they regulate. The result is broad but shallow regulation: complex as to the sheer number of instances for which the regulator must plan, but oversimplified as to each individual problem. 8 The volume of rules distracts workers, causing them to dismiss the relevant rules buried within the rulebook as oversimplifications and making them less motivated to comply overall. 9 In a study of the Dutch railway industry, 95% of workers reported that they could not do their jobs if they followed all the rules. A similar study of British railroads found that more than half of all rule breaches were intentional. 10

As rules become more complex, the act of compliance becomes the imperative, displacing the end goal of safety. 11 In a study of the Australian mining industry, safety expert David Borys found that workers had become less concerned with evaluating situations for actual safety and more concerned with avoiding sanctions. The motivation to comply remained less than the motivation to stay safe. The workers’ lost sense of ownership of the safety procedures further compounds the problem: although workers can identify problems more easily than regulators, they cannot change regulations as easily as they can their own company’s procedures. Thus, workers become less motivated to find solutions to problems. When the miners ceased to regard following the rules as part of an overall goal of improving safety, they focused, at best, on simply following the rules. At worst, they focused on how to break the rules without being caught. 12

Reduced Incentives to Improve Safety. Regulatory overload also discourages firms from finding innovative solutions to problems. 13 Managers may invest more in legal expertise to satisfy regulatory demands to achieve compliance at the lowest possible cost than in experts who can solve safety and business problems. An Australian government task force found that some 25% of managers’ time was devoted to compliance. 14 Furthermore, firms will tend to hire managers with skills best suited for regulatory tasks. 15 This approach may be effective if regulators could capture all the complexity and the various problems facing businesses, but this is often not the case. 16 A study of the nuclear power industry found that while the engineers who built power plants and wrote their operating procedures often believed they could predict every eventuality in advance, this was rarely the case. When there are problems no one could have accounted for, such as the earthquake and tsunami that struck a nuclear power plant in Japan, there are no specific or general rules that can work. Moreover, nuclear plants in compliance-oriented regulatory environments are less able to cope with these circumstances while innovation-oriented businesses are more likely to succeed, a finding reflected in studies of other industries. 17

Firms often do effect change through lobbying, but, having little incentive to oppose rules that hurt their competition, firms often lobby for rules that raise the cost of entry for competitors. 18 Large businesses have an advantage in gaining access to regulators, who often base regulations on existing large-firm procedures, and in spreading the cost of lobbying over a larger base. They are also differently structured than small companies, relying more on formal internal rules. 19 Small businesses rely more on expertise to solve problems, making them better placed to identify innovative solutions. However, it is harder for small firms to arrange their business around rigid rules imposed from outside. 20 Small businesses end up paying a disproportionate cost—at least 30% higher per employee, according to the U.S. Small Business Administration—and may be shut out altogether. 21

Increased Uncertainty

Regulators using prescriptive rules can find themselves in a catch-22 dilemma. Businesses must update their procedures continuously to stay competitive; something they cannot do when prescriptive rules lock-in existing practices.When regulators try to keep pace with change, they create the uncertainty of an unstable set of rules. Businesses are less likely to invest or innovate until they know how future regulations will affect their business. 22 Regulators can mitigate uncertainty by grandfathering in businesses that follow the old rules, but grandfathering creates perverse incentives for businesses to avoid investing lest they become subject to the new regime.

Excessive regulation also creates uncertainty if businesses are unable to identify all the rules that apply to them. Even regulators may not know or enforce all the regulations on the books and may focus on a smaller subset of regulations. Businesses that cannot know or hope to comply with all the regulations in place must wait to discover which rules they are expected to follow. Risk-management experts Robyn Fairman and Charlotte Yapp found that many small businesses simply wait for inspectors to identify violations of occupational safety rules before making efforts to comply. 23 Again, small businesses bear the greatest cost of this uncertainty.

TOWARD EFFECTIVE REGULATION

Regulators should focus on building fewer, more effective regulations. Regulators are often biased toward avoiding visible errors rather than minimizing overall risk. A comparison of drug safety in the United States and Europe found that the relatively more stringent approach of the U.S. Food and Drug Administration cost more American lives by delaying the release of life-saving drugs than it saved by keeping dangerous ones off the market. 24 Similarly, regulators often respond to accidents or perceived risks by writing overly detailed regulations while ignoring the cost to safety of reduced innovation and competition. 25 The Dutch government has seen significant success by replacing prescriptive regulations with outcome-based ones that let businesses and industry groups develop their own rules. 26

Focus on What’s Important. Fewer, clearer rules can help businesses and workers know about and understand those rules that facilitate compliance. 27 When regulators fail to prioritize the most effective rules, consumers, workers, and businesses find it harder to comply. For example, California requires companies to label a product as carrying a cancer risk if there is a 1 in 100,000 chance of any person exposed to the product over a period of 70 years contracting cancer. 28 As a result, consumers have no idea which products carry a serious cancer risk and are prone to ignore all warnings. Fewer warnings could help consumers identify and avoid serious risks. Benefit-cost analysis can help regulators identify the most effective rules—for instance, the rules prohibiting lead in gasoline—but they should also update current methods to consider the costs of regulatory overload.

Define Outcomes. Instead of imposing detailed rules, regulators should define outcomes and then leave the details to business because experts on the ground have better grasps of both the problems and the solutions than regulators do. This approach would also let firms identify and avoid the conflicts between regulations that inevitably result when multiple regulators oversee many of the same industries. For example, instead of mandating specific technologies, the Environmental Protection Agency has now implemented tradable emissions caps for environmental hazards such as acid rain and nitrous oxide. 29 These caps limit pollution but allow businesses to take measures that suit their changing, individual needs.

CONCLUSION

Regulators try to reduce risks by creating a more prescriptive and growing regulatory code. The evidence suggests, however, that the difficulty of complying with such complex regulation may actually be making Americans less safe. To reverse this trend, regulators need to prioritize the most effective rules, eliminate those that are not needed, and define outcomes, leaving businesses to work out the details.

ENDNOTES

1. Code of Federal Regulations, U.S. Government Printing Office, http:// www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR.

2. For example, see Barack Obama, “Toward a 21st-Century Regulatory System,” Wall Street Journal, January 18, 2011.

3. Neil A. Gunningham and Richard Johnstone, Regulating Workplace Safety: Systems and Sanctions (Oxford: Oxford University Press, 1999); Neil A. Gunningham and Darren Sinclair, “Designing Smart Regulation” in Smart Regulation: Designing Environmental Policy, ed. Neil A. Gunningham and Peter Grabosky (Oxford: Oxford University Press, 1998), 1–19; Neil A. Gunningham and Darren Sinclair, Leaders and Laggards: Next Generation Environmental Regulation (Sheffield, United Kingdom: Greenleaf Publishing, 2002); Svein Jentoft and Knut H. Mikalsen, “A Vicious Circle? The Dynamics of Rule-Making in Norwegian Fisheries,” Marine Policy 28 (2004): 127–35; Lord Robens, Report of the Committee on Safety and Health at Work 1970–1972 (London: Her Majesty’s Stationery Office, 1972); and Philip K. Howard, The Death of Common Sense: How Law is Suffocating America (London: Random House, 1994).

4. For a general review, see Andrew Hale, David Borys, and Mark Adams, “Regulatory Overload: A Behavioral Analysis of Regulatory Compliance,” (working paper, Mercatus Center at George Mason University, Arlington, VA, 2011). See also, Rien Elling, “Veiligheidsvoorschriften in de Industrie” [Safety Rules in Industry], (PhD diss., University of Twente, the Netherlands, 1991); David Maidment, “Privatisation and Division into Competing Units as a Challenge for Safety Management,” in Safety Management: The Challenge of Change, ed. Andrew Hale and Michael Baram (Oxford: Pergamon, 1998): 221–32; Wesley A. Magat, W. Kip Viscusi, and Joel Huber, “Consumer Processing of Hazard Warning Information,” Journal of Risk and Uncertainty 1, no. 2 (1988): 201–32; and Laura Langbein and Cornelius M. Kerwin, “Implementation, Negotiation and Compliance in Environmental and Safety Regulation,” The Journal of Politics 47, no.3 (1985): 854–80. 5. Ibid; Anthony Ogus, “Comparing Regulatory Systems: Institutions, Processes and Legal Forms in Industrialised Countries,” (working paper no. 35, Centre on Regulation and Competition, University of Manchester, Manchester, United Kingdom, December 2002); and Genn Saji, “Safety Goals in ‘Risk-informed, Performance-based’ Regulation,” Reliability Engineering and System Safety 80, no. 2 (May 2003): 163–72.

6. Elling; and Maidment.

7. Magat, Viscusi, and Huber.

8. Gudela Grote, Johann C. Weichbrodt, Hannes Günter, Enikö Zala-Mezö, and Barbara Künzle, “Coordination in High-risk Organizations: The Need for Flexible Routines,” Cognition, Technology & Work 11, no. 1 (February 2009): 17–27; John C. McCarthy, Peter C. Wright, Andrew F. Monk, and Leon A. Watts “Concerns at Work: Designing Useful Procedures,” Human-Computer Interaction 13, no. 4 (December, 1998): 433–57; and Yuichi Otsukaa, Ryo Misawab, Hiroshi Noguchic, and Hiroyuki Yamaguchib, “A Consideration for Using Workers’ Heuristics to Improve Safety Rules Based on Relationships Between Creative Mental Sets and RuleViolating Actions,” Safety Science 48, no. 7 (August 2010): 878–84.

9. Ibid.

10. Rien Elling, Confi dential Incident Reporting & Analysis System (CIRAS), “Are rules really made to be broken?” The Reporter 12, no. 1 (February 1, 2007).

11. David Borys, “The Role of Safe Work Method Statements in the Australian Construction Industry,” Safety Science 50, no. 2 (February 2012): 210–20.

12. Ibid.

13. See Michael Lavérie and Roger Flandrin, “Relations Between the Safety Authority and the Nuclear Power Plant Operators,” Nuclear Engineering and Design 127 (1991): 215–18; and Lord Robens.

14. William Burman and Robert Daum, “Grinding to a Halt: The Eff ects of the Increasing Regulatory Burden on Research and Quality Improvement Eff orts,” Clinical Infectious Diseases, 49 (2009):328–35; Mary Olson, “Agency rulemaking, political infl uences, regulation and industry compliance,” The Journal of Law, Economics & Organization 15, no. 3 (October 1999): 573–601; Gary Banks, “Reducing the Regulatory Burden: The Way Forward,” lecture, Monash Centre for Regulatory Studies, Melbourne, Australia, May 17, 2006.

15. Ibid.

16. Grote et al.; McCarthy et al.; and Otsukaa et al.

17. Joel Brockner, E. Tory Higgins, and Murray B. Low, “Regulatory Focus: Theory and the Entrepreneurial Process,” Journal of Business Venturing 19, no. 2 (March 2004): 203–20.

18. Sam Peltzman, “Toward a More General Theory of Regulation,” Journal of Law and Economics 19, no. 2 (August 1976): 211–40; and George J. Stigler, “The Theory of Economic Regulation,” The Bell Journal of Economics and Management Science 2, no. 1 (Spring 1971): 3–21.

19. See Markus C. Becker, “Organizational Routines: A Review of the Literature,” Industrial and Corporate Change 13, no. 4 (2004): 643–78.

20. Ibid.

21. Nicole V. Crain and W. Mark Crain, “The Impact of Regulatory Costs on Small Firms,” Small Business Administration Offi ce of Advocacy, Small Business Research Summary no. 371 (September 2010). While elements of this study are controversial, the problems identifi ed with the authors’ methodology do not aff ect the fi gure on relative costs for small and large fi rms.

22. Joshua Aizenman and Nancy P. Marion, “Policy Uncertainty, Persistence and Growth,” Review of International Economics 1, no.2 (1993): 145–63; Jun Ishii and Jingming Yan, “Investment under Regulatory Uncertainty: U.S. Electricity Generation Investment Since 1996” (working paper, Center for Study of Energy Markets, March 2004); and Robert Lensink, Hong Bo, and Elmer Sterken, “Does Uncertainty Aff ect Economic Growth? An Empirical Analysis,” Review Of World Economics 135, no. 3 (1999): 379–96.

23. Robyn Fairman and Charlotte Yapp, “Enforced Self-Regulation, Prescription, and Conceptions of Compliance within Small Businesses: The Impact of Enforcement,” Law & Policy 27, no.4 (October 2005): 491–519.

24. Dale H. Gieringer, “The Safety and Effi cacy of New Drug Approval,” Cato Journal 5, no. 1 (1985): 177–201.

25. Ulrich Beck, Risk Society: Towards a New Modernity (New Delhi: Sage Publications, 1992); and Lord Young, Common Sense, Common Safety: Report to the Prime Minister (London: Her Majesty’s Stationery Offi ce, 2010).

26. Paul Baart and Tamara Raaijmakers, “Developments in the fi eld of work and health in the Netherlands in the period of 1990–2010,” Recommendation Paper for the Network of WHO Focal Points for Workers’ Health, Amersfoort, the Netherlands (2010); Jan Heijink and Shirley Oomens, “De werking van arbocatalogi: Evaluatie van het project arbocatalogi van de Stichting van de Arbeid (The working of the Working Conditions Catalogues of the Foundation for Work),” Project no. 340000768, Group ITS, Radboud University Nijmegen, Netherlands (February 2011).

27. Magat, Viscusi, and Huber; Elling; and Maidment.

28. California Health and Safety Code, Safe Drinking Water & Toxic Enforcement Act of 1986, ss. 25249.5-25249.13 (West 1992 & Supp. 1997) (Proposition 65).

29. U.S. Environmental Protection Agency, “Quick Facts about Cap and Trade,” Cap and Trade, http://www.epa.gov/captrade/.

Regulatory Overload

November 28, 2011

Evaluating whether the benefits of regulations outweigh the costs is difficult. It is hard to quantify the benefit from preserving a scenic view or to quantify the social and psychological costs of compliance or of witnessing a serious accident. It is also very difficult to establish the causal link between some regulatory requirement, such as mandating a formal safety management system, and its effect on accident rates. More importantly, efforts to quantify costs and benefits usually take a snapshot approach, looking at individual regulations in isolation rather than considering the cumulative effects of the regulatory system as a whole.

In this paper, we lay the groundwork for an alternative to the usual snapshot approach: one that explains how the overall size, complexity, and style of the regulatory system can change costs and benefits. The value of this approach arises from the fact that regulations can have a different effect when the entire system is viewed as a whole rather than as a collection of isolated pieces.  For example, a regulation mandating a warning label for some real but minor risk may, when viewed in isolation, provide benefits. However, that additional warning might distract consumers from more important warnings and thus, when taken as part of the whole system, increase risk. Studies inside large organizations have shown that the sheer volume of rules for complex technologies, such as nuclear and railways, make those rules less effective.

Regulatory Flexibility

September, 2010

This policy comment discusses the importance of reducing regulatory barriers to recovery in the wake of a disaster. The ability of a disaster-stricken area to recover depends to a great extent on a large number of private actors who have place- and time-specific information that is generally unavailable to government agencies. We find that laws that empower individuals to respond to events on the ground are likely to help disaster-affected cities recover faster.

We present our findings as follows:

  1. We briefly provide a background on government response to disasters and explain how social learning can become embodied in rules that allow for exceptional enforcement during disasters. We apply the concept to New Orleans and highlight specific cases where rigid regulations stood in the way of the post-Katrina recovery.
  2. We provide examples of flexibility allowed under emergency conditions and show how regulatory flexibility can enable state government to avoid gridlock in the face of a major disaster.
  3. We provide some lessons based on a review of state laws. We show how those lessons can be applied to federal agencies.
  4. We offer specific policy proposals based on our findings.

Tomorrow's Schools Today: New Zealand's Experiment 20 Years On

January, 2009

In 1989, the government of New Zealand embarked on a radical series of reforms continuing into the 1990s to address a failing schools system. The government halved the size of the educational bureaucracy, putting money and power directly into the hands of parents. Despite setbacks that may have hindered even greater success, educational quality was greatly enhanced by these policies. Coupled with new research, New Zealand's experience provides valuable lessons on reforming education. Although the goals of reformers differed, virtually all agreed on improving equality of access to high quality education and performance per dollar spent on education. This paper finds significant parallels between New Zealand in the 1980s and many states today and makes recommendations for policymakers based on the successes and failures of the New Zealand experiment.

Airport Pricing

April 3, 2008

The Regulation

The U.S. Department of Transportation has proposed a new rule that would change the way most airports charge for runway use in three ways: Airports would be permitted to combine existing weight-based fees with a fee for the congestion each airline imposes on other users. Operators with multiple airports could shift fees onto flights at the most congested airports. Operators of congested airports could include the costs of airfield projects under construction in their fees.

Our Findings

Delays caused by congestion impose substantial costs on airlines and passengers alike. A significant proportion of this cost could be avoided if airports were allowed to charge carriers for the congestion they impose on other runway users. When congestion pricing is combined with increased investment, passengers and carriers are the main beneficiaries. By creating incentives for airlines to use existing capacity more efficiently, congestion pricing will not lead to a major reduction in available seating.

Recommendations

The DOT should proceed with the proposed rule changes. The Department should require airports to compare the new fees with the social costs of congestion at that airport, and adjust their pricing accordingly.

Extension of Optional Practical Training for Foreign Students

June 12, 2008

Highlights

The Regulation

Optional Practical Training (OPT) allows foreign students to remain in the US for one year after the completion of studies.  The Department of Homeland Security (DHS) has issued an interim final rule extending this by 17 months (to a total of 29 months) for students with degrees in science, technology, engineering and math (STEM).

DHS also proposes closing the "cap gap," the four month period between OPT expiring and the earliest start date for an H1-B visa (a special visa for highly skilled migrants).

Our Findings

Making it easier for students to remain in the US for longer will alleviate restrictions on skilled migration caused by the H1-B visa cap and:

  • Increase exports
  • Benefit domestic students
  • Raise productivity and wages for domestic workers
  • Increase US competiveness

The decision to limit the 17 month extension to STEM students will also limit the potential benefits of the extension

Recommendations

DHS should continue with the interim final rule but should extend the rule to include other students.  In particular,  DHS should consider applying the rule to students of business, finance, economics and related disciplines.