Tag: Economic Development

Quality Jobs Tax Grant: Program Design Capstone

Public Policy

The Capstone Project has been a hallmark of the Fels Institute’s practical approach to public administration for many years. I was fortunate to have a mentor who had also gone through the program, and was able to guide me to an excellent candidate for a project. After a successful design process, the COVID-19 pandemic (appropriately) deprioritized the program’s funding in favor of a more immediate lifeline to small businesses. But in 2023, the City of Philadelphia officially launched the program.

Executive Summary

In general, tax incentives are expensive, poorly designed, and difficult if not impossible to
evaluate. At the same time, they are critical to the economic future of a city, state, or region
and their ability to attract or retain businesses. They are popular among politicians for their
ability to make a splash – creating jobs and scoring points with voters. The reality is there are
too many programs that don’t offer enough data on their performance. In Philadelphia alone
there are 21 separate programs that offer economic incentives – the most among major cities
included in a recent Pew Research center study. And yet, Philadelphia struggles with growing
the right kinds of jobs – those offering good wages, health insurance, and other benefits that
help families thrive. To make better use of funding dedicated to economic incentives,
Philadelphia and cities across the country must embrace transparency, evaluation, and
inclusive policies that maximize benefits for all residents. The Quality Jobs Tax Grant program
represents a design that incorporates these ideas and much more by relying on best practices,
high-quality research, and expert opinions. Improvements will be needed across the full
portfolio of economic incentives, but Quality Jobs can serve as the new standard for inclusive
growth incentives in Philadelphia.

My full capstone paper can be accessed here.

Regulating Philadelphia’s Gig Economy

Public Policy

This memo was drafted in June 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

Despite huge growth over the last eight years, the gig economy is a controversial subject with supporters and detractors across the country. Those in favor say it provides flexibility and scalability for talented workers to earn income on their own schedule. Those opposed see greedy corporations placing the risk on employees while withholding some of the reward they’d receive if they were truly “independent.” Philadelphia is home to many thousands of gig economy workers, and faces a difficult challenge in balancing reform and protections for workers with preserving this vital source of income for non-traditional employees. By working closely with employee rights’ groups and freelancers of all shapes and sizes, new incentives and penalties should be developed to better manage the gig economy labor market, as opposed to banning it outright. 

What is the Gig Economy? How does it interact with the larger labor market?

The gig economy is a term used to describe a wide variety of temporary, part-time, flexible labor contracts, which can have varying degrees of complexity. For example, adjunct professors or high-skilled freelance workers are just as much gig economy members as Uber drivers and Rover dog walkers. When viewed in this more holistic way, as much as one third of Americans already have a “gig” as part of their professional life. Workers choose gigs because of the flexibility and, in some cases, to get into a new job or back to work quickly without dealing with traditional hiring processes. 

Employers also benefit in many ways from the arrangements possible in the gig economy. For example, an employer who cannot afford to continue hiring full-time employees as they scale may use gig economy workers to fill in the gaps. Another way the employer may benefit is by expanding their available talent pool. A graphic designer, for example, may not be able to move across the country to design them a logo full-time, but would gladly contract with the firm remotely using technology as a bridge. Both parties benefit a great deal in this scenario – the freelancer gets a client and the organization gets a cost effective brand identity.

What is the Gig Economy’s impact on Philadelphia?

According to a Brookings Institute report, two major elements of what most consider the gig economy – ride sharing and room sharing – are growing in Philadelphia. From 2012 to 2014, ride-sharing work grew by 6% and rooms grew by 2%. From the report: “The spread of nonemployer firms between 2010 and 2014 occurred mostly in the largest metro areas. No less than 81 percent of the four-year net growth in nonemployer firms in the rides sector took place in the 25 largest metros, while 92 percent occurred in the largest 50 metros.” Despite being significant and growing quickly, the report makes it clear that app-based employment is not displacing payroll employment. 

This data is a combination of Census Bureau’s survey measuring Nonemployer Businesses by census tract and corresponding NAICS codes – meaning with some minor manipulation, it would be easy to monitor long-term. Collection and reporting of this data should accompany any initial meetings internally, and can also be leveraged to plan an effective hearing should one be called (i.e. inviting appropriate industry representation, not just Uber). 

What does the California case study demonstrate?

In April 2018, the California Supreme Court ruled “that employers must treat workers who do work related to a company’s ‘usual course of business’ as full-fledged employees.” As an example of the standard, a plumber hired to fix a sink at a business would not be considered an employee. However, if a clothing company hired a worker to sew at their home, they would be entitled to a minimum wage, breaks, and other employment benefits. This ruling only applied to a shipping firm called Dynamex, but set a precedent that could impact many types of workers in California, including care givers, dog walkers, hair stylists, and ride-share drivers. It would make gig work illegal in the current state it exists, and require companies to take on significant costs and risks, including minimum wages, additional payroll taxes, and benefit contributions. An MIT professor estimated an increased cost per employee of between 25% to 40%.  

In May 2019, following protests by Uber drivers related to the company’s forthcoming IPO, California lawmakers passed legislation which provided stricter guidelines for worker classification. For workers to be classified as independent contractors, companies will have to prove the following three conditions: 

  1. That they don’t control or direct the person’s work
  2. That the worker’s services aren’t related to the company’s main business 
  3. And that the person is engaged in an “independently established trade, occupation, or business of the same nature” as the work performed.

These conditions would almost certainly make many popular app-based gigs classifiable as full-time employment. Examples include Lyft, Uber, AmazonFlex, GrubHub, Postmates, Care.com, and Wag. The bill seems to get these workers closer to their demands from the protests – mainly better wages, job security, and better treatment from their corporate higher-ups. It’s important to note that the demands vary from place to place depending on the local issues. 

What should regulatory goals should Philadelphia pursue?

Gig economy work can be very important and meaningful in the life of Philadelphia’s residents. There are certainly drawbacks as evidenced in the California case study – companies are effectively transferring the burden from themselves to the employee who bears much more of the risk than traditional workers. Legislation like that in CA will completely turn the tables and put the burden back on employers. However, a very basic economics model of supply and demand tells us that as the cost of these workers increases, the demand for their work will decrease as well. Large, well-funded organizations will be able to weather this storm, but small and medium-size businesses will be hit the hardest by these new regulations. 

Philadelphia should be cautious in how they regulate this transfer of burden from employee to employer, as we could lose critical, low-skill and low-barrier-to-entry jobs for vulnerable residents. According to a 2018 survey by UpWork, an online freelance marketplace, 42% of freelancers said they like gig economy arrangements because they aren’t able to work for a traditional employer. Whether it be those who recently lost jobs, have family obligations, or other hurdles to traditional employment, the gig economy provides an opportunity to be productive and earn income with little commitment or training. Another finding from their survey showed that gig economy work is valued by those who are of retirement age or older for all of the same reasons mentioned above. It would be more harmful than good if Philadelphia made this kind of work impossible. 

Conclusion/Recommendations

The gig economy is growing rapidly, but now finds itself on shakier ground that it did a year ago. While abuses of employee rights should be fought, outlawing a type of work arrangement will not necessarily solve the core issue. Organizations must be held accountable for treating employees fairly regardless of their size, scale, or employee base. Philadelphia should prioritize policy solutions that better manage this labor market, but not ban it outright. Some recommendations for how to proceed could include:

  • Holding a hearing that includes a wide variety of gig workers – not just ride-sharing, but adjunct professors, care givers, etc. – and specifically addresses how to preserve their way of working while improving their outcomes
  • Research and develop incentives for employers to provide pathways to full-time employment (for those who want it) and protections for part-time and gig economy workers
  • Host convenings of on-the-ground advocates such as the Freelancers Union, and other worker’s rights groups, to gain insight into current demands and potential solutions from around the country
  • Continue to pursue pro-worker policies such as the increased minimum wage, enforcement of worker protection laws, and social safety net programs 

An approach to marijuana legalization policy in Philadelphia

Public Policy

This memo was drafted in March 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

Medical marijuana is legal in thirty-three streets and the District of Columbia. Ten states and the District of Columbia have fully legal adult marijuana markets. Estimates show the United States marijuana approaching nearly $50 billion in sales annually. In PA alone, a fully legal market would be estimated at $1.66 billion annually, with tax revenues of roughly $600 million. The industry would create tens of thousands of new direct and indirect jobs annually, many requiring no advanced education. Innovations in policy, such as requiring diversity in leadership of marijuana businesses, preference to disadvantaged communities, and micro licenses, help ensure inclusive growth as the industry matures. 

How many states have legalized marijuana? And to what degree?

As of March 2019, thirty-three states plus Washington D.C. have legalized marijuana for medical purposes. Another ten states plus Washington D.C. have fully legalized marijuana for adult use. Several more, including New Hampshire and New Mexico, are poised to approve legalization for adult use. While it is currently an illegal drug under federal law, recent reports suggest that Congress could soon introduce legislation for fully legalizing marijuana nationwide. More locally, New York, New Jersey, and Delaware all permit the sale of medical marijuana, and all three have also introduced legislation in the last year that, if passed, would make marijuana fully legal for adult use. New York Governor Andrew Cuomo has changed his view on legalization in recent months, in part due to fears of losing sales over the border to states such as Massachusetts or Vermont.

Current State: How have Pennsylvania and Philadelphia dealt with medical marijuana?

On April 17, 2016, the state of Pennsylvania’s Medical Marijuana Program was signed into law. It established three types of permits – Growers & Processors, Dispensaries, and Clinical Research – which allow for narrow permissions within each niche. Geographically they are spread across six regions – Philadelphia County is part of Region 1 (Southeast). Philadelphia is currently home to five Dispensaries, and zero Grower/Processor facilities. There are also five Clinical Research permits in Philadelphia, associated with some of the city’s top academic institutions: Temple University, Drexel University, University of Pennsylvania, Thomas Jefferson University, and Philadelphia College of Osteopathic Medicine.

Pennsylvania requires several Diversity and Inclusion items as part of their application for permits, which are scored to aid in decision making. In our preliminary research, there does not appear to be another state offering full adult legalization with a similar requirement for diversity and inclusion. These plans cover diversity of those hired by the organization – with a requirement of at least one diverse hire on the leadership team; Diversity in contracts – applicants must provide a percentage of contracts given to diverse contract firms; and a Community Impact Score – related to the number of jobs created, site selection, etc. These are well-intentioned incentives meant to avoid a direct transfer of wealth from the marijuana black and grey markets to a wealthy group of investors. Further policy innovations in full legal markets are addressed later in this memo.

What is the economic impact of the legalized marijuana market?

A 2015 report from the Marijuana Policy Group conducted a true input-output analysis – the best practice for measuring total impact. Their research team estimated a 2.4 multiplier for the marijuana retail industry in Colorado. In other words, for every $1.00 invested, $2.40 is generated to the economy. While this measure would need to be recalculated for Philadelphia, even a conservative estimate would place it in line with the largest economic drivers in the region. Additionally, multiplier effects from production of edible products and cultivation would be generated as well.

In July 2018, Pennsylvania Auditor General Eugene DePasquale released a report on potential economic impacts of marijuana legalization in the state. Using the average adult consumption from Colorado and Washington state as the basis, his office estimates a $1.66 billion sector, leading to approximately $581 million in annual tax revenue. This does not include any additional revenues gained through payroll taxes, indirect employment, or marijuana tourism. Studies have also shown that adult use actually increased by about one-third over the first three years of legalization, while underage use falls due to limited black and grey market sales. 

How many and what kind of jobs would be created?

A recent survey by cannabis-specific recruiting firm, Vangst, shows a 690% growth in cannabis job listings between January 2017 and August 2018. Roles tracked in the survey include the full range of experience and salary levels relevant to the industry. As an example, Budtenders and Trimmers, who require the lowest level of experience, range from $11.50/hr to $16/hr. White collar work commanded a range of salaries from $45,000 on the low-end to a high of $250,000 per year. Due to significant competition for talent as the new industry blossoms, salaries measured by the survey increased 16% from 2017 to 2018. At less than half the population of Philadelphia, Colorado was able to generate over 18,000 direct and indirect jobs in 2015 alone. Examples of indirect employment created include security guards, commercial real-estate agents, construction and HVAC specialists, consulting, legal, and advisory services, and other business services.

One policy innovation being pursued in New Jersey would require a certain quantity of permits be reserved for Micro-licenses. Micro-licenses allow license holders to operate much the same way — growing, processing or selling marijuana — but at a smaller scale, which lessens the capital burden at the start. Lawmakers are also considering giving preference to license applications from areas disproportionately affected by marijuana arrests or, alternatively, to areas with high levels of unemployment. Both policies are aimed at more inclusive growth for the industry as it matures. 

Conclusions and Recommendations

In terms of public opinion and legislative results, marijuana legalization may be more popular than anytime in US history. Momentum at the local, state, and federal levels, while varying, is moving in a clear direction in favor of legal adult use. Any discussion of policy should consider both the positive and negative externalities of such a decision, including:

  • How might we address concerns about public health? While research does not show marijuana to be any more dangerous than cigarette smoke or alcohol consumption, issues such as tests for impaired driving and underage consumption must be addressed.
  • If Pennsylvania law differs from neighboring states, how might law enforcement officials coordinate to ensure successful policing of residents? 
  • How might Philadelphia build on the state’s efforts to create an inclusive marijuana industry? 

The best time to invest in education was 50 years ago, second best time is now

Public Policy

This memo was drafted in March 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

  • Relatively modest gains in educational quality lead to significant economic multiplier effects in the long-run – a modest improvement yields an additional $1 trillion in GDP over the status quo scenario. 
  • Student achievement is found to be closely linked with teacher quality, but other factors such as a healthy and productive environment are prerequisite. 
  • Reforms to education policy take time to implement, with benefits deferred for at least 10 years in terms of school quality improvement. 
  • Improvements in the labor force and broader economy peak after 50 years (10 years of reform followed by 40 years of retirement/replacement rate), however benefits are compounded over time as the average education level rises. 
  • Educational improvement is an incredibly powerful driver of economic output, but due to the deferred nature of results, cannot be the only driver of growth for a modern economy.

Does educational improvement lead to better economic outcomes?

Relatively modest gains in educational quality lead to significant multiplier effects in the long-run. It has been estimated that 13% of the growth rate of U.S. national income between 1929 and 1982 was caused by increases in the level of education obtained by U.S. residents. A commonly accepted baseline for expected GDP growth, under current education policy, is projected to be 1.5% per year by the Congressional Budget Office.

By improving Pennsylvania’s position within national rankings by only ¼ of a standard deviation over ten years, Pennsylvania and Philadelphia could see massive impact on the growth of the economy. This improvement would be the equivalent of going from the last ranked state (50th) in the country to 41st in the rankings, or from 8th best state to becoming the top ranked state (based on 2015 data). As a point of reference, Pennsylvania is 15th in terms of 8th Grade Mathematics in the 2017 rankings (via NAEP). This improvement was chosen by the authors of the study we reviewed as the authors observed at least 14 states that made a similar sized improvement over the last two decades. 

Making this modest improvement over a ten-year period in Pennsylvania would improve our expected annual growth rate from 1.5% to 5.6%. Based on Pennsylvania’s 2017 GDP of $531.1 billion, that 5.6% annual increase means adding just shy of $30 billion to the economy in an average post-reform year. When added together over the career of a student cohort (in this case estimated at 80 years), the return on this modest improvement is 2.6 times state GDP, or over $1 trillion more than the current education policy scenario.

One way to accelerate the compound benefit over time is starting with early interventions such as Pre-K programs. A study from the Pennsylvania Department of Education showed investments in quality pre-k programming return approximately $7 for every taxpayer dollar invested. And when the benefits of increased tax revenue are combined with reduced welfare spending, investment in quality pre-kindergarten programs return up to $17 for every dollar spent. Additionally, helping students be more productive early in their education will lead to compounded benefits over the life of their cohort. As shown in Figure 2 below, there is exponential return on earlier investment as improvements compound over time. 

What is the timeline for impact measurement of education policy reform?

Education policy reform is not instantaneous. One study projected improvements over a ten-year period, assuming linear growth among students that yielded the full benefit at the end of year ten. Another suggested that improving the quality of the average teacher is best achieved through hiring and retention or dismissal policies, as in-service trainings and other interventions have not been as effective. They provided an analysis assuming a 7% turnover rate combined with the average new teacher hire averaging performance in the 56th percentile, which led to significant improvement after 20 years of implementation. If the turnover rate is increased to 14% through changes in policy or perception of the profession, significant student improvement can be obtained in ten years.

This improvement is different from the improvement in the labor force, which can only improve as less educated workers retire and more educated workers begin their careers. Estimating a 2.5% retirement and replacement rate for more educated students, implying the ultimate quality of the labor force is achieved over 50 years (10 years of reform followed by 40 years of retirements).

How might we measure, and improve, school quality?

For the purposes of this memo, when quality is referenced, it is specifically defined as scores on standardized tests in mathematics and science administered by IEA (International Association for the Evaluation of Educational Achievement), an international cooperative of national research institutions, government research agencies, scholars and analysts working to evaluate, understand and improve education worldwide. Research using this data and including factors such as school resources and externalities (parental involvement, for example), showed significant differences in economic impact.

There is a lack of any consistent or systemic effect of resources on student achievement or school quality. That is not to say resources are irrelevant. In many urban school districts, such as Philadelphia, resource levels and quality of environment can vary drastically from school to school. If dangerous and unhealthy conditions exist, improvement will be hampered regardless of quality or quantity of other inputs. In these cases, whether by increasing resources or simply reallocating existing spending, addressing these issues should come first. On the other hand, there clearly are situations where small classes or added resources have an impact. It is just that no good description of when and where these situations occur is available. 

By many accounts, the quality of teachers is the key element to improving student performance. But the research evidence also suggests that many of the policies aimed at improving performance that have been pursued around the world have not been very productive. This issue can be compounded by the issues mentioned above relating to school quality. If teachers are lacking the very basic resources and safe, healthy work environments expected in any career, they will likely be less effective and/or consider leaving the school, district, or even the profession should issues persist.

According to Eric Hanushek, who has done extensive research in this area, the most feasible approach to improve teacher quality is to experiment with alternative incentive schemes. These might involve new contracts and approaches to teacher compensation, introduction of parental choice across schools, merit awards for schools, etc. The unifying theme is that each should be designed to improve student achievement directly. For example, merit awards to teachers would be directly linked to objective information about student performance. While this may be very challenging to implement in the short-term, many cities have taken up the mantel and are moving towards invaluable reform (Hanushek, et al Economic Outcomes).

What have other cities done to reform their schools? Is there a model for Philadelphia to emulate?

Boston, Chicago, Cincinnati, Minneapolis, and New York City are all examples of districts that have adopted rigorous content and performance standards and have aligned the curricula, instruction, and other aspects of their systems to those standards. They have used data, including comprehensive student information management systems, to guide their decisions and have emphasized professional development for teachers and principals. They have relied on frequent formative assessments. They have also developed a culture of learning and collaboration among teachers. But districts have taken very different routes even to making these sorts of changes—and these differences reflect marked differences in their circumstances.

Urban school districts, which frequently have high concentrations of students at risk for school failure, are at the forefront in the challenge of defining and ensuring equity, and many have also been pioneers in school reform. Low levels of achievement, struggles to recruit and retain both effective teachers and administrators, and the needs of families in high-poverty neighborhoods are among the challenges that face these districts. In short, the literature on district reform suggests that a district can be a strong agent for reform and that districts that have achieved improvements share several attributes:

  • a systemwide approach in which policies and practices are aligned;
  • strong support and professional development for both teachers and administrators;
  • clearly defined expectations for students and teachers, combined with a strong emphasis on improvement; and
  • reliance on data to support instructional decisions and for accountability.

Conclusion / Recommendations

Improving school quality will lead to significant economic impact on the city of Philadelphia. Specifically, this type of growth would be inclusive, assuming consistent policy applied to the School District of Philadelphia. Educational advance can contribute directly and indirectly to economic growth. In direct cases, by increasing the human capital and thus the productivity of the workforce. In the indirect, by increasing the rate of innovation and adoption of new technologies. Both are central to Philadelphia’s future as a world-class city.

When considering the deferred benefit timeline, education alone cannot drive our economy. Philadelphia must continue to spur business activity through proven policy measures until the multiplier of education is reached. Philadelphia would also benefit from the continued attraction of talented individuals and firms from outside the city and region.

Sources:

Golden, Claudia, and Lawrence Katz. “The Legacy of U.S. Educational Leadership: Notes on Distribution and Economic Growth in the Twentieth Century.” Scholar.harvard.edu, National Bureau of Economic Research, 2018.

Hanushek, Eric A. Economic Outcomes and School Quality. International Institute for Educational Planning, 2005.

Hanushek, Eric, et al. “Economic Gains for U.S. States from Educational Reform.” NATIONAL BUREAU OF ECONOMIC RESEARCH, 2015, doi:10.3386/w21770.

Hanushek, E. A., & Kimko, D.D. (2000). Schooling, labor force quality, and the growth of nations. American Economic Review, 90(5), 1184-1208.

Hungerford, Thomas L, and Robert W Wassmer. K-12 Education in the U.S. Economy. National Education Association, 2004, pp. 1–48, K-12 Education in the U.S. Economy.

Mitra, Dana. Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education. Education Law Center, 2011, pp. 3–31, Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education.

NAEP. “NAEP Report Cards – Home.” The Nation’s Report Card, 2017, http://www.nationsreportcard.gov/.

National Academies Press. A Plan for Evaluating the District of Columbia’s Public Schools: From Impressions to Evidence. National Academies Press, 2011.