Ohio Has Enough Jobs, Doesn’t It?
Tuesday, October 14th, 2008 By Marc KilmerA new report has been released that backs up the claim that the payday lending “reform” legislation passed earlier this year will result in significant job loss across the state. Backers of this legislation deny this, but it seems the data doesn’t support their contention.
The report by William D. Keip, President of Keip Government Solutions, concludes the following:
10,308 Total Ohio jobs lost
6,000 PayDay Lender jobs lost
$495.3 million Economic Activity
$218.5 million Total reduced earnings
$145.1 million Reduced earnings-direct PayDay Lender jobs
$262.0 million Total reduced spending
$ 14.8 million Loss of state/local Ohio taxes
Why is this the case? Keip’s report discusses the methodology he used to come up with these figures. However, these numbers rest on the assumption that payday lenders across Ohio will go out of business if Issue 5 is not rejected. Those supporting Issue 5 say this is not the case, that payday lenders will still exist but that they will merely be charging lower interest rates. Is this true? The answer is clearly no.
To see why, consider the difficulties payday lenders face to stay in business under a law that limits their interest rates to 1.08% for a two-week loan. That is, if you take the new 28% yearly interest rate and divide it by 26, you get 1.08%, which is what lenders will be allowed to charge per every $100 they loan. Under the old Ohio law, they could charge up to $15 per $100 borrowed, or 15%
So if someone borrows $300, lenders can only charge them $3.24 for that privilege. It is difficult to see how anyone could make a profit that way. In fact, even with the “high” rates being charged by payday lenders, they didn’t make much profit. As one scholarly study shows, “For pure payday lenders, the average profit margin was 3.57%. When including pawn operators, this figure more than doubles to 7.63%” If they were making between 3% and 8% profit when they could charge higher fees, does anyone really think they can stay in business with the fees being drastically lowered? It certainly seems that these higher fees are necessary to provide the service desired by consumers.
But, some retort, lenders have applied under the state’s new short-term loan act to offer loans at the new, lower rate. Well, applying for a business license and actually running a business are two separate things. It makes good business sense to cover all your bases in case something changes, but there is no way that a store can make a profit making these types of unsecured loans at only a 1.08% interest rate.
Keip’s analysis shows what will happen to Ohio when these businesses leave the state. His analysis seems to be conducted using standard methodology and it would be hard to quibble with it. Let me quote it at length:
Estimate of Direct, Indirect and Induced job loss
For this study, direct jobs include regional and district managers, auditors and customer service representatives. There are 6,000 direct jobs industry wide from survey extrapolated to 1,606 pay lenders. These direct jobs create indirect jobs to include advertisers, landlords, and utilities, and induced jobs that result from the spending of payday lenders and their suppliers, including gas stations attendants, cashiers, clothing sales people etc.
The BEA-RIMSII model estimates the “Total change in number of jobs that occurs in all industries for each additional job in the industry”. A multiplier of 1.7181 results in an estimate that 10,308 “total” jobs (direct, indirect, and induced) will be lost as a consequence of the loss of 6,000 direct industry-wide jobs.
Estimate of state and local tax loss – PayDay Lender IndustryThe tax loss estimate does not include the loss of state and local taxes paid by indirect and induced employees.
State Personal Income tax: $26,000 average salary less $2,900 for standard deduction less $80 for personal exemption = $23,020 taxable = $507 tax due times 6,000 employees = $3.04 million annually
Local city tax is = $145.1 million payroll times 2% or $2.9 million annually
Sales Tax: state and local combined average = 6.75% times purchases of $131 million or $8.8 million annually
Total reduced state and local taxes $14.8 million each year.
Ohio is already suffering from job loss that is above national averages and a reduction in expected tax revenue. Is it really a good idea to make these problems even worse?
Tags: Economy, payday lending, Regulation
October 15th, 2008 at 11:19 am
Ohio simply can’t afford to sink any further into the economic abyss. Voters must wake up and realize that running another industry out of the state could be the final nail in the coffin. Not only will jobs and tax revenues be lost, but consumers who are already having a tough time will have a short-term credit option taken away. Just where will folks find the money for unexpected expenses if payday loans are banned? Vote NO on Issue 5 and help keep Ohioans employed and their financial options open!
October 27th, 2008 at 9:59 am
The supposedly objective William Keip was paid $8,400 by the payday lobby (Reject House Bill 545 Committee). Given the paycheck from the payday lenders, I’m pretty sure he’d be willing to write whatever they wanted him to. Vote yes on issue 5!
October 27th, 2008 at 4:49 pm
Greg, even if what you say is true (and you present no evidence that it is), what does that have to do with Bill’s analysis? If you disagree with it, fine, but I’d like to see some stronger evidence than an assertion that questions his integrity. Perhaps you can produce a competing analysis or point out the flaws in his calculations. If not, I’d prefer to leave the character assasination elsewhere. I prefer to deal with facts, not innuendo.
It’s a fact that payday lenders can’t stay in business under the new rates. It’s a fact that their employees will lose jobs. It’s a fact that this will have ripple effects throughout the community. Although those attacking payday lenders try to avoid this issue and question the character of those with whom they disagree, they cannot really deny these facts.
October 29th, 2008 at 11:15 am
This is not just an Ohio issue….look at the bigger picture. I work for a company based out of Ohio- we were told yesterday that it is likely that a yes vote will end our jobs too. I live in Illinois- my company provides another 500 or so good paying jobs in Illinois and Indiana- but if our corporate operations in the state that we first established in are shut down chances are our large parent company will close all branches. I work in a building that was abandoned until my company came in- they cleaned it up and opened a business that now pays taxes to our community. It provides decent paying jobs in a market with hardly any! We are encouraged and our company allows us a budget to do positive things in our community- donates our property for car washes- donations to local agencies, etc..
Voting NO in Ohio- keep those jobs in Ohio- and many other jobs in other states. Our family has a trip to visit friends in Cincinnati in Feb. planned- without a job we’ll certainly not take that trip- which is loss of money to Ohio- where we would spend money while there! Our daughter plays traveling softball- last year we spent 5 days in Ohio for nationals- our money into Ohios pocket. Ending jobs in any state- but expecially one that trickles to other states can not be a good thing.
And by the way…if people want to loan- they’ll just go online and do so. Internet lending is seeing a HUGE increase anyways- people will still overextend themselves- they’ll still take loans at a cost of $15 per hundred or maybe more- and this law will have been the reason for huge JOB ELIMINATIONS.
Vote No….if you don’t like the lenders- don’t use them, but don’t take the jobs away.