Published on 7 Apr 2015
Wages in America differ greatly among workers. Why is that? One reason includes differences in human capital — tools of the mind. Education is one of the biggest investments people make to increase their human capital. Which college majors offer the greatest returns? And are all returns on education due to human capital? A college degree can “signal” other factors as well, and we discuss what is commonly known as the “sheepskin effect.” In this video, we also discuss how globalization has affected wages in the U.S.
May 18, 2016
May 13, 2016
April 23, 2016
Published on 7 Apr 2015
In this video on the marginal product of labor, we discuss some commons questions such as: How are wages determined? Why do most Americans earn so much by global standards? What exactly is meant by ‘human capital’? Do labor unions help workers, and if so, by how much? How does discrimination affect labor markets? How is the demand for labor different than the demand for a good? We’ll discuss how to derive the demand for labor based on the marginal product of labor, and use real-world examples — such as the demand for janitors in a fast food restaurant — to illustrate this calculation. We’ll also cover an individual’s labor supply curve vs. market supply of labor.
March 18, 2016
There is a war on. People who can do things, even just the things our parents could do, or less, are losing.
But there is worse. Lately I’ve been running into a new category “people who can’t do their jobs.” And these aren’t just our manual labor imports, I mean, people who supposedly are trained and certified and either can’t or won’t do their jobs.
I know everyone was very impatient with me last year when I was fixing the house for sale, but honestly, there is a reason I do all the manual labor I can. The reason is the tile wall I paid someone 1500 to fix (it had fallen. Long story) and which fell in the night, the day after he put it up. He’d mixed the adhesive wrong. So he came back and fixed it. It fell again. The third time I got a book (this was before Youtube) figured how to do it and did it. This wasn’t an isolated incident. It just keeps happening when someone comes over to fix something. So if I can, I do it.
But there’s more serious cases, like the guy who replaced our brakes but didn’t replace the brake cables. Leading to us losing brake power 15 minutes later. (Thank G-d someone was looking out for us. We lost it a) when Dan was driving. I’d have panicked. Well, he did too, but… he works even panicked. b) we were JUST outside a garage c) we’d been going very slowly.) Or the doctor who convinced himself my 13 year old had an STD and wouldn’t listen to the kid when he insisted he was a virgin. If I hadn’t gone over his head to a urologist, and told the boy to stop taking the antibiotic that was making him ill, my son would probably have died within months. (Of the problem, which was rare, but not unheard of particularly in early teens. As in the urologist identified it on symptoms alone.)
I’ve been given completely wrong instructions by someone selling me a machine or a product. I’ve had ghastly things done to garments or objects taken in for repair because the person who was supposedly an expert on this just couldn’t do it.
Publishing… well, there’s a reason the houses are floundering. And it’s not just the innovation, the end of push marketing, or the fact they can’t wrap heads around Amazon. That’s all I’ll say. Every time someone tells me they can’t go indie because how do they know the book is good if no professional has read it, I remember when I was sitting in a panel with the editor of my friend’s book, (professional, one of the big five) and it became clear not only hadn’t she read the book, but she had only skimmed the proposal. I later watched for the tells and (other than Baen) most of my books were published without anyone but the copyeditor even looking at them. And the copyeditor often sounded like she (it was always a she) had a high school education, even the ones editing history books.
Movie making. Director’s cuts are illuminating. “I filmed that scene, then it didn’t work. I don’t know why” — usually the reason is a gross error in basic storytelling. One anyone who had read a couples of plotting books could fix. But billionaires in Hollywood have no clue. They were never trained.
Sarah Hoyt, “The War On Competence”, According to Hoyt, 2016-03-04.
January 22, 2016
… the free market flourishes when everyone, most of the time, refrains from taking advantage of each other’s vulnerability.
Many people, especially college professors, are surprised by how much honesty, reciprocity, and trust exist among those who engage in business. The biggest, most successful corporations in the world, such as Google and Apple, are renown[ed] for how much they trust their employees and how much independence they give them. (There are much smaller companies that do so, too.) A very successful entrepreneur I know told me recently that the key to running a large, profitable business is to treat your employees, suppliers, and customers with respect and like responsible people. It’s just not possible always to be looking over someone’s shoulder.
When you trust people to reciprocate that trust, you’re taking a chance that they may take advantage of you. Such pessimism, however, means your relationships with other people — your suppliers, employees, and customers — will never have a chance to flourish. That’s why it goes against your long-term interests to hunker down and never leave yourself vulnerable to opportunistic behavior.
The incentive to treat people right by following norms of honesty and fair play is non-monetary, but it can make your business prosper. It seems that the best business owners aren’t driven primarily by profit-seeking, although they probably wouldn’t do what they’re doing without earning that profit. No, the incentives they follow often have more to do with knowing that they’ve done things the right way and so deserve all that they’ve earned. (Which is why they can get very upset when a politician says, “If you’ve got a business, you didn’t build that.”) That knowledge is something all the money in the world can’t buy.
Sandy Ikeda, “Incentives 101: Why good intentions fail and passing a law still won’t get it done”, The Freeman, 2014-11-13.
January 10, 2016
As a mortgage-paying parent, I don’t tend to dine at restaurants that employ sommeliers, so I can’t speak from personal experience about this “golden age”, but in the NY Eater, Levi Dalton says it’s coming to an end:
Prosecco sales are soaring in the United States. Rosé has been on fire as well. One aspect that these categories often share is that consumers don’t feel that they need a recommendation when making a choice among them. Consumers are comfortable purchasing these wines on their own. This is especially true of first-time wine buyers. Nielsen recently noted that, in the States, one third of Prosecco’s massive growth has come from buyers that never bought sparkling wine before. Prosecco is an entry point for consumers who are new to wine. What’s worth noting about that is that Prosecco is not a sommelier-driven category. Sommeliers typically shun Prosecco, and there are New York City wine directors that have gone on record as refusing to offer a Prosecco. What’s important about this is that although we think of sommeliers as introducing people to wine, it seems that consumers are choosing to find their own way into wine and that they are gravitating towards categories where a sommelier’s advice isn’t needed. In the same way that some movies are “critic proof,” obtaining large ticket sales even if the reviews for them are lukewarm, some wines have become “sommelier proof.”
A blow to consumer confidence in sommeliers has come from sommeliers themselves. It is now common — and not only common, but expected — that sommeliers will shill for their friends and their friends’ wines when speaking to the press. The excitement that sommeliers repeatedly express for wines in the press is wholly at odds with their level of excitement for those same wines in private, but this no longer applies to just one or two people who are fluent in media training — this is pretty much the industry at this point. Over and over again sommeliers publicly go on record endorsing wines that have little going for them on their own merits in the market except for some sort of personal tie with the sommelier.
This is at odds with what brought sommeliers to such prominence in the first place — which is that sommeliers introduced consumers to new wines that offered superb value in the face of a wine writing establishment that often continued to predictably endorse their own favorites even as prices for those wines skyrocketed and left most consumers behind. Sommeliers stayed with consumers and offered them great wines in their price range when critics didn’t. In place of that, a certain cynicism has set in with sommeliers in that they don’t seem to think readers will be able to tell the difference between a good recommendation and a personally motivated one. This has already been toxic to the reputation of sommeliers in general and will only continue to be more damaging unless the sommeliers themselves change their tune.
H/T to Brendan for the link.
January 2, 2016
One of the things you might notice about novels from the 1950s and 1960s is how many of the affluent people in them are engaged in trades like selling insurance, manufacturing some dull but necessary article, or running a car lot. These people are rarely the heroes of the novel (even then, writers found it much easier to imagine themselves as doctors or lawyers or, for that matter, as rough-hewn working-class types than as regional office-supplies distributors). But it is telling that those novelists took for granted that the writers and professionals would be intermingled with the makers and sellers, something that comes across as distinctly odd to the residents of the modern coastal corridors. Few of my friends even run a budget outside their own households, much less a profit and loss statement, and very few indeed have ever gone on a sales call.
The change in our novels reflects a change in our economy: the decline of manufacturing; the rise in the number and remuneration of professional jobs; the increase in the size of service firms; and the resulting shift toward salaried positions rather than partnerships or sole proprietorships. As a result of these changes, the upper middle class has found itself in a curious bind. In some ways, its economic fortunes are better than ever: They make more money, more reliably, than they used to. But because they are employees rather than business owners, they have a very limited ability to pass their good fortune onto their children.
A parent who had built a good insurance business in 1950 had a valuable asset that he could hand over to his sons. As long as they put a full day in at the office, they too would be able to take home a good living. That calculation applies across a broad range of manufacturing, retail and service businesses that used to form the economic bulwark of the prosperous middle class.
An MBA, however, is not heritable. Neither is a law degree, a medical degree, or any of the other educational credentials that form the barriers to entry into today’s upper middle class. Those have to be earned by the child, from strangers — and with inequality rising, the competition for those credentials just keeps getting fiercer.
Of course, parents have always worried about their kids making it; small family firms were often riven by worries about Uncle Rob’s ability to settle down to the business. But those were worries about adults, at an age when people really do settle down and become less wild. These days, we’re trying to force that kind of responsibility onto teenagers in their freshman year of high school. Of course, we don’t tell them that they need to earn a living; we tell them they need to get into a good college. But the professionalization of the American economy means that these are effectively the same thing for large swathes of the middle class.
Many teenagers — and I include myself at that age — do not quite have the emotional maturity and long-term planning skills for the high-stakes economic competition they find themselves engaged in. So their parents intervene, managing their lives so intensely that their child doesn’t have much opportunity to, well, act like a child instead of a miniature middle-aged accountant. Since the professional class can’t pass down its credentials, it passes down its ability to navigate the educational system that produces the credentials. The more inequality widens, the more obsessively they will manage their kids through school — and the more economic mobility will stagnate, since parents outside the professional class will have grave difficulty replicating this feat.
Megan McArdle, “What Really Scares Helicopter Parents”, Bloomberg View, 2015-11-30.
December 15, 2015
In Forbes, Tim Worstall pinpoints exactly when many women stop earning as much (or more) than their male co-workers:
Currently, among women under 30 or so (it varies, the age, depending upon the average age of first childbirth and this is itself something that varies quite a bit in the US) women tend to outearn men. And as above those without children have, depending upon how you correct for other factors, a positive wage gap in favour of women of about the same size or no pay gap of any relevant size. But there is a pay gap between men and women who have married and who have children (the two effects are not being separated from each other). So, why?
The obvious answer being that this is what humans do. No, it’s no longer true that this is what humans must do, women taking the majority of the child care duties, men going out to work to support everyone. But it is still what the majority do do, it’s the general expectation about how life is going to be worked out. And this does have its effect:
The division of labor in the family is less delineated than it once was and a majority of women with children now work in the market. Nonetheless, women on average still assume greater responsibility for child rearing than men, and that responsibility is associated with a lower extent and continuity of market work. In addition, the expectation and assumption of home responsibilities influence choice of occupation and preferences for working conditions that facilitate a dual career, combining work at home and work in the market. A significant literature has investigated the effect of work in the home on women’s lifetime patterns of labor force participation and the effect of labor force discontinuities on wages.15 Women with children devote relatively more of their energy to home responsibilities than women without children and as a result earn lower wages. On the other hand, married men earn higher wages than other men. Although that effect may be partly endogenous—women may shun low earners as husbands—it is a plausible consequence of the division of labor in the home, which leads men to take greater responsibility for providing the family’s money income and consequently to work longer, more continuously and possibly harder.
In a nutshell, the gender pay gap is really the effect upon the overall averages of two effects. Mothers earn less than non-mothers, fathers earn more than non-fathers. And yes, mothers and fathers are a majority and so the effect is large enough to sway that national average. And while the effect is not entirely symmetric it is reasonably so. We talk of the overall gender pay gap as being around 20% or so, and we see that fathers outearn non-fathers by 8%: that’s a significant portion of that gap right there.
Our conclusion thus has to be that the gender pay gap that we’re seeing isn’t a result of societal discrimination against women (nor of such discrimination in favor of fathers, something that no one at all is complaining it is) but instead a result of the choices that people make about how the kids are going to be cared for and who does it.
December 12, 2015
… the other new strategic wrinkle was much worse in that regard: the announcement of a policy for a restored “federal minimum wage.”
Provinces set minimum wages for most employees under the Constitution, but Ottawa has an unused right to set a national minimum in private industries regulated under Part III of the Canada Labour Code. The major categories are banking, interprovincial and international transport, and broadcasting. You may be wondering how many people in these technically complicated lines of business are actually making the minimum wage. In the most recent survey of the federal labour jurisdiction (taken in 2008), the answer arrived at by Statistics Canada was: 416 people. In the entire country.
The New Democrats were pretty clearly counting on the press to foul up the story, and it obliged. Some Postmedia newspapers, for example, wrote headlines implying that the new wage floor was for “federal workers.” Economists, who mostly dislike minimum wages anyway, will probably tear into the NDP for a misleading measure that, to a close approximation, helps nobody. And it probably won’t matter much, as New Democrats go on repeating the words “federal minimum wage” for a year.
Colby Cosh, “How to ignore the NDP’s new talking points”, Maclean’s, 2014-09-18.
November 28, 2015
A few months back, Tim Worstall explained why we can soon stop worrying about the rise in income inequality, because the disturbance which caused it in the first place is finally settling out:
We’re constantly told that rising inequality is the greatest threat to the peace and prosperity of the nation. And further, that the stagnant wages of the ordinary working guy and gal are an abomination: as is the increasing amount of the nation’s income going to the already well off. Therefore something must be done. And there’s interesting news for us all. Which is that we don’t have to do anything at all to reverse this trend, the world economy is going to do that for us. We don’t need to change domestic tax rates, start to place tariffs on imports, shout at China for being a currency manipulator, none of the things currently being touted. Because the reason for that income stagnation and rising inequality is itself reversing.
OK, this does rather depend upon agreeing what the original cause of them both was but I think it’s reasonably clear that it is the process of globalisation that has done it. As Branko Milanovic tells us, here’s the winners and losers from globalisation:
That 75% to 95% of the global income distribution, the people who haven’t done well out of it, is essentially some of the people in the communist transition countries and most of those on below median wages in the rich countries. That latter group being exactly who everyone is worrying about in terms of stagnant incomes. The poor of the world have made out like bandits from globalisation which is why I support it. And, yes, the already rich have done well too.
And the point is, this is exactly what we would expect from having added a couple of billion low wage and low skill workers to the global economy. The low skill and low wage workers already in that global economy aren’t going to do very well, as Charles Goodhart explains via Ambrose Evans Pritchard:
Prof Goodhart and Manoj Pradhan argue in a paper for Morgan Stanley that this was made even sweeter by the collapse of the Soviet Union and China’s spectacular entry into the global trading system. The working age cohort was 685m in the developed world in 1990. China and eastern Europe added a further 820m, more than doubling the work pool of the globalised market in the blink of an eye. “It was the biggest ‘positive labour shock’ the world has ever seen. It is what led to 25 years of wage stagnation,” said Prof Goodhart, speaking at a forum held by Lombard Street Research.
October 21, 2015
Megan McArdle on the odd and oddly resilient habit of tipping:
Restaurateur Danny Meyer is planning to eliminate tips at his restaurant group’s 13 restaurants by the end of next year. Among other things, the New York Times suggests this will lower the disparity in pay between the back of the house, which makes an average of around $12 an hour, and the servers, who pull in considerably more than that.
Meyer is part of a small but interesting movement among restaurants and bars. A bar without tips just opened near my house in Washington; New York has a few places that no longer support tipping. Prices will naturally have to rise to reflect increased labor costs. Meyer says that servers’ incomes will not fall, but I am skeptical on this point. But it will certainly be interesting to see if Meyer manages to slay tipping — and if so, whether other restaurants will follow suit.
To get a sense of whether this is likely to work, it seems worth asking: Why do we tip? Tipping is, after all, a rather strange custom. We tell ourselves that it exists to ensure good service, but in fact, most people are very reluctant to undertip even when the service has been appalling. They follow the norms of tipping even when they are never going to see that waiter again, and therefore don’t need to worry about retaliation. Meanwhile, all sorts of things seem to affect tipping that have nothing to do with the quality of the service, like the race of the server and whether they put a smiley face on your check (though apparently this only works for female servers).
So if it’s not about rewarding good service, why do we tip? Notice that we do it in some circumstances, but not others. We tip the bellhop, but not the clerk at reception. The waitress, but not the person behind the Target checkout counter. These disparities offer our first clue to the mystery: We tip people who are providing the services that used to be performed by household servants, but not the people who do the jobs of tradesmen or retail clerks. It’s possible that this grew out of the old tradition of tipping servants when you went to stay at someone’s house.
October 16, 2015
Nicole Russell says that Jennifer Lawrence was quite justified in her complaint about being paid less than her male co-workers, and that the problem is industry-wide:
The equal pay gap is the issue du jour this week. It was a hot topic at the Democratic debate Tuesday night, and in Hollywood, actress Jennifer Lawrence recently discovered she made less on a blockbuster hit than did her male peers.
Unfortunately, equal pay has gotten a bad reputation on the Right, due to misinformation the Left likes to peddle. The record is easy to set straight, and the good news is that Hollywood isn’t the real world and the real world isn’t Hollywood.
Turns out, Lawrence realized what statistics have shown about Hollywood for decades: That place is a sexist desert. Being a woman in Hollywood, whether as an actress, screenwriter, producer, or the like is akin to wearing a cloak of invisibility.
After the Oscar nominees were announced this past year, the Women’s Media Center found “149 men are nominated versus 35 women” across 19 non-acting categories. There were seven Oscar categories with no women nominated, and “since 2012, only 19% of all non-acting Oscar nominations have been for women.”
Actress Charlize Theron discovered from the same Sony e-mails that her co-star Chris Hemsworth made $10 million more than she did on a film. As The Federalist’s Mollie Hemingway reported earlier this year, a study by The Center for the Study of Women in Television & Film found only 9 percent of the top 250 domestic-grossing films of 2012 were directed by women. According to researcher Susana Orozco, who went through every single spec script sale from 1991 and 2012, women wrote only 14 percent of spec scripts sold between 1991 and 2000.
October 15, 2015
Apparently tech companies are offering egg freezing as a benefit to their employees. There’s some suspicion among women I know that this is supposed to help/force women in technology balance family and career by delaying childbirth — it’s not a good time in your late 20s and early 30s, so freeze those eggs and have kids when you’re ready.
What I haven’t seen anyone explain is when, exactly, you’ll be ready. For most people, your 40s and early 50s are your peak earning years — is that really going to be a good time to meet that special someone, or finally step back to invest some time in having kids? I don’t know about the rest of you, but I’m already noticing that I have a lot less energy than I used to. It’s not that I can’t get my work done or anything like that. But it used to be that if I had to travel for six days straight and then deliver a 2,500-word essay on the 7th, I could dial up my reserves and power through it — miserable and cranky, to be sure, but functioning. Then one day, around the time I turned 40, I dialed down for more power and there just … wasn’t any. My body informed me that it was tired, and my brain would not be doing any more work today, and we were going to sleep whether I liked it or not.
This is — as friends who have done it freely remark — a difficult age to be taking on your first newborn. I can’t even imagine trying the same feat 10 years from now, when my joints will be even creakier and my reserves even more depleted. So I’m skeptical that women who are having trouble combining work and career now will really find it much easier to do within any reasonable time frame. Is all this egg freezing actually going to expand the choices of most of the women who use it, or will it just be an expensive way to choose career over family without realizing that you’re making that choice?
Megan McArdle, “Will Freezing Your Eggs Help Your Career?”, Bloomberg View, 2014-02-16.
October 13, 2015
I have heard some reactionaries say that although there are not intellectual differences between men and women, there are emotional differences, and that women are (either for biological or cultural reasons) more “submissive” to men’s “dominant” – and a quick search of the BDSM community seems to both to validate the general rule and to showcase some very striking exceptions.
But my money would be on a simpler hypothesis. Every marriage involves conflict. The traditional concept of gender contains two roles that are divided in a time-tested way to minimize conflict as much as possible. In a perfect-spherical-cow sense, either the husband or the wife could step into either role, and it would still work just as well. But since men have been socialized for one role since childhood, and women socialized for the other role, it seems that in most cases the easiest solution is to stick them in the one they’ve been trained for.
We could also go with a third hypothesis: that women aren’t actually bizarre aliens from the planet Zygra’ax with completely inexplicable preferences. I mean, suppose you had the following two options:
1. A job working from home, where you are your own boss. The job description is “spending as much or as little time as you want with your own children and helping them grow and adjust to the adult world.” (but Sister Y also has a post on the childless alternative to this)
2. A job in the office, where you do have a boss, and she wants you to get her the Atkins report “by yesterday” or she is going to throw your sorry ass out on the street where it belongs, and there better not be any complaints about it this time.
Assume both jobs would give you exactly the same amount of social status and respect.
Now assume that suddenly a bunch of people come along saying that actually, only losers pick Job 1 and surely you’re not a loser, are you? And you have to watch all your former Job 1 buddies go out and take Job 2 and be praised for this and your husband asks why you aren’t going into Job 2 and contributing something to the family finances for once, and eventually you just give in and go to Job 2, but also you’ve got to do large portions of Job 1, and also the extra income mysteriously fails to give your family any more money and in fact you are worse off financially than before.
Is it so hard to imagine that a lot of women would be less happy under this new scenario?
Now of course (most) feminists very reasonably say that it’s Totally Okay If You Want To Stay Home And We’re Not Trying To Force Anyone. But let’s use the feminists’ own criteria on that one. Suppose Disney put out a series of movies in which they had lots of great female role models who only worked in the home and were subservient to their husbands all the time, and lauded them as real women who were courageous and awesome and sexy and not just poor oppressed stick-in-the-muds, and then at the end they flashed a brief message “But Of Course Working Outside The Home Is Totally Okay Also”. Do you think feminists would respond “Yeah, we have no problem with this, after all they did flash that message at the end”?
Scott Alexander, “Reactionary Philosophy In An Enormous, Planet-Sized Nutshell”, Slate Star Codex, 2013-03-03.
September 24, 2015
Don Boudreaux looks at the different effects of international aid and capitalist exploitation in a desperately poor, far-away country:
The far-away land of Subsistia is inhabited by people who are desperately poor, not only relative to the typical person elsewhere on the globe but also in absolute terms. For decades well-meaning, well-educated, and well-funded people from the United States and other wealthy countries have visited Subsistia to help raise Subsistians out of poverty.
Alas, while these efforts by governments, NGOs, and churches have been many and munificent, all ordinary Subsistians continue to live in deep poverty – that is, until recently. A few short years ago a large U.S. corporation, Nik-Mart, set up factories in Subsistia. The wages that Nik-Mart pays to its Subsistian workers, while much higher than the average wage in Subsistia, are only a tiny fraction of the wages that Nik-Mart pays to its production-line employees in America.
Nik-Mart sells the goods produced in its Subsistian factories all around the world. One result of Nik-Mart’s operations in Subsistia is that the real prices that poor Americans and Europeans pay for shoes, clothing, and home furnishings have fallen significantly.
Nik-Mart is consistently one of the world’s most profitable corporations. It is also one of the world’s most hated.
When word recently leaked out of Nik-Mart’s record sales revenues and of the healthy rate of return on Nik-Mart’s assets, protests erupted in all major capitals of the developed world. Washington, Ottawa, Santiago, London, Amsterdam, Stockholm, Paris, Berlin, Madrid, Rome, Prague, Moscow, Tokyo, Pretoria, Canberra – these and other cities were swarmed by protestors demanding “social justice” and criticizing Nik-Mart for exploiting workers. “Nik-Mart’s profits are in the billions,” screamed U.S. Sen. Elsbeth Walter, who gave a rousing speech to protestors on the Washington Mall, “and yet it exploits poor workers in Subsistia while it off-shores jobs from America, hurting poor Americans! Have you no shame, Nik-Mart? Have! You! No! Shame?!!” Sen. Walter rhetorically asked, her index finger pointing accusingly at an imaginary Nik-Mart executive presumably hovering, phantasmically yet bloatedly, before her.
The Sunday talking-head shows were filled with heads talking of little else. “It’s really unconscionable,” said Harmon Nicholson, a famous progressive columnist, “that Nik-Mart takes advantage of the freedom that this country gives it to produce the things it sells in America outside of America. It’s no wonder our jobs picture is so weak and that American wages have stagnated.”
Sen. Lawrence Greenham, a Republican from the south, chimed in: “I don’t normally agree with Harmon, but he’s right on this. American plutocrats are gettin’ richer an’ richer off the backs of America’s poor. It’s gotta stop.”