Marginal Revolution University
Published on 17 Nov 2016The formula for the labor force participation rate is simple: labor force (unemployed + employed) / adult population, excluding people in the military or prison for both.
The total labor force participation rate has grown significantly in the United States since the 1950s. But the total growth doesn’t paint a clear picture of how the U.S. workforce has changed, particularly the makeup.
There are several big factors at play influencing the demographics of labor force participation. For starters, women have entered the labor force in greater numbers since the 1950s. At the same time, technology has altered the types of work available. Manufacturing jobs, which tended to employ lower-skilled, less-educated male workers, gave way to more service jobs requiring more skills and education.
In more recent years, the labor force participation rate, though still much higher than it was half a century ago, has been declining.
There are a number of factors influencing the decline. Many more women are working, but fewer men are employed or actively looking for a job. The United States also has an aging population with many Baby Boomers retiring from the labor force.
In an upcoming video, we’ll take a look at one of the big reasons behind why women have been able to enter and stay in the labor force during peak childbearing years: The Pill.
May 20, 2018
Labor Force Participation
May 18, 2018
Missing the entire point of the capitalist system
At the Continental Telegraph, Tim Worstall tried to explain why the UK Commons committee looking into the Carillion collapse appear to misunderstand the current economic system in a big way:
Frank Field and his mates on the Commons work and pensions committee really do have some ‘splainin’ to do here. For they’ve entirely missed the structure of our current society and the reasons why that structure both exists and works. They go on about the greed at Carillion, the corporate vanity, the bad management. Then they complain that it’s gone bust. Finally, that we need a management system to prevent corporate greed and vanity from bankrupting companies.
No you fools, that Carillion went bust is the very point and purpose of the system. This is how we leach corporate vanity and greed out of the system, those who practise it leave the system.
[…]
What’s being missed is that this is good. Not the greed, obviously, for that’s something ever present in human nature. But what happens to those who act it out, bankruptcy.
[…]
And haven’t they come up with a likely candidate for making things worse? That a committee of bureaucrats should be making commercial decisions for companies instead of the directors and management. Really, that’ll work wonders, won’t it?
[…]
People who screw up, for whatever reason, disappear from the economic stage. Which is what we want of course, those who screw up to leave said economic stage. We have actually tried bureaucracy as a method of managing this and as the persistence of the National Coal Board, the very existence of British Leyland, show, that’s a system which doesn’t work. Either of those organisations would have disappeared at least a decade before they did without bureaucratic interference. Indeed, that’s how the bureaucracy’s actions were justified, to “save” them. That is, markets are more ruthless at weeding out failures than bureaucracies are.
What have we here? A complaint that markets weeded out a failure and to stop this we must have bureaucracy?
Carillion going bust is the very point of our having a market based economic system. Sure, they screwed up – bye bye Carillion. See, it works!
So why the hell are Frank Field and friends complaining? We already have a system which ensures that failures go kablooie – bankruptcy in our market economy.
May 14, 2018
QotD: Words and ideas matter
The way we talk and write – the words we use – what we say and what we don’t say – matter. Of course, the process of articulating thoughts helps each of us who articulates (and that is every human being) to better form thoughts that are otherwise fuzzy and amorphous. More importantly, what we express to others not only informs others of facts, instructions, and perspectives that they would not learn were we not to express our thoughts to them, our talking also expresses and, in doing so, reinforces specific ethical values.
Each and every time you say with a smile “thank you” to the supermarket cashier who tallies your order you add a little more dignity to that person’s life and occupation – and to the social estimation of that and related occupations. Each and every time you tell a homophobic or anti-immigrant joke, you detract from the social valuation of homosexuals or of immigrants. Through our talk we humans are constantly raising the social valuation of some peoples and things and lowering the social valuation of other peoples and things. Your words, individually, might have no detectable impact, but by signaling to your hearers or readers what you regard to be acceptable and unacceptable – honorable and dishonorable – important and insignificant – productive and unproductive – polite and crude – true and false – good and bad – you influence their perceptions and evaluations, if only ever so slightly. If, for example, you express admiration for a hard-working entrepreneur and do so with no trace of envy of that entrepreneur’s monetary success, your audience (be it one person or a million people) becomes a bit more inclined to regard entrepreneurs favorably and to not suppose that successful entrepreneurs’ profits are to be envied.
Obviously, the relation of the speaker to the audience matters. The effect of a mother’s words on the attitudes of her young child is greater than the effect of those same words, spoken by the same woman, to some other-woman’s child. The effect of words about widgets spoken by someone publicly regarded to be an expert in widgetry is greater than is the effect of words about widgets spoken by someone who is not regarded as having expertise in widgetry.
Ideas and attitudes matter. They matter greatly. And ideas and attitudes are transmitted chiefly by words. It is this reality above all that causes me distress when I hear or read someone with a degree in economics (or who is otherwise regarded to be expert in economics) get fundamental economics wrong. When some economist asserts that a country’s growing trade deficit destroys jobs, that’s simply wrong – but the expression of that false notion, especially by an “economist,” contributes to the public’s fear of international trade. When some other economist says that “[t]here’s just no evidence that raising the minimum wage costs jobs,” that, in this case, is not only indisputably wrong but is almost certainly an outright lie – but this economist’s lie contributes to the public’s false belief that hikes in minimum wages are all gain with no risk of loss for low-skilled workers. When economists talk and write, as they too often do, as if government officials possess superhuman capacities to care about strangers and to know enough to intervene productively into those strangers’ affairs, that’s wrong – but such talking and writing gives more phoolish credence to the false notion that state power is an especially trustworthy cure for life’s ailments, large and small.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-08-01.
May 13, 2018
Cyclical Unemployment
Marginal Revolution University
Published on 15 Nov 2016This wk: More from Macro — Cyclical unemployment, sticky wages, natural unemployment, and more.
Coming soon: Who works? Who doesn’t? Why? Get a big picture view on labor force participation.
Unemployment rates ebb and flow with business cycle phases. We all saw this when unemployment rates increased in the United States during the 2008 recession. What we observed was called cyclical unemployment, and it usually accompanies slow economic growth.
It can take many years for unemployment rates to return to pre-recession levels, even after real GDP per capita growth has bounced back. Why is that? For starters, supply and demand in labor markets have to deal with “sticky” wages. That is, wages that adjust more slowly, which in turn reduces an employer’s incentive to hire.
Why are wages sticky to begin with? Economists have many theories, but one that is fairly obvious is that employers are reluctant to lower wages out of fear that their employees may respond by working less or even causing disruptions in the workplace. Employers don’t want to risk a dip in morale. In short, wages take longer to adjust to changes in the labor market than goods may take to adjust to a change in price.
Other factors affecting wage adjustment could include minimum wages or union contracts, which put contractual limits on how low wages can go. Both of these factors affect the rate at which unemployed workers are rehired.
Another contributing factor to prolonged cyclical unemployment is that people are reluctant to take lower-wage, lower-skill jobs than they previously held. For example, an unemployed computer programmer may not want to accept a job as a barista, and will search for a long time to find a job that is more in line with their previous work.
As we’ve learned from this video, cyclical unemployment responds to booms and busts. But what causes these business cycle fluctuations? We’ll be covering that topic in future videos.
May 12, 2018
Grocery stores as visible indicators of economic progress
Steven Horwitz sings the praises of the ordinary grocery store (in North America, anyway):
I have written much about the extraordinary increase in living standards that Americans have enjoyed over the last century, and especially in the last forty years. For me, one of the best indicators of this incredible progress can be seen in the evolution of the grocery store. A great treatment of this evolution is food writer Michael Ruhlman’s recent book Grocery.
The grocery store is in many ways a metaphor for the increase in American living standards experienced by both rich and poor. Those of us who remember the 1970s have perhaps the best sense of this evolution, as we can remember what even good grocery stores were like back then. Stores were generally small, not well lit, not always clean, limited in the variety of goods they stocked (especially fresh produce), and lacking in the prepared foods we take for granted at most grocery stores today.
The 21st century American grocery store, by contrast, is a marvel of higher quality, lower cost, and expanded variety. There is simply no comparison between the quality of the produce, meats, and bread available at even a large middle-market chain like Kroger today and what was available anywhere in the 1970s. Measured in terms of labor hours required for purchase, food has generally never been cheaper. We see that today, as poverty in America is far more likely to be associated with obesity than with being underweight.
The growth in the variety of products available in the market in general is an excellent, if underappreciated, indicator of economic progress, reflecting as it does the Smithian insight that the division of labor is limited by the extent of the market. With growth comes more wealth and larger markets that enable producers to have a market for more finely differentiated products.
An example from the evolution of the grocery store illustrates this point. In the 1970s, there were maybe five or six kinds of potato chips (regular, barbecue, sour cream and onion, ruffled, tortilla chips, and the stuff in the can). Today, the typical grocery store has a potato chip aisle that offers dozens of differentiated products along numerous dimensions. This increase in variety allows consumers to satisfy their preferences more precisely, increasing their subjective well-being. You want your gluten-free, lactose-free chocolate chip cookies? You can probably find them. You want your throwback taco-flavored Doritos? They’re there. The expansion of variety in the typical grocery store has dramatically increased the subjective well-being of American consumers in ways that macroeconomic measures like GDP cannot capture.
Toys Were Us – Now Let’s Build Something Better!
Foundation for Economic Education
Published on 10 May 2018Don’t get nostalgia goggles stuck on your face. The closing of retail stores will be a net win!
Cryptocurrency scammers
A high proportion of initial coin offerings are nothing but scammers doing what scammers do best, says Nouriel Roubini:
Initial coin offerings have become the most common way to finance cryptocurrency ventures, of which there are now nearly 1,600 and rising. In exchange for your dollars, pounds, euros, or other currency, an ICO issues digital “tokens,” or “coins,” that may or may not be used to purchase some specified good or service in the future.
Thus it is little wonder that, according to the ICO advisory firm Satis Group, 81% of ICOs are scams created by con artists, charlatans, and swindlers looking to take your money and run. It is also little wonder that only 8% of cryptocurrencies end up being traded on an exchange, meaning that 92% of them fail. It would appear that ICOs serve little purpose other than to skirt securities laws that exist to protect investors from being cheated.
If you invest in a conventional (non-crypto) business, you are afforded a variety of legal rights – to dividends if you are a shareholder, to interest if you are a lender, and to a share of the enterprise’s assets should it default or become insolvent. Such rights are enforceable because securities and their issuers must be registered with the state.
Moreover, in legitimate investment transactions, issuers are required to disclose accurate financial information, business plans, and potential risks. There are restrictions limiting the sale of certain kinds of high-risk securities to qualified investors only. And there are anti-money-laundering (AML) and know-your-customer (KYC) regulations to prevent tax evasion, concealment of ill-gotten gains, and other criminal activities such as the financing of terrorism.
In the Wild West of ICOs, most cryptocurrencies are issued in breach of these laws and regulations, under the pretense that they are not securities at all. Hence, most ICOs deny investors any legal rights whatsoever. They are generally accompanied by vaporous “white papers” instead of concrete business plans. Their issuers are often anonymous and untraceable. And they skirt all AML and KYC regulations, leaving the door open to any criminal investor.
Of course, for a significant number of people, not having the state involved in their investment is an attraction rather than a drawback. And not just criminals, but people who live in jurisdictions with uncertain reliance on the rule of law (not to mention Russia by name), where property rights are not so much “rights” as “privileges to the right sort of people”.
May 11, 2018
QotD: Protectionism is by nature, zero-sum
A Protectionist is Someone Who… is so hopelessly – indeed, comically – confused about trade that he assumes that Americans who support free trade do so only out of a willingness to sacrifice the welfare of fellow Americans in order to improve the welfare of people in poorer countries. The protectionist does not grasp the fact that voluntary trade occurs only when each party to each trade believes that he or she will be made better off by the trade. The protectionist, unable to escape from the antediluvian superstition that trade is a zero-sum exercise, self-righteously – if ridiculously – accuses free-traders in rich countries of discounting or disregarding the economic well-being of their fellow citizens. The protectionist is an intellectual prisoner of his silly presumption that if people in poor countries gain from freer trade, people in the rich countries must thereby lose.
In short, a protectionist is someone who denies the reality of gains from trade.
Don Boudreaux, “A Protectionist is Someone Who…”, Café Hayek, 2018-04-09.
May 9, 2018
QotD: The “you can’t get good help” period after WW1
Look, I, like you, heard about how terrible the aftermath of WWI was, and how broke people were right after, and how they were moving to cities and living in tenements. It wasn’t until I was reading a book about the between the war period in England that I realized they were telling me TWO stories which couldn’t both have happened. In the part about the common folk, they were telling me how much poorer they were than before the war. In the part about the great families, they were telling me how the huge rise of the middle class and the building of suburbs had hurt them, and how the newly rich common folk no longer wanted to be servants.
That was one of those “wait a minute.” Sure I was taught both things in school, but you know you write down the bullet point for the test, and that’s it. Now I was going “Who the heck wrote these narratives and why doesn’t anyone question them?”
The truth, btw, from going to primary sources is closer to the second. And the people who wrote the narrative were the unseated noblemen, who did not like all these nouveau riche but who wanted to justify their disgust by showing how it hurt the poor. (It did increase the underclass somewhat, not because of economic conditions, but because a lot of men don’t integrate well after war, and well, WWI was something special by way of trauma.)
There are tons of these when you start poking. For instance the idea that the industrial revolution was unremittingly bad for the poor/people. Looking at China and India and such places right now, all I can do is roll my eyes.
Yeah, sure, the conditions of the early industrial revolution were appalling. And yet people crowded to the cities to take these jobs. What the historians never ask themselves is “How much worse was what they were escaping from?” We know that in India and China and other recently industrialized countries.
Sure the countryside has relatively clean air and more open space, but there are still real famines, and the work was unremitting and brutal and yes, little children worked too (says the daughter of middle class in a rural community whose first “job” was weeding the onion patch at five. And I was a pampered moppet. Kids my age from farming families had what we’d call full time jobs. Factory jobs at least had a stopping time.)
The idea that the industrial revolution was awful comes from upper class historians who could see the little kids twisted by working in the mills but who never consorted closely enough with the rural poor to see the misery behind raising baah lambs and the pretty pretty flowers.
Yeah. So the past isn’t written in stone. And it’s not a conspiracy. Not precisely a conspiracy. Yeah, sure, the Marxists influenced a lot of modern history with their ideas, but that is not necessarily conspiring. They view the world a certain way and it influences how they view the past too.
Sarah Hoyt, “How Do You Know?”, According to Hoyt, 2016-08-24.
May 5, 2018
What’s Wrong With Wakanda?
Foundation for Economic Education
Published on 3 May 2018Wakanda could never exist in the real world.
Wakanda is frustrating because it perpetuates the myth that an abundance of a really valuable natural resource is all you need to create a prosperous and extremely advanced society. This is simply not true. Matt Ridley, author of The Rational Optimist, wrote about how isolationism actually leads to a regress in technology.
QotD: Making decisions for other people’s “best interests”
Confession: ever since I began to study economics as an 18-year old, I’ve always had difficulty understanding the thought processes of people who fancy themselves fit to intervene into the affairs of other adults in ways that will improve the lives of other adults as judged by these other adults. I understand the desire to help others, and I also understand that individuals often err in the pursuit of their own best interests. What I don’t understand is Jones’s presumption that he, who is a stranger to Smith, can know enough to force Smith to modify his behavior in ways that will improve Smith’s long-term well-being. Honestly, such a presumption has struck me for all of my adult life as being so preposterous as to be inexplicable. I cannot begin to get my head around it.
I cannot get my head around Jones’s presumption that he knows enough to forcibly prohibit Smith from working for an hourly wage lower than one that Jones divines is best for Smith. I cannot understand Jones’s presumption that he ‘knows’ that Smith meant, but somehow failed, to bargain for family leave in her employment contract. I am utterly befuddled by Jones’s presumption to know that the pleasure that Smith gets from smoking cigarettes is worth less to Smith than is the cost that Smith pays to smoke cigarettes. I cannot fathom why Jones presumes that he knows better than does Smith how Smith should educate her children.
Yet this presumption is possessed by many, perhaps even most, people. Why?
Don Boudreaux, “A Pitch for Humility”, Café Hayek, 2016-08-05.
May 2, 2018
Uses and misuses of the Baltic Dry Index
At the Continental Telegraph, Tim Worstall explains why, for example, Zero Hedge‘s witterings about the changes in the Baltic Dry Index are not actually predictive of boom or bust in the global economy:
As background, the volume of such shipping – dry is referring to dry bulk cargoes, wheat, grains, cement, that is, not container stuff and not oils – is an important indicator of global growth. Trade tends to, tends to note, increase faster than growth itself. If the volume of trade falls off a cliff then we would indeed think that there’s going to be a kablooie in our global GDP figures.
The Baltic Dry is an index of the prices of shipping these cargoes. It’s thus the interaction of the supply of shipping as against the demand for it. That’s rather more than subtly different to the volume of world trade.
The basic background here is that there are reasonably long lead times to get more shipping afloat. And once it is afloat then it tends to stick around for a decade or two. Building the boat is a sunk cost (sorry) so you keep trying to use it as long as income from doing so is above marginal costs, of maintenance and fuel (and maintenance will be skipped in some circumstances) and bugger the mortgage. The supply of shipping is near entirely inelastic on an annual basis, near entirely elastic on a two decade basis.
Demand for shipping is much more elastic in that shorter term. As is usual when we’ve an inelastic supply meeting an elastic demand in a marketplace we get wild price swings. They being what causes that longer term elasticity – as with, say, oil from conventional reservoirs.
The Baltic Dry can drop because more ships are being launched, it can rise because more are scrapped. Not because – note the can here – the volume of trade has changed at all.
What has actually been happening in shipping in general is that the ship owners all looked at how trade was growing before 2008. So, they thought, aha! 5% volume growth! (Numbers here are made up but indicative of the major points) Let’s order more spanking new ships! Which then start arriving in 2010, 2011. Flooding the market with new supply. And shipping volume didn’t grow at 5%. It grew at 2% instead. (Again, these numbers are made up, reflecting memory and thus not accurate, but the relationships between them are about right) So, prices plunge.
But it’s those prices which plunge, not the volume of world trade.
April 30, 2018
When “more recycling” is not the answer
Tim Worstall responds to the Australian environment minister on recycling:
Those with a modicum of economic training will be hard put to understand this story out of Australia. Recycling plastics has just got more expensive. So, therefore, the Federal environment minister, Josh Frydenburg, is insisting that everyone must recycle plastics more.
What? Even, whut?
No, no, demand curves slope downwards, when things become more expensive we do less of them, not more. It’s only in religion that we are urged to do even more of the more difficult things. Maybe that is it, we waste more money on plastics therefore we’re worshipping Gaia harder or something. Otherwise this is simply mad:
Plastic packaging on fresh food, groceries and a range of other items will be banned within seven years to cope with Chinese restrictions on Australian recyclables.
State and federal environment ministers held crisis talks in Melbourne yesterday and agreed to prioritise the development of a larger domestic recycling market, with Queensland councils alone expected to face a combined bill of more than $50 million in the face of the new Chinese restrictions.
China has decided, rightly or wrongly – I think wrongly but there it is – that they’ll not take plastic waste from outside the country. That means that everywhere else needs to work out what to do with the stuff they collected and used to send to China. OK, obviously, some sort of response is necessary. But more recycling isn’t it:
We need a national accounting system in which the cradle to the grave costs of waste are borne by the generators of it. We would do well to emulate Germany’s system. Producers and distributors are obliged to take back used packaging. This has resulted in a large reduction of packaging, and the development of a waste management industry which employs about 200,000 people. Municipal solid waste landfill has been reduced to virtually zero.
There’s the make work fallacy at play. Having 200,000 people handling waste is a cost, not a benefit, for that’s the labour of 199,997 more people being used than simply tipping it all into a furnace or a hole in the ground would require. And therefore we’re poorer by the loss of what those 199,997 people would produce if it weren’t for their worshipping Gaia for us.
[…]
As above the only reason I can think of to increase recycling as the costs of it also increase is because people are in the grip of a religious mania. Which isn’t, as much of history shows us, a great way to run a country really, religious mania.
April 25, 2018
QotD: The “white magic” of the market process
Leonard Read explained what he called the “white magic” of the market process in his justly praised article “I, Pencil.” No one knows how to make an ordinary pencil; no one can ever know how to make a pencil. And yet pencils are produced in such huge quantities that they are virtually free for the taking. We have pencils not because some one person planned from the beginning the cutting of cedar trees, the mining of graphite, alumina, and bauxite, the extraction of petroleum and clay, or the organization of transportation to get supplies to pencil factories and pencils to retailers. When you contemplate the enormousness of all the tasks that are required to make a single pencil, you understand that no one can know how to do more than a tiny fraction of these tasks.
We have pencils (along with indoor plumbing, electric lighting, microprocessors, disposable diapers, camcorders, concert halls, …) only because for each of the countless tasks required for the production and distribution of each good there are a few people who specialize in knowing how to perform these tasks. But no one knows — or can know — how to perform all of the tasks required to produce even the most commonplace of goods. The free market works as well as it does because, when property rights are respected and fully transferrable, the resulting prices tell each of the producers at the innumerable different production “sites” just what (and how much) to produce and with what particular combination of resources.
For example, if the supply of crude oil falls, the resulting higher price will prompt manufacturers of paint to produce less petroleum-based paints and more linseed-oil or water-based paint. The resulting higher price of petroleum-based paints will prompt pencil manufacturers to paint fewer of their pencils with petroleum-based paints and more of their pencils with paints made of substances other than petroleum. As F. A. Hayek taught, the pencil manufacturer need never know why the price of petroleum-based paint rose; all that is required for this manufacturer to act appropriately is for him to conserve on his use of petroleum-based paint. The higher price of such paint achieves this goal.
Don Boudreaux, “A Pitch for Humility”, Café Hayek, 2016-08-05.
