Quotulatiousness

November 10, 2013

Growth forecasts continue to over-estimate Canada’s actual economic progress

Filed under: Cancon, Economics — Tags: , , , , — Nicholas @ 12:12

In Maclean’s, Debbie Downer Colin Campbell takes a survey of the state of Canada’s economy:

A key qualification for landing a job at the Bank of Canada, it seems, is an unfailing sense of optimism. In 2009, the bank forecast the economy would grow 3.3 per cent in 2011. It grew 2.5 per cent. In 2011, it said the economy would grow 2.9 per cent in 2013. It will likely be just 1.6 per cent. Now it says the economy will grow 2.3 per cent next year. How likely is that? The bank has consistently viewed the economy through rose-coloured glasses in recent years, perhaps believing its low-interest-rate policy will eventually bear fruit. Rates have been held at one per cent for three years now. But the economy seems only to be getting worse.

It grew 0.3 per cent in August, Statistics Canada said last week — mostly attributed to a familiar crutch, the oil business. Elsewhere, things aren’t looking up. A new TD Bank report said corporate Canada is “in a slump,” with profits down 16 per cent from their post-recession peak in 2011. Some observers point out that Canada is still doing better than Europe and Japan. But so are most countries that aren’t in a recession, from South Africa and New Zealand to Equatorial Guinea and Guatemala. After breezing through the recession, Canada is back to old habits: hoping its fortunes (i.e., exports) will rise along with America’s comeback. But the U.S., too, is back in a rut. Last week, the Federal Reserve said it would continue with its $85-billion-a-month bond-buying stimulus program.

With the economy sputtering, Ottawa has meanwhile remained preoccupied with fiscal restraint and balancing the budget within two years. So, with neither low interest rates nor government spending providing a boost, the outcome seems predictable: Official growth forecasts will look nice, but will keep missing the mark.

October 29, 2013

Poverty in America

Filed under: Economics, USA — Tags: , , , — Nicholas @ 10:40

Zero Hedge recently went on a tear about “soaring poverty in America”, compiling a list of 29 items which “proved” the case. Tim Worstall indulges in a bit of fisking over the mythical claims:

    2. New numbers have just been released, and they show that the number of public school students in this country that are homeless is at an all-time record high. It is hard to believe, but right now 1.2 million students that attend public schools in America are homeless.

No, I’m afraid not. In fact, this isn’t possible in the slightest. The numbers for homelessness are here.

    In January 2012, 633,782 people were homeless on a single night in the United States. Most (62 percent) were homeless as individuals and 38 percent were homeless as persons in families.

At any one time we have 630,000 homeless people. We cannot therefore have twice that number of children alone being homeless at any one time. This is not one of the mathematical possibilities that this universe offers us.

What is actually being said in the original number is that over the course of a a year 1.2 million children will suffer one or more incidents of homelessness. We can still think that this is appalling, that it shouldn’t happen and that we ought to be doing more about it. But it is not true that “right now 1.2 million students that attend public schools are homeless”.

    3. When I was growing up, it seemed like almost everyone was from a middle class home. But now that has all changed. One recent study discovered that nearly half of all public students in the United States come from low income homes.

Well, if you grow up in a middle class area then of course those you grow up with are likely to be middle class. But that nearly half of students coming from low income homes is indeed true. But it’s extremely uninteresting that it is. Here’s the definition of low income they are using:

    To be crystal clear, the researchers were not analyzing poverty rates per se. Rather, they tracked at the percentage of children in each state who received free or reduced school lunches, which are only available to students whose families earn below 185 percent of the poverty line. For a family of four, that amounted to about $41,000 in 2011.

As it happens, median household income is around two times that federal poverty line. So, 185% of the federal poverty line is going to be pretty close to the median household income. Median household income being the amount that 50% of households get more than and 50% get less than. So, yes, we would pretty much expect that 50% of children are coming from low income families. Because it’s only in Lake Woebegon that all the children are above average. This is a statistical artifact of the measure they are using as low income, nothing else.

And, of course, the traditional mis-measurement of poverty in the US compared to pretty much every other western country:

    6. According to the U.S. Census Bureau, approximately one out of every six Americans is now living in poverty. The number of Americans living in poverty is now at a level not seen since the 1960s.

No, this is not true, as I’ve pointed out in these pages many a time. Many, many, many, many times in fact.

The 15% in poverty measure is the number of people who would be in poverty if we didn’t help them by giving them money, food, housing and health care. It is not the number living in poverty. It is the number in poverty before we help them out of poverty. And as to the comparison with the 1960s, in the 1960s it really was the number in poverty after we helped, now it’s the number before we help.

As to why this is when we calculate the number below the poverty line we look only at cash incomes. This includes any actual money that people might be given to alleviate their poverty. In 1960s America pretty much the only poverty alleviation that was done was to give money to poor people (“welfare”). Today we give very little money directly. But we spend a vastly greater amount in giving people things. Medicaid, Section 8 housing vouchers, SNAP (or food stamps). We also give aid to the low paid through the tax system, with the EITC. However, we do not count all of those things, nor the EITC through the tax system, in our calculation of the number below the poverty line. So, since the 1960s the US measure of poverty has changed. From being one of people who are indeed living in poverty after whatever help they get to one of the number of people who would be in poverty before any help that they get.

When we correct for this the US poverty rate is significantly lower now than it was in the 60s. One estimate is that it is about half the 60s number.

October 21, 2013

Nate Silver on Chinese economic data

Filed under: China, Economics — Tags: — Nicholas @ 08:37

The Wall Street Journal‘s China Real Time Report has an interview with celebrity statistician Nate Silver:

Can you apply good data analysis to poor data, for example, in China?

People in the United States and the United Kingdom overestimate the quality of economic data. Even if people are above board, it is simply hard to estimate something like the American economy.

With China, you would have even more difficulty. I think the general lesson is that by looking at a broader consensus of indicators, you do well than just looking at one indicator or one sector.

It is problematic to think about “how do you measure Chinese growth”. One way [is to look at] more public facing measures — by looking, for example, at the amount of light output emanating from China.

I flew through Beijing [on the way to Hong Kong] — there was less physical brightness coming from Beijing than you would have seen from a comparable American city or European city.

A true cynic might suggest that the lights were dimmed by the pervasive air pollution in Beijing…

October 16, 2013

US wages and personal mobility

Filed under: Economics, USA — Tags: , , , , — Nicholas @ 08:07

Coyote Blog looks at the widely touted flattening of income growth in the United States and wonders how much mobility (people moving from one state to another) might play a part in the overall picture:

All of this is a long introduction to some thinking I have been doing on all the “Average is Over” discussion talking about the flattening of growth in median wages. I begin with this chart:

Click to see full-sized image

Click to see full-sized image

There is a lot of interstate migration going on. And much of it seems to be out of what I think of as higher cost states like CA, IL, and NY and into lower cost states like AZ, TX, FL, and NC. One of the facts of life about the CPI and other inflation adjustments of income numbers is that the US essentially maintains one average CPI. Further, median income numbers and poverty numbers tend to assume one single average cost of living number. But everyone understands that the income required to maintain lifestyle X on the east side of Manhattan is very different than the income required to maintain lifestyle X in Dallas or Knoxville or Jackson, MS.

Could it be that even with a flat average median wage, that demographic shifts to lower cost-of-living states actually result in individuals being better off and living better?

For some items one buys, of course, there is no improvement by moving. For example, my guess is that an iPhone with a monthly service plan costs about the same anywhere you go in the US. But if you take something like housing, the differences can be enormous.

Let’s compare San Francisco and Houston. At first glance, San Francisco seems far wealthier. The median income in San Francisco is $78,840 while the median income in Houston in $55,910. Moving from a median wage job in San Francisco to a media wage job in Houston seems to represent a huge step down. If you and a bunch of your friends made this move, the US median income number would drop. It would look like people were worse off.

But something else happens when you take this nominal pay cut to move to Houston. You also can suddenly afford a much nicer, larger house, even at the lower nominal pay. In San Francisco, your admittedly higher nominal pay would only afford you the ability to buy only 14% of the homes on the market. And the median home, which you could not afford, has only about 1000 square feet of space. In Houston, on the other hand, your lower nominal pay would allow you to buy 56% of the homes. And that median home, which you can now afford, will have on average 1858 square feet of space.

October 9, 2013

Reasons not to be fearful of “China’s economic threat”

Filed under: China, Economics, Government — Tags: , , , , — Nicholas @ 13:50

If you’ve been following the blog for a while, you’ll probably have picked up some of my disdain for the “OMG! China’s going to eat our (economic) lunch!” meme that is pretty much a copy-paste of the same worry over Japan in the 1980s. In Maclean’s, Colby Cosh explains why you shouldn’t put too much effort into worrying about the Chinese economic Colossus crushing us any time real soon:

What I always wonder when I encounter a China bull or a Chinaphobe — for they are two sides of the same coin — is this: Even if they think “socialism with Chinese characteristics” is economically superior to ordinary capitalism, where in China are the parallel cultural institutions to support prolonged capitalist-style growth? Maybe China doesn’t need reciprocal free trade to blow our doors off in the race to utopia. Maybe it doesn’t need untidy democratic quarrelling. One presumes it won’t need a high level of achievement in basic science, either, judging by the Nobels: It is well-documented that the Chinese civilian research establishment is awash in fraud and plagiarism, to say nothing of the destructive favouritism inherent to a one-party state.

Rowan Callick’s new book The Party Forever: Inside China’s Modern Communist Party makes a simple, compact judgment on the general state of Chinese higher education: Just look where the Party leadership sends its own children to university: the U.S. Another important leading indicator of cultural progress is press freedom, which, if history has anything to say on the matter at all, appears to be utterly integral to sustained prosperity. But Mainland China has no newspapers as we understand them; it is not even clear that the regimented, spoon-fed “reporters” there could assemble one, even if the Party would allow it.

The Diane Francises of the world would have us reject the relevance of the Soviet experience to China’s future, to the point of ignoring familiar Soviet themes that are increasingly apparent in China: the vast infrastructure projects standing unused in the middle of nowhere, the blind environmental despoliation, the dodgy economic statistics. Beyond mastery of trading, interior China has simply never possessed much of the cultural technique upon which the advanced stages of economic development would seem to depend. Hong Kong is the exception, but having taken it over, China shows little appetite so far for imitating its social openness and individuality — or for those of Taiwan or Japan or South Korea. It still requires a strange leap of faith to believe it possible for China to economically surpass these neighbours, and ourselves, without becoming a great deal more like us.

Regular visitors to the blog know that I’ve been rather skeptical about the official statistics reported by Chinese government and media sources.

Mismeasuring American poverty

Filed under: Bureaucracy, Economics, Government, USA — Tags: , , — Nicholas @ 08:47

It’s always headline-worthy to say that some absurdly high number of Americans are living in poverty — that the richest country in history still has desperately poor people in vast numbers. It’s shocking to see … and it’s mostly bogus:

We get told they do often enough I know, the latest example being this:

    About 15% of Americans live in poverty, so why is no one talking about it?

It isn’t true.

    In a nation where, according to the US Census Bureau’s poverty statistics released last month, 46.5 million people (roughly 15%) of the nation’s population lives in poverty,

Sorry, but their repeating it does not make it true.

The correct formulation is that 15% of Americans would be living in poverty if it were not for the things that are done to alleviate poverty.

There are two things that make this correction really rather important. The first being that everyone else measures poverty after all the things that are done to alleviate it. Thus any comparison across countries is going to leave the US looking very bad indeed: for others are talking about the residual poverty left after trying to do something about it and the US is talking about the poverty before alleviation. Very different things I hope you’ll agree.

There are reasons why this meme won’t go away (aside from it being a handy eye-catching headline to attract readers for newspapers and websites), including the fact that many civil servants are employed in federal, state, and local organizations to work on programs intended to alleviate poverty. If they are too successful, their caseload goes down and so will their budget and headcount. Any bureaucracy has a prime directive quite separate from their original reason for existing — organizations have primal motivations for surviving and growing. Their incentive is thus merely to ease the problem, not to solve it, or else they’re working to put themselves out of business.

October 7, 2013

Even the “revised” official Chinese economic stats are dodgy

Filed under: China, Economics — Tags: , , — Nicholas @ 09:23

In a survey of China’s military and economic status, Strategy Page mentions the perennial issue of unreliable official economic statistics for China:

Chinese officials are becoming more open about the problems they have getting accurate economic information for such things like annual GDP and unemployment rates. Apparently Chinese GDP has not been growing steadily at near ten percent a year for decades. Chinese officials do eventually (months or years later) get more accurate data and while Chinese GDP has actually been steadily growing over the last three decades the annual growth has actually varied from 5-15 percent. Chinese official policy was to keep everyone calm by issuing less variable annual growth rates. In short, the official numbers were doctored. For more accurate and immediate indicators of economic activity Chinese and foreign economists and business leaders use things like electricity production, railroad traffic and similar data that cannot be manipulated by local officials to make their city or province look more successful. Many financial exerts inside and outside China fear that all this official manipulation of economic data (an ancient practice in China) is masking some serious economic problems that could go sideways at any time and cause a banking crises that would paralyze the economy for a while and cause political chaos. It’s very much a crouching tiger and hidden dragon. This is an ancient phrase warning that behind seeming success and talent lurks the possibility of imminent disaster. Chinese are ever mindful of these bits of ancient wisdom.

October 5, 2013

Climate models, trust, and spin

Filed under: Environment, Media — Tags: , , — Nicholas @ 08:58

In Reason, Ronald Bailey asks whether we can trust the IPCC’s climate models:

On Monday, the U.N.’s Intergovernmental Panel on Climate Change (IPCC) released the final draft of Climate Change 2013: The Physical Sciences Basis. The report’s Summary for Policymakers flatly states: “Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased.” Pretty much everyone concerned with this issue agrees that those are the facts. But what is causing the planet to warm up? Here is where it gets interesting.

[…]

The IPCC report acknowledges that almost all of the “historical simulations do not reproduce the observed recent warming hiatus.” Not to worry, it assures us; 15-year pauses just happen, and you can’t really expect the models to simulate these kind of random natural fluctuations in the climate. Once this little slow-down passes, “It is more likely than not that internal climate variability in the near-term will enhance and not counteract the surface warming expected to arise from the increasing anthropogenic forcing.” In other words, when the warm-up resumes it will soar.

John Christy, a climatologist at the University of Alabama in Huntsville, has come to a different conclusion. Christy compared the outputs of 73 climate models for the tropical troposphere used by the IPCC in its latest report with satellite and weather balloon temperature trends since 1979 until 2030. “The tropics is so important because that is where models show the clearest and most distinct signal of greenhouse warming — so that is where the comparison should be made (rather than say for temperatures in North Dakota),” Christy explains in an email. “Plus, the key cloud and water vapor feedback processes occur in the tropics.” When it comes to simulating the atmospheric temperature trends of the past 35 years, Christy found, all of the IPCC models are running hotter than the actual climate.

[…]

Average of model results compared with temperature trends

Average of model results compared with temperature trends

To defend himself against any accusations of cherry-picking his data, Christy notes that his “comparisons start in 1979, so these are 35-year time series comparisons” — rather longer than the 15-year periods whose importance the IPCC disputes.

Why the discrepancy between the IPCC and Christy results? As Georgia Tech climatologist Judith Curry notes, data don’t speak for themselves; researchers have to put them into a context. And your choice of context — say, the year you choose to begin with — can influence your conclusions considerably. While there may be nothing technically wrong with the way the IPCC chose to display the comparison between model data and observation data, “Curry observes, it will mislead the public to infer that climate models are better than we thought.” She adds, “What is wrong is the failure of the IPCC to note the failure of nearly all climate model simulations to reproduce a pause of 15+ years.”

September 25, 2013

Redefining “austerity” (again)

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 07:51

At Coyote Blog, an illuminating comparison of “austerity” measurements, responding to a piece in Mother Jones by Kevin Drum:

He uses this graph to “prove” that our fiscal response to this recession is weak vis a vis past recessions. The graph is a bit counter-intuitive — note that it begins at the end of each recession. His point is that Keynesian spending needs to continue long after (five years ?!) after the recession is over to guarantee a good recovery, and that we have not done that.

Government spending after recessions

[…]

I took roughly the same data and started each line two years earlier, so that my first year is two years ahead of his graph and the zero year in my graph is the same as the zero point in Drum’s chart. His data is better in the sense that he has quarterly data and I only have annual. Mine is better in that it looks at changes in spending as a percentage of GDP, which I would guess would be the more relevant Keynesian metric (it also helps us correct for the chicken and egg problem of increased government spending being due to, rather than causing, economic expansion).

Here are the results (I tried to use roughly the same colors for the same data series, but who in the world with the choice of the entire color pallet uses two almost identical blues?)

Government spending before and after recessions

That second image tells a radically different story to the first one, doesn’t it? Hard to make that fit into the traditional definition of the word “austerity” though…

September 22, 2013

Statistical fail for political axe-grinding

Filed under: Environment, Media, Politics, USA — Tags: , , — Nicholas @ 11:29

Coyote Blog views with alarm a recent article in Rolling Stone which abuses statistics to make a point that apparently isn’t true:

What I want to delve into is the claim by the author that wildfires are increasing due to global warming, and only evil Republicans (who suck) could possibly deny this obvious trend […]

These are the 8 statements I can find to support an upward trend in fires. And you will note, I hope, that none of them include the most obvious data — what has the actual trend been in number of US wildfires and acres burned. Each of these is either a statement of opinion or a data point related to fire severity in a particular year, but none actually address the point at hand: are we getting more and larger fires?

Maybe the data does not exist. But in fact it does, and I will say there is absolutely no way, no way, the author has not seen the data. The reason it is not in this article is because it does not fit the “reporters” point of view so it is left out. Here is where the US government tracks fires by year, at the National Interagency Fire Center. To save you clicking through, here is the data as of this moment:

Wildfire averages 2004-2013

Well what do you know? The number of fires and the acres burned in 2013 are not some sort of record high — in fact they actually are the, respectively, lowest and second lowest numbers of the last 10 years. In fact, both the number of fires and the total acres burned are running a third below average.

The one thing this does not address is the size of fires. The author implies that there are more fires burning more acres, which we see is clearly wrong, but perhaps the fires are getting larger? Well, 2012 was indeed an outlier year in that fires were larger than average, but 2013 has returned to the trend which has actually been flat to down, again exactly opposite of the author’s contention (data below is just math from chart above)

Wildfires average acres per fire 2004-2013

In the rest of the post, I will briefly walk through his 8 statements highlighted above and show why they exhibit many of the classic fallacies in trying to assert a trend where none exists. In the postscript, I will address one other inconsistency from the article as to the cause of these fires which is a pretty hilarious of how to turn any data to supporting your hypothesis, even if it is unrelated.

September 16, 2013

Speed Kills … Your Pocketbook

Filed under: Cancon, Law — Tags: , , , , , , — Nicholas @ 11:06

Does speed really kill? Sometimes, yes, but when the speed limits are set artificially low, and enforcement is targeted to those areas where the limit is far below traffic speed, then all the speed kills campaign does is keep drivers complacent about paying fines that don’t improve safety.

In this video, I investigate the culture and science surrounding speed enforcement in BC, coupled with my trademark Simpsons, Supertroopers, and Family Guy references.

September 12, 2013

This is rather sinister

Filed under: Health, Science — Tags: , , , — Nicholas @ 10:46

At Marginal Revolution, Alex Tabarrok talks about a statistical study which concluded that being left-handed had serious impact on your lifespan:

In 1991 Halpern and Coren published a famous study in the New England Journal of Medicine which appears to show that left handed people die at much younger ages than right-handed people. Halpern and Coren had obtained records on 987 deaths in Southern California — we can stipulate that this was a random sample of deaths in that time period — and had then asked family members whether the deceased was right or left-handed. What they found was stunning, left handers in their sample had died at an average age of 66 compared to 75 for right handers. If true, left handedness would be on the same order of deadliness as a lifetime of smoking. Halpern and Coren argued that this was due mostly to unnatural deaths such as industrial and driving accidents caused by left-handers living in a right-handed world. The study was widely reported at the time and continues to be regularly cited in popular accounts of left handedness (e.g. Buzzfeed, Cracked).

What is less well known is that the conclusions of the Halpern-Coren study are almost certainly wrong, left-handedness is not a major cause of death. Rather than dramatically lower life expectancy, a more plausible explanation of the HC findings is a subtle and interesting statistical artifact. The problem was pointed out as early as the letters to the editor in the next issue of the NEJM (see Strang letter) and was also recently pointed out in an article by Hannah Barnes in the BBC News (kudos to the BBC!) but is much less well known.

The statistical issue is that at a given moment in time a random sample of deaths is not necessarily a random sample of people. I will explain.

September 4, 2013

“Despite a rash of deadly train crashes…”

Filed under: Media, Railways — Tags: , , , , — Nicholas @ 09:15

Coyote Blog indulges in a good old-time fisking of an article built on the claim that there has been a “trend” of increasingly deadly railway accidents:

The best way to explain the phenomenon is with an example, and the Arizona Republic presented me with a great one today, in the form of an article by Joan Lowy of the Associated Press. This in an article that reads more like an editorial than a news story. It is about the Federal requirement for railroads to put safety electronics called Positive Train Control (PTC) on trains by a certain date. The author has a pretty clear narrative that this is an absolutely critical piece of equipment for the public good, and that railroads are using scheming and lobbying to unfairly delay and dilute this critical mandate (seriously, I am not exaggerating the tone, you can read it for yourself.)

My point, however, is not to challenge the basic premise of the article, but to address this statement in her opening paragraph (emphasis added).

    Despite a rash of deadly train crashes, the railroad industry’s allies in Congress are trying to push back the deadline for installing technology to prevent the most catastrophic types of collisions until at least 2020, half a century after accident investigators first called for such safety measures.

The reporter is claiming a “rash of deadly train crashes” — in other words, she is saying, or at least implying, that there is an upward trend in deadly train crashes. So let’s ask ourselves if this claimed trend actually exists. She says it so baldly, right there in the first seven words, that surely it must be true, right?

[…]

So let’s go to the data. It is actually very easy to find, and I would be surprised if Ms. Lowy did not actually have this data in her hands. It is at the Federal Railway Administration Office of Safety Analysis. 2013 data is only current through June and seems to be set up on an October -September fiscal year. So I ran the data only for October-June of every year to make sure the results were comparable to 2013. Each year in the data below is actually 9 months of data.

By the way, when one is looking at railroad fatalities, one needs to understand that railroads do kill a lot of people every year, but the vast, vast majority of these — 99% or more — are killed at grade crossings. People still do not understand that a freight train takes miles to stop. (see postscript below, but as an aside, I would be willing to make a bet: Since deaths at grade crossings outnumber deaths from collisions by about 100:1, I would be willing to bet any amount of money that I could take the capital the author wants railroads to invest in PTC and save far more lives by investing it in grade crossing protection. People like Ms. Lowy who advocate for these regulations never, ever seem to consider prioritization and tradeoffs.)

Anyway, looking at the data, here is the data for people killed each year in US railroad accidents (as usual click to enlarge any of the charts):

Train accident deaths Oct-Jun

So, rather than a “rash”, we have just the opposite — the lowest number of deaths in a decade. One. I will admit that technically she said rash of “fatal accidents” and this is data on fatalities, but I’m going to make a reasonable assumption that one death means one fatal accident — which certainly cannot be higher than the number of fatal accidents in previous years and is likely lower.

Most of you will agree that this makes the author’s opening statement a joke. Believe it or not — and this happens a surprising number of times — this journalist is claiming a trend that not only does not exist, but is of the opposite sign.

September 2, 2013

Macroeconomics and math

Filed under: Economics — Tags: , , , — Nicholas @ 09:06

Noah Smith on the uneasy foundations of modern macroeconomics:

In macro, most of the equations that went into the model seemed to just be assumed. In physics, each equation could be — and presumably had been — tested and verified as holding more-or-less true in the real world. In macro, no one knew if real-world budget constraints really were the things we wrote down. Or the production function. No one knew if this “utility” we assumed people maximized corresponded to what people really maximize in real life. We just assumed a bunch of equations and wrote them down. Then we threw them all together, got some kind of answer or result, and compared the result to some subset of real-world stuff that we had decided we were going to “explain”. Often, that comparison was desultory or token, as in the case of “moment matching”.

In other words, the math was no longer real. It was all made up. You could no longer trust the textbook. When the textbook told you that “Households maximize the expected value of their discounted lifetime utility of consumption”, that was not a Newton’s Law that had been proven approximately true with centuries of physics experiments. It was not even a game theory solution concept that had been proven approximately sometimes true with decades of economics experiments. Instead, it was just some random thing that someone made up and wrote down because A) it was tractable to work with, and B) it sounded plausible enough so that most other economists who looked at it tended not to make too much of a fuss.

We were told not to worry about this. We were told that although macro needed microfoundations — absolutely required them — it was not necessary for the reality of any of these microfoundations to be independently confirmed by evidence. All that was necessary is that the model “worked” after all the microfoundations were thrown together. We were told this not because of any individual failing on the part of any of our teachers, but because this belief is part of the dominant scientific culture of the macro field. It’s the paradigm.

Slate on the gender wage gap

Filed under: Business, Economics — Tags: , , , — Nicholas @ 08:56

Hanna Rosin debunks the meme that “women only get paid 77 cents for every dollar earned by men doing the same job”:

The official Bureau of Labor Department statistics show that the median earnings of full-time female workers is 77 percent of the median earnings of full-time male workers. But that is very different than “77 cents on the dollar for doing the same work as men.” The latter gives the impression that a man and a woman standing next to each other doing the same job for the same number of hours get paid different salaries. That’s not at all the case. “Full time” officially means 35 hours, but men work more hours than women. That’s the first problem: We could be comparing men working 40 hours to women working 35.

How to get a more accurate measure? First, instead of comparing annual wages, start by comparing average weekly wages. This is considered a slightly more accurate measure because it eliminates variables like time off during the year or annual bonuses (and yes, men get higher bonuses, but let’s shelve that for a moment in our quest for a pure wage gap number). By this measure, women earn 81 percent of what men earn, although it varies widely by race. African-American women, for example, earn 94 percent of what African-American men earn in a typical week. Then, when you restrict the comparison to men and women working 40 hours a week, the gap narrows to 87 percent.

[…]

Goldin and Lawrence Katz have done about as close to an apples-to-apples comparison of men’s and women’s wages as exists. (They talk about it here in a Freakonomics discussion.) They tracked male and female MBAs graduating from the University of Chicago from 1990 to 2006. First they controlled for previous job experience, GPA, chosen profession, business-school course and job title. Right out of school, they found only a tiny differential in salary between men and women, which might be because of a little bit of lingering discrimination or because women are worse at negotiating starting salaries. But 10 to 15 years later, the gap widens to 40 percent, almost all of which is due to career interruptions and fewer hours. The gap is even wider for women business school graduates who marry very high earners. (Note: Never marry a rich man).

I’ve posted similar articles on this topic before: August, 2012, June 2012, and July 2010.

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