Bryan Caplan vs. Sociologists on the Labor Market

Posted on by

He writes,

The chief failure in labor markets is that wages tend to be too high, leading to durably high unemployment.

Why? Mostly because so many workers view employers with resentment and suspicion. To contain this resentment and suspicion, employers compress wages and avoid wage cuts even when there’s high unemployment. The unintended effect is to make unemployment far higher – and hence more traumatic – than it needs to be, especially for the least-skilled. It’s the Tinkerbell Principle at work. Involuntary unemployment, free labor markets’ chief shortcoming, exists largely because workers believe that free labor markets are bad for workers.

Several links omitted. Read the whole post. I think it could provoke a lot of useful discussion.

For the most part, Bryan challenges the view that in the boss-employee relationship, the boss takes advantage of higher status and power. That is the way I think that sociologists view labor markets.

Bryan writes,

Everyone talks as if bosses have the better end. But talk is very different from action. If everyone were trying to start their own businesses and hire workers, that would count as “acting as if bosses have the better end of the deal.” Most workers, however, make no effort to become entrepreneurs. You could object that most workers don’t have the money to open their own businesses, but most rich workers make no effort to become entrepreneurs either.

Almost nobody likes having a boss. But going out on your own is risky and stressful, so most people put up with it. Still, I think that one could argue that in the workplace, this fact gives bosses the sort of power that sociologists impute to them.

From this point of view, the best public policy to support workers would be to make it easier to go out on your own. Starting your own business can be daunting from the standpoint of paperwork: getting a license, filling out tax forms, etc. Also, health insurance is much more subsidized for large businesses, particularly those that do business in more than one state. If government were to take its thumb off the scale, perhaps the “exit option” would be more valuable to employees, which would raise their bargaining power in the workplace.

Just as almost nobody likes having a boss, Bryan would turn that around and ask whether anybody likes having employees. Employees grouse and they malinger. Public policy also could mitigate this by improving the “exit option” for bosses, that is by make it easier to screen potential employees and easier to fire those who fail to perform.

Richard V. Reeves on Inequality

Posted on by

He writes,

Most journalists, scholars and policy wonks are members of the upper middle class. This undoubtedly influences their (OK, our) treatment of inequality. Those of us in the upper middle class typically find it more comfortable to examine the problems of inequality way up into the stratosphere of the super-rich, or towards the bottom of the pile among families in poverty or with low incomes. It is discomfiting to think that the inequality problem may be closer to home.

Pointer from Mark Thoma.

I recommend the entire Reeves piece. Readers of Robert Putnam, Charles Murray, and this blog will not be surprised that

the gaps by income in family structure are striking. There are more never-married than married adults (aged 35 to 40) in the bottom 40 percent of the income distribution (37 percent v. 33 percent). In the top quintile, the picture is reversed: a large majority of household heads (83 percent) are married, while just 11 percent have never been married

Reeves’ concern:

Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

He links to a piece from Reihan Salam several months ago.

Take away the mortgage interest deduction from a Koch brother and he’ll barely notice. Take it away from a two-earner couple living in an expensive suburb and you’ll have a fight on your hands. So the upper middle class often uses its political muscle to foil the fondest wishes of egalitarian liberals.

The latter, of course, coming largely from the upper middle class.

Brink Lindsey and Steve Teles like to point out that there are policies available that, contra an old book from Arthur Okun, could both reduce inequality and improve economic efficiency. However, these are the policies on which the upper middle class is dug in.

Against the Null Hypothesis

Posted on by

Andrew Flowers reports on the Chetty, et al study showing differences in teacher value added,

Their numbers are being replicated in many different settings. Even in Rothstein’s paper critiquing their method, he replicated their results using data from North Carolina public schools. “I’m not aware of another area of social science where there has been so much replication, in such a short time, and they’ve all found the same result,” Kane said. On the consistency of replicability, Staiger said “it’s just astounding, actually.” Even Rothstein grants this: “Replication is an extremely important part of the research process … I think this is a great success, that these very complex analyses are producing similar results.”

We’ll see. My money is still on the null hypothesis.

We Don’t Make Things Any More

Posted on by

Justin Fox writes,

The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.

Pointer from Tyler Cowen.

This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.

One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.

Alex Tabarrok on Urban Planning

Posted on by

He writes,

In addition to transport arteries, I would also mention the importance of setting aside space and access points for sewage, electricity, and information arteries. It’s not even necessary that government provide these services or even the plan itself (private planning of large urban areas is also possible) but a plan has to be made. By reserving space for services in advance of development, developers and residents can greatly improve coordination and maximize the value of a city.

I think there is some truth to this, but it is more complicated. Planning is something that never stops. What is the plan for the planning process? How do you keep the planning process from being captured by NIMBYism or other rent-seeking forces? How do you keep it from becoming stifling? How do you enable a city to adapt to new circumstances?

Four Forces Watch

Posted on by

Jon Birger writes,

according to separate research by University of Pennsylvania economist Jeremy Greenwood and by UCLA sociologists Christine Schwartz and Robert Mare, educational intermarriage is less common today than at any point over the past half century.

The drum he is beating (Tyler Cowen has a link to a different piece by Birger) is that within a demographic segment, ratios of females to males matter. If you define the segment as “young, college-educated,” the outlook for women looks bleak, because of the high ratio of females to males in that segment.

Would it be reasonable to infer that in the segment “young, not college-educated” that there are more men than women? Why aren’t women in that segment enjoying lots of marriage prospects?

Perhaps many males in that segment do not offer much in terms of income.

Kicking China when it’s Down

Posted on by

Yasheng Huang writes,

The lasting contributions of infrastructures come from their usage, not from their construction. This is why a bridge to nowhere can boost GDP temporarily, but it has no long-run positive effect. On that, China falls short. It has several “ghost cities,” rows and rows of apartment buildings that are unsold and vacant, and lightly utilized highways and airports.

He makes it sound like China has the socialist calculation problem in spades.

Ancient Trade and Trust

Posted on by

1. From Adam Davidson in the NYT magazine:

At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man’s donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-­Adad claimed he never knew how many textiles he had been given.

Pointer from Tyler Cowen.

This apparently took place in the 19th century, BC. Long-time readers will know that I have taken the view that archaelogists are finding evidence of plunder and calling it evidence of trade. But this example (read the whole story) shows that I am wrong about that.

The main focus of the article is the gravity model of trade, which says that trade between any two entities (cities, countries) is positively related to their size in terms of population and negatively related to the distance between them.

2. Josiah Ober says,

The key to unlocking the puzzling success of the Greek city-state ecology is economic specialization and exchange. Specialization was based on developing and exploiting a local advantage, relative to other producers, in the production of some valued good or service. . .

the costs of transactions were driven down by continuous institutional innovations, notably by the development and rapid spread of silver coinage as a reliable exchange medium; the dissemination of common standards for weights and measures; the creation of market regulations and officials to enforce them; and increasingly sophisticated systems of law and legal mechanisms for dispute resolution.

The whole piece is interesting.

Can Computers Solve the Socialist Calculation Problem?

Posted on by

Malcolm Harris writes,

What if the problem with the Soviet Union was that it was too early? What if our computer processing power and behavioral data are developed enough now that central planning could outperform the market in the distribution of goods and services?

Pointer from Tyler Cowen.

This is just sad. The socialist calculation problem is not one of processing power. In The Book of Arnold, I try to explain it thusly:

In a command economy, central planners give each family ration coupons for corn flakes and wheat bread. If you were to give a family more ration coupons for corn flakes, then the family would gladly use them. If you were to give a family more ration coupons for wheat bread, then the family would gladly use those. Consumers have no way of signaling to planners that in relative terms they would prefer more corn flakes.

Similarly, workers have no way of signaling to central planners that they have untapped skills. Managers have no way of signaling that there are alternative production methods that might use a lower-cost combination of inputs. Indeed, the central planners do not know the cost of inputs. They only know the shadow prices that they have imputed to those inputs.