Saturday, February 27, 2010

Occupational Crowding

When women are pushed into occupations like nursing, their wages fall because the supply increases. This short video is intended for my presentation to Business and Professional Women on April 14, 2010.

Do you think women are treated differently in school than men. I've noticed that when teachers praise girls for work, the comment on how neat the work is or how organized it is. When men are praised, the teacher often comments about the quality of the work. This simple treatment that teachers unknowingly do, can result in occupational crowding especially in office jobs.

Being neat and organized are productive characteristics of high producing workers. I think teachers should never include neatness as a standard of excellence. What do you think?

I hope this blog will be an iPod app in the next two weeks. Wish me luck.


The information found at is exceptional. Click here to view.

How do you view the unemployment rate? Suppose that a new technological innovation occurs that increases business investment. This should shift Aggregate Demand to the right and decrease the unemployment rate. If the change in AD is permanent and labor markets are slow to adjust, then there will be a decrease in the natural rate of unemployment. This is the conclusion of Lawrence Ball. His paper, Hysteresis in Unemployment: Old and New Evidence, can be purchased here.

Russ Roberts writes about emergent order in the Price of Everything. Isn't the natural rate of unemployment an emergent order?

Thursday, February 25, 2010

What is Money?

In AP Macroeconomics, money has three functions. 1. Money is a Medium of exchange. 2. Money measures prices. 3. Money is a store of value.

When economists say that money is a medium of exchange, they mean that it's accepted. A store of value means that money keeps its value. Money must measure prices meaning that a piece of bubble gum that costs 10 cents would mean the same thing to everyone and provide information about the relative cost of a Pepsi that might cost 20 cents.

The following items could be money, but violate one of the definitions above. Can you explain why?

1. A sea shell 2. Gold 3. A pizza 4. A dog

Numbers 1, 2 and 4 don't measure prices. Number 3 is not a store of value.

The currency in the United States is fiat money. The term "fiat" means that the currency has a value simply because the government says it does. People accept it so it functions as a medium of exchange.

Tuesday, February 23, 2010

I, Pencil

Here is Leonard E. Read's brilliant essay on how a pencil is made by parties acting in their own self interests. The essay is from Russ Roberts book, The Price of Everything.

After reading this essay, can you explain market forces? How does self interest produce a pencil? Say millions of new Chinese move from the country to the city to attend schools. How does the market produce enough pencils so that everyone who wants a pencil can have one?

Russ Roberts has a podcast about this at

Sunday, February 21, 2010

Deflation Data Great Depression

Deflation is a problem too as consumers delay spending and wait for lower prices later. This graph is compliments of the St. Louis Fed.

101 Facts on the Status of Women

Business and Professional Women often reports on the earnings disparity between genders. An excellent compilation of facts can be found here.

Some of the facts are:

Since 1963 the wage gap has narrowed by only 1/3 of a penny per year.
Over the course of her career, the average woman loses approximately $523,000 to the wage gap.
The wage gap widens with age. (My take is that women have to take more time off from work to contribute to household production.)

Natural Rate of Unemployment

Why is there any unemployment at all?

The classical economists believed that wages and prices would adjust quickly and the market would clear. But we know that there are impediments to reaching the market clearing price like menu costs, worker misperceptions, seller misperceptions about the expected rate of inflation, and long-term contracts. Given these reasons, both frictional and structural unemployment results and the market doesn't clear.

The natural rate of unemployment can vary over time. The reasons I give for the changes are exogenous to the model we teach in AP Economics. The reasons I give have to do with demographic changes in the labor force such as more women entering as their children grow older. There can be structural changes in a sector like manufacturing. Since the labor force is computed as employed plus unemployed something as to change outside of the labor force. That was a reasoning.

But what if the duration of unemployment was longer? Suppose those workers losing their jobs are out of worker for 6 months as opposed to just 3? The length of unemployment would increase the natural rate. The graph above is from Business week. In the AP models I teach, business inventories build up or deplete and inventories relate to the business cycle and unemployment. Again, I will say unemployment is a function of workers finding jobs that match their tastes and preferences and changes in the labor force dynamics such as new job seekers.
A highly intelligent response from the comment section comes from Jack Krupansky:

"Maybe some day you could explain why economics has come to be called "the dismal science".
Seriously, the big issue facing us is not the classic cyclical production worker layoff/rehire cycle time which depends of working off excess inventory, but the layoff/retrain/rehire cycle time (and significant cost) facing the economy as whole industries go through traumatic non-inventory restructuring. How would you like to be a senior airline captain at United? Or a senior software developer whose job is (or might be) being offshored? The length of unemployment is no longer tied to the average time it takes an average company to work off excess inventory.
Now, the "average" may not be higher than than a few times in the past, but what about the *distribution* of unemployment times? And what of workers who lose a "good" job and have no choice but to take a 50% pay cut at a much lower skilled job while they blindly navigate an uncertain "retraining" process... does it really make much sense to use a binary decision process and say that they are now "fully" employed in these statistics when *everybody* knows that they are grossly under-employed? Dismal indeed."
So this commenter argues that changes in his sector comes from changes outside of his control. To get a grip on what I mean, this worker is working with information that has a high fixed cost but no marginal cost once produced. Distribution of his work is costless. When he becomes unemployed, his work remains but his marginal product has been competed away. This is a change in a sector that wages equal the marginal product. When workers feel that they are worth more than the equilibrium clearing wage, then the market does not clear. The duration of the worker's search increases. The natural rate of unemployment goes up.
In the discourse in the last paragraph, didn't I just argue that structural employment is the reason for an increasing natural rate of unemployment. In other words, workers stay in the labor force longer instead of dropping out. Therefore, the natural rate increases until they find employment. Usually, the employment they find according to the commenter above, pays less. That is exactly what the classical economists predict--both wages and prices will come down and the market will clear at the natural rate.

Single Women Who Choose Motherhood Before Marriage

This MSNBC video clip explores the pros and cons of choosing motherhood before marriage.

Many women choose to build their career first then have children. In this nine-minute video clip, the pros and cons are discussed.

I think the women involved are responding to incentives. They establish a career first that puts them on solid earnings ground with male counterparts. Then, when they have to take time off of work, the costs of motherhood are not as pecuniary.

For a video of companies how give women more options, click here.

Wednesday, February 17, 2010

Support for Keynesian Theory

Using data from the FRED data base, I plotted Real Personal Consumption Expenditures and Real Disposable Income. In this dense graph, you will observe that as income increases so does spending. This infers that savings increases too. Why did I go to the trouble of plotting this? I believe that this graph shows the consumer consumption function.
If this shows a loose relationship to consumption and spending, then there's a relationship between short-run equilibrium and government spending. Although I believe private investment is partially crowded out, government spending on infrastructure helps the economy grow. According to Bernanke's intermediate Macroeconomics text, about 14% of the budget is spent on investment. Private investment is about 16% of GDP.
NOTE: this blog's been hacked. I hope to resolve the problems over the next week. I have now disabled comments.

Monday, February 15, 2010

Neutrality of Money

In the Price of Everything, Russ Roberts writes, that it took a maid in 1900 about three hours of work to earn a dozen eggs. Today, a maid who earns $10 an hour has to pay about $1 for a dozen eggs. So the maid can earn a dozen eggs in 6 minutes. So eggs are thirty times cheaper for someone who cleans houses today compared to someone who cleans houses today compared to someone who cleaned houses a hundred years ago.

If you're a classical economist, then you believe that money is neutral immediately. I could have this all wrong, but eggs are both relatively and absolutely cheaper. Since there's more money now then in 1900, it appears that money is not neutral even in the long run.

Egg production, at least as far as the chicken goes, hasn't changed much either. The Price of Everything is highly recommended.

How Much Do Women With Children Work?

A working mother usually wants to work close to home. In order to stay close in case a sick child calls from school or needs a critical dental exam, the mother often takes a lower paying position. Data shows that earnings for a woman are 78% that of a male counterpart since women miss more work than men. Women miss often miss work for maternity leave, child care, and maintaining the home. When Women miss work, they miss out on valuable experience and their skills depreciate. But just how many women are working?

This Bureau of Labor Statistics table shows that women with children are entering the labor force. Since 1975 working women have increased even when their are children at home. This is no surprise. I think employers should restructure the work week where possible to accommodate working mothers. For example, an extended two-hour lunch break would allow women time to balance household duties with job responsibilities might help. Give flextime options.

Your comments are welcome.

Sunday, February 14, 2010

Valentine's Day and Innate Gender Characteristics

When wooing a woman, use chat-up lines that demonstrate your helpfulness, generosity, athleticism, ‘culture’ and wealth. Don't bother with jokes, empty compliments and sexual references. This ought to do it - 'Hey gorgeous, sorry I'm late: the opera over-ran, then I had to race to my neighbour's to help carry her piano upstairs - the one I bought her as a moving in present'. This advice is from the Research Digest Blog. If the advice is true, the advice goes a long way to showing the innate differences between men and women.

At my Monday inservice meetings, I hear a lot of rhetoric about "collaboration" and "Team building". These 21st Century skills indicate that technology has flattened the world and changed the way businesses operate. I concur. The rate in which technology is changing means I simply can't keep up. My work will depend on sharing both the workload and the credit across different departments and even different countries. As an example, I am building an online store, but I don't know html. Using PayPal, I was able to hire an expert to build and maintain my site. (My site will be open in about a month. It'll sell my lesson plans, lecture notes, and how to videos at very reasonable prices to help other teachers out.)

Do women have innately different productive characteristics then men?

The Economist, Schumpter, January 22, 2010, page 48, Womenomics, writes, "they are less aggressive and more consensus seeking, less competitive and more collaborative, less power-obsessed, and more group orientated. So if this characterization of women is true, then the pick up line at the beginning of the blog will work.

In economics, introductory textbooks warn against the fallacy of composition. That is, what is true for the part may not be true for the whole. In this Valentine's Day blog, be careful not to assign the characteristics of one woman to all women. Indeed, there are take no prisoners CEO's who are women that want to be judged by the same innate characteristics as men. Every woman is different and they want to be treated that way.

I believe that collaborating and mutual trade leads to more satisfaction than in the absence. If women facilitate the change better, then women should have those leadership positions based on their individual merits.

Saturday, February 13, 2010

Comparable Worth and Gender Inequality

In this hastily done video, I show the unintended consequences of a law that hurts the very group of people it was intended to protect.

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Thursday, February 11, 2010

Unanticipated Inflation

2.11.2010 8:11 PM
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Men and Women's Earnings by State

A four-page report written by Jessica Semega for the US Census Bureau is here.

The report shows that Iowa women earn 77% less than men. Does this mean that women are discriminated against?

The statistic could indicated that women earn less than men because the work fewer hours. I also think that women balance the benefit of working extra hour against household production and choose to work at home. Over time, the extra hour that could have been devoted to the workplace adds up to weeks, months, and years. Then the skills level between men and women become a wage differential. I also believe that women who value household production more than workplace production will also want to work closer to their work and take lower paying jobs as a price of this proximity. For these reasons and more, married women will earn less than single women. I'll bet that for unmarried women, the wages are equivalent to men.

When making comparisons, one must be careful. I'm not sure I have the math necessary to hold all factors equal. This is what I mean. Say two teachers both teach an AP class. Both classes are called AP which infers a high level of rigor and relevance. But the two teachers might teach differently. One teacher might have high expectations and the other might shirk off. In this case you'd have to compare more than the names of the classes.

Likewise, when you compare men and women, you have to compare more than the gender. One must look at productive characteristics of each worker in the same occupation with the same education. Holding all of these variables constant is a difficult task.

With all of that said, the statistics show that men get paid more than women for the same job. As the great Frank Lloyd Wright wrote, "The truth is more important than the facts." - Frank Lloyd Wright

Tuesday, February 09, 2010

Earnings Inequality by Gender

A physician whether male of female has equal education qualifications and should receive equal pay. Yet, in an article written by Daniel H. Weinberg, "Earnings by gender: evidence from Census 2000", female doctors make only 62% compared to their male counterparts. This earnings differential is lower than the mean of 73% for occupations with the highest median earnings. (Table 2, page 28.)

This means that education isn't the reason why earnings differ between men and women. Some of the reasons might be worker characteristics, occupational crowding, and discrimination. Be careful when reading this blog because I use the term earnings which is computed by taking the hours times the wage rate.

One reason why women earn less is that they might work less hours than men. It's been my experience working with high age students that they will call mom when they are sick or need a ride home after school. In addition, women tend to balance a quality home to working an additional hour at work and tend to select working at home. I believe this disparity will disappear if a woman chooses to forgo child bearing.

Economics of Faking

Emory Professor Hugo Mialon has a 33-page paper of signaling here. HT: Greg Mankiw.

Signaling and auctions are two areas I need improvement if I'm going to call myself an economist. In the Cartoon Introduction to Microeconomics, Yoram Bauman, does a brilliant job explaining acutions. As I plan to open an Ebay store, this information was more than informative. More and more economics is motivating my behavior. Is this dismal?

Sunday, February 07, 2010

Women in Labor Force

TIME, What Women Want Now--The State of the American Woman is a provocative look at the changing demographics of the US labor force.

Business Professional Women, Muscatine Chapter, has invited me to speak at their April meeting on income inequality and the female income earner. I would be honored if any reader had facts that they would like to share and websites that I can reference. Simply put your suggestions in the comment section. This is my introduction.

After work, I go to the Community Y. One time I saw a school bus unloading several elementary students at the front door. These cute little children marched in single file into the Y guided by a worker I recognized from class. This worker, Mary*, was a student of mine a couple of years ago. She never graduated from high school. I could tell that Mary was a skillful child-care worker by how she worked with the kids. Mary would ask the students how their day was and she would smile at everything the children did. I could tell that the children loved her too. I figured that Mary was probably working for $8 per hour. If Mary demanded $20 per hour, the Y could find a lot of other workers to replace her. Yet, here she is working with someone's child--one of the most precious gifts a family could have. Why does Mary only earn $8 per hour.

At the public school where I work, a computer tech support worker, earns $70,000 per year. Yet, he doesn't work with children and if the computer crashes, no one is really physically hurt. Why does he earn $70K a year, and the day-care worker only make about $18K?

Is the wage disparity the result of gender discrimination?

Saturday, February 06, 2010

Price Indexes

Price Indexs
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This is a through discussion of how to construct and interpret the CPI and the GDP price deflator. I honestly believe that this lecture captures all you need to know about using a price index to explain growth and prices at different times.

Wednesday, February 03, 2010

Toyota Recall

How would the Toyota recall affect demand and supply for Toyota cars? Would you agree that there would be a change in demand, a leftward shift, and a change in supply, also a leftward shift? In the introductory model, price should go up and quantity should go down.

Since Toyota operates in an oligopoly industry, I look for a build up of inventory as consumers prefer less. I am not sure about the price.

Tuesday, February 02, 2010


The website is here.

Most modern economies have a deficit. Is our debt out of control? Are we borrowing from our future? Do you see an increase in taxes?

Monday, February 01, 2010

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Okun's Law

This Des Moines Register is saliant. As the author notes, unemployment data is a lagging indicator. The author notes that the stock market is usually high when unemployment is high. I subscribe to the Keynesian theory that in the short run firms will meet demand. Since many firms are monopolistically competitive, they can see an additional unit as long as price is greater than marginal cost. Firm will labor horde. Thus, unemployment lags. It seems to fit the data nicely.