Sunday, March 28, 2010

Women in Labor Force

1. In positions that are dominated by women, when a man is hired, wages rise.

2. Women usually accept the first offer in wage negotiation. The first offer is usually the lowest.

3. Most women believe that just working harder will raise their wages.

4. On average, women will miss 12 years of work care giving and raising a family.

5. White women have the largest wage gap. That is, white women earn 77 cents less than their male counter part, but black women earn 83 cents. The gap is the largest for white women. Asian and Hispanic earn wages closest to men.

6. Less than 3% of CEOs are women.

7. I challenge you to find positions in which conflict arises daily in which a woman is in charge. What I mean is, women build consensus and eliminate disputes. Men are aggressive and thrive in this area. So if the work place is hostile or volatile, a man will be in charge. That's why I think most high school administrators are men.

Saturday, March 27, 2010

Wage Rage?

Do women call in sick more often than men? This MSNBC article says they do.

The inference for women's wages is that their skills depreciate or they cost the company money either by hiring a temp or having to pay other workers overtime.

This link writes that women are less productive than men. This link is a learned 69-page paper that explores productivity in the US and around the world. I don't know what to think.

Finally, from Superfreakonomics, "Though the sample size is small, women who underwent surgery to change into men earn more after the gender transition while men who became women earned on an average 1/3 less than their previous wage." (pages 47-48. I love how statistics are shown to the readers.)

Friday, March 26, 2010

Money Multiplier

The money multiplier is found by dividing the money supply by the monetary base (reserves plus currency). Why in the money multiplier decreasing?
My answer is because the monetary base is growing. With bank balance sheets packed with reserves that are not being loaned, the high-powered money isn't stimulating the economy.
This graph is from the FRED data base and can be enlarged by simply clicking on it.

Monday, March 22, 2010

Economics Illustrated

This textbook was produced by Mr. Dan Wise's 10th grade economics class at High Tech High in San Diego, California. This textbook is very good. In Mr. Wise's class, learning outcomes are project based. In his class of approximately 30 students, every student was engaged in active participation.

Best Quote I've Heard Today

On my way to sunny San Diego, we passed a casino at 4:00 am on a Sunday morning. The casino was packed. Likewise, on Saturday morning going to a mock trial tournament, we passed the Catfish casino in Burlington,Iowa. That casino was packed too. One of my travel companions had a thought that I think is relevant to teachers.

"One difference between those who live in poverty and those who do not is how they view the results of their choices. A person who lives in poverty might believe that they have to get lucky to escape poverty so they might gamble at a casino. But most of us, (meaning those riding to San Diego) believe that our choices can influence the future. If we work hard, for example, then something good will become of it." I think this captures the essence of poverty. Poverty robs the spirit of hope.

At the heart of economics is a chain of thinking that goes: resources are scare; people must make choices; when people make a choice, there's a cost. The cost is opportunity cost or what you give up. People from poverty think their choices are all or none. It would be hard for me to believe that they make choices at the margin.

Ruby Payne's research shows that children of generational poverty believe that exogenous forces will steal their wealth. Economic hardships will make learning hard for these young people. In the movie, Blind Side, one parent made a difference in a young man's life by "adopting" him. I think more kids need to be paired with community resources so help them combat the exogenous forces that rob children of their wealth and hope.

Saturday, March 20, 2010

Mike Munger on Price Gouging

In the midwest, we are beginning to see flooding. The Red River is damaging parts of North Dakota and Minnesota and it's only March. Washington, D. C., saw 20" of snow. Parts of New Jersey flooded last week. When a tropical storm dumps as much as 10" of rain or a tornado destroys a city, goods become scare. When goods become scarce, prices rise. Should the government pass price laws to prevent the prices from rising during a disaster?

This is the topic of Mike Munger's podcast with Econtalk host, Russell Roberts. The podcast can be found here. An article on the same topic is here, for those who wish to read.

I believe that this topic inspired the book, The Price of Everything.

Friday, March 19, 2010

Coffee and Deforestration

Many third-world countries export coffee as their main export. In this graph, I've plotted data on prices paid to coffee growers in Indonesia and the percent of forest area lost in a national park that lies in a coffee-producing region.

This data is from, Caffeine and Conservation by Timothy G. O'Brien. I intended to show that as prices increase, incentives to produce more coffee at the expense of national park land increases. This is exactly what the supply curve in AP Microeconomics captures.

Civil War in Africa

"Over 9 million refugees and internally displaced people from conflicts in Africa. Hundreds and thousands of people have been slaughtered from a number of conflicts and civil wars." The source is here.

Wikipedia lists over 50 African countries that have been involved in war. The list is here.

I followed civil war in Rwanda. I have just read the book, "a long way gone". I have heard atrocities of war in the Congo. I have Liberian refugees in my class. Why is Africa at war?

If you would like a learned paper, please read, "Why are there so many civil wars in Africa."

One of the reasons cited in the paper is poverty. A brilliant depiction of the Tragedy of the Commons is on Marginal Revolution. Private property instills the incentive to produce. Of course, those rights have to be enforced. This brings me to the question, can there be private property without government?

Wednesday, March 17, 2010

Investment in Human Capital For Advantaged Parents

Poverty robs the spirit. Poverty steals hope and opportunity. That's the real problem with poverty. Even though the income gap is widening, the gap isn't as noticeable in the products we use. Is there a qualitative difference between a Toyota Corolla or a Ford Cadillac? Is there a qualitative difference between a suit bought at JC Penny vs. a Joesph Aboud bought at a ritz department store? The income gap can't be seen in the products we buy. The income gap is apparent in the opportunities that advantaged children receive.

The Carver Excellence in Education Award is given to students who have had the doors of opportunity closed to them in their lives but have found a way to open them. This scholarship is more about the entrepreneurial ability and adaptive intelligence than participation in extra curricular activities. This award is opportunity. Dr. James Heckman is an economist who believes in giving children hope and opportunity.

Returns on Investment in Human Capital

This graph shows that the greatest return on investment to human capital occurs early in life. Programs to prepare children for life should begin as early as possible. This graph is from James Heckman, University of Chicago, and Nobel Laureate in 2000.

The graph intuitively makes sense. Before you go out and buy, "Your Baby Can Read", please consider any growth is easiest in the early stages. This is why the aggregate production function increases at a decreasing rate. This is why China's growth is so large.

The motivation for this graph comes from Parents as Teachers. The idea of this program is to use the time the parent has with the child productively so that there's more opportunity for learning. I have always advocated using retired teachers who will volunteer to go into homes and help preschool children prepare. Perhaps you have heard Hillary Clinton say that "It takes a village to raise a child." (It originated from the Nigerian Igbo culture and proverb "Ora na azu nwa" which means it takes the community/village to raise a child.) I think this is the heart of the graph.

Now I digress. On my job I see a lot of passing the buck. The buck should just stop. Everyone is responsible for teaching all of the time everywhere. It's that simple.

Tuesday, March 16, 2010

Graduation Rate for American High Schools

In this paper, economist, James Heckman, presents trends in graduation rates. This paper is meant to fuel discussion. Dr. Heckman asserts (1) the true graduation rate is lower than reported; (2) the rates between minorities and whites have not converged; (3) increasing immigration is NOT the reason for the decline in graduation rates; (4) the rates have been declining over the past 40 years.

Dr. Heckman is passionate about human growth and development. I have watched YouTube videos of him being interviewed at conferences ad hoc. Anyone who will throw it down any time is worth listening to.

In Biology, the specific heat equation means how many degrees are needed to change a body one degree. The point is, the amount of heat is assumed to be controlled by the experiment. What if "heat" were out of the control of the experiment? Then the body would change at the whim of nature. My point is that the graduation rate is like the temperature. There are millions of exogenous factors that affect the rate just like there are many factors influencing the temperature.

I will say that an order will emerge from this chaos. What educators should do is work on the things that they can control not on the things they can't control. I welcome your comments.

Returns to Social Skills

Economist James Heckman, University of Chicago, links "soft skills" such as perseverance, attention, motivation, and self-confidence to "success in society at large." Heckman argues that investing in socio-cultural skills will provide more "economic and social return" than investing in social programs or infrastructure. Mr. Heckman is a Nobel Prize laureate.

Mr. Heckman advises early intervention for disadvantaged children. His research implies a higher rate of return than equities.

My work with poverty shows that much of the adversity that children in poverty face are exogenous, or out of their control. Such problems as gang violence, economic downturns, a sibling that runs away, or many other factors out of the control of the child.

You know what I haven't heard lately? Wal*Mart bashing. What is the relevance of bringing up Wal*Mart? Because Wal*Mart created millions of jobs for many unskilled laborers. They were then given the tools to become a productive citizen. Seriously, how many of you complain of waiting to checkout at Wal*Mart? That's because Wal*Mart has contributed to the human capital of these workers. So technology created a business model in which unskilled labor could develop their human potential and serve a niche in society that is one of the largest employers in the United States. This is a high return on investment. I believe, on some level, this is what Mr. Heckman is saying.

Monday, March 15, 2010

Government in the Classical View

In the classical view, the government should keep out of the market. But who would pave a street if they had to incur all of the cost but little benefit? The public goods have to be provided by the public sector.

Sunday, March 14, 2010

Emergent Order

Everything that I observe seems to be under the control of law, social order, or institutional conventions. Everything that is, except the price system. I will grant you that biological forces are unregulated, but human interactions seemed to be governed.

The forces that determine the price of gas aggregate information from millions of sources into a market. Sometimes you don't always get what you want as Joel Waldfogel wrote in his book, The Tyranny of the market. But you don't worry that the gas station will be out of gas when you want to fill up either.

Last night I noticed while on my way to the symphony, that cars parked so that they could get home quickly after the Mesiah. The spaces left between cars was waste and exerted a negative externality on those late concert goers. The market created order out of disorder, but there was still waste. Still I don't think a parking czar would have helped much. This czar might not have had all of the information necessary to plan the parking efficiently.

I believe Frederic Hayek opined that order would emerge. I am wondering if a self-correcting economy is the self ordering market that Hayek meant.

Thursday, March 11, 2010

Wednesday, March 10, 2010

Monday, March 08, 2010

Time is Ripe

The winter has been hard on tomato growers in Florida. Nearly 70% of the crop was wiped out because of a freezing chill. This should make substitutes more attractive such as hydroponic grown vegetables. Also, consumers might have to forgo V-8 and ketchup. This is econ 101 but as the supply curve shifts to the left, the quantity demanded will fall. Tomatoes are relatively inelastic in the short run because of the growing season. For those farmers lucky enough to have been spared by the frost, they will see higher profits.

Will higher profits induce more tomato growers into the market? I think you'll see foreign grown vegetables find their way into domestic shelves has soon as they can find a logistical way.

Sunday, March 07, 2010

Natural Rate of Unemployment

Milton Friedman postulated that inflation in this time period was based on inflationary expectations formed in the previous time period. It was like predicting the weather. One could look outside and assume that the next hour's weather would be much like the last hours. Let's look at the formula. Inflation was related to the deviation of the actual unemployment, U, from the natural rate, U*. Thus, I = I' - .5(U - U*), where I is inflation this time period and I' is inflation from the previous time period.

If the actual unemployment is greater than the natural rate, the inflation is falling. If the actual unemployment is less than the natural rate, then inflation is falling. This is the Phillips Curve.

In this blog post, I want to opine what can happen to U*, or the natural rate. The natural rate equals frictional plus structural unemployment. Any changes to frictional or structure will change U*. If jobs are being destroyed by changes in employer demand faster than jobs are being created, then the natural rate will increase. If it takes workers a longer time to find a job, then U* will increase. U* is what I call a fluid dynamic since there are flows into and out of it.

Robert Hall and Greg Mankiw have written this dynamic as: s/(s+f) which measures the ratio of job separations, s, to job separations and job findings, f. Both s and f are fractions. It's f that has the greatest effect on the unemployment rate. Say f equals .2. This means that it takes a job seeker 5 months to find a job. If f increases to .5, then it takes that worker 2 months to find a job. Assuming s is constant, a larger f, or less time to find a job, will lower the unemployment rate. To see how the duration of unemployment is increasing, visit the Bureau of Labor Statistics and view Table 12. The link is here. In February, 09, the percent of displaced workers was 22.4% who were out of a job more than 27 weeks. In February, 10, that figure was 40.9. This is alarming since unemployment benefits have expired.

There are changes constantly taking place in the labor market that influence the ability to find a job. Some of these changes come from being able to search for a job on your computer instead of incurring shoe leather costs. Changes in consumer demand will change the demand for workers as this demand is derived. Technology will allow more women to go to work and at the same time make manufacturing skills obsolete. New laws might prohibit teachers from retiring early and lengthen their attachment to the labor force, s. Thus, U* is a flow variable. Measurment of both frictional and structural unemployment then yields insight into both the inflation rate and the natural rate of unemployment.

This blog helps me to understand concepts and allows me to think out loud. If you like this discussion, please comment.

Saturday, March 06, 2010

Jobs of Yesteryear

This is an outstanding photo essay on jobs that are obsolete. Here are some jobs that have been eliminated. HT to Tim Schilling.


The Phillips Curve, by Kevin Hoover, is an excellent article for understanding the non accelerating inflation rate of unemployment. In this time-series plot, one observes a peak then a descent to the natural rate. What could cause the peak? If wages and prices are sticky, then the duration of unemployment would increase and the rate would be slow to return to its natural rate. It's the duration of unemployment that influences the natural rate.

One should be able to observe that in recent data. If the duration is increasing then more additions to the unemployed ranks, will increase the natural rate. I'll explore this later. Time for mock trial competition.

Thursday, March 04, 2010

Relative Temperatures

After a long and brutal winter, I often hear people talking about a heatwave when the temperatures hit 30 degrees. Since this is two degrees below freezing, how can this be a heatwave?

Heat always flows into cold. When it's cold heat flows faster so the body becomes cold. When the temperature is warm, heat doesn't dissipate fast. Now when temperatures are slowing rising, it might seem like it's warm even when it's 30 degrees because it's relatively warmer.

And so it is with the natural rate of unemployment. This is a fluid equilibrium that has workers entering and exiting the market so it might seem like unemployment is normal when it might be increasing or decreasing. What I'm trying to say is that the new unemployment rate might depend on the previous unemployment rate.

I'm talking nonsense. I'll try again.

Wednesday, March 03, 2010

Aggregate Supply

Aggregate Supply
brought to you by Livescribe

I explain why AS slopes upward then talk about a horizontal and vertical AS curve. There are some questions I don't answer well so make fun of me in the comments section.

Monday, March 01, 2010

Content or Process

When I was younger, I used to argue with my mom about telephone numbers. I said that she should remember telephone numbers in case of an emergency and she would say that she could always look it up in the phone book.

So with today's technology, where books are kept online and you can Google anything, should you focus on content or knowledge or the process?

If content is accessible in a few clicks, it makes sense to focus on the process of problem-solving. So when students have trouble solving a word problem, the teacher should give the student the tools to solve the problem.

I often tell my econ students that the reason why they should learn econ is so that they can analyze decisions. I've given them the tools of econ, now they can use them to make informed and rational decisions.

TI-83 Project Keynesian Cross

Keynesian Cross -

In the near future, I will have a stack of flash cards for the TI-83 that will allow students to review all macroeconomics concepts for the AP. I've completed the stack, I now want to debug and learn how to send the stack for download. I am confident that this stack will replace iPod apps, review books like the Princeton review, and worksheets.