I was surprised by some of this:

We found that Energy companies have the highest average Revenue per Employee, while Industrials and Consumer Discretionaries perform worst on this metric.

Technology companies performed at the lower end of the range on Revenue per Employee; part of the reason for this however, is other companies in spaces like Energy and Healthcare have large non-employee costs that Technology companies do not have.

AmerisourceBergen, a pharmaceutical distributor, tops the list, generating more than $7.9M per employee in 2016. With a reported team of 19,000, which is less than half the workforce of Cardinal Health (37,300) and McKesson (68,000), the company compares favorably to its peers on revenue per employee. Cardinal Health and McKesson‘s RPE were $3.3M and $2.8M, respectively. Overall, Healthcare companies score well on revenue per employee, though they have other huge costs (the costs of administering drugs and health services).

As for the lowest revenue per employee:

It is perhaps unsurprising that Restaurant and Hotel chains make up the majority of the list. What is more striking is that IT providers Cognizant and Accenture have among the lowest revenue per employee in the Index.

There are several useful tables at the link.  I do not think this is making any adjustment for independent contractors.

For the pointer I thank the estimable Chug.

Adam Ozimek has a very good post on that question, here is one part of it:

(By the way, can you be fired from a guaranteed job? If you’re guaranteeing everyone can be hired, and nobody can be fired or even it’s very difficult to fire them, then that’s creating quite the management headache for whoever participates in this program.)

Crowd out is also a problem on the supply side of the labor market as well, and failing to accurately consider this means the estimated program costs are way too low. The goal of the program is to create 4.4 million jobs that will cost $36,000 a year each. CAP says this will only cost $158 billion. But this assumes there is no crowd out from people who already have jobs. If these are going to be “good jobs with good wages”, then why wouldn’t people who currently have jobs that aren’t as good or have lower wages from trying to get them? About a third of all workers earn less than $15 an hour, and EPI estimates that a $15 an hour minimum wage by 2024 would directly affect 22.5 million workers. So it’s easy to imagine that there would be 20 million people or more who want one of these guaranteed “good” jobs today. How do we decide who gets these jobs, and do we set a cap?

So it seems clear the $158 billion estimated cost is way, way too low. I don’t know if advocates know that this plan would result in a large scale nationalization of the economy and don’t care, perhaps even seeing this as a benefit, or if they are just making a mistake.

Do read the whole thing, Adam makes many good points.

Places like Singapore have nice infrastructure because they have pro-saving public policies and effective cost controls on construction projects. America has neither. As long as this is the state of affairs, we will not have top-notch infrastructure, no matter how much money the federal government throws at the problem.

That is from Scott Sumner.

The Italian Job

by on May 29, 2017 at 7:37 am in Economics, Law | Permalink

Each year there are more bank robberies in Italy (approximately 3,000) than in the rest of Europe combined, with a 10 percent chance of victimization on average.

…The average robbery lasts 4.27 minutes and leads to a haul of approximately 16,000 euros. Given that more than half of all bank robberies involve two or more perpetrators, the average haul per criminal is approximately equal to 8,700 euros.

…only about 40 percent of all bank robbers disguise themselves when robbing a bank.

Those are a few interesting facts from a bold new paper, Optimizing Criminal Behavior and the Disutility of Prison. The authors, Mastrobuoni„ and Rivers, use extensive data on bank robberies to model bank robbery as a second by second optimization problem:

The key insight of our model is that bank robbers face a trade-off when deciding how long to stay in the bank. By staying an extra minute, the robbers can collect more money, but they also run the risk of getting caught and sent to prison. The cost of being apprehended is a function of the disutility each individual places on going to prison. By equating the marginal benefit with the marginal cost of time spent in the bank, we can back out the unobserved disutility that robbers assign to prison.

The authors create a sophisticated model of optimizing behavior which they estimate using extensive data. In their conclusion, they focus attention on their finding that higher ability bank robbers have a higher disutility of prison. Thus higher ability offenders can be (especially) deterred by longer sentences. The authors focus attention on high-ability offenders because those are the offenders most likely to fit the assumptions of their rational-actor model. I think it’s actually better to focus on the contra-positive conclusion: its hard to deter idiots.

Moreover, there are plenty of idiots:

Not surprisingly, traveling to the robbery by foot and targeting a bank with a security guard are both consistent with lower ability offenders….

The existence of idiots, however, calls into question the optimizing assumptions of the model. As I argue in What was Gary Becker’s Biggest Mistake? the poorly-socialized-child theory of crime can suggest other approaches to combatting crime (e.g. cognitive behavioral therapy):

Here’s a simple test for whether crime is in a person’s rational interest. In the economic theory if you give people more time to think carefully about their actions you will on average get no change in crime (sometimes careful thinking will cause people to do less crime but sometimes it will cause them to do more). In the criminal as poorly-socialized-child theory, in contrast, crime is often not in a person’s interest but instead is a spur of the moment mistake. Thus, even a small opportunity to reflect and consider will result in less crime.

The guy who robs a bank that has a security guard and then attempts to run away seems like a poor fit for a rational actor model. Perhaps more thinking would have led a better planned bank robbery but more plausibly it would have led to no robbery at all. Thus, I’d frame the author’s contributions in this path-breaking paper as telling us not just about rational bank robbery but about the limits and bounds of rational bank robbery.

That is an unpopular point — with both sides — but it might just well be true.  Here is a newly published study by Robert W. Crandall:

More than a year after a court invalidated its “net neutrality” rules on broadband Internet service providers (ISPs), the Federal Communications Commission (FCC) decided to extend public-utility (Title II) regulation on broadband services. This paper uses traditional event analysis of the movements in the values of major communications and media companies’ equities at key moments in the FCC’s path to this decision to estimate the financial market’s assessment of the likely effects of regulation on ISPs, traditional media companies, and new digital media companies. The results are surprising: the markets penalized only three large cable companies to any extent, and even these effects appear to have been short-lived. The media companies, arguably the intended beneficiaries of the regulations, were unaffected.

That is via the excellent Kevin Lewis.

Proust as speculator

by on May 29, 2017 at 12:10 am in Books, Economics, History, The Arts | Permalink

Through a fast alternation of buying and selling, orders and counterorders, the end of 1911 marked Proust’s fastest plunge into debt exposure in his fifteen-year-long investing career. His patrimony amounted to about 1,522,000 francs, but more than 40 percent of it, precisely 640,000 francs, was tied up in forwards contracts—a crazy level of exposure for an amateur investor. In terms of American dollars, at this time Proust owned a personal fortune of $6,864,000 and had about $2,900,000 tied up in obligations to buy.

That is from Proust and His Banker: In Search of Time Squandered, by Gian Balsamo, via Ray Lopez.  Ray also passes along this from the book summary:

Focusing on more than 350 letters between Proust and Hauser and drawing on records of the Rothschild Archive and financial data assembled from the twenty-one-volume Kolb edition of Proust’s letters, Balsamo reconstructs Proust’s finances and provides a fascinating window into the writer’s creative and speculative process. Balsamo carefully follows Proust’s financial activities, including investments ranging from Royal Dutch Securities to American railroads to Eastern European copper mines, his exchanges with various banks and brokerage firms, his impetuous gifts, and the changing size and composition of his portfolio. Successes and failures alike provided material for Proust’s fiction, whether from the purchase of an airplane for the object of his affections or the investigation of a deceased love’s intimate background. Proust was, Balsamo concludes, a master at turning financial indulgence into narrative craftsmanship, economic costs into artistic opportunities. Over the course of their fifteen-year collaboration, the banker saw Proust squander three-fifths of his wealth on reckless ventures and on magnificent presents for the men and women who struck his fancy. To Hauser the writer was a virtuoso in resource mismanagement. Nonetheless, Balsamo shows, we owe it to the altruism of this generous relative, who never thought twice about sacrificing his own time and resources to Proust, that In Search of Lost Time was ever completed…
This sounds like a book I should read.

Switzerland has taken in a high portion of foreign-borns, yet without losing its identity or sense of order.  Over 24 percent of the population is foreign-born, noting that almost half come from France, Germany, Italy, or Portugal.  The country recently imposed restrictions on migrants from Romania and Bulgaria.

German as a second language in Switzerland is declining, as the migrant workers in the service sector do not command it with much fluency if at all.  In Lugano, for instance, English now seems to be of more value.

In so many parts of the country unemployment is below two percent, with a national average of 3.3 percent.  And the Swiss manage this with an “overvalued” exchange rate, at least by purchasing power parity standards.  It is worth pondering how this is possible.

Probably the Swiss have never seen a better time.  Their countryside is gorgeous and intact, and their major cities are creative and flourishing, yet many Swiss remain deeply unhappy about inward migration.

The Swiss are no “snowflakes;” they impose and enforce stiff penalties on those who don’t meet the insurance mandate, and they are on the verge of deporting an ethnically Spanish man who was born and raised in Switzerland, and who never has lived in Spain, for his repeated criminal offenses.  Furthermore “Voters in Bern on Sunday rejected a proposed 105 million franc funding boost to help asylum seekers in the canton, primarily unaccompanied minors.”

It is striking how much the theory of comparative advantage has operated on Switzerland over the last thirty years, as the country has moved to a true economic integration with the EU.

I see Swiss cuisine as declining in relative value, as quality ingredients have spread to many other countries, including the United States (and Ireland!), but Swiss cooking has grown only marginally more imaginative.  And food prices here can be 2x or more typical developed country levels.

Bern feels much freer and less provincial than it did thirty years ago, the last time I visited.  Living here now seems imaginable.  And in Bern you still can see a working public phone booth.  Nor, from casual observation, do people here seem as cell-phone obsessed as their American demographic contemporaries.

As for Lugano, nothing seems to happen there.

Switzerland, an extreme country, and an extremely successful country, is always worth pondering.  And visiting, even at 2x prices for the food. the 10 years from 1999 to 2009, India’s workforce increased by 63m. “Of these, 44 million joined the unorganized sector, 22 million became informal workers in the organized sector, and the number of formal workers in the organized sector fell by 3 million.” This is a social catastrophe. It is due not only to labour-market distortions, but to a host of constraints on the creation, operation and, not least, closure of organised and large-scale businesses.

White defendants in Winnebago County, Wisconsin were nearly twice as likely as non-whites to enter diversion programs instead of going to jail. A straightforward example of judicial racism? Surprisingly, no. The study, which was looking at people with no previous records who had committed non-violent misdemeanors, found that

… judges were offering white and non-white defendants the option to enter diversion programs such as drug rehabilitation at equal rates. But non-white defendants opted for jail time more often. And choosing jail means opting for a criminal record, which can mean opting for a life in which everything from jobs to loans become much tougher to get.

Does the rehabilitation program cost the defendants more? Do non-whites feel they are guiltier? Is there a lack of trust? Are there deeper structural issues that can account for these different choices? And why are we “privileging” the white decision? Could it be that whites are making the wrong decision? WIRED doesn’t offer a solution but discusses the new Zuckerberg financed dataset, Measures for Justice, which led to the discovery of the discrepancy.

I have no direct knowledge of the situation, but here is an extensive report from Bloomberg.  The summary headers are:

  • Paul Romer to give up management of research department
  • Researchers chafed against push to communicate more clearly

But there is more to the story than that.  And here is the FT story:

But some said Mr Romer’s management style, particularly over what some saw as a dogmatic approach to clear writing, was key to the move, citing the recent spat over “and” as evidence.

Circulating a draft of the upcoming World Development Report, Mr Romer warned against bank staff trying to pile their own pet projects and messages into the report. The tendency, he argued, had diluted the impact of past reports and led to a proliferation of “ands”.

“Because of this type of pressure to say that our message is ‘this, and this, and this too, and that …’ the word ‘and’ has become the most frequently used word in Bank prose,” he complained in an email.

“A WDR, like a knife, has to be narrow to penetrate deeply,” he added. “To drive home the importance of focus, I’ve told the authors that I will not clear the final report if the frequency of ‘and’ exceeds 2.6%.”

The 2.6 per cent bar, Mr Romer told the FT, marked the current frequency of “and” in scholarly writing. It also, according to an analysis of bank reports going back decades that he commissioned, was roughly where World Bank report authors landed in the institution’s early years.

But the use of the word “and” over the years had doubled to almost 7 per cent in World Bank reports, Mr Romer pointed out in a January memo to his staff.

I will now have to be more conscious about the use of those three little letters…

Yes, the Raj Chetty.  Here is the transcript and podcast.  As far as I can tell, this is the only coverage of Chetty that covers his entire life and career, including his upbringing, his early life, and the evolution of his career, not to mention his taste in music.  Here is one bit:

COWEN: Now your father, he’s a well-known economist, and he studied econometrics with Arnold Zellner at University of Wisconsin. At what age did he start talking to you about Bayesian econometrics?

CHETTY: [laughs]

COWEN: Which is one of his fields, right?

CHETTY: That’s right, my dad did a lot of early work in Bayesian econometrics with Arnold Zellner, and the academic environment was something I grew up with since I was a kid. I’m the last person in my family to publish a paper. My sisters are also in academia on the medical and bio side. Whether it’s statistics or thinking about scientific questions or thinking about how to change things in the world, that’s the environment in which I grew up from the youngest of ages.

We also discuss his famous papers on kindergarten teachers, social mobility, and the other topics he is best known for working on, including tax salience and corporate dividends.  My favorite part is where Chetty explains what I call “the Raj Chetty production function,” namely why he has been part of so many very successful papers, but that is hard to excerpt.  There is also this:

COWEN: In music, the group the Piano Guys, speaking of Mormons. Overrated or underrated?

CHETTY: Underrated. I love the Piano Guys.


CHETTY: I think the Piano Guys are great in terms of doing renditions of popular songs.

COWEN: Not too triumphalist? Do you mean the major chords?

CHETTY: Maybe in some cases, but I like them.

COWEN: Bhindi or okra. Overrated or underrated?…

Self-recommending, if there ever was such a thing.

The latest video in our Principles of Macroeconomics course at MRUniversity covers Understanding the Great Depression. I like this video a lot. It starts by illustrating the great fall in aggregate demand using the AD-AS model but also looks at the dust bowl, the Smoot-Hawley tariff and the National Industrial Recovery Act (NRA). The section on the tariff beautifully illustrates the argument that trade is like a technology that allows us to almost-magically transform one good into another. And the final section on the awful NRA has some great visuals.

And here is yet another paper suggesting that medical care, or at least some forms of it, has relatively low marginal value.  The subtitle of this one is “Evidence from Mandatory Checkups in Japan” and the authors are Toshiaki Iizuka, Katsuhiko Nishiyama, Brian Chen, and Karen Eggleston.  Here is the abstract:

Using unique individual-level panel data, we investigate whether preventive medical care triggered by health checkups is worth the cost. We exploit the fact that biomarkers just below and above a threshold may be viewed as random. We find that people respond to health signals and increase physician visits. However, we find no evidence that additional care is cost effective. For the “borderline type” (“pre-diabetes”) threshold for diabetes, medical care utilization increases but neither physical measures nor predicted risks of mortality or serious complications improve. For efficient use of medical resources, cost effectiveness of preventive care must be carefully examined.

Here is the NBER link.

If pharmaceutical reciprocity is a good idea for the United States, it’s a great idea for smaller countries. Indeed, this is mostly what happens in practice, even if not by law, since smaller countries can’t afford or justify the expensive US process. Fred Roeder of the Montreal Economic Institute makes the case for reciprocity in Canada:

…reciprocal recognition of drug approval authorities on both sides of the Atlantic would incentivize Canadian, European and American authorities to spend less time and money conducting parallel reviews. If the HPFB, the FDA or the EMA approved a drug, patients in Canada, Europe and America would have immediate access to it — increasing consumers’ choice as new drugs are offered to patients faster and more affordably, with less red tape driving up costs.

A reduction in approval time can be a win-win for patients and firms because a decrease in approval time is an increase in effective patent length without an actual increase in patent length. The numbers below are optimistic, but the idea that streamlining approval can increase profits and stimulate investment is correct:

These market-oriented reforms would not benefit not only consumers, but the pharmaceutical companies as well, expanding the timespan of the patents. On average, new drugs have a mere 10 to 14 years of patent protection remaining by the time they are sold to consumers after they have successfully jumped over all the government hurdles. Streamlining the drug approval process would increase the timespan of patented drugs on the market by 50 to 70 per cent.

Roeder also mentions Bart Madden’s important book Free to Choose Medicine. (For those who don’t know, I am proud to be the Bartley J. Madden chair in economics at Mercatus at GMU.)