Month: September 2004

Why have labor markets been slow to recover?

Employment is an increasingly lagging indicator, here is more data. Growth and productivity are humming along, but employment as a percentage of population fails to impress. Consider a few reasons why this might be:

1. Productivity growth is high, so employers are disinclined to hire more workers. The workers they already have are producing plenty. This explanation, of course, requires that firms have some market power, so they can’t sell all they want at prevailing market prices. There is then little point in hiring more workers, even if wages were to fall, because the extra output would be hard to sell at a good price. Of course if real demand were rising or otherwise robust, high productivity could cause firms to hire more workers rather than fewer.

This all may lead some of my astute readers to wonder what coordination failure is preventing Say’s Law from holding in this context. Does not supply create its own demand, at least barring a massive increase in the demand to hold money? Read Alex for more on this one.

2. The data may overstate the puzzle in the first place.

3. Maybe we are mismeasuring employment by focusing too much on the payroll survey and not enough on the household survey. But just try mentioning this one, and Brad DeLong will thwack you hard. Do note that Alan Greenspan agrees with Brad. The two measures are often quite different, but I have to go with the payroll survey here.

4. Health care costs per worker are extremely high. True, but this has been the case for some time.

5. Some parts of the Bush tax plan have induced firms to substitute capital expenditures for labor. And in the short run, capital and labor may be more substitutable, and less complementary, than in times past. Information technology can substitute for unskilled labor more than before.

6. Bush introduced a “tax cut for the rich,” rather than undertaking fiscal stimulus of the traditional Keynesian kind; read Brad on this one. I am less sanguine about traditional fiscal policy, plus this doesn’t explain why labor market recovery has been so slow, even if it might have been more rapid under different conditions.

7. Firms are outsourcing jobs overseas. The ever-excellent Daniel Drezner debunks this one, though I am not quite ready to assign it measure zero in effect.

8. For some unknown sociological or economic reason, workers are getting discouraged from seeking work more easily than in times past. They leave the labor force, which keeps the percentage of employed low but the unemployment rate low as well. I don’t rule this out, but I don’t have a contending hypothesis here either.

9. Firms are/were uncertain about terrorism, Iraq, corporate scandals, new information technologies, and sectoral shifts. Rather than locking in with hires, they will hold back and wait. But why would this affect labor more adversely than investment or stock prices?

10. Downward stickiness of wages. OK, this is what classical economics would lead you to expect, but in reality wages have become less sticky over time.

The bottom line: The conventional wisdom will opt for some combination of one and nine. Four, five, seven, and eight may explain further pieces of the puzzle. But I would sooner call the whole thing a continuing mystery. Note that most of these hypotheses imply that the economy can still become quite a bit better yet. Either Bush or Kerry will get credit for this, without deserving the plaudits.

Addendum: Arnold Kling adds to the mix.

Science round-up

There are plenty of new science reports, here is a sample:

1. The Americas may have been settled by Pacific navigators in early times.

2. Global suicide takes more lives than war and murder put together.

3. Medieval man was almost as tall as modern American man, and the eighteenth century was a low period for height in the Western world.

4. Being out of shape is a better predictor of heart disease than is being overweight.

Thanks to for the pointer on the third item.

One of America’s biggest “export” industries is declining

U.S. graduate schools this year saw a 28% decline in applications from international students and an 18% drop in admissions, a finding that some experts say threatens higher education’s ability to maintain its reputation for offering high-quality programs.

The sharp declines, based on responses from 126 institutions, were reported in a study released Tuesday by the Council of Graduate Schools, a Washington-based nonprofit. About 88% of those schools reported a decline in international applications; 12% saw an increase.

Several factors contribute to the drops, council president Debra Stewart says. Those include changes to the visa application process after 9/11, a perception that the USA has grown less welcoming of foreigners and increased competition from universities abroad.

Applications from China show an especially steep drop, about 45%. Here is the full story. Will either Bush or Kerry come out for streamlined immigration procedures in this arena, or at least a greater allocation of resources toward speeding these visa applications? If we are devoted to the idea of nation-building abroad, what better way to start?

Gay marriage and the deficit

What would happened if all of America’s roughly 600,000 cohabitating gay couples decided to marry?

For one thing, they would all start paying the marriage penalty. Each year, over the next five years, the deficit would fall about $350-450 million per year. Yes that is about one-tenth of one percent of the yearly deficit, but at least a move in the right direction. It is also estimated that social security and related expenditures would increase only slightly as a result of the marriages.

That is from The Atlantic Monthly, October issue, p.64. If you are looking for a good historical introduction to some of the issues surrounding gay marriage, I recommend George Chauncey’s recent Why Marriage?.

Going up?

The X-Prize is close to being won and has been a success in motivating the research and development of private spacecraft. Ultimately, however, putting people into space by sitting them atop powder kegs or similar devices just seems too crude. As I wrote earlier, a space elevator would dramatically lower the costs of developing space. Elevator 2010 is sponsoring several new prizes for space elevator related technology.

Which countries face a medical cost crunch?

China, in short:

…health costs will rise more rapidly as a percentage of national income among Third World nations that are now entering into modern economic growth than has been the case in OECD countries…

The supply of chronic conditions that require treatment is much greater at middle and late ages in China than the supply that currently exists in OECD nations…a [previous] low life expectancy and such a high infant death rate mean that those who survived to middle ages experienced severe biomedical and socioeconomic insults in utero, in infancy, and in later developmental stages…Despite the rapid advances in public health and strong economic growth, the negative conditions that influenced physiological development remained severe into the early 1960s…such early-life insults reduce the waiting time to the onset of chronic diseases at later ages and increase their severity.

Consequently, individuals who are age 50 and older in China today will have far higher prevalence rates of chronic diseases than is the case in OECD nations.

That is all from Robert Fogel’s short but excellent The Escape from Hunger and Premature Death, 1700-2100.

It is estimated that the number of chronic diseases per person could be triple than currently experienced in the United States; the level in China would be comparable to that of the U.S. in about 1900. At that time the average American male suffered from six chronic medical conditions, and it was very likely that at least one of those six was debilitating, meaning the person could not work.

The bottom line: Expect China to experience some serious demographic problems in the coming decades.

Insurance markets in everything

These legs have just been assessed as worth $1.96 million.

Here is a more general history of celebrity insurance of body parts. Heidi Klum should in fact feel slighted; other body parts have been appraised at higher sums and when the value of the dollar was higher. In reality this difference may reflect the growing role of market competition and the inability of any single star to achieve a “winner take all” position. In relative terms Betty Grable was a bigger deal than is Heidi Klum today.

And how about this one?

Stranger [insurance] policies have included virgins taking out policies against having a baby by immaculate conception in anticipation of the second coming in 2000.

Using products as advertisements

Why not name your product after your company phone number?

1 800 BEST DDS [is] a product that blurs – if not outright erases – the line between merchandise and marketing tool.

The name of the product is also the number of a referral service for dentists who specialize in cosmetic procedures, like fixing crooked smiles and bleaching yellowed canines.

Here is the full story, from The New York Times.

China fact of the day

China is stepping up its hard line against internet pornography by threatening life imprisonment for anyone caught peddling porn.

Ne’er-do-wells involved in the production and distribution of online adult content – including “phone sex” – face a range of punishments including compulsory surveillance and imprisonment. Those behind sites that generate more than 250,000 hits will be treated as “very severe” and could face life imprisonment.

Linking the jail sentence to the number of hits, now that is a saddening use of optimal punishment theory. Here is the full story.

We Will Rock You

The answer is Queen’s Greatest Hits, and Freddie Mercury is the lead singer. The accompanying booklet “tells Queen fans that Bohemian Rhapsody is about a young man who has accidentally killed someone and, like Faust, sold his soul to the devil. On the night before his execution he calls God in Arabic, “Bismillah”, and so regains his soul from Satan.”

Here is the full story. It is reported that the album, shorn of a few love songs, is selling well.

We will not rock you

Virginia and 39 other states sued eight music distributors and retailers accusing them of price-fixing and all I got was a lousy Michael Bolton CD. Well, not me personally, but that is what lots of libraries and public schools in Virginia and across the nation are getting as their share of the $75 million non-cash part of the settlement. Other CDs distributed as part of the deal include teen band Hanson’s “Snowed In” and, get this, Martha Stewart’s “Spooky, Scary, Sounds for Halloween.” Not every CD is a dud but it’s fair to say that the value of the CDs is substantially less than $75 million. If you were a member of the class and signed up you could also get a check for almost $13, $67 million in total.

According to the judge, pure transaction costs were $6-8 million and the lawyers got just over 14 million so depending on how you evaluate the free CDs (I think $35 million is generous) total transaction costs might eat 20-30 percent of the settlement – not bad as far as these things go. Note, however, that the plaintiff’s claim was that consumers were being overcharged by 23 cents a CD. Personally, I’d be happy to pay the extra 23 cents to be free of class-action lawsuits like this. But then again I don’t buy as many CDs as Tyler.

Museums designed by Economists

Argentina is slated to open the Museum of Foreign Debt this coming January. The country had its first default in 1827; its 2001 default of $141 billion was the largest by any nation. A Google search for “Argentina public debt” yields about 395,000 entries.

A group of economists conceived of the basic idea, in the hope of educating the Argentine public (note: some of the details in the link are now out of date; up to date information is in the 13 September Business Week, p.14). Buenos Aires University will house the museum.

The museum opening, however, might be delayed again. Why? The city government, one source of funding, is heavily in debt.

What I’ve been listening to

1. Rodrigo, Concerto for Guitar. I used to think this piece was classical radio fluff, short, lightweight, and accessible. I now see it is as a precursor of modern ambient music. So much of the Spanish acoustic guitar tradition makes sense when heard through this perspective.

2. Mahler’s Seventh Symphony. A sprawling mess, to be sure. Hardly anyone is drawn to the melodies here. Is this his worst and least listenable symphony, or the beginning of a new Mahlerian sound world? If you want to hear it swift and severe, try the Boulez recording as well.

3. Beethoven’s Fifth Symphony, and the Piano Concerti. I put these on immediately after returning from Mexico. The slow movement of the Emperor Concerto is one of Beethoven’s most beautiful moments. And could Pierre-Laurent Aimard, who plays on this CD, be the greatest pianist in the world today? Try his Ligeti Etudes or Debussy as well.

4. Late Elliott Carter. Carter remains prolific beyond his ninetieth birthday. His late short pieces, dryly contrapuntal, are usually written for a very small number of instruments. I used to think of Carter is an amazing composer in his early years (e.g., Sonata for Cello and Piano), but who later stagnated. This picture could not be more wrong. Over the last ten years his reputation has skyrocketed, and rightly so.

5. Handel’s Theodora, conducted by William Christie. Much of Handel is too earthy and straightforward for my tastes, but this is the best Handel recording I’ve heard, up there with S. Richter doing the keyboard sonatas. Here is an excellent blog post on why Handel operas and oratorio are less boring than the modern listener might think.

6. William Byrd, Complete Keyboard music, by Davitt Moroney. The scrunchiest parts are the best, and seven CDs are not too much. Byrd has one of the best claims running for “most underrated composer,” try also the vocal music.

And when Yana gets home from visiting her high school friends, I hear a great deal of Beck, arguably the best popular musical artist of the 1990s, with apologies to Kurt Cobain.

Do you know the old saying: “Music is enough for one life, but one life is never enough for music”?

Mexican role models and globalization

I promised to stop blogging about Mexico upon my return, but I found the following intriguing:

In a Latino nation where most consumers are dark-skinned, such as Mexico, the tendency to feature güeros [the light-skinned] in advertising might be considered racist or at least distasteful. But it is pervasive.

“Even Mexico’s biggest chicken company uses white hens in their billboards,” notes advertising analyst Enriqueta Rivera, who teaches at the Monterrey Tech university…

The use of fair-skinned people in ads is not all racism or bias:

There are also more practical reasons for using fair models. According to José Miguel Jaime, of the Mexican advertising agency Precision Marcom, about one-quarter of commercials seen in Mexico are filmed for use throughout Latin America and use neutral images. [TC: Read: Many other Latins are not crazy about Mexican culture.] Another quarter are made for Mexico but filmed abroad to cut costs. For the remainder “you might want different ads to target a higher-end and lower segments but clients don’t want to spend on two versions and so you tend to see ads for the elite crowd”.

Nonetheless foreign products and suppliers are bringing big changes:

Over the past five years, cheap credit from vehicle companies, department stores and credit card companies has put their products suddenly within the reach of the working classes.

Rogelio Ramirez de la O, an economic consultant, estimates that the Mexican market for cars and appliances is 30m, while the market for cell phones could be as high as 70m [TC: that is out of a total population of about 100 million]. He dates the change to the 1994 North American Free Trade Agreement, which lowered tariffs and prices for US goods and encouraged manufacturers to overproduce. Companies started to issue credit, while Wal-Mart brought rigorous pricing policies, enabling it to sell to more Mexicans. “Foreign companies came to sell to all Mexicans, not just the top 10m, and that is a reality that has influenced Mexican companies.”

…”What we look for is that people identify with and believe in the brand,” says Maria Gloria Loaiza, Pampers account manager at Starcom Media Vest Group Mexico, which uses ads made in Venezuela for distribution throughout Latin America. “When the ad is not credible, neither is the product. Our babies have to be in the real world: they look Latino.”

Change is in sight in certain areas. Children of various skin tones regularly appear in promotions. Dark hair seems to be overtaking blonde in commercials. And ads made for the 20m Mexicans living abroad, who have more of a sense of pride in their identity, tend to feature average citizens.

Ads for the American Latino market have indeed gone especially far in a populist direction:

…advertising aimed at the $450bn (£251bn) Hispanic market in the US uses Latin faces and often Mexican themes, since two-thirds of the target group are of Mexican descent. At $3bn per year, the budget for advertising to 35m US Hispanics is greater than the $2.5bn spent on 100m Mexicans, notes Enrique Gibert, founder of the Mexican advertising agency Gibert Quattro [emphasis added].

As is so often the case, freer trade breaks down previous class distinctions for the better; the desire of mass media to find a “least common denominator” has a silver lining. And the Latins in the United States arguably have become the culturally most important Latin “country.” Here is the full story.