Month: December 2006

Does skill-based technical change explain growing wage inequality?

John DiNardo (of the University of Michigan) and I were troubled by the
fact that there are a lot of patterns and trends in the labor market
that don’t fit in very well with a skill-biased technical change
explanation. We were motivated to embark on a Don Quixote mission, a
noble cause that wasn’t going to go anywhere [laughs].

One thing we pointed out, for example, is that women are lower skilled
than men, if you take the fact that they have lower wages as evidence
of their skill. The SBTC theory says that people with lower skills
should have slower wage growth than people with higher skills. But over
the 1980s, women did much better than men. It’s also the case that over
the 1990s, women’s relative wages were fairly stable again. So there
was a long period of stability of women’s relative wages, then a period
of convergence of women relative to men that ended in 1991-92, and then
stability again. That’s an important set of trends that SBTC doesn’t
address. SBTC might be consistent with it; it might not be, but the
theory needs a lot of auxiliary hypotheses to work.

The same thing is true with respect to the black/white wage gaps.
Blacks earn less than whites, and many people believe that the reason
they do so is because they’re less skilled. Nevertheless, during the
1980s, the black/white wage differential was stable. It didn’t widen as
people had predicted it might.

Another trend that didn’t fit with the SBTC hypothesis concerns the
relative wages of people with different bachelor’s degrees. There are a
couple of different data sets that collect starting salaries for newly
minted B.A.s. What these data show is quite remarkable. Everyone knows
that the average wage of young college graduates went up over the
1980s. It wasn’t the case, however, that the gains were most pronounced
in engineering or science. They were actually greater for graduates in
the humanities, which doesn’t seem consistent with the idea that there
is increasing demand for technically proficient, computer-savvy people.

…A final puzzle concerned the age structure of the increases in the
relative wages of college versus high school graduates. Wages of young
college-educated workers rose relative to young high school workers,
but for people over age 40 or so, there really wasn’t any change in the
high school/college premium.

Hat tip to Greg Mankiw and Matt Yglesias.

Are we approaching labor market equilibrium?

After four years in which pay failed to keep pace with price
increases, wages for most American workers have begun rising
significantly faster than inflation.

With energy prices
now sharply lower than a few months ago and the improving job market
forcing employers to offer higher raises, the buying power of American
workers is now rising at the fastest rate since the economic boom of
the late 1990s.

The average hourly wage for workers below
management level – everyone from school bus drivers to stockbrokers –
rose 2.8 percent from October 2005 to October of this year, after being
adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

Productivity has been rising for years, so it is comforting to see wages follow suit.  Every now and then the predictions of economic theory are correct.

Here is the full story.  The timing of this news could not be better, if you get my drift

Is “media bias” just good business?

Austan Goolsbee writes (no permalink yet) of Matthew Gentzkow and Jesse M. Shapiro, and their paper “What Drives Media Slant? Evidence From U.S. Daily Newspapers“.  The non-gated version is here.

In essence the authors measure how much newspapers use key partisan phrases like "personal accounts" for social security privatization and compare the vocabularies of those newspapers to the vocabularies of partisan politicians.  The political slant of newspapers is then matched to campaign contributions in the zip codes those newspapers serve.  Shapiro sums up the result:

The data suggest that newspapers are targeting their political slant
to their customers’ demand and choosing the amount of slant that will
maximize their sales. 

It also turns out that the political views of the paper’s owner have no effect on the slant of the paper.

Here is my previous post on wunderkind Jesse Shapiro.  He remains the best Youngling out there.  Here is an earlier piece I wrote on media bias.

Does Santa Clause reduce the rate of savings?

If Christmas didn’t exist as a holiday what would happen to consumption and production?  I can think of several hypotheses.

1)  Consumption would remain the same but people would spend more on themselves and less on others.  Would deadweight loss be reduced enough to make such a move wealth-enhancing?

One also wonders how much Christmas spending within the family is actually spending on oneself?  Did that catalog on my chair just happen to fall open to the page with the black pearls?

2)  Consumption would decline and savings would increase.  Many people go into debt to buy Christmas presents.  Does Santa Clause reduce the rate of savings?  Scrooge says yes!

3)   Other holidays would become more important and total consumption and giving would remain the same.  Is there a Coase theorem for holiday gift-giving?

Increased giving at other holidays, such as birthdays, would help to smooth production and consumption.  Consumption smoothing is welfare enhancing in partial equilibrium but not necessarily in general equilibrium.  I want my consumption smoothed but I’d like to get all my gift giving done in one big batch thank you.

Production smoothing is also generally welfare enhancing in partial equilibrium but not necessarily in general equilibrium.  In general equilibrium, a big push may be necessary to cover fixed costs.  The seasonal cycle may be an implementation boom.

Comments are open.

Round up

1. The economics of blogging, and there are data in the comments.

2. Are ambidexterous people and watch enthusiasts more self-reflective?  Hat tip to Fashion Incubator.

3. What kind of innovator are you?  And here is the associated blog.

4. "Basketball vests (singlets) with electroluminescent displays that show a player’s score, and number of fouls, are being trialled in Australia."

5. Gift certificates selling at more than face value on ebay?  Why?

Claims my Russian wife laughs at

You should be glad I think your hair is too short.  Given that hair grows, if it were not now too short, it would too soon be too long.  Think of it in terms of an S-S model.  About half of the time your hair should be too short.

Five points extra credit if you realize that same reasoning means wage and price stickiness may not be as big as problem as we used to think.

The deadweight loss of Christmas, continued…

As if you didn’t have enough problems:

Every buy a gift for someone that you’re absolutely certain they’ll
love only to realize that you’re totally off the mark?  New research
suggests that the better you know someone, the harder it can be to
predict their taste.  According to researchers at Tilburg University and
Kathiolieke University, we rely too heavily on preconceived notions
because we often think we’re much more similar to the people we love
than we actually are.

Here is more.  Here is my previous post on the deadweight loss of Christmas.

My favorite things Minnesota

No, I am not there, but this is atonement for my unintended slight of the state on Saturday.

Music: Dylan, Dylan, and Dylan.  Bringing it All Back Home is his best album, and don’t forget Blood on the Tracks and Love and Theft, among many others.  Did I mention the guy is a first-rate author, an amazing DJ, and a passable actor as well?  I’ve found that relatively few intelligent people appreciate Dylan as a vocalist (don’t forget the Bing Crosby influence) and guitarist (one of the best of his time, though not technically), don’t be distracted by the lyrics.

But yes there is more.  My favorite Prince songs include "Starfish and Coffee," "Glam Slam," the Purple Rain "medley" on side one, and "Seven," most of all the acoustic CD single version.  My favorite Replacements songs are "I Will Dare" and "Skyway."

Film: The Coen brothers have many good films, most of all Fargo, Raising Arizona, and Brother, Where Art Thou?  Much of Fargo is set in Minnesota.

Literature: F. Scott Fitzgerald is an obvious first, Sinclair Lewis I don’t enjoy much.  Tim O’Brien’s Going After Cacciato is a neglected classic.  Ole Rolvaag isn’t bad.  I believe Anne Tyler is from the state, Breathing Lessons is worth reading for a tale of dysfunctional families.

Artist: Duane Hanson — the guy who makes the sculptures that look like people — is the obvious pick.  Any painters other than (ugh) Leroy Nieman?

Small town: "Small" isn’t quite the right word, but Duluth is a beauty, and yes Highway 61 runs up there.

Museum: The Walker Art Center is one of the most dynamic arts institutions in the United States.  Here is a good article on the arts scene in Minneapolis.

I won’t call them "best", but Winona Ryder, Charles Shulze, and Garrison Keillor count for something.

The bottom line: Education and intellect kick in here in a big way.  Minnesota is one of the best states.

How much will immigration help European fiscal problems?

Martin Feldstein thinks not so much:

The ageing of the population presents a major fiscal challenge for the
countries of Europe.  The combination of increased longevity and a
reduced birth rate will directly reduce the growth rates of the
European economies by slowing the growth of the capital stock and by
weakening the productivity of the labor force.  This slower growth of
GDP means a smaller tax base and less tax revenue.  In addition, the
current tax-financed systems of social pensions and health care will
require substantial increases in the already high tax rates.  The
analysis in this paper shows that the common prescription of increased
immigration would do little to reduce the future fiscal burden.  The
increased revenue from a large rise in immigration would finance only a
small part of the coming rise in the cost of pension and health
benefits.  The only alternative to significantly higher tax rates or
substantially lower retirement income is to shift from a pure
tax-financed system to a mixed system that supplements the tax financed
benefits with benefits based on increased saving financial investment.

Here is the paper.  I can’t find a non-gated version, which might be because Feldstein runs the NBER…