Month: February 2011

What can parents influence?

I had been meaning to pen a longer response to Bryan Caplan (he is the one with "a theory of everything" in this area, not I, his theory just happens to have few variables), but I'll focus on two of his claims, as they are indicative of the larger disagreement:

Parents strongly affect what you say your religion is, but have little long-run effect on your intrinsic religiosity or observance.  I don't discuss language, but it's pretty clear how a twin or adoption study would play out: You can make your kid semi-fluent in another language with a lot of effort.

Both claims are false, at least at many commonly available margins.

Take Jews.  If a group of children are born to Orthodox, Conservative, Reform, or liberal parents, their later religious observance will be predicted by both peers and parental upbringing.  (Perhaps genes are a factor too.)  An Orthodox Jewish boy, with Orthodox parents, growing up in an otherwise non-Orthodox Jewish community of peers, is more likely to stay Orthodox than a Reform Jew from the same community is likely to become Orthodox.  And that of course correlates with levels of observance.  I have no formal study to cite, but can I just stamp my feet and scream this is true?  Because it is.  You can imagine numerous variants on this tale, even if it isn't true for all religious denominations.

Bryan has a tendency to concede environmental factors by noting something like "Of course parents can lock a kid in the closet and affect him that way."  He is less likely to admit that a lot of less extreme influences can matter too and that those influences are missed by twin adoption studies, for whatever reason.

Or take language.  Yana speaks Russian.  She learned Russian from Natasha (her mother, and it wasn't hard for her to speak Russian at home), and note that Yana left Moscow before she was two years old.  This is again a common pattern.  The parents matter, even though in most American families you won't see enough cross-sectional variation (most people speak English at home) to always pick this up.  Travel around India for more examples of this phenomenon.

Presumably the twin studies have in their data sets Jews and possibly some Russian immigrants as well.  And yet the twin studies, with their ultimately macro orientation, miss micro mechanisms such as these.  Parents can matter more than the studies suggest.

By treating those studies as an epistemic trump card, Bryan is led to make claims which are indefensible on the face of it.  I stick by my earlier points.  The evidence Bryan is citing for twin adoption studies is simply…the studies themselves.  Where is consilience when you need it?  

Why do millionaires love New Jersey?

Erik Brynjolfsson looks at the data and asks: why do millionaires love New Jersey?  My answer: because it's really, really nice! 

Especially if you are old.  You don't have to live in New York or Philadelphia, and yet you have access to at least one of those cities, possibly both if you buy in Edison.  You can have a splendid house in a nice, leafy neighborhood with reasonable public services, a socially excessive amount of parking, and good restaurants. 

For smart young people, however, the nice parts of New Jersey are very much a net exporter.  The young ones can't afford the nice homes, they want the sex and excitement of the big city, or they want a higher standard of living in some less crowded part of the country.  That in turn makes the nice parts quite "mature", which in turn attracts more old people; have you ever visited Montclair or Upper Saddle River or the nice parts near Princeton?  These towns are perfect  for 59-year-old, slightly boring millionaires (NB: I am not saying that Krugman is boring).

I left New Jersey at age seventeen, never to return, not to live that is.

Duke Summer Institute for the History of Economic Thought

Thanks to a generous grant from George Soros' Institute for New Economic Thinking, the Center for the History of Political Economy…will be hosting a Summer Institute on the History of Economics this summer. The program is designed for students in graduate programs in economics. Students will be competitively selected and successful applicants will receive a stipend for attending. The deadline for applying is March 4.

You should go.  There is more information here.

Hanson interprets Dale and Krueger

Table 4 shows that attending a college with higher SAT scores clearly lowered the wages of women 17-26 years after starting college (in 1976) – a school with a 100-point higher average SAT score reduced earnings by about 6-7%!  The two estimates there are significant at ~0.01% level! (The other three, for other periods after starting college, are significant at the 5% level.)

One obvious explanation is that women at elite colleges married richer classmate men, and so felt less need to earn money themselves. Why don’t the study’s authors want us to hear about that?

Here is much more, interesting throughout.  Robin's versatility as a commentator is one of his most underrated qualities.

Libya Dissertation Fact of the Day

From a 2007 PhD Dissertation awarded by the LSE:

This dissertation analyses the problem of how to create more just and democratic global governing institutions, exploring the approach of a more formal system of collective decision-making by the three main actors in global society: governments, civil society and the business sector….

The thesis explains and adopts three philosophical foundations in support of the argument. The first is liberal individualism; the thesis argues that there are strong motivations for free individuals to seek fair terms of cooperation within the necessary constraints of being members of a global society. Drawing on the works of David Hume, John Rawls and Ned McClennen, it elaborates significant self-interested and moral motives that prompt individuals to seek cooperation on fair terms if they expect others to do so. Secondly, it supports a theory of global justice, rejecting the limits of Rawls’s view of international justice based on what he calls ‘peoples’ rather than persons. Thirdly, the thesis adopts and applies David Held’s eight cosmopolitan principles to support the concept and specific structures of ‘Collective Management’.

The author? Saif "we will fight to the last minute, until the last bullet" Gaddafi (son of Muammar).

More background and discussion with David Held, one of his dissertation advisers, here.

Hat tip to Boing Boing.

Archibald and Feldman respond on education

The discussion, which includes a reply to my previous post, is here, excerpt (but do read their entire response):

Next, we don’t see strong barriers to entry on the institutional side, either. In 1970, eight million students were enrolled in 2,000 American colleges and universities. Today, over 18 million are enrolled in roughly 4,300 institutions, according to the Digest of Educational Statistics. There has been a veritable explosion of places at for-profit and not-for-profit institutions alike. To take one example from the traditional nonprofit sector, the University of Central Florida has mushroomed from a start-up to one of the largest institutions in the nation in a relatively short period of time.

Competition among pre-existing universities has also grown more intense. As Caroline Hoxby has noted, the fraction of students attending schools within their own state has declined steadily since the 1940s.

"The quantity supplied is going up" does not equal "the quantity supplied is not restricted."  There is a lot more non-pasteurized cheese consumed in this country than twenty years ago, but it is still very much restricted. 

Accreditation constraints and social signaling constraints (a market failure, I might add) are two reasons why we don't see more effective competition in the higher education sector.  In what other economic sectors are the major quality players more or less the same decades later?  Apart from adding on a west coast, the list of top players hasn't changed all that much in a century.  There's something funny about this sector which we are not being told about, although I will agree the exact nature of the reputational stickiness remains a bit mysterious.  It is related to why the U.S. edge in higher education remains relatively robust, even when we have lost our edge in many other sectors.  Catch-up is hard.

On UCF, it is ranked #97 among public universities.  It seems to offer reasonable value, as such schools go, but it has hardly turned the market upside down.  George Mason also has grown from small to huge (about 30,000 students).  The question is why this kind of entry hasn't lowered prices.  What I see is lots of "more of the same" competition, little scope to experiment with true cost-cutting and different products, and so growing supply matches demand but has not been a force for major price declines relative to median wages.

The growing polarization of U.S. labor market outcomes has helped, indirectly, subsidize a lot of inefficiency in the upper tiers of U.S. higher education.  People are willing to pay for the ticket, just as the airlines can get away with more inefficiency when travel and migration demands are high. 

If I'm analyzing the high and growing prices for U.S. colleges and universities, I would start with some of these basic observations.  

Sexual Harassment Pay

Economist Joni Hersch applies the theory of compensating differentials to sexual harassment:

Workplace sexual harassment is illegal, but many workers report that they have been sexually harassed. Exposure to the risk of sexual harassment may decrease productivity, which would reduce wages. Alternatively, workers may receive a compensating differential for exposure to sexual harassment, which would increase wages. Data on claims of sexual harassment filed with the Equal Employment Opportunity Commission are used to calculate the first measures of sexual harassment risks by industry, age group, and sex. Female workers face far higher sexual harassment risks. On balance, workers receive a compensating wage differential for exposure to the risk of sexual harassment.

And how much do you get for the risk of a grope? About 25 cents an hour for women and 50 cents an hour for men.

The theory is surely correct although I am not convinced by the evidence which mostly comes from weak data on wages and the differential rate of sexual harassment by industry. I would be more convinced if women's wages fell more in industries with a lot of sexual harassment after increases in prosecution.

Hat tip: Art Carden.

Are TV commercials too loud?

Some people in Canada think so:

Ever noticed that TV commercials seem to be louder than the program? So has Canada's broadcast regulator.

The Canadian Radio-television and Telecommunications Commission has launched a public consultation on the loudness of TV commercials.

What is the equilibrium?  Ban loud commercials and people will turn up the volume.  First, they won't need to tune down the volume for protection against the commercials, and second the broadcasters might lower the volume on the shows so that the commercials are still louder by contrast.

With a threshold effect (the program has to be at least so loud, or you can't hear it), the average heard volume of commercials could end up louder than before.  Imagine the supplier making the program really, really faint, to induce you to make the package louder.

Or if the volume and thus the effectiveness of commercials declines, the real $$ price of cable might go up to compensate.  Even with price regulation, the real price can rise by a decline in the quality of programming.  Admittedly, especially in the short run, the cable company might just "swallow" the volume change, but in the longer run program quality should be expected to adjust.

I wonder how much of the cost of commercials is the volume, and how much the cost is the voice prosody and the continual feeling that they are trying to intrude, which follows from pacing, mood, speed of talking, and so on.  These are other margins where suppliers can adjust.

Probably this change won't much benefit viewers.

What looks difficult but is in fact easy

A request from Nels:

My 8 year old daughter was bemoaning the fact the things that look simple are often difficult. Then she turned to me and asked what things look difficult, but in reality are easy?

When I was ten years old, I thought that "paying bills" was going to be quite difficult.  I don't mean generating the income, but rather the literal act of paying the bills.  I didn't understand how you would find out where to send the money and also how to keep track of it all.  It turns out that the suppliers make that fairly easy for us.  They hook up service, or send the magazine, and then they send you the bill.  They keep track of it for you.  I hadn't read Adam Smith yet. 

That said, I'll pay months of a bill in advance to avoid having to deal with it.  I can never tell when I have renewed a magazine or not and I puzzle over the game-theoretic problem  (how many renewal notices should they send, and do they send, given my rational response is to ignore them for a while?).  I probably could not balance a checkbook. 

So was I wrong in the first place?  Maybe it is really hard!

Which is why I find this question difficult to answer.  Even though it looks easy.

The economics of travel visas

Bob Lawson and Jayme Lemke write:

This paper examines travel visa restrictions in 188 countries. We measure travel visa requirements (1) facing foreign visitors into a given country and (2) facing citizens of a given nation traveling abroad. Our analysis shows that countries are more likely to impose visas on foreign visitors when they are large, but less likely when they are rich and economically free. Citizens from richer and more populous countries face fewer travel visa requirements when traveling abroad. Countries are less likely to impose visa requirements on similar nations.


What is the state employee union wage premium?

How much does collective bargaining matter?  On Twitter, Will Wilkinson asks for data.  I find this web site specifying the average Virginia state employee to be earning $50,298.  Rortybomb says that for Wisconsin the comparable number is $48,267.

Yet Wisconsin had collective bargaining for state employees and Virginia does not.  Of course this comparison is a gross one and it is not holding constant the composition of each work force, seniority, cost of living differences, and it also does not seem to pick up possible differences in benefits.  Furthermore it does not consider the 48 other states.  Yet, crude as this one-to-one comparison may be, it is more empirically sophisticated than most (all?) other discussions I have seen.

This David Blanchflower and Alex Bryson paper (see pp.9-10), using 1980s data, finds a union wage premium, for state employees, of 14.5 percent, with the premium being strongest for unskilled workers, as is the case in the private sector as well.  (NB: I am not sure if they are adjusting for differential benefits but I think not.)  Alan Krueger tells us that the union/non-union wage gap is smaller in the public sector than in the private sector ("overwhelming evidence").

I'm not pushing any particular answer, I'd just like to put the question on the table.  What else do you all know?

Addendum: from Adam Ozimek: "The regression coefficients on page 8 of the report show that the union wage premium is between 15% to 16%, while the public sector wage discount is around 11%, meaning unionized public sector employees are paid 4% to 5% wage premium."  Adam also provides further references and discussion.