Month: November 2012

Are benefit costs increasingly driving the cyclicality of employment?

Here is the job market paper of Grace Weishi Gu, from Cornell:

The Cost of Benefits and Employment Dynamics in Recent U.S. Recoveries

Abstract: I document (1) the slow rebound in U.S. aggregate employment following recent recessions, despite recoveries in output, as well as (2) a rising trend in per worker benefit costs, the cyclicality of those costs, and a positive correlation of the cyclical benefit costs with employment growth cycles. I show how these two phenomena are related. Then I develop a DSGE model that includes firms’ dynamic benefit costs, financial conditions (i.e., borrowing capacity), and the tradeoff between extensive and intensive labor margins to explore the effects of these features on post-1990 employment dynamics. I find that the benefit costs’ rising trend, cyclicality, and interactions with financial conditions have contributed significantly to the observed slow employment growth following the three most recent recessions in the U.S. This paper offers two main improvements over the standard model, which lacks such arrangements: (1) delivering 2-to-7-quarter delays relative to NBER business cycle troughs for the employment recoveries from the 1990, 2001, and 2007 recessions while generating no delay for the pre-1990 period, which is in line with the data; and (2) explaining 40-90 percent of employment volatility and harmonizing with that of output and per worker hours.

I would like to see more testing of this against alternative explanations, but still this is provocative and important work.

Assorted links

*Thomas Jefferson: The Art of Power*

I quite liked this book, which is by Jon Meacham.  Here is the bit best suited to MR:

“She [Sally Hemings] was just beginning to understand the French language well, and in France she was free, while if she returned to Virginia she would be re-enslaved,” said Madison Hemings.  “So she refused to return with him.”

It was an extraordinary moment.  Fresh from arranging terms with the bankers of Europe over a debt that was threatening the foundation of the French nation, Thomas Jefferson found himself in negotiations with a pregnant enslaved teenager who, in a reversal of fortune hardly likely to be repeated, had the means at hand to free herself.

…So he began making concessions to convince Sally Hemings to come home to Virginia.  “To induce her to do so he promised her extraordinary privileges, and made a solemn pledge that her children should be freed at the age of twenty-one years,” Madison Hemings said.

Sally Hemings agreed…

Their father kept the promise he had made to Sally in Paris. “We all became free agreeably to the treaty entered into by our parents before we were born,” Madison Hemings said.  It was one of the most important pacts of Jefferson’s life.

Robert Solow on Hayek and Friedman and MPS

The TNR essay is here, prompted by the publication of Angus Burgin’s The Great Persuasion: Reinventing Free Markets Since the Great Depression.  Excerpt:

The MPS was no more influential inside the economics profession. There were no publications to be discussed. The American membership was apparently limited to economists of the Chicago School and its scattered university outposts, plus a few transplanted Europeans. “Some of my best friends” belonged. There was, of course, continuing research and debate among economists on the good and bad properties of competitive and noncompetitive markets, and the capacities and limitations of corrective regulation. But these would have gone on in the same way had the MPS not existed. It has to be remembered that academic economists were never optimistic about central planning. Even discussion about the economics of some conceivable socialism usually took the form of devising institutions and rules of behavior that would make a socialist economy function like a competitive market economy (perhaps more like one than any real-world market economy does). Maybe the main function of the MPS was to maintain the morale of the free-market fellowship.

Solow neglects to mention that Milton Friedman turned out to be right on most of the issues he discussed (though targeting money doesn’t work), that MPS economists shaped at least two decades of major and indeed beneficial economic reforms across the world, or that some number of the economists at MIT envied the growth performance of the Soviet Union and that such remarks were found in the most popular economics textbook in the profession.  You can consider this essay a highly selective, error-laden, and disappointing account of a topic which could in fact use more serious scrutiny.

By the way, if you read Solow’s own 1962 review of Maurice Dobb on economic planning (JSTOR gate), it shows very little understanding of Hayek’s central points on these topics, which by then were decades old.  Arguably it shows “negative understanding” of Hayek.

Or to see how important Friedman’s work on money and also expectations was, try comparing it with…um…the Solow and Samuelson 1960 piece on the Phillips Curve (JSTOR), which Friedman pretty much refuted point by point.  Here is the closing two sentences of that piece:

We have not here entered upon the important question of what feasible institutional reforms might be introduced to lessen the degree of disharmony between full employment and price stability.These could of course involve such wide-ranging issues as direct price and wage controls, antiunion and antitrust legislation, and a host of other measures hopefully designed to move the American Phillips’ curves downward and to the left.

And Solow wonders why the Mont Pelerin Society and monetarism were needed.  Solow should have started his piece with a sentence like “Milton Friedman was not right about everything, but most of his criticisms of my earlier views have been upheld by subsequent economic theory and practice….”

Greg Ransom…telephone!

For the pointer I thank Peter Boettke.

The dangers of “early intervention”

An Australian psychologist says smartphone apps allowing parents to send their naughty children phone calls from Santa “are not useful” and “could be abused.”

Dr. John Irvine said the smartphone apps — including the free “Fake Call From Santa” app and the $1.99 “Parents Calling Santa” app — are “not productive” methods of behavior correction, The Courier-Mail, Brisbane, reported Wednesday.

“These kinds of apps have made the Santa threat much more real and immediate and they could be abused by some parents in the lead-up to Christmas Day,” he said. “What is the point in threatening something that you are not going to carry out? Is mum really going to cancel presents on Christmas Day?
“Empty threats are not useful as kids soon realize that there are no consequences,” he said.

The “Fake Call from Santa” app includes an incoming call with audio, but the “Parents Calling Santa” app allows parents to choose from three recorded messages — a “well done call,” a “could do better” call, or a “must improve or you will get a lump of coal for Christmas” call.

The link is here.

*The Dawn of Innovation*

That is the new book by Charles Morris and the subtitle is The First American Industrial Revolution.  Excerpt:

The overwhelming proportion of American mechanization efforts went into basic processing industries, not precision manufacturing.  Food and lumber processors were 60 percent of all power-using manufacturing industries in 1869.  Add textiles, paper, and primary metal industries like smelting, and the number rises to 90 percent.   Industries that would plausibly lend themselves to armory practice methods — fabricated metal products, furniture, machinery, and instruments — accounted for only 7.5 percent of 1869 manufacturing power demand.

…Mid-Century America was still a predominantly agricultural country.  On the eve of the Civil War, only 16 percent of the workforce was in manufacturing.  They worked in grain milling, meatpacking, lard refining, turning logs into planks and beams, iron smelting and forging, and making steam engines and steamboats, vats and piping, locomotives, reapers and mowers, carriages, stoves, cotton and woolen cloth, shoes, saddles and harnesses, and workaday tools.  These were the industries in which America’s comparative advantage loomed largest and were the ones that dominated American output.  It was the drive to mass scale in those industries, by a wide variety of strategies and methods, that was the real American system, or perhaps the American ideology, of manufacturing.


My favorite fiction books of 2012

Gillian Flynn, Gone Girl.

Nell Freudenberger, The Newlyweds.

Alonso Cueto, The Blue Hour.

Peter Sis, The Conference of the Birds.  Mostly illustrated, beautiful in any case.

Alice Munro, Dear Life: Stories.  I can confidently put this on my list without having read it yet.

I was disappointed by most of the well-known novels to have come out this year, including the Tom Wolfe (unreadable, alas) and the McEwan (OK but not distinguished).  Mantel is somehow too dense for me and I do not enjoy it, the fault may be mine.

The Cueto was my favorite of the lot.

My favorite non-fiction books of 2012

Big Bird


From Wired Science which notes why man has succeeded in breeding big turkeys when evolution failed–it’s not as complicated as you might think:

…the key technical advance was artificial insemination, which came into widespread use in the 1960s, right around the time that turkey size starts to skyrocket. The reason is that turkeys over 30 pounds are “inefficient” breeders: It’s difficult for them to actually perform the natural mating act. With artificial insemination, the largest birds can still be used as sires, even if they have a hard time walking, let alone engaging in sexual reproduction.

Hat tip: @m_sendhil.

Claims about nursing homes

From Neil Emery:

 Nursing homes are chronically understaffed in times of economic prosperity. But, when the job market tightens, a one percent increase in unemployment sees full time employment in nursing facilities rise three times as fast. After a recession, when the economy picks back up and jobs become available again, low skilled workers abandon nursing homes jobs’ low pay and even fewer accolades for better prospects. The shift of workers in and out of nursing jobs drives the swings in the national death rate and underscores the importance of these under-appreciated jobs.

A look at the relationship between economic downturns and health outcomes in the United States reveals a complex picture: harm from lost insurance and increased anxiety but better care for the elderly. These two trends coexist because, while harm concentrates in working age people, retirees reap the majority of the benefit.

I do not know if these claims are true, but see the post for a discussion of the evidence.