Claude Sonnet 3.5, economist
TC:
“Is the Stiglitz-Shapiro 1984 efficiency wage model actually a model of sticky wages, or not? Is either the real or nominal wage sticky in that model?”
Claude:
The Stiglitz-Shapiro efficiency wage model from 1984 is not primarily a model of sticky wages, although it can have implications for wage stickiness. Let’s break this down:
- Core concept of the model: The Stiglitz-Shapiro model is fundamentally about explaining why firms might pay wages above the market-clearing level. The key insight is that higher wages can increase productivity by: a) Reducing shirking (as workers have more to lose if caught and fired) b) Lowering turnover costs c) Improving the quality of job applicants d) Boosting worker morale and effort
- Wage stickiness in the model:
- The model does not directly predict sticky wages in the traditional sense of wages that are slow to adjust to economic shocks.
- However, it does provide a rationale for why wages might not fall even in the face of unemployment. Firms have an incentive to maintain higher wages to preserve the productivity benefits.
- Real vs. Nominal wages:
- The model is primarily concerned with real wages, not nominal wages.
- The efficiency wage is set in real terms, as it’s the purchasing power of the wage that affects worker behavior and productivity.
- Implications for wage rigidity:
- While not a model of sticky wages per se, the efficiency wage concept can contribute to wage rigidity.
- Firms may be reluctant to cut real wages even during economic downturns because doing so could reduce productivity more than it saves on labor costs.
- Difference from traditional sticky wage models:
- Traditional sticky wage models often focus on nominal rigidities due to factors like long-term contracts or menu costs.
- The Stiglitz-Shapiro model provides a real, microeconomic foundation for why wages might not adjust downward, even if they’re not formally “sticky.”
In summary, while the Stiglitz-Shapiro efficiency wage model is not explicitly a model of sticky wages, it does provide insights into why wages might be rigid, particularly in the downward direction. The focus is on real wages rather than nominal wages, and the rigidity emerges from the productivity-enhancing effects of higher wages rather than from institutional or contractual factors.
TC again; What percentage of professional economists could give an answer of comparable quality and nuance?
Europe sentences to ponder
Back then, Europeans embodied environmental advocacy, self-actualization, self-expression and other values described by the University of Michigan political scientist Ronald Inglehart as “post-materialist.” Europeans actually used that term. They were proud of it. Today, European politics — and French politics above all — is crudely materialistic. The most explosive issues of the past few elections have been purchasing power, the price of diesel, the age of retirement and the shortage of housing (often taken by migrants awaiting asylum hearings). Europe’s preoccupations are closer to the 18th-century world of bread riots than to the 20th-century one of Save the Whales.
Sunday assorted links
1. LLMs have sharply diminishing returns in model persuasiveness.
2. Review of the new Beach Boys documentary.
3. Are men more influential than women?
4. Olivier Blanchard on the economic policies of various French policies.
5. In Stockholm there is a large statue of Rick Rubin.
6. University of Austin methods for hiring faculty.
7. The evolution of fashion, according to AI, past, present, and future.
Claims about Brits (and Americans), by Gillian Tett
But what generally goes unmentioned is a more important distinction: that single-table conversations rarely happen in Britain. I first realised this when I started attending friends’ dinners in London a few years ago, when I was visiting from New York: when I tried to start a single conversation, I was told to stop because it was “too serious”.
There are multiple reasons for this, here is one;
In Britain, however, hustle is not so readily admired and ambition is sometimes derided as being pushy or showing off. Thus if you are brilliantly clever, you are admired for concealing the fact or cracking jokes about it at your own expense. Few Brits stand up in public and shout that they want to be public intellectuals; or not without a self-deprecating laugh.
The entire FT column is interesting, do note that Tett’s background is in anthropology.
Helsinki notes
Most of all, I like the city for its visual complexity, and for its recurring architectural surprises. It is the best Art Nouveau city in the world, with only Brussels as a rival, and also a top tier modernist city. Public buildings are excellent, and unlike in Stockholm you are never quite sure what is coming next.
The Finns are amazing at building out lovely, cozy rooms. In a used bookstore you might find a room for sitting on a comfortable chair and reading. It will look and feel perfect. I even saw one men’s room with this flavor, and yes it had a comfy chair.
It is striking, and instructive, that the Japanese have such a strong presence in tourism in Finland. Their groups dominate visits to the underground rock church, for instance. Japan and Finland both have something inscrutable in common? And they both share an obsession with design and with small detail.
One nice thing about Helsinki is you can find a good restaurant in almost any part of town. Unlike say Paris, New York, or London, they do not have “dining deserts” where tasty places are absent for reasons of rent or zoning. Similarly, Helsinki also has a very high quality of small shop, in areas such as jewelry, used clothing, and design. Again, as with the restaurants, you can find these in almost any part of town. Helsinki has avoided the trap of looking and feeling like the other global cities, as the price-rent gradients simply are not that oppressive.
Along related lines, you will see non-white immigrants in great numbers in the center of town. In Stockholm, in contrast, non-white immigrants are priced out of the center to a considerable degree, though of course you can see them working in service jobs there,
The spaces in the new public library are remarkably inviting for sitting and reading. The interior is also an example of an institution that has leapt into being retro, without ever having managed to be fashionable in the interim (the opposite of mobile money in Kenya leapfrogging more antiquated money and banking institutions). In an act of supreme wisdom, they have stacked the library with “technology,” most of all 3-D printers and advanced sewing machines. It now looks quaint and charming, much like the older buildings around town. It is the smart phones that hold the attention of the library visitors, even in this relatively reading-sympathetic culture.
In Nordic countries, Thai food usually is better than Chinese. Georgian food is something you also might try in Helsinki. Salmon soup is good, but you don’t need to have it more than once. The whitefish and small river fish I enjoyed.
The Finns are interesting to speak to, especially about Finland. One woman said (paraphrased): “We can talk to each other for hours, and still not understand, so how do you expect the immigrants to understand us?” Multiple meanings can be assigned to that remark.
Another said something like: “No, the Finns are not the happiest people in the world. Once foreigners stop asking us how happy we are, we go back to complaining at each other about everything.” Was she complaining about that?
Everywhere you go, you see Finns doing things with each other.
In my view, Helsinki is one of Europe’s great cities, information-rich and out of the ordinary. It should be noted, however, that hardly anyone else agrees with this assessment, least of all the residents here.
France, and the United States
The U.S. Olympic team is one of a handful that will supply air conditioners for their athletes at the Paris Games in a move that undercuts organizers’ plans to cut carbon emissions.
U.S. Olympic and Paralympic CEO Sarah Hirshland said Friday that while the U.S. team appreciates efforts aimed at sustainability, the federation would be supplying AC units for what is typically the largest contingent of athletes at the Summer Games.
Here is the full story, via several loyal MR readers.
Saturday assorted links
1. Sabine Hossenfelder on German highway speed limits.
2. Sheep to humans ratios are falling in the Anglosphere.
3. Why are international firms leaving Nigeria?
4. Can Claude Sonnet 3.5 identify a Robin Hanson talk from a single slide?
5. Gavin Leech on living in Estonia.
6. Just how screwed up philanthropy and cancel culture have become.
Needed in Empirical Social Science: Numbers
By Aaron S. Edlin and Michael Love:
Knowing the magnitude and standard error of an empirical estimate is much more important than simply knowing the estimate’s sign and whether it is statistically significant. Yet, we find that even in top journals, when empirical social scientists choose their headline results – the results they put in abstracts – the vast majority ignore this teaching and report neither the magnitude nor the precision of their findings. They provide no numerical headline results for 63%±3% of empirical economics papers and for a whopping 92% ± 1% of empirical political science or sociology papers between 1999 and 2019. Moreover, they essentially never report precision (0.1% ± 0.1%) in headline results. Many social scientists appear wedded to a null hypothesis testing culture instead of an estimation culture. There is another way: medical researchers routinely report numerical magnitudes (98%±1%) and precision (83% ± 2%) in headline results. Trends suggest that economists, but not political scientists or sociologists, are warming to numerical reporting: the share of empirical economics articles with numerical headline results doubled since 1999, and economics articles with numerical headline results get more citations (+19% ± 11%).
Via somebody on Twitter?
Alice Evans on Nordic gender egalitarianism
So what’s the connection between hierarchy and patriarchy? It is my contention that if everyone is equal, it is much more acceptable for women to get to the top. No one is special. ‘Leaders’ are not due unique perks, privileges or power. Queuing by the roadside, they board the bus like commoners. Since everyone is respected, it is much more permissible for (low status) women to become politicians, clerics and bosses. What’s there to envy? The status gap is meagre. The rest of society acts as a reverse dominance coalition – keeping her power, esteem and ego in check.
By contrast, in hierarchical institutions, where status gaps loom large, it would be enormously unsettling for a (low status) woman to command prestige. If men must always bow and let her first speak first, it may grate their egos. Even for men who are perfectly supportive of female employment or gender equality in abstract, it might still be uncomfortable to literally kow-tow. The larger the hierarchy, the more distressing it may be to see a woman soar…
My theory helps explain why Scandinavian countries were quick to elect female leaders and share childcare. It also explains why management and politics remain so male-dominated in hierarchical Japan, Korea, Malaysia, Russia and Nigeria.
Here is the full post, and here is Alice’s more recent post on what paintings can tell us about British patriarchy.
Friday assorted links
1. WSJ profile of David Autor.
2. By Dean Ball, a simple public choice theory of what will go wrong with SB 1047. I genuinely do not see why people such as Dan Hendrycks do not get this.
3. Derek Thompson: “We really are living in an era of negativity-poisoned discourse that is (*empirically*) historically unique.” The importance of this cannot be overestimated. And here is his excellent Atlantic piece on how parts of the Anglosphere are exporting despair — one of the best and most important pieces of the year. Which side of this dynamic are you on?
Tallinn bleg
Your suggestions would be most welcome, thank you in advance…
Shruti Rajagopalan and Anne Krueger podcast
Shruti Rajagopalan and Krueger unpack the complex interplay of trade, politics, and economic development from the past five decades. Link here.
Economic Freedom, Even More Important Than You Think!
Economic freedom, as measured by say the Fraser Institute’s EF Index correlates highly with GDP per capita. Alvarez, Geloso and Scheck show that once you take into account the fact that dictators lie, the correlation is even higher!
SSRN: The literature connecting economic freedom indexes to income levels and growth generally points in the direction of a positive association. In this paper, we argue that this finding is a highly conservative as the data is heavily biased against finding any effects. The bias emerges as a result of the tendency of dictatorial regimes to overstate their GDP level. Dictatorships also tend to have lower scores of economic freedom. This downwardly biases any estimations of the relation between income and economic freedom. In this paper, we use recent corrections to GDP numbers — based on nighttime light intensity — to estimate the bias. We find that the true effects of economic freedom at its component on income levels are between 1.1 and 1.33 times greater than commonly estimated. For economic growth, the bias is far smaller and only appears to be relevant for some individual components such as size of government and property rights.
“US-based academics and those at top-ranked institutions exhibit higher egocentrism and toxicity in their tweets”
Compared to other academics, that is. They are still more reasonable than the general public on Twitter. Here is the paper by Prashant Garg and Thiemo Fetzer. Here is a useful tweet storm about the paper. Via Kris Gulati.
*Jan Morris: life from both sides*
That is the recent biography from Paul Clements, which I enjoyed very much. In part I liked it because I have never much loved her writing, or found it insightful. To me the book (to some degree unintentionally) raises the questions of why so much travel writing does not age well, and why so much travel writing is simply boring to read, even though a trip to the same place might be fascinating.
Here was one good passage:
…at a conservative estimate, Morris’s books alone contain more than five million words — and then there is her journalism and literary criticism, which run to several million more. From the days of the Arab News Agency in 1948 until its conclusion, her career spanned seventy-three years of publication. Every aspect of her life fuelled her writing; her entire published corpus, from 1956 to 2021, totalled fifty-eight books, while she edited a further five volumes.
Posterity will remember Jan Morris. What makes her work sui generis is the genre-less way that she combined topography, the social landscape, history, personal anecdote, and an acute imagination. Morris forged an unlikely style that was vigorous, precise, and entertaining. Hers was a language nourished by the music of childhood, conditioned by The Book of Common Prayer and Shakespeare, energised by journalism, and inspired by travelling the world as a student of human nature. Like all writers, Morris had her foibles: her voluptuous vocabulary included words such as ‘tatterdemalion,’ ‘swagger,’ ‘gallimaufry,’ ‘coruscate,’ ‘fizz,’ ‘parvenu,’ ‘rodomontade,’ ‘gasconade,’ ‘palimpset,’ ‘simulacrum,’ ‘fandango,’ and ‘chimerical.’ The three Morris m’s — magnificent, melancholy, and myriad — ripple through her work, not forgetting her love of the two Welsh h’s —hwyl and hiraeth. Her writing could be indulgent at times, but Morris did not take an exalted view of herself as a writer. She was the one who called her work, in A Writer’s World, ‘hedonistic,’ ‘boisterous,’ and ‘impertinent,’ In a newspaper questionnaire in 1998, Morris was asked how she would like to be remembered, and she replied: ‘As a merry and loving writer.’
As an aside, not all those words cited seem so weird to this writer. Swagger, fizz, and parvenu are in ordinary usage, chimerical too.
Among its other virtues, I feel this book captures British history and British intellectual history very well. In any case, you can buy the book here, and I have ordered some additional Morris works to read. If I really like any of them, I will let you all know.