When are minimum wage hikes most likely to boost unemployment?
When the wage profile for low-skilled workers is sloping upward with time, minimum wage increases are less likely to increase unemployment (for the moment put aside your estimate of the absolute likelihood that minimum wage increases will boost unemployment, just ask the question in relative terms). After all, the employer might feel that with rising wages and rising productivity, those low-skilled workers might “grow into” the higher and legally mandated new wage rate. So maybe keep them, noting that the search costs of pulling in a good replacement will be higher too. Furthermore, even if some of those workers are laid off they have a higher chance of being reemployed elsewhere, due to the relatively strong labor market.
What about when the wage profile for low-skilled workers is sloping downward over time? One would expect the opposite result to hold, namely that employers are less likely to hold on to workers when confronted with a mandated wage increase.
For much of the 1990s, the labor market for less skilled workers was in decent shape. Since 1999 or so often it has been in bad or declining shape, excepting the “bubbly” years of 2004-2006. Therefore a minimum wage hike today would be more likely to boost unemployment than the minimum wage hikes of the past. And that unemployment is more likely to be long-term, corrosive unemployment than in previous decades.
I do understand that a minimum wage hike, in the eyes of some, is more “needed” today, perhaps for distributional reasons. But can we admit it is more likely than average to lead to additional unemployment?
Does anyone disagree with this logic?
Addendum: Scott Winship offers some relevant comments.
The UK recovery is not just a single blip in the data
The strength of the UK economy is drawing covetous and occasionally envious glances from the eurozone as investors from around the world size up the opportunity presented by Britain’s recovery.
The UK economic revival has taken almost everyone by surprise, confounding domestic and international forecasting groups.
It’s perfectly fair to describe this as an “Average is Over” recovery, but a recovery it is, and far greater than might be accounted for by any slowdown in fiscal consolidation.
Is Ukraine the world’s next financial crisis?
Here are some simple numbers:
To grow, Ukraine’s $176 billion economy needs gas imports from Russia to be cheap and its steel exports to be expensive.
The opposite is now the case. The government ends up taking the strain because it subsidizes most of the cost of gas sold to households across the country of 46 million that borders Russia to the northeast and four new EU states to the west.
Yanukovich walked away from the trade deal because it lacked a hoped-for stand-by loan of as much as $15 billion from the International Monetary Fund. The global lender was not prepared to lend new money without gas-price reforms.
Russian President Vladimir Putin has meanwhile made a gas discount conditional on Ukraine joining a Russia-led customs bloc that includes Kazakhstan and Belarus. He has not, however, ruled out possible further funding.
Jacob Nell, a Moscow-based economist at Morgan Stanley, estimates that Ukraine will have to raise external financing of $18 billion for Yanukovich to make it to the 2015 election.
The yield on the June 2014 bond is now closing in on 20 percent. The full story is here.
The increasing velocity of goods is a deflationary pressure (rental markets in everything Average is Over)
Anouk Gillis often sports a pair of organic-cotton jeans she ordered online. But she doesn’t actually own them.
Rather than buying the pants, which retail for around €100 ($135), Ms. Gillis signed a 12-month lease with their designer, the small Dutch fashion label Mud Jeans. The terms: a €20 deposit and monthly installments of €5.
After a year, Ms. Gillis, who is also Dutch, can decide to buy the jeans, return them, or exchange them for a new pair.
“The idea was to make high-quality jeans available to everybody,” said Bert van Son, chief executive of Mud Jeans, which promises to recycle the used jeans into new pairs or sell them secondhand at the end of a lease.
The deal shows how companies are trying to reconnect with Europe’s cash-strapped consumers, who increasingly rely on renting, sharing or even bartering for products and services ranging from clothing to vacations to lawn mowing.
There is more here. For the pointer I thank the man who delivered my morning Wall Street Journal.
Assorted links
1. A guy who wants to pretend there is no danger in sex and attraction. It is nonetheless an interesting albeit highly flawed meditation on focal points and communication games.
2. The American places with surging crime are the same places with a surging middle class.
3. Noah nails the Stephen Williamson debate, many others got it wrong, badly wrong. By the way, here is Williamson’s response, and his response to Noah. Here is a good post by Scott on the debate.
4. Joe Weisenthal changes his mind about Bitcoin. Matt hasn’t.
5. Eli Dourado on the regulation of drones.
6. Daily Telegraph on Average is Over, click through to p.9.
Why macroeconomics is not a science
From the United Kingdom:
Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.
New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey.
There is more here, and I will reiterate that this trend was not very well predicted by any macroeconomic school of thought, including liquidity trap theories, recent emphases on long-run secular stagnation, or for that matter the contrasting “of course there is mean reversion” approaches, which don’t tell us much about timing and which would appear to contradict the slow recoveries seen elsewhere. Spain, by the way, does not have an equivalent degree of cheer…
The economics of cheap drone delivery
Let’s say 30-minute drone delivery to your home were legal, well-run, and, for purposes of argument, free or done at very low cost. You would buy smaller size packages and keep smaller libraries at home and in your office. Bookshelf space would be freed up, you would cook more with freshly ground spices, the physical world would stand a better chance of competing with the rapid-delivery virtual world, and Amazon Kindles would decline in value. Given that the storage costs for goods would fall (more storage by specialists, accompanied by later delivery), expected inflation would more likely be converted into price hikes today. The liquidity premium of money (NB: not currency) would rise and the liquidity premium of goods would fall. Some drug markets would be taken off the streets and the importance of gang “turf” would fall.
Addendum: What do we know about network economies in drone delivery systems? FedEx and UPS and USPS, taken together, dominate the market for physical delivery of parcels to homes. How much room would there be in the market for “lone drone” operators?
Protestors try a new tactic against the Ukrainian police
That is from @Reuterspictures and @pdacosta.
U.S. Immigrants’ Attitudes Toward Libertarian Values
It is very important to serve up the other side of the story. Here is a 2013 paper by UCSD psychologist Hal Pashler:
Abstract:
While there has been much discussion of libertarians’ (generally although not universally favorable) attitudes toward liberal immigration policies, the attitudes of immigrants to the United States toward libertarian values have not previously been examined. Using data from the 2010 General Social Survey, we asked how American-born and foreign-born residents differed in attitudes toward a variety of topics upon which self-reported libertarians typically hold strong pro-liberty views (as described by Iyer et al., 2012). The results showed a marked pattern of lower support for pro-liberty views among immigrants as compared to US-born residents. These differences were generally statistically significant and sizable, with a few scattered exceptions. With increasing proportions of the US population being foreign-born, low support for libertarian values by foreign-born residents means that the political prospects of libertarian values in the US are likely to diminish over time.
Arnold Kling’s bad demographic news for libertarians
Arnold’s post is this:
Married households with children were 40.3% of all US households in 1970; in 2012, that share had fallen by more than half to 19.6%. Interestingly, the share of households that were married without children has stayed at about 30%. Other Family Households, usually meaning single-parent families with children, has risen.
I am afraid that the number of households married to the state has soared.”
Another way to put this is that we are consuming more of potential gdp in the form of not being around those we do not wish to be around. This is a kind of extreme individualism in the personality-based sense, though not in the political sense.
Assorted links (and the new Hilton Root book)
1. When algorithms grow accustomed to your face.
2. Roger Congleton has an overview of the contractarian political economy of James M. Buchanan.
3. Ty Fyter writes an open letter to me on the Paleo movement.
4. Lunch with Ha-Joon Chang (FT gate).
5. There is a new Hilton Root book: Dynamics Among Nations: The Evolution of Legitimacy and Development in Modern States. The MIT Press website is here, and the book’s own home page is here.
6. Do conservatives and liberals react to this banana peel story differently?
Why I didn’t do 23andMe
I had a free voucher from the summer, but decided not to go ahead with a saliva test. Here are my reasons:
1. I thought there is option value and I can always do a test later, for a better and more accurate service. (I hadn’t thought of the FDA shutting the whole thing down, but still I expect the service will return in some manner, if only under another corporate banner or from overseas.)
2. I thought the “worry cost” of negative information would exceed the benefit of whatever specific preventive measures I might take. Most useful ex ante preventive measures, such as diet and exercise, are fairly general in their application and I didn’t think there was likely much to be learned about specific measures for specific potential maladies. And here is an interesting short piece on the likelihood of false negatives.
3. One might take more preventive measures with one’s ex ante and more uncertain knowledge than with one’s ex post and more certain knowledge. For instance an absence of negative information might have encouraged me to slack on exercise, to the detriment of my eventual health outcomes.
4. I wouldn’t describe privacy concerns as my major worry, but at the margin still they counted for something. I felt eventually this service would prove equivalent to making my genome public information, via something called GenomeLeaks or the like. Why do that without having a better sense of its longer-run implications?
I’m glad I didn’t do it, glad I had the choice to decline to do it, and I am still feeling no temptation to do it in the future. I do feel a slight amount of guilt for not contributing to a future “Big Data” project, but so be it. I also am glad I am not contributing to some of the inevitably unethical uses to which eugenics will be put, and that is more than a counterbalance, given that I expect no practical benefit from reading my own test results.
Assorted links
1. Using computers to generate creativity.
2. The new Shenzhen Bao’an airport terminal.
3. How to spot good vs. bad curry houses. And Oklahoma is hiring in time series econometrics. And more on the 85-year-old American arrested in North Korea, plus the deteriorating relationship between Japan and South Korea.
4. TLS books of the year. And 100 Notable Books from the NYT.
Why is there superior economic performance under Democratic Presidents?
James Hamilton directs our attention to a useful new paper on this topic by Alan Blinder and Mark Watson (pdf). Blinder and Watson conclude:
Democrats would no doubt like to attribute the large D-R growth gap to better macroeconomic policies, but the data do not support such a claim….It seems we must look instead to several variables that are mostly “good luck.” Specifically, Democratic presidents have experienced, on average, better oil shocks than Republicans, a better legacy of (utilization-adjusted) productivity shocks, and more optimistic consumer expectations (as measured by the Michigan ICE).
Perhaps one could attribute some of the “confidence gap” to policy differences, though the authors point out “…direct measures showing increasing optimism after Democrats are elected are hard to find.” In any case this paper is a useful corrective to some common claims about superior economic performance under Democratic Presidents. Invoking the partisan composition of Congress also does not seem to explain the observed patterns.
Since we are sometimes told that macroeconomic problems dwarf micro in importance (not a division of categories I would support, but you hear this often), well…draw your own conclusions.
Blinder and Watson also debunk a myth you commonly hear from conservatives:
In sum, with the exception of the Greenbook forecasts for the early part of the first Reagan administration, forecasts suggest little reason to believe that Democrats inherited more favorable initial conditions (in terms of likely future growth) from Republicans than Republicans did from Democrats.
This is interesting too:
There is, however, a slight tendency for both the nominal and real Federal funds rate to trend upward during Democratic presidencies and downward during Republican presidencies, suggesting that the Fed normally tightens under Democrats and eases under Republicans. Of course, such an empirical finding does not imply that the Fed is “playing politics” to favor Republicans. Rather, it is just what you would expect if the economy grows faster (with rising inflation) under Democrats and slower (with falling inflation) under Republicans—as it does.
In the UK, economic performance is overall better under the conservatives, although the difference is not statistically significant.
On the history and resurgence of British servants
After World War II, commentators predicted that the welfare state would conspire with electric appliances to kill off domestic service. By 1947, 94 percent of households surveyed employed no help, and between 1951 and 1961 the number of domestic servants halved. However, Lethbridge’s story ends with a twist. Since 1978, household expenditure on domestic service has quadrupled, bringing the absolute number of domestics in London back to Victorian levels, according to some estimates.
That passage is from a Leah Price review of Lucy Lethbridge’s new book Servants: A Downstairs History of Britain From the Nineteenth Century to Modern Times.