Results for “age of em”
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The union wage premium, revisited

Ezra Klein, in his response to my post on the union wage premium, directed our attention to this article about the union wage premium in service industries.  The paper does find a wage premium, and in doing so offers up some juicy bits:

Our
research suggests that unions usually have little power to inhibit subcontracting
altogether, but that they can sometimes mitigate its negative effects
on their members.
  The
hardest trend to fight has been the outsourcing of labor-intensive kitchen
tasks – baking, cleaning and chopping produce, making stocks and sauces. 
The purchasing of prepared foods has become such a ubiquitous and fundamental
business strategy in the industry that it has been almost impossible
for unions to stop it.  In the end, the economics of using pre-prepared
food are simply too compelling, and because the outsourcing is usually
done piece-meal, the union would have to fight over just one or two
jobs at a time.  However, when the numbers of jobs involved are bigger
and the economic advantages less clear – for example, subcontracting
an entire laundry unit – unions have been able to focus their efforts
and have had somewhat more success, slowing the process down or limiting
it.

Yes I can see the resulting wage premium within the union, but is this a good way to advance the state of the working man in the United States?

Can we do without digital rights management?

Steve Jobs claims to think so, and EMI might abolish it.  It could be said that the music companies never adopted the idea in full, recall the compact disc?  Burning compact discs is remarkably easy, and that practice remains the biggest copyright problem, not illegal downloads.  Someone who burns a whole disc is more likely to otherwise have bought it, compared to someone snatching songs off the web.  Of course, for all the complaints, the era of compact discs has been entirely acceptable for music companies.

DRM is a tax on digital consumers, compared to the low de facto restrictions put on CD buyers.  So why not equalize that margin, especially since digital sales have lower overhead?  Admittedly piracy is easier over the web, although for teenagers the difference is smaller than you might think.  I believe that at this point a person is either an illegal downloader or not.

The deeper question is whether the move away from DRM might cause the dominant position of iTunes to unravel.

Market based management

The Science of Success: How Market Based Management Built the World’s Largest Private Company, by Charles Koch, due out this coming Tuesday.  This is Koch’s account of how the economics of Hayek and Polanyi (Michael, not Karl!) helped him do it.

Here is Mark Skousen’s class on free market management.  Here is a bibliography on Austrian economics and management.  Here is Hal Varian on Kaizen, recommended.

Trudie on time management

First, check out Tyler’s earlier tips on time management.  Read this one too.  That’s right, you.  The one who doesn’t usually click on the links.  Read them.  Don’t tell me you don’t have enough time.

The bigger question is whether time management is something you need to improve.  The "Friends" part of your brain sounds quite fundamental, why tamper with it?  Don’t think all that Bruckner stuff, or for that matter the Journal of Law and Economics, beats a good TV show.  (Even Nigerian movies can be worse than Law and Order, believe it or not!)  Cost-benefit analysis suggests that acceptance will come easier than change.

It sounds as if you are already an expert consumer, and indeed consumption is the ultimate goal of economic activity.

Being "completely rational" would be a high form of hell.  Tyler tells me that his high levels of cultural consumption are his form of irrationality, not the contrary.  And most of his activities are quite passive; he has never been in a kayak, refuses to go "natural diving," and surely blogging does not compare with building a software company or hunting a boar.  Don’t confuse a restless nature with seizing life by the throat and living it to the fullest (although, of course, some people do both, including Tyler).  In any case the key is to enjoy and indeed cultivate the irrationalities you have (indeed that is all you have), at least provided they do not become destructive vis-a-vis other people.

Trudie again thanks Tim Harford for pioneering the concept of economic advice; Tyler has added Tim’s website to the Interesting People roll on the left hand side of this blog.

Intertemporal arbitrage

Positive time preference is not the constraint it once was:

You can’t take it with you. So Arizona resort operator David Pizer has a plan to come back and get it.

Like some 1,000 other members of the "cryonics" movement, Mr. Pizer has made arrangements to have his body frozen in liquid nitrogen as soon as possible after he dies. In this way, Mr. Pizer, a heavy-set, philosophical man who is 64 years old, hopes to be revived sometime in the future when medicine has advanced far beyond where it stands today.

And because Mr. Pizer doesn’t wish to return a pauper, he’s taken an additional step: He’s left his money to himself.

With the help of an estate planner, Mr. Pizer has created legal arrangements for a financial trust that will manage his roughly $10 million in land and stock holdings until he is re-animated. Mr. Pizer says that with his money earning interest while he is frozen, he could wake up in 100 years the "richest man in the world."

…To serve clients who plan on being frozen, attorneys are tweaking so-called dynasty trusts that can legally endure hundreds of years, or even indefinitely. Such trusts, once widely prohibited, are now allowed by more than 20 states — including Arizona, Illinois and New Jersey — and typically are used to shield assets from estate taxes. They pay out funds to a person’s children, grandchildren and future generations.

The chilling new twist: In addition to heirs or charities, estate lawyers are also naming their cryonics clients as beneficiaries. If they come back to life after being frozen, the funds revert back to them. Assuming, that is, that there are no legal challenges to the plans.

That is from The Wall Street Journal, January 21 2006, p.A1.  Of course if you take the St. Petersburg Paradox literally, you should chop off and freeze your head for a very long time; there is some chance of enormous wealth at the end.

Addendum: Here is the full article.

The tricky problem of sticky wages

Rick Hartenstein is the Pharmacy Director at Ochsner Clinic Foundation in New Orleans.  He writes me with a question:

An article in our local paper this morning discussed the phenomenon of  sign-on bonuses at fast food restaurants.  Since this will almost certainly drive up wages in the area, and hospitals are highly dependent upon low wage jobs, I was wondering what you would advise our Human Resources VP to do.  I am an almost daily reader of MR and really appreciated the blogs during the hurricane (I was here at the hospital for 8 days).  Any other observations on wages and prices for us?  One thing is sure – the areas of the city that housed the majority of lower wage workers are obliterated.  We have massive vacancies in these types of jobs as do other employers. 

My response was as follows:

The rise in wages is a good sign because it means that employers are trying to draw workers back to New Orleans.  If employers were packing up and leaving then wages would be falling so there is some hope.  For the hospital Human Resources VP I would suggest that the situation is probably temporary so rather than higher wages he or she may want to follow the lead of the restaurants and offer "signing bonuses" and/or bonuses to be paid after say 6 months on the job.  The reason for this is that it may be very difficult to reduce wages later on – reducing wages typically causes a lot of discontent.  Furthermore, if you keep the wages of older employees constant but, as wages fall, offer newer employees lower wages you will have two people doing the same job being paid different wages.  That is not good for morale either.  In addition, to signing bonuses the hospital might want to think about what it can offer in terms of relocation services, housing, transportation and so forth.  Again, these would be useful temporary measures to draw workers to the hospital without creating a permanent expectation of higher future wages.

Comments are open if you have other suggestions for Rick.

The public choice economics of crisis management

Why don’t governments handle all crises well?  Read Brad DeLong’s catalog of charges on Katrina.  I can think of a few systematic reasons for institutional failure:

1. The event is often small-probability in nature.

2. The event has very negative consequences, and we don’t have optimal punishments for those who get it wrong.

3. Many crisis-related events and required decisions happen quickly in immediate sequence.  First, it is hard to get the decisions right, second it is even harder to look good, given some inevitable mistakes.

4. Media scrutiny is intense, and voters care about the issue.  This encourages ex post overreactions and overinvestments in symbolic fixes, especially when combined with #1.

5. A crisis is, by definition, large.  This puts federalism, whatever its other merits, at a disadvantage.  No one is sure who is responsible for what, or how a chain of command should operate.

All of these seem to have operated in New Orleans, plus they were combined with one of our worst-functioning local governments and an administration especially weak on the issue of accountability.  My colleague Roger Congleton has a paper on the public choice of crisis management.  This is an underexplored topic, so feel free to suggest other readings in the comments.

Time management tips

John Quiggin offers some time management tips over at CrookedTimber.org.  I’ll second his call for a daily "word quota", but express horror at his notion that you should ever devote a morning to "8-10 jobs that ought to take 5 minutes each."

Here are my suggestions:

1. There is always time to do more, most people, even the productive, have a day that is at least forty percent slack.

2. Do the most important things first in the day and don’t let anybody stop you.  Estimate "most important" using a zero discount rate.  Don’t make exceptions.  The hours from 7 to 12 are your time to build for the future before the world descends on you.

3. Some tasks (drawing up outlines?) expand or contract to fill the time you give them.  Shove all these into times when you are pressed to do something else very soon.

4. Each day stop writing just a bit before you have said everything you want to.  Better to approach your next writing day "hungry" than to feel "written out."  Your biggest enemy is a day spent not writing, not a day spent writing too little.

5. Blogging builds up good work habits; the deadline is always "now."

New items in my Mexican village

As many of my readers know, I visit a small Mexican village, San Agustin Oapan, one or twice every year. This pueblo in Guerrero has about 1500 people, most of whom farm corn and paint for a living. You’ll hear more when my book on the place comes out next year, from University of Michigan Press. In the meantime, here are the new items I have noticed in the village this year:

1. Apples

2. Green beans

3. A much improved road. A four hour trip now takes less than an hour and a half, at least if the rains permit. This makes an especially big difference if you have to take your kid to the doctor.

4. Stoves. They were once a rarity, now they are commonplace. It takes the fun out of watching people cook for you, but hey that is progress.

5. Small shops with wrapped items from the larger city of Iguala. Shampoo and band-aids, for instance, are now easy to find.

6. The number of “retail” (and I use that word cautiously) watermelon sellers has gone from one to at least three.

7. The number of pigs has doubled over the last five years, though not always to the benefit of the town streets.

As far as I can tell, most of this does not show up in the growth statistics for Mexico. No one (except for yours truly) comes to the place to count anything. Most of the transactions occur in black or grey markets. And even if the data were recorded, using market prices to measure underestimates the benefits from a sudden introduction of new commodities (in essence the price is falling from infinity to a market level, and the first consumers at the new price might value the item at more than a small amount above the observed price).

It is commonly the case that consumption statistics, when we have them, measure changes in income better than do income statistics.

Globalization does not make everyone better off, but its beneficial effects are commonly underestimated, and undermeasured by available statistics.

Marriage Mathematics and Political Change

John Gottman has spent decades studying how married couples interact. His most striking finding is the tendency of couples at risk of divorce to have markedly different interaction styles. His recent book, The Mathematics of Marriage, summarizes his observations of married couples and presents a parsimonious model of marriage (see here for Slate’s review). The highlight of the research is that couples where the dominant mode of interaction includes criticism, contempt, defensiveness and stonewalling are very, very likely to divorce. Successful marriages involve a great deal of mending and reworking of the relationship. The mathematics links some theories about emotions and interaction to this observed pattern.

What I find interesting is the implication for thinking about politics. Let’s assume that political order is a sort of “marriage” between state and citizen. At least from the perspective of the citizen, it’s a relationship that can be broken, if warranted. This is a premise of many normative theories of revolution – the citizens have a right to a new government if they feel the written and unwritten rules have been violated. Unfortunately, what we know about exactly how this happens – moving to abandon the social contract – is sketchy at best, although political scientists and sociologists have a hunch that it involves some combination of repression of the population and a de-legitimizing of the government, which itself might have multiple causes.

Gottman’s approach to studying relationships offers a useful way to think about these issues. Gottman’s point is that there may be varying sources of the emotions that destroy marriages, but the road to divorce usually starts in the same place – once spouses have learned certain interaction strategies, they create hard to change feedback loops. Similarly, governments and populations that learn certain strategies for interacting with each other probably set up hard to break cycles leading to long term stability or perpetual crisis. The nice thing about Gottman’s analysis of marriage is that the math predicts stability or decline, and not much in between – a non-trivial prediction. The same prediction for states is that states tend to be on a tough to change road to constant crisis (like in Africa and the Middle East) or stability (like in the US). Switches from one path to the other should be infrequent and difficult, which seems to describe the world pretty well.

Enemy of All Mankind and Indian Chemical Engineering

In 1695 the British pirate Henry Every commanding a stolen ship, one of the fastest in the world, captured the Ganj-i-Sawai an immense treasure ship carrying the granddaughter of the Mughal Emperor, Aurangzeb, from her pilgrimage to Mecca. The looting and mass rapes set off repercussions around the world.

Enemy of All Mankind is Steven Johnson’s page-turning account. I’m not fascinated by pirates per se but Johnson surrounds the narrative arc with expert historical context. Anyone can tell you that cotton was important in trade between India and Europe but you would be hard-pressed to find a more concise account of why than Johnson’s primer. What made Indian cotton unique wasn’t the cotton but Indian chemical engineering.

What made Indian cotton unique was not the threads themselves, but rather their color. Making cotton fiber receptive to vibrant dyes like madder, henna, or turmeric was less a matter of inventing mechanical contraptions as it was dreaming up chemical experiments. The waxy cellulose of the cotton fiber naturally repels vegetable dyes….The process of transforming cotton into a fabric that can by dyed with shades other than indigo is known as “animalizing” the fiber, presumably because so much of it involves excretions from ordinary farm animals. First, dyes would bleach the fiber with sour milk; then they attacked it with a range of protein-heavy substances: goat urine, camel dung, blood. Metallic salts were then combined with the dyes to create a mordant that permeated the core of the fiber.

…The result was a [soft] fabric that could both display brilliant patterns of color and retain that color after multiple washings. No fabric in human history had combined those properties into a single cloth.

Lots of other insights. Every, by the way, was never captured but in 2014 a Yemeni coin that might have come from the Ganj-i-Sawai was found in a Rhode Island orchard.

See also my previous post on Enemy of All Mankind.

The prisoner’s dilemma for prisoners and Mafia men

We develop experimental evidence on cooperation and response to sanctions by running prisoner’s dilemma and third party punishment games on three different pools of subjects; students, ordinary criminals and Camorristi (Neapolitan ‘Mafiosi’). The latter two groups were recruited from within prisons. Camorra prisoners show a high degree of cooperativeness and a strong tendency to punish defectors, as well as a clear rejection of the imposition of external rules even at significant cost to themselves. The subsequent econometric analysis further enriches our understanding demonstrating inter alia that individuals’ locus of control and reciprocity are associated with quite different and opposing behaviours amongst different participant types; a strong sense of self-determination and reciprocity both imply a higher propensity to punish for Camorra inmates, but quite the opposite for ordinary criminals, further reinforcing the contrast between the behaviour of ordinary criminals and the strong internal mores of Camorra clans.

Here is the paper by Annamarie Nese, et.al., via Ethan Mollick and Ilya Novak.

Who has been loneliest during the pandemic?

That question is the topic of my latest Bloomberg column.  The wealthy can fly to the sun, meet outdoors, test regularly, and find many other workarounds.  Poorer individuals tend to be working together in public-facing service jobs.  That has a Covid downside, but it does make them less lonely.  So who are the biggest loneliness losers?

…it’s pointless to debate which group is loneliest. Still, I might argue for some sympathy for Northerners in midlevel jobs who work alone or remotely. Think of academics, accountants, middle managers.

Recommended.

The gender equality paradox seems to hold for chess

The gender-equality paradox refers to the puzzling finding that societies with more gender equality demonstrate larger gender differences across a range of phenomena, most notably in the proportion of women who pursue degrees in science, technology, engineering, and math. The present investigation demonstrates across two different measures of gender equality that this paradox extends to chess participation (N = 803,485 across 160 countries; age range: 3–100 years), specifically that women participate more often in countries with less gender equality. Previous explanations for the paradox fail to account for this finding. Instead, consistent with the notion that gender equality reflects a generational shift, mediation analyses suggest that the gender-equality paradox in chess is driven by the greater participation of younger players in countries with less gender equality. A curvilinear effect of gender equality on the participation of female players was also found, demonstrating that gender differences in chess participation are largest at the highest and lowest ends of the gender-equality spectrum.

Here is the paper by Allon Vishkin, via @autismcrisis.

The Abundance Agenda

Excellent piece by Derek Thompson:

America has too much venting and not enough inventing. We say that we want to save the planet from climate change—but in practice, many Americans are basically dead set against the clean-energy revolution, with even liberal states shutting down zero-carbon nuclear plants and protesting solar-power projects. We say that housing is a human right—but our richest cities have made it excruciatingly difficult to build new houses, infrastructure, or megaprojects. Politicians say that they want better health care—but they tolerate a catastrophically slow-footed FDA‪ that withholds promising tools, and a federal policy that deliberately limits the supply of physicians.

The way I put it in Launching the Innovation Renaissance is that we can be an Innovation Nation or what we are now which is a Welfare-Warfare State.

To give one example, the debate over the Patient Protection and Affordable Care Act was long and vociferous. One of the reasons the debate was vociferous is that the PPACA is part of the vision of the welfare state, a redistributive vision.

How would the innovative state approach the issue of health care? From an innovation perspective two facts about health care are of great importance. First, a huge amount of health care spending is wasted. A strong consensus exists on this point from health care researchers all along the political spectrum. More money will get you a much bigger house, but once you have basic health insurance more money won’t get you much better health care. Should Bill Gates get prostate cancer, his billions will get him a private room and a personal physician, but they won’t do much to extend his lifespan beyond that of a middle-class man with the same disease.

…The second fact is that although spending more on health care now doesn’t get you much, spending more on health care research gets you a lot. It has been estimated, for example, that increases in life expectancy from reductions in mortality due to cardiovascular disease over the 1970-1990 period were worth over $30 trillion–yes, 30 trillion dollars. In other words, the gains from better health over the period 1970-1990 were comparable to all the gains in material wealth over the same period.

Looking at the future, if medical research could reduce cancer mortality by just 10 percent, it would be worth $5 trillion to U.S. citizens (and even more taking into account the rest of the world). The net gain would be especially large if we could reduce cancer mortality with new drugs, which are typically cheap to make once discovered. A reduction in cancer mortality of this size does not seem beyond reach, and the value of such a reduction in mortality far exceeds that of spending more on medical care today. Yet because the innovation vision is not central to our thinking, we overlook potentially huge improvements in human welfare.

The numbers would be higher now due to inflation, population and income growth but you get the idea.