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You all seemed to like the conversation about the gender wage gap after Obama’s State of the Union address, so I put together something a bit more formal for the Boston Globe. (sidenote: I am strangely fascinated by the graphic used for that article- it’s very Beatles-esque trippy, as in “picture yourself in a bot on a money river” or something…I don’t know about you, but I’ve always wanted to fish for money with a red suction cup.) Here’s a more, let’s say, unfiltered version for those already somewhat familiar with the matter:
In terms of “equal pay for equal work,” literally speaking, men and women are in fact on pretty equal footing- about 96 cents on the dollar for non-married women versus men if I recall correctly, so better enforcement of narrowly-defined discrimination laws won’t do a whole lot to narrow the observed wage gap that has been defined as problematic. In other words, let’s cut it out with the 77-cents crap. From a fairness perspective, the matter is somewhat complicated, since women with families (and, by extension, women on average) do in fact work fewer hours than men and ask for more flexibility in terms of working hours and location. So what would be fair? Let’s say that a woman works 20 percent less than an equivalent male- one starting point for fairness might be that she earn 20 percent less than the man. But what if working 20 percent less means that she’s not as “on call” or “present” as the man? This could make her productivity, on an hours-adjusted basis, less than the man’s, in which case it could be considered fair to pay her more than 20 percent less.
The situation described above illustrates how an inflexible workplace that likely seems generally fair leaves women with family responsibilities behind in two ways. First, women who care for children can’t work as many hours as men who don’t have such responsibilities if it is mandated that those hours have to be between 8 a.m. and 6 p.m., for example, but they likely could if they could get proper credit for hours they spend working in the early mornings and evenings, perhaps from home. Second, inflexibility in terms of worker substitution makes it nearly impossible for a more “part time” employee to have the same productivity (even on an hours-adjusted basis) as one who gives over his entire existence to his employer. If workplaces enabled more flexible organizational practices, women would both be able to work more hours and be more productive in those hours, thereby alleviating much of the wage gap without what potential critics would refer to as special treatment. Also, men would get more flexibility too. (This is where you say “yay!”)
Claudia Goldin gives a very good example of how rigidity in the workplace that is not actually necessary has been done away with, to the benefit of women and their earnings:
Several changes in the pharmacy profession have been responsible for the increase of female to male earnings. The first is the decrease in self-ownership and the rise of large corporation and hospital employment. As corporate ownership and hospital employment increased, the portion of earnings that came from self-employment decreased. The ratio of the (time-adjusted) earnings of female to male pharmacists, in consequence, increased as the rents from ownership decreased and because men were disproportionately the owners.
The second change involves decreased costs to flexible employment in pharmacy. Pharmacists have become better substitutes for each other with the increased standardization of procedures and drugs. The extensive use of computer systems that track clients across pharmacies, insurance companies, and physicians mean that any licensed pharmacist knows a client’s needs as well as any other. If a pharmacist is assisting a customer and takes a break, another can seamlessly step in. In consequence, there is little change in productivity for short-hour workers and for those with labor force breaks. Other factors mentioned in the O*Net section are also of importance. For example, there is less need for interdependent teams in pharmacy and for extensive contact with other employees.
Female pharmacists have fairly high labor force participation rates and only a small fraction have substantial interruptions from employment. Rather than taking off time, female pharmacists with children go on part-time schedules. In fact, more than 40 percent of female pharmacists with children work part-time from the time they are in their early thirties to about 50 years old. Male pharmacists work around 45 hours a week, about nine hours more than the average female pharmacist.
Goldin also notes that similar changes have occurred in the field of obstetrics (i.e. delivering babies and such) once patients started accepting that anyone from a team of qualified doctors could deliver a baby under most circumstances, so having their particular obstetrician on call and available at all times was not absolutely crucial.
So why doesn’t this happen everywhere without the dreaded government intervention? In some industries, it might not logistically be possible. In those cases, I’m not sure what can be done other than making sure that people (not just women) know what they’re getting into when they make educational investments and career commitments. In other industries, well…how do I put this delicately…not everyone wants to compete with women with families for their jobs. These people aren’t necessarily being jerks, they’re just being rational- less competition for jobs means higher wages, although kind of in an inefficient rent-seeking fashion if changes that could make more people more productive are needlessly curtailed for the benefit of the incumbent workers. (before you judge too harshly, think about how you would respond if you were told that your employer wanted to enact policies that would make workers more interchangeable.)
I suppose that the second scenario could be legislated to some degree in the same sense that antitrust is legislated- on a complicated, case by case basis- but that sounds like a disaster waiting to happen. By process of elimination, I guess I would want to know what caused the industries that Goldin described above to change and have some smart people think about how similar mindsets and incentives could be brought to other industries. In any case, doesn’t it seem better to narrow the pay gap by enabling women to work as much and be as productive as men rather than by trying to just will it out of existence?
And here you thought it was my logo that was setting feminism back 50 years. =P
My sarcastic intro comments aside (obviously part of the problem for the specific event is that CSI is not supposed to be funny), I still think that this should exist on a larger scale…
You probably guessed that I am more of a Law and Order gal, since I’m obviously guilty of mixing my metaphors. I did try though- in the name of research, I bought the first season of the original CSI on Amazon, and, well…I just couldn’t get into it, and, other than what I included, there wasn’t anything obvious enough to pull from. Maybe because it wasn’t about statistics, maybe because it didn’t have Olivia Benson, who knows. Anyway…you can see by the list of sources at the end of the video, you just learned the basics of three academic papers and a reply in under ten minutes and you didn’t even feel the pain! In case you weren’t paying attention, here’s the overall trajectory of (some of) the research on the causal impact of police presence on crime:
I think that this sort of approach- i.e. showing rather than telling- is so powerful, and there definitely should be more teaching that is done in this way. (I might be a bit biased since Mathnet was an important part of my childhood. In related news, you’re welcome.) Granted, it’s harder- I’m pretty sure it took more effort to write the script (reproduced below in case you want it) than it did to write the list of bullet points above. But I’m convinced that it’s worth it, especially with some production value thrown into the mix. Okay, here’s the script, and I’m (not even kidding) going to go back to watching Law and Order now.
CSI: Regression Analysis
*intro screen – The following story is sort of fictional but sort of depicts actual people and events.*
Cop: You guys from Internal Affairs?
Econ 1: Nope, we’re from…the Program Evaluation squad. *David Caruso sunglasses moment, with music/regression graphic*
Cop: *completely breaking the dramatic moment* The what?
Econ 1: The Program Evaluation squad- you know, you catch criminals who cause crimes, we identify the culprits that cause…well, a bunch of stuff.
Cop: So…nerd detectives, got it. What brings you here?
Econ 1: Well, we’ve been enlisted to study the effect of police presence on crime rates, so your department seemed like a natural place to start.
Cop: And what happens to my job if I’m found to be useless?
Econ 2: We’re economists, so such policy questions are outside of our jurisdiction. So…we’re going to need your data on number of police officers and number of crimes committed over time.
Cop: I’m not exactly inclined to share data that could cost me my job.
Story of my life. Do I need to get the Captain involved?
Cop: No, let me find what you’re looking for.
Econ 1: *looks at data on paper and writes some numbers on white board, then inputs into computer* Hmmm…from what I see here, it actually appears that more police officers leads to MORE crime. Weird, right?
Cop: Wait, what? That can’t be right…you have to keep looking- after all, the first suspect is never the true culprit, right?
Econ 2: We’re looking into the matter, sir.
Econ 2: He’s right, you know.
Econ 1: About what?
Econ 2: There’s a problem with our case. Look- I found these forms that request additional officers into the department. what do you notice?
Econ 1: *looks at forms* That the reason listed for the request is…oh. Increased crime prevalence. So that means…
Econ 2: …that we can’t tell whether the police officers cause crime increases or if the crime increases cause more police officers to be hired.
Econ 1: So are we back to square one?
Econ 2: *looks at data* Mayyyyyyybe not…
Look at this- crime increases aren’t the only reason that officers are requested.
Econ 1: There’s no reason given at all, actually. What’s up with that?
Econ 2: *at white board* I have a theory….*does some math* Yep, what I suspected- the requests match up with election cycles.
Econ 1: Why would that be?
Cop: Welllllll…I probably should be saying this, but the mayor likes us to beef up our presence before elections because it makes him look good.
Econ 2: Even though crime doesn’t follow election cycles?
Cop: *sadly* Yeah…I know it’s wrong, but…
Econ 1: *cuts off cop* Perfect.
Econ 1: If we look at the part of the increase in police presence that has to do with election cycles and not crime sprees, we can use that data to estimate the causal effect of police on crime.
*Instrumental Variables start playing*
Cop: What the…?
Band: Sorry, thought you called for us.
Econ 2: *doing math* Ok, this seems to make more sense. Now I see a negative elasticity of crime with respect to police, especially for violent crimes.
Cop: *breathes sigh of relief*
Econ 1: *looks at math on board* Actuallyyyyyyy…you made a math error.
Econ 2: Where?
Econ 1: *points* There.
Econ 2: Ughhhhhhhhh…. *fixes mistake* Well, there goes my result.
Cop: Can’t you try something else?
Econ 2: Let me see… *searches around* How about firefighters? The number of firefighters is correlated with the number of police officers, but we certainly don’t get more firefighters when we have more crime…
*Instrumental Variables start playing*
Band: Again, I thought…
Econ 1: Okay, that seems to work, but we need a corroborating witness if we’re going to be convincing. What else affects the amount of police presence?
Cop: Well, we have to send out more cops when Homeland Security sets a high terrorism alert.
Econ 2: Am I the only one who finds it funny that when the government is helpful for research it’s rarely on purpose? Ok, do we have historical data on terrorism levels?
Cop; *runs in* Way ahead of you- after all, my ass is on the line here.
Econ 1: Unbiased and unmotivated research at its best, right here. *rolls eyes* *puts data in computer and on board* Bingo- another negative elasticity estimate.
Econ 2: Meaning that the data shows that, when police presence increases for reasons other than increases in crime, the increased presence leads to decreases in crime.
Cop: It’s good to feel useful.
Econ 1 and Econ 2: You can say that again.
*Dick Wolf-type credit thing – Executive Producer Charles Wheelan*
I suppose that should technically read “Correcting The State Of The Union Address,” since I make no claims as to my ability to fix all of the nonsense that is currently going in the U.S. Anyway, I of course had a number of (usually nitpicky) objections regarding President Obama’s State of the Union address last night, but I know by this point that people have to choose their battles. So here’s mine…from the speech:
Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment. A woman deserves equal pay for equal work. She deserves to have a baby without sacrificing her job. A mother deserves a day off to care for a sick child or sick parent without running into hardship – and you know what, a father does, too. It’s time to do away with workplace policies that belong in a “Mad Men” episode. This year, let’s all come together – Congress, the White House, and businesses from Wall Street to Main Street – to give every woman the opportunity she deserves. Because I firmly believe when women succeed, America succeeds.
I am soooooo sick of this statistic, since it basically suggests that a woman shows up at a workplace and her boss is like hey, you look like you might have ovaries, here’s $0.77 rather than $1. And that’s not what is actually happening. Yes, it is true that, on average (actually, comparing medians if you want to be technical), a woman in the U.S. earns 77 percent of what a man in the U.S. earns, but that figure doesn’t control for any relevant determinants of income- schooling, industry, tenure, etc. Therefore, I cringe whenever the “equal pay for equal work” line is trotted out, since “equal work” would imply that whoever is handing out this 77 percent figure did in fact run some sort of regression that would control for enough to get to a point where the comparison was at least close to equal. In the spirit of actually wanting to understand the gender pay disparity issue and not just quote a meaningless number, let’s look at some actual research from Claudia Goldin. Some helpful excerpts:
Men and women begin their employment with earnings that are fairly similar, both for full-time year-round workers and for all workers with controls for hours and weeks. In the case of the latter group, relative earnings are in the 90 percent range for the most recent cohorts even without any other controls. But these ratios soon decline and in some cases plummet to below the 70 percent level.
Translation: We’re basically at a place now where young men and women don’t differ substantially in their levels of education (in fact, I think women are actually outperforming in terms of educational attainment according to a number of metrics), so when comparing the initial situations of these young people, the divide is 90-some-odd cents on the dollar, not 77. And this is without taking into account the fact men pay be sorting into higher-paying jobs. That said, there seems to be a shift in gender disparity as people move on their lives that should be examined.
The main takeaway is that what is going on within occupations—even when there are 469 of them as in the case of the Census and ACS—is far more important to the gender gap in earnings than is the distribution of men and women by occupations. That is an extremely useful clue to what must be in the last chapter. If earnings gaps within occupations are more important than the distribution of individuals by occupations then looking at specific occupations should provide further evidence on how to equalize earnings by gender. Furthermore, it means that changing the gender mix of occupations will not do the trick.
Translation: Convincing men and women to enter the same occupations wouldn’t make the gender disparity go away, so let’s perhaps stop focusing on that so much as a potential solution.
The clear finding is that the occupations grouped as Business have the largest negative coefficients and that occupations grouped as Technology and Science have the smallest ones. That is, given age and time worked residual differences for Business occupations are large and residual differences in Technology and Science are small. In fact, for the “young” group (less than 45 years old) some Technology and Science occupations have positive coefficients.
Translation: The female “penalty” differs a lot by occupation, and in some cases there is no penalty and even a benefit to being female.
As I will later demonstrate using data on occupations in business and law, the impact of hours on the gender gap is large and goes far to explain much of the gender earnings gap. Individuals who work long hours in these occupations receive a disproportionate increase in earnings. That is, the elasticity of earnings with respect to hours worked is greater than one.
Translation: Within an occupation (in some cases), being a high earner (even on a per-hour basis) requires long hours and, as is shown in another part of the paper, working a particular schedule. This feature explains a lot of the gender discrepancy and is a result of women and men selecting into these situations at different rates, especially as women start caring for families.
The gender gap in annual earnings for the JDs and MBAs, although large by year 15, is almost entirely explained by various factors, such as hours worked, time out of the labor force, and years spent in part-time employment.
Translation: This is not an ovaries penalty story, at least not directly.
What, then, is the cause of the remaining pay gap? Quite simply the gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule often comes at a high price, particularly in the corporate, financial, and legal worlds.
Hopefully there is no translation needed here. The overall point of presenting this is that, in order to craft an actual solution to a problem, it’s crucially important to identify what is causing the problem. As a society, we seem to have decided that a gender pay differential is a problem. However, the lack of understanding of the nature and cause of the problem is going to prevent the problem from being solved. The information provided above suggests that any legislation of the “equal pay for equal work” form, for example, will be mostly ineffective, since observed differences in pay are in fact largely explained by inequalities in either job tenure or work quantity. In order to solve the problem, then, policymakers must look one step behind the curtain and think about how to mitigate the effects of differences in worker hours or tenure rather than just keep trotting out a well-worn sound bite to overshadow the real issue.
Econgirl out. *mic drop*
So, for those of you who weren’t able to attend the humor session at the AEA annual meeting in Boston this year, here’s some more from the event. First, the opening remarks, which explain who Caroline Postelle Clotfelter, the sessions’s namesake, is, and some commentary on the house band’s name. (The band footage wasn’t included due to a bad guitar feed, but they performed covers of economics songs that were submitted as part of Kim Holder’s Rock-o-nomix project.)
Next, James Tierney from Penn State gives the American Economic (Year In) Review:
I will be putting up more videos from the event, and you can see the full playlist here to make sure that you haven’t missed anything.
I seriously need to order this for my office:
If you don’t get it, I humbly suggest a reminder on the mechanics of money supply and interest rates.
One of my undergraduate professors has a new book. It looks like this:
And he looks like this:
I point this out mainly because yes, he also sounds just like Ben Stein. Anyway, the book is about the creative tactics that social scientists use to identify cause and effect. From the Technology Review:
If you want to produce good quantitative social-science research, remember two words: ceteris paribus.
That’s Latin for “all other things being equal.” And it’s a key research principle: if you take two groups of people that are different in one key feature but equal in other ways, you may be able to identify the effects of that difference.
“People are constantly looking at the world around them and trying to learn from it, and that’s natural,” says economics professor Joshua Angrist. “But it turns out to be very difficult, because the world’s a complicated place, and many things are going on.”
Fun fact: I’m still not sure what the proper way to pronounce ceteris paribus is, so that day of econ 101 is always pretty awkward. If this sort of things is up your alley, you should also check out Angrist and Pischke’s earlier, more technical book on a similar topic.
Yes, I realize that the title could refer to what transpired on any of the nights of the conference, but I’m talking about something a bit more structured:
Overall, I wish the video had come out a bit better, but I suppose it’s difficult to prepare a shot for a person sprawled on the stage floor in a bean bag chair. If you’ve been following along, you know that my choice of High West whiskey is not random, and, actually, neither are the Hard Rock Cafe shot glasses- I am not too proud to admit that I have a fairly expensive collection of HRC glassware (must have at one point contained a tequila shot), and I’ve actually met a few of my best econ friends because they were the ones who didn’t mind being dragged along for my cheesy alcohol-infused ritual. (Looking at you, James Tierney.) At least now you know what to look out for during the next economics conference.
In case you’re curious, most of the material was pulled from the following sources:
Hopefully the video makes this make a bit more sense:
I think the first YouTuber to comment gave a review that is on par with Siskel and Ebert’s best work: “It seems like the drunk chick at a party has managed to lure people into a lecture hall and everyone is a little confused about what’s happening.” And now I have a new life goal.
Thanks to everyone who came to the humor session on Sunday night- it was a blast, and I hope to have video up soon to commemorate the event. Additional thanks to everyone who stopped by my exhibit booth to say hi- I particularly liked our discussions on how to be innovative (read, fun) in the world of online content.
Now, for some more FAQs:
Q: What was in the whiskey bottle?
A: A combination of whiskey and iced tea, the composition of which varied over the course of the evening.
Q: I saw a camera- will there be video of said event?
A: Yup, I will post it here once I’m done editing out awkward A/V moments.
Q: I tried to come say by at your booth Monday morning, but you weren’t there. What gives?
A: I think economists need to develop a theory of rational hangovers. (Or, in video form, here.) I would also like to give a particular thank you to Peter Griffin (awesome name) for leaving goldfish crackers and a nice note.
In related news, I came upon this when confirming that the series was in fact available on Netflix:
I guess when the Netflix recommendation engine fails, it fails big.
This weekend, for the purposes of the annual meeting of the American Economic Association at least, I am the new Yoram Bauman (some of you might know him better as The Stand-Up Economist), since I get to host the humor session on Sunday! So if you’re in Boston on Sunday, stop by the Sheraton by Hynes Convention Center to see this all-star nerd lineup:
The session is open to the public, so you don’t even need to register for the conference in order to attend, and I am working on making sure that there is a bar present. And I’m doing my background reading:
The session is even getting some press!
If you’re in Boston this weekend, skip the comedy clubs and swing by the funniest show in town: the Allied Social Science Association’s conference.
Well, okay, the whole conference won’t be a madcap romp (unless you’re really into macroprudential and exchange rate policies), but on Sunday night, they are holding the 7th Annual Economics Humor Session.
The shenanigans don’t end there; other presentations include “Homer-Economicus: The Simpsons and Economics” and “Rockonomix: Integrating Economics and Popular Music” — which features something called The Instrumental Variables (which we’re assuming/hoping is a face-melting rock band of economists).
Seriously, go. Then report back to us.
Update: I forgot to mention that I will be camped out in exhibit booth 111 in case you want to come say hi!
Remind me to remind Zach that the dollar auction is supposed to be a lesson in choice bracketing…
I don’t know about you, but I will be including something about broad choice bracketing and thinking ahead in my New Year’s resolutions.
Sidenote: If you like Zach’s stuff, you can come see him at the AEA Annual Meeting in Boston!
On one hand, randomized experiments with a treatment and a control group are a very clean and effective way to determine the effects of a treatment. On the other hand, addressing the logistical caveats necessary in order to get a proper result is not always possible, as shown above. So let’s ruin the joke:
Technically, we don’t know whether the experiment in the cartoon is in fact double-blind, since, well, we don’t know whether the experimenters can tell who they are giving lot of sex to and who they are giving a placebo. (So many bad ways to envision this experiment…) There, joke ruined. But I’ll try to make it up to you…
Obviously, not very trial can be double-blind or even blind, but sometimes scientists can be super creepy in order to achieve scientific validity. For example, I bring you…wait for it…placebo surgeries!
A total of 180 patients who had osteoarthritis of the knee were randomly assigned (with their consent) to one of three groups. The first had a standard arthroscopic procedure, and the second had lavage. The third, however, had sham surgery. They had an incision, and a procedure was faked so that they didn’t know that they actually had nothing done. Then the incision was closed.
The results were stunning. Those who had the actual procedures did no better than those who had the sham surgery. They all improved the same amount. The results were all in people’s heads.
I guess I’m in favor of this, though I think that I’d be so pissed if I was in the placebo group…upon further reflection, however, I guess I wouldn’t really know so I wouldn’t have a reason to be mad, so now my brain hurts a little just thinking about it. (Perhaps it was the headache resulting from pondering the placebo surgery philosophy that distracted people from the knee pain!) That said, I definitely don’t want to think about how researchers could make this sort of experiment double-blind.
To quote from The Consumerist:
You may have noticed prices gradually falling at your neighborhood gas station over the last few months, what you may not know is that the price of oil has been falling even faster than that. Why aren’t station owners passing the savings on to drivers?
The article goes on to explain that gas prices for the end consumer have decreased by about a dollar, whereas the wholesale price of oil has decreased by 40 percent. To put this in a more reasonable context, I checked around in the neighborhood and saw that gas prices were currently around $2.70 per gallon. Applying the information in the article, I can conjecture that gas prices went from $3.70 to $2.70 per gallon- a 27 percent decrease. So yes, while consumers in fact aren’t seeing a proportional price decrease, the spread is not as dire as the article would like to make it seem, especially since oil prices are only one component of the gas stations’ overall costs (and we therefore shouldn’t expect to see a 40 percent price decrease even if all cost decreases were passed on to the consumer.) Besides, doesn’t Econ 101 tell us that cost decreases do in fact get shared between the consumer and producer? Behold:
(In case you forgot, the market is experiencing a supply increase thanks to OPEC, which drives down the input price of the gasoline that the stations sell.) Hopefully it’s clear that A will be bigger than B whenever there are typical upward-sloping supply curves and downward-sloping demand curves. The article goes on…
During that same period, investment bank Goldman Sachs estimates that gas stations’ profit margins are 18.5% higher than they were at the same time last year.
Well…duh? First off, I’m pretty sure that, mathematically speaking, profit margins are going to increase whenever price decreases are less than cost decreases. But, to think about producer welfare more generally, let’s go again to the picture:
A few flash backs to Econ 101 tell us the following:
Even though it’s not immediately obvious, I could make a convincing case that producer surplus does in fact go up as a result of the supply increase, which is consistent with the estimate given. (Note that, while profit and producer surplus are not technically the same thing, they do generally move together unless changes in fixed costs are involved.)
My point is that, while the facts in the article are most likely correct and fine, they do not imply that the big bad gas stations are screwing over the poor little consumer. Instead, what is happening is entirely consistent with the forces of supply, demand, and competition, which generally lead to good outcomes for consumers. (Yes, you can technically argue that market forces can still screw people from a fairness perspective and such, but I don’t think that that is what the tone of the article was getting at.)
Behaviorally speaking, there are reasons that gas stations (and other businesses) might not want to decrease prices when they experience a cost decrease- since consumers tend to be more sensitive to price increases than to price decreases, producers have an incentive to keep prices high because it often ends up being better in the long run than decreasing prices and trying to increase them again at a later point in time. (In other words, consumers hate price increases more than they like price decreases, so market actions aren’t perfectly reversible.) In this case, however, it’s not clear that this behavior is present to any significant extent since we’d be seeing what we see in the gas market even if producers weren’t thinking about this aspect of consumer psychology.
I’m beginning to think that the overlap in the Venn diagram of “Economic Theory” and “Good PR” is an area that my cat couldn’t resist trying to crawl through due to her obsession with small spaces. Case in point (re the economics, not the cat):
We are all concerned with events in CBD. Fares have increased to encourage more drivers to come online & pick up passengers in the area.
— Uber Sydney (@Uber_Sydney) December 15, 2014
Followed swiftly with the usual mea culpa…
Uber rides out of the CBD today are free for all riders to help Sydneysiders get home safely. See http://t.co/UIwoom25Bm for more info.
— Uber Sydney (@Uber_Sydney) December 15, 2014
On the plus side, Uber has started explaining the rationale behind the price increases. On the down side, people still hate it. On the…maybe up side, it appears that people may have progressed a bit from kidding themselves into thinking that regular prices and enough available supply is an option and are at least considering the relative suckiness of high prices versus a shortage:
@jbarro But everyone has a fair shot at the cars that are available, however limited they may be. Not just those with hundreds to fork over.
— Michael Zanchelli (@zanchema) December 16, 2014
To refresh your memory, the two options, in graph form, are the following:
If the higher price encourages more drivers to get off the couch (and empirical evidence suggests that it does in the case of Uber drivers- perhaps too well, since I always see drivers swarming around me when surge pricing is in effect), then Option B results in more people being able to flee hostage situations in Australia or whatever. Step 1 is to get people to understand this, but, while it’s a necessary step, it’s such a well-worn topic by economists that I find myself bored by even typing this. So let’s move on to step 2…
Step 2 is to think about fairness, which is a bit of a tricky subject because there’s no objective definition of fair. The tweeter above, for example, seems to think that a lottery system to allocate the cars would be more fair than a price system. On the other hand, suppose that, during this shortage, there’s a pregnant lady that needs to get to the hospital (and yes, there are no ambulances, just go with me here). Would everyone see the lottery system as more fair than a system where pregnant lady could convey that the car is more important to her than it is to other people? After all, that is what prices are supposed to do. But…I’m even half bored having this conversation, since prices as a rationing mechanism is also well-worn and often ignored/rejected territory. Why? Usually because of things like this:
“UBER charge, during a snowstorm (to drop one at Bar Mitzvah and one child at a sleepover.) #OMG #neverforget #neveragain #real” –Jessica Seinfeld
Yup, that’s Jerry’s wife. Which brings us to the thing that doesn’t bore me to tears (yet)…the notion that prices direct goods and services to those who value them the most is implicitly predicated on the assumption that an individual’s willingness to pay is a consistent reflection of how useful a good or service is to that individual. In other words, economists assume that, if person A is wiling to pay more for a good than person B, then that good must me more important/useful to person A than to person B. Using this logic, however, we could probably conclude that Bill Gates likes pretty much everything on earth (with the possible exception of women’s shoes, though I will be the first to admit that I don’t know his life) more than I do. Does he actually get more marginal utility from consumption than I do? Probably not, so the impact that income/wealth has on willingness to pay throws a bit of a monkey wrench into the basic economic analysis.
If we gave everyone the same amount of money and then conducted an auction for an Uber, I would be pretty confident that the Uber would go to the person who truly valued it the most, and I guess my optimistic step 3 would be to get people to accept that mostly hypothetical principle and stop assuming that price increases always make rich people hoard all of the cool stuff. (Though I do like to picture Warren Buffett going around and buying up all the $20 gas after hurricanes and laughing maniacally while doing so BECAUSE HE CAN.) In return, I will distance myself a bit from Econ 101 and acknowledge that, the more income/wealth equality exists in a market, the less likely the system of rationing via prices is to be either truly efficient or fair. Unfortunately, I don’t know where to go from there, since it’s unclear what a more optimal system would look like- a had a student once who suggested that everyone should write an essay about why they wanted a good so that a social planner could go through and decide which consumers got priority, but the transaction costs of such a system seem likely to outweigh the potential benefits.
Well, file this experiment in both the “cool” and “depressing” categories:
What’s in a Name: Exposing Gender Bias in Student Ratings of Teaching
Lillian MacNell, Adam Driscoll, Andrea N. Hunt
Student ratings of teaching play a significant role in career outcomes for higher education instructors. Although instructor gender has been shown to play an important role in influencing student ratings, the extent and nature of that role remains contested. While difficult to separate gender from teaching practices in person, it is possible to disguise an instructor’s gender identity online. In our experiment, assistant instructors in an online class each operated under two different gender identities. Students rated the male identity significantly higher than the female identity, regardless of the instructor’s actual gender, demonstrating gender bias. Given the vital role that student ratings play in academic career trajectories, this finding warrants considerable attention.
I think if you asked a random person what data they would want to see in order to determine whether female instructors are discriminated against (or, equivalently in this case, male instructors are discriminated for), they would ask for statistics related to the average ratings of male instructors and the average ratings of female instructors. Noting that the male average is higher, however, doesn’t really tell us anything about discrimination unless we can rule out the possibility that the male instructors are better teachers. (Unlikely, of course, but a theoretical possibility nonetheless. =P) If we wanted to do better, we could have people trained to objectively rate the instructors and then see whether the differential between the objective ratings and the student ratings is different for male instructors than for female instructors. Of course, this presumes the existence of an objective way to rate instructors and assumes that said trained observers are somehow immune from subconscious discrimination themselves. Ideally, then, we’d want to conceive of some Mrs. Doubtfire-type situation where an instructor could randomize across classes whether or not he or she was wearing an opposite gender disguise. If we did this, we essentially normalize for the teaching quality across classes and can therefore attribute difference in ratings to discrimination on the part of students.
This is basically what the paper did, sadly without the costumes, since the online courses were such that the instructors could just say what gender they were and didn’t have to back it up with visual evidence. (On a half sidenote, one of the reasons that I find this study depressing is that we are in a world where classes can be structured so that we never see the instructors. Technology being what it is certainly means that we can do better than that.) The researchers then did find what appears to be differential treatment for male versus female instructors. From the NC State press office:
To address whether students judge female instructors differently than male instructors, the researchers evaluated a group of 43 students in an online course. The students were divided into four discussion groups of 8 to 12 students each. A female instructor led two of the groups, while a male instructor led the other two.
However, the female instructor told one of her online discussion groups that she was male, while the male instructor told one of his online groups that he was female. Because of the format of the online groups, students never saw or heard their instructor.
At the end of the course, students were asked to rate the discussion group instructors on 12 different traits, covering characteristics related to their effectiveness and interpersonal skills.
“We found that the instructor whom students thought was male received higher ratings on all 12 traits, regardless of whether the instructor was actually male or female,” MacNell says. “There was no difference between the ratings of the actual male and female instructors.”
In other words, students who thought they were being taught by women gave lower evaluation scores than students who thought they were being taught by men. It didn’t matter who was actually teaching them.
The instructor that students thought was a man received markedly higher ratings on professionalism, fairness, respectfulness, giving praise, enthusiasm and promptness.
“The difference in the promptness rating is a good example for discussion,” MacNell says. “Classwork was graded and returned to students at the same time by both instructors. But the instructor students thought was male was given a 4.35 rating out of 5. The instructor students thought was female got a 3.55 rating.”
I agree that the promptness category is a good one to point out, since it’s one of the few places where the underlying behavior can be objectively measured. Maybe I’m exaggerating a bit, but I now kind of feel like my students think I have nothing better to do than get their papers returned immediately whereas male instructors have other big and important things to attend to. Anecdotally, I’ve certainly gotten the impression that not everyone is cool with a female instructor, due to the authority figure nature of the situation if nothing else. This sometimes shows up in evaluation comments that are not exactly of an appropriate nature- I think my favorite was “she would make a good wife if only she learned how to cook.” I don’t think the intention was to make me annoyed that the student assumed that I cannot cook, whereas in reality I am quite proficient thankyouverymuch- I’ll have you over for a nice short rib risotto if you don’t believe me.
I found it interesting that, even after reading an article about this experiment, a number of people responded with “but I gave a male/female professor a really low/high ranking that one time!” This observation doesn’t actually run counter to the findings of the study, of course, since the study is examining whether the low/high ranking would have been even lower or higher had the instructor been of the other gender. Some of the comments on the article about the study are also worth reading- not necessarily the ones about the small sample size, since statistical significance takes that into account, but about the lack of what social scientists would call “double-blind” protocols in the study- it’s entirely possible (and, again, depressing) that the instructors actually acted differently when they were presenting as male than when they were presenting as female.
I also have to admit that the line from the article about student evaluations being important “because they’re used to guide higher education decisions related to hiring, promotions and tenure” made me laugh due to its adorable naive nature. =P Perhaps someday we can also have a discussion about the usefulness of student evaluations in the first place, since I can think of a lot of ways to get higher student ratings that don’t actually increase learning. (In fact, there is evidence that lower evaluations correlate with higher performance in subsequent courses, suggesting that student punish instructors in the short run for making them do things that are good for them in the long run. But no, tell me more about the “student as customer” mentality…)
I would like to begin with a few (mostly personal) anecdotes:
I remember one time in NY when my friends and I got in a cab and the driver tried to refuse to take us to Brooklyn. (In case you are not aware, one of the rules for those operating NYC cabs is that they have to take you anywhere in the five boroughs, and people are encouraged to call 311 and report cabs who don’t follow the rules.) He was 100% in the wrong and yet I was somehow the bitch for having the nerve to point it out and make him do his job rather than stand like a sucker on Houston for another 30 minutes at 3am. (My friend gave him a large tip for his “kindness,” and it made me more than a little ragey.)
The other day, I got an email from my apartment building management stating that they are kicking cars out of the garage for two days for cleaning and that we will need to park elsewhere at our own expense. This didn’t strike me as either fair or legal, so i sent a (polite as I could muster) wtf to the building management. Turns out that, because there are two floors to the garage (with one floor getting cleaned per day), they could just have me park on the other floor for one of the days. In fact, they explicitly said that the only reason they tried to kick everyone out for two days was that it was easier for them logistically.
I had a friend in grad school that would put up a web page that linked to all of the textbooks that we used, and he would ask us to buy the books via the links so that he could get the Amazon affiliate commissions. (And, before, you ask, no, I don’t know whether this added up to a reasonable sum of money.)
So, what do these stories have in common? Well…in the first two cases, I felt like I was on the wrong side of a coordination failure, namely that these stories represent cases where it’s not necessarily utility maximizing for one person to raise a stink, but the harm in the aggregate is substantial enough that the lack of protest results in an inefficient outcome (read, bullying by the cab driver and management company with the expectation that people will be too passive or lazy to complain). Not surprisingly, in both scenarios it became pretty clear that I was outside the norm in voicing a complaint, even though I know full well that many people had a reason to complain. (I may have surveyed the parking garage to see how many people didn’t typically move their cars during the day, for example.) Granted, I did ultimately get my way in both scenarios, but having to argue to get what has already been dictated as the proper outcome imposes a psychological cost, especially when one is called a bitch in the process. (Furthermore, it’s not like my complaining kept the non-complainers from getting screwed.) In other words, my dream is to one day live in a world where people internalize the positive externalities of enforcing the rules of markets so that my frequency of raising a fuss can be minimized.
In related news, the third anecdote is about a grad-school classmate of mine named Ben Edelman. You know, this guy:
Last week, Edelman ordered what he thought was $53.35 worth of Chinese food from Sichuan Garden’s Brookline Village location.
Edelman soon came to the horrifying realization that he had been overcharged. By a total of $4.
If you’ve ever wondered what happens when a Harvard Business School professor thinks a family-run Chinese restaurant screwed him out of $4, you’re about to find out.
(Hint: It involves invocation of the Massachusetts Consumer Protection Statute and multiple threats of legal action.)
In this particular instance, I think my friend summed up the situation nicely with one of my all-time favorite movie quotes, located at around the 0:24 mark:
(In case you’re wondering, the Amazon anecdote is in no way relevant, I just thought it was funny and totally something that an economist would do.)
Not surprisingly, the Internet is none too happy with Edelman right now, and that actually worries me quite a bit. Hear me out- yes, Ben could have been more reasonable in his interactions (demanding treble damages in a non-courtroom environment when intent hasn’t been proven is more than a bit much, for example), and, even if he was concerned about the restaurant not pulling the same move on others, a demand to update the online menu would have likely been a better request than the $12 refund. My concern is that non-thoughtful people have a tendency to equate assholery with being wrong, which is a problem if it’s mostly the “asshole” demographic that raises a fuss on principle. By criticizing the what rather than the how, people are sending a message that it’s not okay to protest when the rules of the marketplace get broken, which in turn virtually guarantees that more rules will get broken.
Economists are quick to point out that well-functioning markets are very dependent on property rights, rule of law, symmetric information, and the like, and it’s just as important to be mindful of the fact that such features don’t just appear magically, they often persist because market participants police the behavior of other market participants. (The logistics of a value-added tax are even designed such that firms have incentives to enforce payment among themselves.) Think about it this way- we know that financial markets, to a large degree at least, are kept in check because there are market participants looking to profit off of market inefficiencies and, by doing so, they make the inefficiency disappear. In a similar fashion, markets are kept in check by market participants calling out bad behavior and thus mitigating the bad behavior, but the difference is that such enforcers don’t always have the personal profit incentives for doing so. Therefore, I propose two simple rules for continued market functionality:
1. If you come upon an individual who calls out a rule breaker so that you don’t have to, say thank you. Maybe buy them a cookie to help internalize the externality.
2. If you are going to call out a rule breaker, at least start by being polite. You can always escalate to assholery when you learn that the rule is being broken on purpose and/or the other party is unwilling to fix the error. I believe that’s what economists refer to as “option value.”
P.S. To those pointing out that the overcharge isn’t a problem because Ben can afford it, do you really want to live in a world where it’s ok to screw people as long as it doesn’t bankrupt them? As I’m writing this, I’m forced to confront the reality that it’s entirely possible that many people do. I’m going to go hide under the bed with the cat now.
Don’t ever say I don’t bring you interesting things in a timely manner…(ok fine, you can say that, mainly because it’s often true- sorry about that) Here’s Jean Tirole’s Nobel Prize lecture, delivered today (time zone changes between here and Sweden are a bitch, apparently, but if you get to it quick you can still watch the end live):
The talk, entitled Market Failures and Public Policy, gets at the fact that Tirole studies various forms of imperfect competition, which, since they give firms market power, are suboptimal for society and therefore fit under the heading of market failures. Tirole’s introduction is also a nice reminder that one doesn’t get a Nobel Prize for writing textbooks. =P
So…”causal Fridays” are totally going to be a thing now, because a. I think that program evaluation is cool and important, and b. I love nerdy puns. If you want to blame someone, go find Zach Weinersmith, since he totally started it. The general idea is that, each Friday, I’ll dig up a paper that has an interesting causal result and put it here for you to ponder (and hopefully discuss at work happy hours and hot Friday night dates). This week we’ve got a paper on peer effects and educational investments:
Leonardo Bursztyn, Robert Jensen
When effort is observable to peers, students may act to avoid social penalties by conforming to prevailing norms. To test for such behavior, we conducted an experiment in which 11th grade students were offered complimentary access to an online SAT preparatory course. Signup sheets differed randomly across students (within classrooms) only in the extent to which they emphasized that the decision to enroll would be kept private from classmates. In non-honors classes, the signup rate was 11 percentage points lower when decisions to enroll were public rather than private. Sign up in honors classes was unaffected. To further isolate the role of peer pressure we examine students taking the same number of honors classes. The timing of our visits to each school will find some of these students in one of their honors classes and others in one of their non-honors classes; which they happen to be sitting in when we arrive to conduct our experiment should be (and, empirically, is) uncorrelated with student characteristics. When offered the course in a non-honors class, these students were 25 percentage points less likely to sign up if the decision was public rather than private. But if they were offered the course in one of their honors classes, they were 25 percentage points more likely to sign up when the decision was public. Thus, students are highly responsive to who their peers are and what the prevailing norm is when they make decisions.
You can have the paper emailed to most university email addresses, or you can find a non-gated version of the paper by googling the title. Note that this paper fits the “causal” requirement in a trivial but clean way, since the researchers essentially run a randomized trial (not to be confused with a randomized controlled trial, which is apparently a subtly different animal) such that, in each type of classroom, they have equivalent groups where the only systematic difference is what type of privacy is offered. (It’s then pretty intuitive that any differences in outcome are attributable to the difference in treatment.)
From a content perspective, this is…depressing but not surprising? I specifically like that the researchers tested for the effect in both regular and honors classes, since I’ve thought for a while now that this difference in peer pressure and incentives is underappreciated and needs to be studied more in order to understand differences in outcomes such as educations levels, earnings, etc. (The idea isn’t entirely new- Roland Fryer has a theoretical analysis of “acting white,” for example, but it’s important to see the empirical evidence as well as observe that this effect doesn’t only pertain to minorities.) I think I started thinking about this when somebody asked me if I was bullied in high school- I went to what I will refer to as “nerd school,” so the notion hadn’t really occurred to me before, and I think I responded with “does Brian S. trashing me in his campaign speech for National Honor Society President count?” (Apparently the answer to that question is a resounding no accompanied by an eye roll.) But this got me thinking- given that people respond to incentives, where would I have ended up if I had been given negative reinforcement every time I excelled at something nerdy? It’s hard enough to stay in and do work now when my friends want to go out and give me crap for my choices, and I doubt that my self-control as a teenager was markedly higher than it is now.
As I am writing this, I am watching an episode of the Carrie Diaries (don’t you dare judge me, the outfits are fantastic) where the class vixen is afraid of people finding out that she’s smart because it would jeopardize her chances of becoming prom queen. (Oh, Donna LaDonna, you are so my spirit animal.) I guess that this is a decent strategy- as the paper result suggests, if one can’t change one’s environment, the best option likely is to keep one’s utility-maximizing choices secret. This is not ideal, but what worries me more is that these same environments can also provide incentives to not make the nerdy investments in the first place. If this is the case, then early outcomes lead to different environments (eg. regular versus honors classes) that provide different incentives, which then magnify the initial differences in outcomes.
From a policy standpoint, it’s unclear what the best way to mitigate this discrepancy in incentives is. On one hand, it’s possible that throwing the honors kids into the regular classes could create a critical mass of what I will call “achievement culture” and drown out the negative peer pressure. On the other hand, it’s hard to have students at significantly different levels of achievement in a single classroom, and, if such a critical mass of achievers is not reached, such a policy could just end in the honors students smoking weed in the parking lot rather than going to class. (On that note, somebody should investigate whether the relationship between weed and performance suffers from a reverse causality problem.)
The fall academic semester is quickly approaching, so it’s a good time to remind readers that one of the goals of this site is to give economics instructors interesting examples and discussion topics for their classes. Those of you teaching Principles of Economics this term (as well as those of you teaching Environmental Economics and other related topics) will probably get to a discussion of externalities somewhere toward the middle of the semester, but here’s something for those of you who are inclined to plan ahead:
The Coase Theorem is a crucial topic in a discussion on externalities, since it shows that, under certain conditions, an efficient outcome will result via bargaining regardless of how property rights are initially assigned. This is an important concept because the policy implication is something along the lines of “just do something to define property rights and the rest will sort itself out.” I usually illustrate the Coase theorem via the following scenario:
Let’s suppose that there are two people on an airplane, one seated directly behind the other. The person in front, let’s call him Josh (you’ll wee why later), values the ability to recline his seat at $20. The person in back, let’s call him Hamilton, values the space in front of him at $15. These valuations imply that the efficient outcome for the system overall is for Josh to recline, since doing so confers larger benefits on Josh ($20) than it costs Hamilton ($15).
If the airline assigns property rights to Josh, there is no room to bargain since Hamilton doesn’t value his space enough to be willing to offer Josh enough money to get him to not recline (i.e. more than $20). In this case, the result will be that Josh reclines. If the airline assigns property rights to Hamilton, a logical Josh would be willing to offer Hamilton somewhere between $15 and $20 in return for Hamilton allowing josh to recline his seat. A logical Hamilton would accept this offer, since he is getting paid more than he values his space, and the outcome would once again be that Josh gets to recline. As the Coase theorem postulates, reclining is the outcome that transpires regardless of how property rights are assigned- the difference between the two scenarios is what the payment structure looks like. (It should be acknowledged that the payment structure will of course affect how good the different parties feel about the eventual outcome, so the initial allocation pf property rights is still relevant from a distributional perspective.)
I like this example because it highlights why the assumptions underlying the Coase theorem are necessary. There are three main assumptions that are, in practice, not always satisfied:
With all of this in mind, consider the following incident:
According to the Associated Press, a United Airlines flight from Newark to Denver was diverted to Chicago’s O’Hare International Airport after two passengers, both sitting in the “economy plus” section of the flight – which comes with extra legroom – began arguing because the man prevented the woman sitting in front of him from reclining her seat.
The man was allegedly using a $22 device, known as the Knee Defender, that locks onto the tray table on the back of the seat, making it impossible for the person in front to recline. The device is banned on United Airlines flights, but the Federal Aviation Administration leaves it up to individual airlines to set rules for the device.
According to law enforcement officials, the man used the device to stop the woman in front of him from reclining while he was using his laptop. When a flight attendant asked him to remove the device, he refused. The woman directly in front of him then allegedly stood up and threw a cup of water at him.
The flight crew determined the situation had escalated to the point that the flight needed to make an unscheduled stop at O’Hare.
I think we can all acknowledge that “grounding the plane and inconveniencing everyone on board” is not the efficient outcome, so let’s examine how the assumptions of the theorem were not satisfied:
Those of you who have ever flown on Virgin America may have noticed that their seat-back menus offer the option to send a drink or other item to another passenger- I would really like to see what would happen if the company added the functionality to bargain for space via touchscreen…and, let’s be honest, Richard Branson totally seems like the guy to get on that- after all, he’s the guy who thought that this was a good use of resources:
Who am I kidding, that video is worth every penny.
Update: IT HAPPENED AGAIN. Do people not watch the news? Or take basic economics classes?
Since we talked about Burger King and tax inversion yesterday, I figured it was only fair to point out that Stephen Colbert was ahead of the trend, since he did a couple of tax inversion segments (though he calls them “corporate inversion” segments) on his show on July 30:
(To further give credit where credit is due, I learned about this because my significant other was watching it he was on the Stairmaster and I was stuffing my face with Thai food.) I find the point that Obama makes about having a headquarters in a foreign country while most operations are in the U.S. to be less than satisfying for two reasons- first, are there really that many large companies whose businesses aren’t sufficiently international that it only makes intuitive sense for them to be based in the U.S.? Second, about three seconds of Thai-food-enabled pondering led me to the suspicion that most policies of a “your business is here so your taxes are here” nature is going to take the business away rather than bring the taxes in. Remember kids, a decent tax policy has got to work with the incentives of producers and consumers, not against them. OR…and I know this is totally out there, but perhaps the U.S. could work on providing institutional value to the companies that it houses such that the companies would find it worthwhile to pay the higher taxes and stay put. In this way, Allan Sloan seems to be going down a reasonable path in the second video when he suggests that the benefits that the U.S. can provide to companies be matched with the responsibility to pay U.S. taxes.
People seem to like analogies, so I’ve potentially got one for you- say my apartment is more expensive than the ones in the building next door. It would be absurd for me to be obligated to keep renting the more expensive apartment, but I might choose to do so if the more expensive apartment were also nicer. If it wasn’t, it’s completely reasonable for me to move…but most likely unreasonable for me to expect to keep using the roof deck, gym, etc. of the building that I moved out of. On a corporate level, however, we basically do have a system where residents and non-residents alike can use the facilities, so it’s not surprising that we are seeing the behaviors that we are seeing.