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In a recent article, labor economist David Autor was quoted as saying that “If we automate all the jobs, we’ll be rich—which means we’ll have a distribution problem, not an income problem.” David, have you been reading drafts of my dystopian future economic science-fiction novel again?
The synopsis of my (mostly, but not entirely) hypothetical Hunger Games fan fiction goes something like the following: Imagine a world where technology has progressed to the point where one person can create all of the output that we have today (or maybe even then some) by pushing a really fancy version of the Staples easy button- you know, like this:
Would society in the aggregate be better off economically as a result? The answer is most surely yes- if we believe that most people would rather sit on a beach and have their work done for them than actually do the work, then the button basically has to be a boon to society overall. In this situation, people would have two options: one, they could be content with the current standard of living and continue sitting on the beach, or they could use their newly-acquired free time to produce new (hopefully) cool stuff for society. (You know you were just looking for the right moment to get into the artisan cupcake pick business.) Let’s, for the sake of argument, assume that people take option number one- this is what Autor meant when he said that technology would make us richer, since we would now have all of the stuff and all of the free time rather than just all of the stuff.
You’ve probably caught on by now, however, that the GDP button presents some interesting challenges for society. We are currently pretty much accustomed to distributing money in exchange for labor and capital- that’s how markets for the factors of production work. Under this regime, the guy/girl who owns the GDP button (Katniss Everdeen in my fan fiction, obviously, to make up for being from a poor family) would get all of the factor payments. (Hence the distributional problem that Autor referred to.) But this is where it gets sticky- payments from whom? If Katniss keeps pressing the button and people keep buying her output, eventually everyone but KAtniss is going to run out of money and not be able to buy the output anymore. Granted, this might not bother Katniss, since she has the button that makes stuff and therefore doesn’t really need your money. Everyone else, on the other hand, runs into a bit of a problem.
This problem is not technically insurmountable, so it’s not a given that everyone but Katniss is going to die of starvation. (I suppose this is where the narrative diverges from the parent books a bit.) That said, the problem isn’t the easiest to solve either. One option would be for Katniss to give away the stuff that she doesn’t use. This would prevent at least some of the starvation problem, but it would introduce new logistical problems- giving stuff away doesn’t exactly get said stuff to those who value it the most. For example, if I saw that, say, a motorcycle was being given away, I might go get it because hey, free motorcycle, but I don’t actually like motorcycles that much. Now, you might think that this would take a motorcycle away from a motorcycle enthusiast, but think this through a little more. Since I’m not the only person wandering around perusing free stuff, society would likely end up in a situation where the more popular free items have longer lines. (Just ask the people who tried to get free Krispy Kreme the other day.) This would solve the resource allocation problem to some degree, since I would be more likely than the motorcycle enthusiast to balk at the line for motorcycles, and it approximates a world where time is the currency used for resource allocation. On the up side, this seems pretty fair, since everyone has the same endowment of time. On the down side, we’ve now gone from a wondrous society on the beach to a society where we’re all waiting in line for our “free” stuff.
What if, instead, Katniss kept giving out the money that people pay her for stuff each period so that people can keep paying for stuff? Prices would adjust so that resources are allocated efficiently, so this approach seems promising (especially if Katniss realizes that this approach doesn’t make her worse off)- just don’t think too much about how the money gets allocated. Does each adult get the same amount? Do parents with more children get more? Do people with health issues get more than healthy people? These sorts of questions really highlight the fact that issues of fairness don’t have a “right” answer.
The world described above is obviously a very extreme version of what we actually see in society today and what Autor is referring to, but it presents a nice allegory for some of the issues that society is currently facing or worried about facing in the future. Specifically, how can companies continue to thrive by selling stuff to middle-class and working-class households if these households don’t continue to get the money to spend? Conversely, how can middle-class and working-class households thrive if they aren’t endowed with or have the means to develop the factors of productions that are valued in the economy? If capital (the analogue to the magic button) becomes the most crucial factor in production, how does society ensure that citizens have an endowment of capital equivalent to their current endowment of labor? (You have to admit that nature does a nice job of leveling the playing field by endowing most people with the ability to work.) At the risk of channeling Piketty, I will fully acknowledge that it seems like a shift towards capital being the main factor of production would have to, as per the allegory, be accompanied by some serious thought as to the heritability of wealth and even possibly a wealth endowment. (For comparison, consider that the median household is endowed with somewhere in the neighborhood of $1 million of labor “wealth,” assuming a 5% return and $50,000 median household income.)
Fun fact: Fifty Shades of Grey started out as Twilight fan fiction, so feel free to suggest some BDSM aspects of the narrative so that I can make a boatload of money, thanks.
I couldn’t resist…from The Onion:
Half Of Hollywood Test Group Screened Placebo Film
LOS ANGELES—Saying the methodology helps them ensure unbiased results in their marketing research, studio executives at Paramount Pictures confirmed that during a Hollywood test screening this week they showed half of all theatergoers a placebo film. “Instead of watching our authentic big-budget studio film, this randomly selected control group saw a movie that lacked any recognizable star, overt ‘high-concept’ premise, rapidly unfolding narrative, or extensive computer-generated effects, so that we could compare their reactions with those of the real movie’s viewers,” said Paramount production head Marc Evans, acknowledging that many members of the control group exhibited the same level of emotional gratification and entertainment as those who viewed the actual upcoming action-adventure blockbuster. “Such a double-blind screening method allows us to determine whether the thrills, laughs, and heartbreak experienced by audience members actually stem from Arnold Schwarzenegger’s performance in the Terminator sequel we have coming out this July, or whether they are simply the result of a placebo effect.” Despite poor findings that showed no significant improvement upon the placebo film, executives said they had already spent $170 million developing the franchise feature and would just give it a wide international release anyway.
Hmmm…would it be completely unreasonable to create treatment and control films in order to determine how much of a wage premium big stars should really get? Come on, an NSF grant would totally cover the cost of that…in related news, just a reminder that sophisticated data analysis is helpful because experiments aren’t always feasible or practical!
With Fifty Shades of Grey coming out this weekend, I figured it was a good time for a reminder to be careful out there when doing it with models:
Sex toy injuries surged after ‘Fifty Shades of Grey’ was published
The number of Americans requiring emergency room care for injuries involving sex toys has approximately doubled since 2007, according to data from the Consumer Product Safety Commission. Much of that increase happened in 2012 and 2013, following the release of the wildly popular erotic novels in the Fifty Shades of Grey series. And the overwhelming majority of these injuries — 83 percent — require “foreign body removals.”
So do we need to be thinking about the negative public-health externalities of this particular phenomenon? I get the feeling that the headline writer chose her words carefully, but the article itself (and others like it) seem to reallllly want me to think, despite an offhand sentence to the contrary, that the increase in injuries is actually because of the book (or at least that the increase in injuries is a result of the increase in sex toy use that resulted from the publication of the book). But we nerds know better…
This suggestion is a particular form of the correlation versus causation issue known as the “post hoc ergo propter hoc” fallacy (not to be confused with the second episode of The West Wing)- namely, that just because one thing happens after another doesn’t imply that the latter happened because of the former. In this instance, we see a claim that sex toy injuries increased after the book was published, but we can’t conclude that the increase happened because of the book itself.
The fallacy is highlighted further when a more complete dataset is observed:
Now it is more clear that the increase was largely following what appears to be a longer term trend- in fact, the data suggest that perhaps the relationship goes in the other direction and the increased proliferation of sex toys and sexual experimentation lead to the book being published and getting so popular.
It’s worth keeping in mind, however, when causality matters and when it doesn’t- for example, my warning to be careful is relevant regardless of what is causing the increase in injuries. Also, having this data makes this scenario a tad less surprising:
Given the 87 percent figure mentioned in the article, I’m actually kind of surprised that this didn’t show up on the board.
Dear Jacksonville, FL,
I will be in you tomorrow to talk about the economics of The Simpsons. All I ask is that you have better weather than exists here in Boston, which is not a tall order. (Technically, I also request good coffee, so feel free to leave suggestions in the comments.) The details are as follows:
Presented by Florida State College Jacksonville
Thursday, February , 2015
3939 Roosevelt Blvd.
Free (or, as Dan Ariely would say, FREE!)
For tickets and more info, email Susan Reilly – sreilly at fscj dot edu
I hope to see some of you tomorrow!
P.S. The official flyer:
A couple of years ago, I was told a story about how Milton Friedman would teach his Principles of Economics courses by walking into the classroom each day, opening the newspaper, and discussing the economics behind the stories that he saw. Now, I don’t know whether this tale is an urban legend or not, but the idea is quite solid, since it’s of crucial importance to tie back what is taught in the classroom to what students see out in the world. The downside of this approach, of course, is that the outside world isn’t organized for the purposes of providing examples in a logical order that students can easily follow and instructors can piece together into a syllabus in real time.
That’s where this document comes in- as an instructor and consumer of information myself, I spend a number of hours each day looking for interesting things that happen in the world that illustrate (or, in some cases, are at odds with) economic theory. Such an activity, with its high fixed cost and low marginal cost (when quantity is measured as number of instructors served), has the structure of a potential natural monopoly. In this case, however, the document has the features of a public good, since I’m making it open to everyone. Whoever said that public goods wouldn’t be provided by the free market? Oh right, (non behavioral) economists.
I hope that this database of Econ 101 examples (or, technically, spreadsheet, as some persnickety individuals have pointed out) is helpful to you! I will continue adding to it, hopefully almost daily, as I come across new things to talk about. There are a few features that I’ve put in to make the document easy to navigate and use:
– Sheets: The examples, not shockingly, are on the sheet labeled “Examples.” (This is the “Overview” sheet- see the tabs at the bottom left of the sheets to toggle between them.)
– Description/Comments: I’ve tried to provide enough information so that you don’t have to click through to the sources to understand what they are and whether you want to use them. In addition, I often give suggestions on how you can use the source in your classroom.
– Date: Where possible, I’ve added a date so that you can avoid sources that you feel are outdated. You can (reverse) sort by date and stop looking when you feel that the sources get too old. Note, however, that not every item has a date- such sources are obviously timeless!
– Date Added: You can (reverse) sort by date added in order to look at only those items that you haven’t already examined.
– Course: You can filter by course to only see items that are relevan to what you are teaching. Note, however, that some items are assigned to both Micro 101 and Macro 101, and this designation gets its own filter category.
– Tags: Created to help you find relevant items more easily, and I would search this column rather than trying to sort of filter, since a lot of items have multiple tags. When possible, I recommend scanning the items rather than relying solely on the tags so that you don’t miss anything relevant- for example, an item I’ve tagged as “price ceiling” when you’re looking for “price controls” or something like that.
– EDIWM Post: Where applicable, I’ve added links to posts on my web site that give more extensive discussion on the sources presented.
– Submitted By: For the most part, I am compiling this document myself with some help from a few econ friends. That said, I want to give proper credit where credit is due! In related news, email econgirl at economistsdoitwithmodels.com if you have something relevant/fun to share, and be sure to let me know how you would like to be credited.
I hope this is helpful to you and makes economics more interesting to your students! You can also follow my Twitter- @jodiecongirl- in order to see most if not all of the items as I find them (as well as other econ stuff). If you want even more Econ 101 materials, be sure to check out the “Econ Classroom” section of my web site (listed below).
Lecturer, Northeastern University Department of Economics
My current plan is to update the database as I find new examples and then post a summary of new items once a week as a reminder. I also added a link to the document at the top of the Economics Classroom page for easy reference.
In a lot of ways, non-economists are in the best position to create economic humor, since their outsider status basically makes it so they are looking in on the world of economics and being like wtf? On the other hand, Zach Weinersmith might argue that the nature of economics makes relevant humor relatively challenging:
Nonetheless, I convinced Zach to give it a go at the AEA Annual Meeting Humor Session:
If that (or economics in general I suppose) hasn’t given you your fill of bad ad-hoc hypotheses, you can see much more at BAHfest.com.
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…)