Working for Families and work incentives

Figure 18: Effective marginal tax rates (year ending March 2013, non-beneficiaries, in percentages)

There are 3.38 million individual taxpayers. Of these, about 120,000 (3.4 percent) face EMTRs over 60%, 120,000 (3.4 percent) face EMTRs between 50% and 60%, and 160,000 (4.5 percent) face EMTRs between 40% and 50%. Slightly more than 88 percent of taxpayers face EMTRs below 40%.

HT: New-Zealand-tax-system-and-how-it-compares-internationally

The reversing gender gap: why women choose not to be scientists, engineers and IT professionals

Concerns about the lack of women undertaking careers in science and engineering are based on one simple false premise: that science and engineering are the most prestigious choices available to women with great ability in maths and science at high school.

If relatively more prestigious career options are open to women who also happen to qualify for science and engineering, women will be underrepresented in science and engineering simply because they have better career options than the men who become scientists and engineers.

In New Zealand, just as many women as men qualify for science and engineering and the IT degrees. Not as many women who have qualified take up this option simply because they also qualify for medicine and law in greater numbers than the men who happen to qualify for science, engineering and IT degrees.

In the United States, the Association for Psychological Science found that:

Women may be less likely to pursue careers in science and math because they have more career choices, not because they have less ability, according to a new study published in Psychological Science.

Although the gender gap in mathematics has narrowed in recent decades, with more females enrolling and performing well in math classes, females are still less likely to pursue careers in science, technology, engineering, and mathematics (STEM) than their male peers.

Researchers tend to agree that differences in math ability can’t account for the underrepresentation of women in STEM fields. So what does?

Developmental psychologist Ming-Te Wang and his colleagues at the University of Pittsburgh and University of Michigan wondered whether differences in overall patterns of math and verbal ability might play a role.

The researchers examined data from 1490 college-bound US students drawn from a national longitudinal study. The students were surveyed in 12th grade and again when they were 33 years old. The survey included data on several factors, including participants’ SAT scores, various aspects of their motivational beliefs and values, and their occupations at age 33.

Looking at students who showed high math abilities, Wang and colleagues found that those students who also had high verbal abilities — a group that contained more women than men — were less likely to have chosen a STEM occupation than those who had moderate verbal abilities.

This outcome is no surprise for those familiar with the gap between men and women in verbal and reading abilities – a gap that is strongly in favour of women

The OECD PISA tests at the age of 15 find that teenage boys have a slight advantage in maths  – a few percentage points – teenage girls have a serious advantage in reading.

The OECD PISA tests at the age of 15 find that this superior verbal and reading abilities of teenage girls the equivalent of six months extra schooling. One half year’s education goes a long way towards explaining many wage gaps by gender,ethnicity in race. This six-month edge in schooling is a serious advantage when qualifying for university.

Young women choose to not pursue science, engineering and IT careers because there are other career options that allow them to use their superior verbal and reading abilities – other careers is that allow them to be more successful in life than being a scientist, an engineer or an IT geek. As the Association for Psychological Science explains in the same press release cited above:

Our study shows that it’s not lack of ability or differences in ability that orients females to pursue non-STEM careers, it’s the greater likelihood that females with high math ability also have high verbal ability,” notes Wang. “Because they’re good at both, they can consider a wide range of occupations.

To put it bluntly, science, engineering and IT degrees are for young people who lack the verbal and reading abilities to get into medicine and law. Science, engineering and IT good degrees are for those who can’t get into medicine and law. They could have been contenders if they were more articulate and well-read.

There is a gender disparity in science, engineering and IT because teenage girls find these degrees to be inferior choices – inferior choices given the set of abilities they have when considering their career options.

HT: Mark J. Perry

Claudia Goldin on the main cause of the gender wage gap

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Why the Gender Pay Gap is a Myth

Men are far more likely to choose careers that are more dangerous, so they naturally pay more under the principle of compensating differences. Top 10 most dangerous jobs: Fishers, loggers, aircraft pilots, farmers and ranchers, roofers, iron and steel workers, refuse and recyclable material collectors, industrial machinery installation and repair, truck drivers, construction labourers. They are male-dominated jobs.

Men are far more likely to enter higher-paying fields and occupations (by choice). Men are far more likely to take work in uncomfortable, isolated, and undesirable locations that pay more. Men work longer hours than women do. The average fulltime working man works 6 hours per week or 15 percent longer than the average fulltime working woman.

Accounting for the 21 Cent Gender Wage Gap 2000

Women tend to work in fields dominated by women because these fields best satisfy women’s’ dual careers as workers and household managers. This can include less stressful work environments (noise, strenuous activity, etc.), more flexible policies regarding time off, and a number of other factors.

Men work longer hours than women do. The average fulltime working man works 6 hours per week or 15 percent longer than the average fulltime working woman. Even within the same career category, men are more likely to pursue high-stress and higher-paid areas of specialisation.

 

Despite all of the above, unmarried women who’ve never had a child actually earn more than unmarried men. In 2008, single, childless women between ages 22 and 30 were earning more than their male counterparts in most U.S. cities, with incomes that were 8% greater on average.

Women business owners make less than half of what male business owners make, which, since they have no boss, means it’s independent of discrimination. The reason for the disparity is money is the primary motivator for 76% of men versus only 29% of women. Women place a higher premium on shorter work weeks, proximity to home, fulfillment, autonomy, and safety.

Women lean toward jobs with fewer risks, more comfortable conditions, regular hours, more personal fulfillment and greater flexibility. Many women are willing to trade higher pay for other desirable job characteristics.

Men often take on jobs that involve physical labour, outdoor work, overnight shifts and dangerous conditions (which is why men suffer the overwhelming majority of injuries and deaths at the workplace). They choose to put up with unpleasant factors because they can earn more.

An Analysis of Reasons for the Disparity in Wages Between Men and Women for the U.S. Department of Labor in 2009 concluded that:

This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action.

Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.

Pop stars should get hazard pay

The engines of women’s liberation

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Hayek on social justice in the labour market

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The impact of street capital on the labour market prospects of inner-city youth

Dionissi Aliprantis wrote a superb paper on how the social skills developed to survive in the inner cities of America are not the skills that help you graduate from high school and get a job.

In the NLSY97, 26% of black inner-city youth report seeing someone shot by age 12, and 43% of black inner-city youth report the same by age 18.

The code of the street, the street smarted skills that inner-city black youth learn as teenagers to stay alive, do not pay off in regular society:

growing up in the ’hood means learning to some degree the code of the streets, the prescriptions and proscriptions of public behaviour. He must be able to handle himself in public, and his parents, no matter how decent they are, may strongly encourage him to learn the rules

The behaviours that do not help you survive in the street of the poor inner cities of America include include doing well in school, being civil to others, and speaking Standard English.

These skills that are the antithesis of the code of the street are exactly the skills valued by employers, especially employers of low paid workers. Employers of the low paid essentially want to recruit people who are friendly and reliable.

Dionissi Aliprantis found that exposure to street violence during childhood explains 20-35% of the high school dropout rate of inner-city youth.

Robots will take my job alert: when musicians campaigned against the introduction of canned music into cinemas

 

HT: idiosyncraticwhisk and smithsonianmag

Managerial Econ: Why are wages decreasing and employment increasing in Great Britain?

The simplest explanation is that supply is increasing:  as supply increases output increases real prices fall and output increases.

The Financial Times shows the data and puts forward several explanations:

(1) welfare reforms are pushing people off the dole and into the labor force;

(2) older workers are choosing to retire at a later age.

Both explanations would imply an increase in supply.

via Managerial Econ: Why are wages decreasing and employment increasing in Great Britain?.

Too few good men – rational behaviour and the causes of teen pregnancies

The causes of teen pregnancies are well described in Kathryn Edin and Maria Kefalas’s Promises I Can Keep: Why Poor Women Put Motherhood Before Marriage and Jason DeParle’s American Dream: Three Women, Ten Kids, and a Nation’s Drive to End Welfare. See Amy Wax’s superb book review Too few good men.

Women on a low social trajectory see no reason to wait before having a baby and they look down upon those women that wait.

People now regard marriage as a luxury good rather than as a necessity. They refuse to tie the knot unless they have first achieved economic success. A house, a well-paying job, and enough money for a nice wedding are now needed before considering a trip to the altar.

These young women put motherhood first and have no intention of marrying the layabouts that often father their children, most of all, because of repeated and open infidelity.

The women do not complain of men’s failure to earn enough, but rather of their unwillingness to grasp opportunities, work steadily, and spend wisely. The objection is not to modest earning power, but to financial profligacy, defiant attitudes, and lack of work discipline…

The most vociferous complaints are reserved for men’s chronic criminal behaviour, drug use, violence, and, above all, repeated and flagrant sexual infidelity.

Most men made no effort to hide their frequent liaisons, which were often carried on simultaneously. More often than not, those relationships produced babies

Having a baby changes these young women from extras on the stage of life to a mother and all the community respect and social standing that commands.

Babies need not await the achievement of an elevated position in life, because childbearing is a fundamental hallmark of female adulthood that is central to poor women’s dignity and identity.

In the authors’ words, “women rely on their children to bring validation, purpose, companionship, and order to their often chaotic lives — things they find hard to come by in other ways.” In a perverse inversion of old values, these woman have come to regard lone motherhood as the ultimate heroic act, the proving ground of their responsible devotion to others.

These new mothers try and clean up their act. They stop drinking and taking drugs. For the first time in their lives they have a purpose, which is to raise a child.

Far too many social commentators see a teen pregnancy through their own lens as a middle class parent and the despair they would fell because their daughter will not go to university and all that brings including a better class of husband.

University educated couples are not called power couples for nothing – their earning power is this stunning compared to going it on your own. The emergence of power couples means that less educated women may prefer to stay single and raise children on their own rather than marry what is left in the marriage pool.

The importance of Baumol’s cost disease in school cost trends

 

 

Baumol’s cost disease is a phenomenon described by William J. Baumol in the 1960s. It involves a rise of wages in jobs that have experienced no increase of labour productivity in response to rising wages in other jobs which did experience such labour productivity growth.

The rise of wages in jobs without productivity gains is required to compete for employees with jobs that did experience gains and can naturally pay higher wages.

The original study was conducted for the performing arts. Baumol pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century:  the productivity of classical music performance has not increased, but real wages of musicians (as well as in all other professions) have increased greatly since the 19th century.

In labour-intensive sectors that rely heavily on human interaction such as nursing, education, or the performing arts, there is little or no growth in productivity over time. These sectors must pay more to stay competitive in the labour market. These jobs will survive as long as consumers are willing to pay these wage increases. Entrepreneurs react to Baumol’s disease in several ways:

Baumol’s cost disease in the education sector would be reinforced by reductions in class sizes, more specialised teaching, and the increase in the higher education premium throughout the economy.

All of these effects would require the schooling sector to pay because would be teachers have many more options than in the past. In days gone by, outside of the professions, teaching was one of the few jobs available to a university graduate. Indeed, in days gone by, many teachers were either teachers college graduates  such is the case with the sister or they learnt on-the-job as my mother was going to do.

Recall and waiting unemployment

Time use surveys in a range of countries show that the unemployed spend maybe a few hours per week looking for a new job. Krueger and Mueller (2008) found that:

…average search time is highest in the U.S.A., at 32.3 minutes per day, closely followed by Canada.

Europeans search much less, but there is considerable variation across countries.

In France the unemployed search around 21 minutes a day compared with 3 minutes in Finland

A small amount of job search per week is rational for many of the unemployed because a major form of job search doesn’t involve any job search any time soon. Instead, they are waiting for a call.

Also, Anglo-Saxon labour market are  much more dynamic with many more vacancies opening every month  as compared with the Eurosclerosis dual labour markets. In the European Union’s dual labour markets, it is not rational to search for vacancies that will never be there.

Job searches is an entrepreneurial venture that can involve a considerable amount of biding your time. Job seekers must choose between wider job search that may involve switching to a new industry or new occupation and investing in availability for suitable vacancies in their local labour markets or a recall to employment by old employers.

A spell of unemployment followed by a rehire by an old employer is known as recall unemployment or a temporary layoff.

Demand is less stable and more seasonal in industries such as construction, manufacturing and agriculture. When demand rebounds, recalling an old employee is a faster and cheaper hiring process than screening unfamiliar applicants of uncertain quality and training recruits.

Recall is not certain. Temporary layoffs will forecast their chances of recall and review these forecasts as they discover more about the length of drop in local labour demand and the general state of the rest of the labour market.  the majority of unemployed who  regard themselves as temporary layoffs are indeed recalled  to their old job by their old employer after most downturns.

Better prospects of recall by old employers will reduce the intensity of job searches of temporary layoffs and increase their asking wages for other jobs. Workers with considerable industry and firm-specific human capital are likely to risk waiting longer for recall. Workers will search more intensively for other jobs as their forecasts of their chances of recall to old jobs become less encouraging.

There are more temporary layoffs in milder recessions because the lull in demand is expected to be short and there are fewer business closures. The higher levels of recall unemployment will reduce downward pressure on asking wages and slow the filling of vacancies because many well qualified job applicants are waiting for recall to their old jobs rather than applying more widely for new jobs.

Dixon and Crichton (2006) found that 58% of New Zealand benefit-to-work transitions involved starting with a new employer, 30% continued with an employer for whom they worked part-time in the benefit spell and 12% returned to an employer they had worked for in the past 2 years. The prospect of a recall by an old employer has been important for unemployed workers in countries such as the US, Canada, Demark, Sweden, Austria and Norway.

In the context of work-for-the-dole schemes and activation programmes that involve intensive monitoring of job search by the unemployed on unemployment benefits, requiring  workers who are temporarily laid off to search for jobs is in many ways counter-productive.

Developing a screening mechanism to find these temporary layoffs and distinguishing them from permanent layoffs would be quite challenging. Countries which have unemployment insurance premiums spend a lot of try trying to adjust those premiums for temporary layoffs. This is so employers and employees do not take advantage of unemployment insurance to have a week or two off work in slack periods at the expense of the unemployment insurance system and top up their wages in the interim.

A cousin of recall unemployment is  rest unemployment or waiting unemployment – job seekers who are waiting for conditions in a depressed sector to improve (Hamilton 1988; Alvarez and Shimer 2008).

Some job seekers may wait for local labour market conditions to improve, rather than search for jobs in other industries and new occupations. A job seeker’s old industry may offer better wage and job finding prospects than other industries If the  newly unemployed worker waits a while. 

Rest unemployment or waiting unemployment strives to salvage as much of the occupation and industry-specific human capital  of the  newly unemployed worker as possible.

A significant share of job seekers have been found to be waiting for local labour market conditions to improve rather than searching further afield  in different industries or new occupations (Alvarez and Shimer 2008).

Again, rest unemployment or waiting unemployment is a type of job search that cannot be well handled by work-for-the-dole schemes and intensive monitoring of the job search of unemployed workers.

Job finding rates under work for the dole when there is involuntary unemployment

Jeff Borland is a critic of work for the dole. He points out that they do not improve the job finding rates of participants and in fact reduce the amount of job search because work for the Dole participants are busy undertaking work for the dole requirements:

The main reason is that participation in the program diverts participants from job seeking activity towards Work for the Dole activity. Research on similar programs internationally has come up with comparable findings.

This made me wonder. If unemployment is caused by deficient aggregate demand, and otherwise is involuntary, how can work for the dole increase unemployment or reduce the rate at which people exit unemployment?

‘Involuntary’ unemployment occurs when all those willing and able to work at the given real wage but no job is available, i.e. the economy is below full employment. A worker is ‘involuntary’ unemployment if he or she would accept a job at the given real wage. Keynesians believe money wages are slow to adjust (e.g. due to money illusion, fixed contracts or because employers and employees want long run money wage stability), and so the real wage may no adjust to clear the labour market: there can be ‘involuntary’ unemployment.

Under the deficient aggregate demand theory of unemployment, people have no control over why they are unemployed – that’s why their unemployment is involuntary.

Sticky wages are no less sticky when work for the dole is introduced and people search more intensively for jobs. Deficient demand unemployment is no less deficient when there is an increase in job search intensity.

Work for the dole must be carefully defined, of course, to differentiate it from the failed active labour market programs of the past that attempted to improve the employability of the unemployed. By work for the dole, I simply mean mandatory work requirements simply make it more of an ordeal to be on unemployment and thereby encourage people to find a job.

Mandatory work requirements simply tax leisure. By taxing leisure,  mandatory work requirements  change the work leisure trade-off between unemployment and seeking a job with greater zeal and a lower asking wage more attractive option. More applicants asking for lower wages will mean employers can fill jobs faster and at lower wages, which means our create more jobs in the first place.

The probability of finding a job for an unemployed worker depends on how hard this individual searches and how many jobs are available: Chance of Finding Job = Search Effort x Job Availability

Both the search effort of the unemployed and job creation decisions by employers are potentially affected by unemployment benefit generosity and mandatory work for welfare benefits requirements.

Modern theory of the labour market, based on Mortensen and Pissarides provides that more generous unemployment benefits put upward pressure on wages the unemployed seek. If wages go up, holding worker productivity constant, the amount left to cover the cost of job creation by firms declines, leading to a decline in job creation.

Everything else equal under the labour macroeconomics workhorse search and matching model of the labour market, reducing the rewards of being unemployed exerts downward pressure on the equilibrium wage. This fall in asking wages increases the profits employers receive from filled jobs, leading to more vacancy creation. More vacancies imply a higher finding rate for workers, which leads to less unemployment.  The vacancy creation decision is based on comparing the cost of creating a job to the profits the firm expects to obtain from hiring the worker.

When unemployment benefits are less generous or more onerous work requirements are attached, some of the unemployed will become less choosey about the jobs they seek in the wages they will accept.  a number of people at the margin between working or not. An example is commuting distance  to jobs. A number of people turn down a job  because is just that little too far to commute. A small change in the cost of  accepting that job would have resulted in them moving from being unemployed to fully employed.

Unemployment is easy to explain in modern labour macroeconomics: it takes time for a job seeker to find a suitable job with a firm that wishes to hire him or her; it takes time for a firm to fill a vacancy. Search is required on both sides of the labour market  –  there are always would-be workers searching for jobs, and firms searching for workers to fill vacancies.

In a recession, a large number of jobs are destroyed at the same time. It takes time for these unemployed workers to be reallocated new jobs.  It takes time for firms to find where it is profitable to create new jobs and find workers suitable to fill these new jobs.

Recessions are reorganisations. Unemployed workers look for jobs, and firms open vacancies to maximize their profits. Matching  unemployed workers with  new firms firms is a time-consuming and costly process.

The demand for labour is a derived demand

The willingness to pay of buyers is the fundamental constraint on wages, conditions, and job amenities including reduced hours of work. Entrepreneurs will not pay no more for inputs – be it labour, land, machinery, or raw materials – than they expect to recoup later on from the sale of their final product (Hicks 1932; Hamermesh 1996).

Wages reflect the value the employee adds to the sales of the firm. The value of what an employee adds is set by the consumers who buy or abstain from buying the output of the firm.

The prices that the final consumer will pay or refuse to pay for products assigns to each kind of labour used in its production a maximum profitable wage. An employer cannot pay higher wages or provide more generous working conditions if buyers are not willing to pay more to cover the extra cost of this (Hicks 1932; Stigler 1987). A profit minded employer cannot grant favours to employees at the expense of customers.

Employers compete for the services of workers who are seeking a range of jobs in industry and occupational labour markets in the areas in which they live. An employer who offers wages, working hours and conditions below what others are paying for the extra value added by a worker will experience higher staff turnover as employees quit to more rewarded jobs elsewhere (Stigler 1987).

These less alert employers will also struggle to recruit and retain the types of workers that are the most profitable for that firm to employ unless they pay the going rate. Rivalry with other sellers sets the maximum on what an employer can profitably pay in wages and survive.

Competition from other employers sets a minimum in wages, hours, working conditions and job amenities to recruit and retain a profitable workforce. Wages are demarked both by what consumers are willing to pay for what the firm produces and by what wages that rival employers are offering in comparable jobs (Stigler 1987).

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