Walter Williams Asks: “How Much Can Discrimination Explain?”
04 Jul 2014 Leave a comment
via Cafe Hayek
The reversing gender gap in education
03 Jul 2014 Leave a comment
in economics of education, gender, human capital, labour economics, occupational choice Tags: reversing gender gap
The difference in reading and verbal skills between girls and boys at the age of 15 is equal to 6-months extra schooling. Six months schooling explains a lot of the wage gaps with a long ethnic, racial and previously on gender lines.
Not surprisingly, fewer women do science and engineering degrees because their superior reading and verbal skills qualify them for medicine and other sciences that take advantage of these talents.
Adam Smith as a pioneering labour economist
21 Jun 2014 Leave a comment
in Adam Smith, health and safety, history of economic thought, human capital, labour economics, labour supply, occupational choice Tags: Adam Smith, Alfred Marshall, compensating differences, george stigler, human capital, The wealth of nations, wage determination
Adam Smith anticipated much of labour economics by basing it on his principle that individuals invest resources to earn the highest possible return. All uses of a resource must yield an equal rate of return adjusted for relative riskiness for otherwise reallocation would result.
The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality.
If in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments.
Smith used this insight on be equality of returns to explain why wage rates differed. Workers care about the whole aspects of the job, not only the cash wage payment: it is the “whole advantages and disadvantages” of the job that is equated across jobs in a competitive market, not wage alone. Smith set out criteria that determined how wages compensated or were discounted for the different characteristics of specific jobs:
- the agreeableness or disagreeableness of the employments themselves: better for more enjoyable working conditions will lead an individual to accept lower wages for their labour. Likewise, unpleasant work will have a higher wage. Wages vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of a job.
- The easiness and cheapness, or the difficulty and expense of learning them: jobs that are difficult or time-intensive to learn will pay more. Those who invest the time are being compensated for their additional effort with higher wages. The opportunity cost of forgoing the time-spent in training will be compensated for through higher wages. The difference between the wages of skilled labour and common labour is founded upon this principle.
- The constancy or inconstancy of employment: workers who face only partial or inconsistent employment throughout the course of the year, such as seasonal workers of agriculture, must be paid more for their labour. Their wages carry them not only during times of employment, but also during times of unemployment.
- The small or great trust which must be reposed in those who exercise them: individuals who have high levels of responsibility in their jobs will be compensated with higher wages.
- The probability or improbability of success: this is an entrepreneurial element in wages. Employment where the chance of success is high will be paid lower than those who take more risks. If individuals were not compensated for risk, there would lack an incentive to seek employment that may not be successful.
The supply and demand for labour in different industries determines relative wages and the relative numbers of employees in different occupations. Individuals are willing to make a trade-off between less desirable occupations and increased income. Smith spoke of how these five circumstances listed above lead to considerable inequalities in the wages and profits.
George Stigler thought that the second greatest triumph of Adam Smith in his Wealth of Nations was his famous list of cost factors that generate apparent but not real differences in rates of wages and profits because of training, hardships, unemployment, risk and trust. This list was quoted almost verbatim by his successors down to this day and is the direct ancestor of both Alfred Marshall’s famous chapters on wages and of the modern theory of human capital.
President Obama’s persistent ’77-cent’ claim on the wage gap gets a new Pinocchio rating–updated
13 Apr 2014 Leave a comment
in human capital, labour economics, occupational choice, politics - USA Tags: gender wage gap, lies dam lies and statistics, obama
The fact checker at the Washington Post said:
Few experts dispute that there is a wage gap, but differences in the life choices of men and women — such as women tending to leave the workforce when they have children — make it difficult to make simple comparisons.
…From a political perspective, the Census Bureau’s 77-cent figure is golden. Unless women stop getting married and having children, and start abandoning careers in childhood education for naval architecture, this huge gap in wages will almost certainly persist. Democrats thus can keep bringing it up every two years.
…There appears to be some sort of wage gap and closing it is certainly a worthy goal. But it’s a bit rich for the president to repeatedly cite this statistic as an “embarrassment.” …The president must begin to acknowledge that “77 cents” does not begin to capture what is actually happening in the work force and society.
In premiere episode of ‘Factual Feminist’ Christina Sommers explains how the gender wage gap is based on bogus statistics
Ernest Shackleton’s famous job ad
06 Apr 2014 Leave a comment
in health and safety, labour economics, occupational choice, personnel economics
Academics and their bias against the market
19 Mar 2014 1 Comment
in F.A. Hayek, market efficiency, occupational choice, organisational economics, personnel economics Tags: academic bias, compensating differences, Hayek, intellectuals, Richard Posner, Robert Nozick, Schumpeter
The expansion of jobs for graduates from the 1960s onwards increased the choices for well-educated people more disposed to the market of working outside the teaching profession. Those left behind in academia were even more of the Leftist persuasion than earlier in the 20th century.
Dan Klein showed that in the hard sciences, there were 159 Democrats and 16 Republicans at UC-Berkley. Similar at Stanford. No registered Republicans in the sociology department and one each in the history and music departments. For UC-Berkeley, an overall Democrat:Republican ratio of 9.9:1. For Stanford, an overall D:R ratio of 7.6:1. Registered Democrats easily outnumber registered Republicans in most economics departments in the USA. The registered Democrat to Republican ratio in sociology departments is 44:1! For the humanities overall, only 10 to 1.
The left-wing bias of universities is no surprise, given Hayek’s 1948 analysis of intellectuals in light of opportunities available to people of varying talents:
- exceptionally intelligent people who favour the market tend to find opportunities for professional and financial success outside the universities in the business or professional world; and
- those who are highly intelligent but more ill-disposed toward the market are more likely to choose an academic career.
People are guided into different occupations based on their net agreeableness and disagreeableness including any personal distaste that they might have for different jobs and careers. There is growing evidence of the role of personality traits in occupational choice and career success.
The theories of occupational choice, compensating differentials and the division of labour suggest plenty of market opportunities both for caring people and for the more selfish rest of us:
- Personalities with a high degree of openness are strongly over-represented in creative, theoretical fields such as writing, the arts, and pure science, and under-represented in practical, detail-oriented fields such as business, police work and manual labour.
- High extraversion is over-represented in people-oriented fields like sales and business and under-represented in fields such as accounting and library work.
- High agreeableness is over-represented in caring fields like teaching, nursing, religion and counselling, and under-represented in pure science, engineering and law.
Schumpeter explained in Capitalism, Socialism, and Democracy that it is “the absence of direct responsibility for practical affairs” that distinguishes the academic intellectual from others “who wield the power of the spoken and the written word.”
Schumpeter and Robert Nozick argued that intellectuals were bitter that the skills so well-rewarded at school and at university with top grades were less well-rewarded in the market.
- For Nozick, the intellectual wants the whole society to be a school writ large, to be like the environment where he or she did so well and was so well appreciated.
- For Schumpeter, the intellectual’s main chance of asserting himself lies in his actual or potential nuisance value.
Richard Posner also had little time for academics who say they speak truth to power:
- The individuals who do so do it with the quality of a risk-free lark.
- Academics, far from being marginalized outsiders, are insiders with the security of well-paid jobs from which they can be fired with difficulty.
- Academics flatter themselves that they are lonely, independent seekers of truth, living at the edge.
- Most academics take no risks in expressing conventional left-leaning (or politically correct) views to the public, which is part of the reason they are not regarded with much seriousness by the general public.
Utopia, you are standing in it! 
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