Which are the most satisfying occupations?
07 Jan 2015 Leave a comment
in occupational choice Tags: compensating differentials
Is there a Republican in the house? The political bias of psychologists
21 Dec 2014 Leave a comment
in labour economics, occupational choice, personnel economics Tags: academic bias, intellectual
Obesity by occupation
19 Dec 2014 Leave a comment
in health and safety, health economics, labour supply, occupational choice, personnel economics Tags: compensating differentials, obesity
Political Calculations: What Drives CEO Pay?
16 Dec 2014 Leave a comment
in applied price theory, human capital, occupational choice Tags: CEO pay, superstars
Xavier Gabaix and Augustin Landier found back in 2008 that what a major company’s CEO earns is directly proportional to the size of the firm that they are responsible for running.
The chart below shows the correlation between firm size and CEO compensation for the top 500 public firms in 2010.
Executive compensation closely track the evolution of average firm value. During 2007 – 2009, firm value decreased by 17%, and CEO pay by 28%. During 2009-2011, firm value increased by 19% and CEO pay by 22%.
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Is welfare dependence optimal for whom – part 6: mandatory work requirements and labour supply
14 Dec 2014 Leave a comment
in labour economics, labour supply, occupational choice, welfare reform Tags: 1996 federal welfare reforms, Labour leisure trade-off, labour supply, mandatory work requirements, welfare reform
A mechanism for reducing welfare programme entries while increasing welfare exits is work requirements. These minimum hours can be spent working part time, in study and training, work preparation and job search assistance or volunteering.
A work requirement is a screening device removes any advantage of moving on to welfare in terms of more leisure time. U.S. welfare reform side-stepped the problem of programme entry with lifetime time limits on eligibility and work requirements making entry unrewarding. A lifetime time limit on eligibility also reduces inflow in to welfare receipt because workers have an incentive to bank their eligibility to hard time arise. Different work tests and abatement regimes that vary with circumstances on length of time on the benefit also increase exits without increasing entry.
Most work requirement schemes have waivers for those unable to work. Work requirements make welfare receipt less attractive and more hassle while not making welfare receipt any more or any less financially rewarding to those in work.
The gap between working and welfare receipt is larger because of the work requirements make the benefit less pleasant but no additional cash payments are made to encourage welfare programme entry.
Most welfare systems experiment with policy options to separate those who can work from the truly needy. Changes in financial incentives arising from abatement regimes, benefit levels and benefit durations are welfare reform workhorses. The clear-cut labour supply effects of work requirements are a useful contrast to the ambiguity of labour supply changes when benefit levels and abatement regimes change.
Figure 1 illustrates work requirements by introducing a minimum working hours requirement, which eliminates part of the budget constraint before the minimum hours. Work requirements combine a negative tied transfer – an obligation to work – with cash to induce those with a higher ability to work to self-select and opt out of the welfare system entirely.
Figure 1: The labour supply effects of mandatory work requirements as a condition of welfare benefit receipt
Arrows 1, 2 and 3 in Figure 1 represent possible labour supply responses to work requirements which lead to an increase in the hours worked by different types of workers, some moving to working part-time and others not working at all.
Arrow 1 shows some beneficiaries who are marginal workers increasing their hours from zero to the minimum. Other marginal workers will work more but no longer work enough hours to qualify for a benefit as shown by arrow 2.
This increase in labour supply, as shown by arrows 1 and 2 in Figure 1, is to be expected because a work requirement eliminates welfare benefits altogether over a certain range.
Welfare payments reduce the supply of labour unambiguously so reducing the generosity of welfare reduces the disincentives to supply labour.
A work requirement also reduces entry into and increases exit from the welfare system by more persistent workers as shown by arrow 3 in Figure 1.
This welfare exit effect and entry deterrence arises from the relative non-financial rewards of working and not working have changed in favour of staying in full-time and semi-work for persistent workers temporarily on a welfare benefit.
Persistent workers gain from anticipating the onerous nature of work requirements and searching more intensively for jobs which are more stable and enduring.
These job seekers may reduce their asking wage to win a lower paid but steadier job. Seasonal and temporary jobs will be less attractive if there are work requirements.
The incentive to cycle between the benefit and part-time and full-time work including seasonal and temporary jobs are reduce because work requirements make welfare receipt more onerous.
Those job seekers with fewer outside of the workforce obligations such as young children are the most likely to move to (stable) full-time work because of work requirements.
Those with more extensive outside commitments such as pre-schoolers work the minimum hours or make other arrangements because they now fail to qualify for welfare.
A work requirement unambiguously increases net labour supply and reduces the number of people relying on the welfare system now and into the future.
In contrast to abatement regime reforms, no one enters the welfare system as a new benefit claimant as the result of introducing work requirements.
The number of people working increase and some leave welfare rather than comply with the work programmes. Work requirements make welfare receipt unambiguously less attractive and will close the gap between earning full-time wages and the net rewards of not working or part-time work and partial benefit receipt.
The 60 per cent reduction in welfare caseloads that followed the 1996 federal welfare reform in the USA that introduced work requirement and time limits on a national basis.
The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers who were thought to face the greatest barriers to employment. Blank (2002) found that:
At the same time as major changes in program structure occurred during the 1990s, there were also stunning changes in behaviour. Strong adjectives are appropriate to describe these behavioural changes.
Nobody of any political persuasion-predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families over this decade.
The blogs so far
part-one-the-labour-leisure-trade-off-and-the-rewards-for-working
part-two-the-labour-supply-effects-of-welfare-benefit-abatement-rate-changes
part-3-abatement-free-income-thresholds-and-labour-supply
part-4-in-work-tax-credits-and-labour-supply
part-5-higher-abatement-rates-and-labour-supply
Does going to prison deter crime – evidence from prison overcrowding litigation
13 Dec 2014 Leave a comment
in economics of crime, law and economics, occupational choice Tags: crime and punishment, Steven Levitt
Steve Levitt is known for the clever use of data to test hypothesis, for present purposes, of the deterrent effect of prison.
The econometrics of deterrence are complicated by the fact that increases in the number of prisoners are likely to reduce crime, but rising crime rates also translate into larger prison populations. Which came first?
Levitt found a clever way of testing whether the imprisonment had a deterrent effect by looking at what happened after successful litigation against overcrowded prisons.
When prisons became less crowded, were more people willing to risk prison because it was a less unpleasant experience?
Overcrowding litigation reduces the number of people in prison, but this change in the size of the prison population is unlikely to be related to fluctuations in the crime rate.
These lawsuits affect prison populations, but may be otherwise unrelated to crime rates especially because they take a decade or more to resolve. The prison population is falling because of the successful litigation and nothing else.
In 13 states, lawsuits affected a state’s entire prison system. In the three years after a final judgement was handed down, prison populations fell by 14.3% compared to the population of the nation as a whole; violent and property crime rates increased 10.2% and 5.5% respectively.
Levitt found that the responsiveness of crime to prison populations was two to three times greater than previous studies:
For each one-prisoner reduction induced by prison overcrowding litigation, the total number of crimes committed increases by approximately 15 per year.
The social benefit from eliminating those 15 crimes is approximately $45,000; the annual per prisoner costs of incarceration are roughly $30,000.
In another study, Levitt found the quality of life in prison has a greater impact on crime than the death penalty. He showed the death rate among prisoners (the best proxy for prison conditions) is negatively correlated with crime rates, consistent with deterrence. Criminals do not like to be sent to unpleasant, dangerous prisons.
Nurses against vaccines!
13 Dec 2014 Leave a comment
in health economics, occupational choice Tags: anti-vaccination movement, vaccinations, vaccines
Charles Murray and the OECD’s Trends in Income Inequality and its Impact on Economic Growth – IQ, signalling, over-education and plain bad career advice
11 Dec 2014 Leave a comment
in economics of education, human capital, international economics, labour supply, occupational choice, poverty and inequality Tags: Bryan Caplan, Charles Murray, IQ and education, poverty and inequality, signalling
Charles Murray has been cooking with gas lately – on fire. One of his points is too many go to college. Murray points out that succeeded at college requires an IQ of at least 115 but 84% of the population don’t have this:
Historically, an IQ of 115 or higher was deemed to make someone “prime college material.”
That range comprises about 16 per cent of the population.
Since 28 per cent of all adults have BAs, the IQ required to get a degree these days is obviously a lot lower than 115.
Those on the margins of this IQ are getting poor advice to go to college. Murray argues that other occupational and educational choices would serve them better in light of their abilities and likelihood of succeeding at college. Moreover, Murray is keen on replacing college degrees with certification after shorter periods of study such as in the certified public accountants exam.
Murray believes a lot of students make poor investments by going on to College, in part, because many of them don’t complete their degrees:
…even though college has been dumbed down, it is still too intellectually demanding for a large majority of students, in an age when about 50 per cent of all high school graduates are heading to four-year colleges the next fall.
The result is lots of failure. Of those who entered a four-year college in 1995, only 58 per cent had gotten their BA five academic years later.
Murray does not want to abandon these teenagers:
Recognizing the fact that most young people do not have ability and/or the interest to succeed on the conventional academic track does not mean spending less effort on the education of some children than of others.
…Too few counsellors tell work-bound high-school students how much money crane operators or master stonemasons make (a lot).
Too few tell them about the well-paying technical specialties that are being produced by a changing job market.
Too few assess the non-academic abilities of work-bound students and direct them toward occupations in which they can reasonably expect to succeed.
Worst of all: As these students approach the age at which they can legally drop out of school, they are urged to take more courses in mathematics, literature, history and science so that they can pursue the college fantasy. Is it any wonder that so many of them drop out?
To add to that, he is in the Bryan Caplan School: education is often an elaborate former of signalling for many degrees. Murray says that college is a waste of time because:
Outside a handful of majors — engineering and some of the sciences — a bachelor’s degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance.
Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses.
If the OECD is to be believed, that not enough people are going to college from lower middle class families, obviously IQ is not one of the constraints on access to college Charles Murray suggested it to be.
The growing strength of the case that education is a form of signalling is a literature that the now famous OECD paper reviewed, found wanting, but did not have time to discuss in the working paper.
Another contemporary theme the OECD paper reviewed, found wanting, but did not have time to discuss is a large number of graduates who end up holding jobs that do not require a university education – going to college:
About 48 per cent of employed U.S. college graduates are in jobs that the Bureau of Labor Statistics (BLS) suggests requires less than a four-year college education.
Eleven per cent of employed college graduates are in occupations requiring more than a high-school diploma but less than a bachelor’s, and 37 per cent are in occupations requiring no more than a high-school diploma.
The proportion of overeducated workers in occupations appears to have grown substantially; in 1970, fewer than one per cent of taxi drivers and two per cent of fire-fighters had college degrees, while now more than 15 per cent do in both jobs
All in all, the OECD has gone into the dragons den by backing the accumulation of human capital as its mechanism to link inequality with lower growth. No matter how you spin it, this linking of lower economic growth to greater inequality through financial constraints on the accumulation of human capital by the lower middle class was a bold hypothesis.
The case for investing more in education is not a slam dunk. Higher education – university or polytechnic – is a rat race that many don’t need to join.The case for the government paying a great many more to join that rat race is rather weak.
Trends in Income Inequality and its Impact on Economic Growth – OECD – is it all about not enough graduates – updated?
11 Dec 2014 Leave a comment
in economics of education, human capital, labour economics, occupational choice, poverty and inequality Tags: educational attainment, human capital, poverty and inequality, student loans, tuition fees
The analysis of the OECD published overnight depends crucially upon how greater inequality reduces the ability of the lower income families to invest in human capital.
The OECD theory of inequality and lower growth is there is a financing constraint because of inequality that reduces economic growth because of less human capital accumulation by lower income families.
Proportion of adults aged 25–64 years with an educational qualification of at least upper secondary level and tertiary level, 1991–2009
In a nutshell, not enough people are going to university. Apparently, the explosion in tertiary educational attendance over the last generation, an increase of about 150% for the adult population aged 25 to 64, was just not good enough.
But what about adults aged 25 to 34, recent graduates, how many of them are there?
There was an explosion of young New Zealanders in the late 1990s who qualified for a degree from a university or diploma from a Polytech.
Under the hypothesis of the OECD about financial constraints retarding the accumulation of human capital among the lower middle class – the fourth decile of the income distribution – even more young New Zealanders should have gone to university or Polytech.
Are there many New Zealanders left who are qualified and suited to tertiary education who do not go?
That is the crux of the OECD position: not enough lower-middle-class New Zealanders go on to obtain higher education and upgrade their skills because of financial constraints in a country was in interest free student loans, means tested student allowances, and the government subsidises for 75% of all tuition fees. Tuition fees only equal 25% of the actual cost and any one can get a student loan to cover this fee.
Utopia, you are standing in it! 
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