The rising marriage premium for power couples

Source: Four Forces Watch | askblog.

Pizza and Conversation with James Heckman

Poverty rates in two-earner families in the USA

HT: Matt Bruenig

@James_ARobins yet another @MaxRashbrooke #inequality fact check

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Source: Do inequality and poverty matter? | Pundit – Brian Easton (2016) .

I will outsource to Brian Easton, the CTU, the CTU’s Bill Rosenberg and Closer Together Whakatata Mai – reducing inequalities because the continual correction of Max Rashbrooke on poverty and inequality is becoming tiring.

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Source: Love in the time of crisis, James Robins, Wednesday, 16 March 2016, Newstalk NZ.

Inequality has not risen for at least 20 years as Bill Rosenberg tweeted. The rise in inequality in the late 1980s and early 1990s was followed by an employment boom that lasted to 2009.

Unemployment was as low as 3 1/2% for several years despite a large increase in labour force participation. Furthermore, the gender wage gap in New Zealand fell rapidly to now be the smallest in any industrialised country.

As the Facebook photos show, there has been strong income and wage growth despite the grizzling of the left. The return of income growth and wages growth after 20 years of real wage stagnation followed the economic reforms of the 1980s and the passage of the Employment Contracts Act in 1991.

As the CTU shows below, the economic reforms in the 1980s put an end to a sharp decline in the relative economic performance of the New Zealand economy.

 

New Zealand physical and human capital (by a skill level), 1986 – 2001

New Zealand working class is wealthier than the entire capitalist class. Their human capital, shown in the chart below as the human capital of the unskilled and non-degree workers, far exceeds the value of the physical capital stock of New Zealand.

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Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).

Only part of this physical capital stock is owned by the capitalist class given we live in the era of pension fund socialism. About a 3rd of that physical capital stock is owner occupied homes.

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Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).

The only reason that the share of unskilled and non-degree workers is in any way declining is the withering away of the proletariat. More and more people are joining the middle-class and going on to higher education.

 .

The value of New Zealand owner occupied homes, net capital stock and human capital stock since 1987

Tring Le found that the human capital stock was consistently 2.6 times the value of the physical capital stock of New Zealand.

I decided to apply that ratio to the net capital stock of New Zealand estimates of Statistics New Zealand back to 1987 to see what we get. It is pretty standard for the value of human capital to be two to two and one-half times the value of physical capital.

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Source: National Accounts (Industry Benchmarks): Year ended March 2013 and Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), Table 4.8: Human and physical capital stocks.

All the above chart says it is most wealth in New Zealand is held by ordinary people either as their human capital or the value of their homes.

A lot of doctors in Greece

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Women’s Retirement Age in different Countries

On how feminism is dead at its own hand

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US union membership in public and private sectors and federal, state and local governments since 1983

Unions are dead on their feet in the private sector in the USA but going strong as ever in the public sector, especially in local government.

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Source: Bureau of Labour Statistics Table 3. Union affiliation of employed wage and salary workers by occupation and industry

Brian Easton on whether inequality has risen in the past 20 years in New Zealand

Source: Brian Easton (14 March 2016) Do inequality and poverty matter? | Pundit

Hours worked per working age American, British and French since 1950

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Data extracted on 10 Mar 2016 22:02 UTC (GMT) from OECD.Stat and The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/

@TBillTheProf unintentionally destroys the case for a #livingwage @Mark_J_Perry @arindube

Living wage advocate William Lester published a briefing for the Washington Centre for Equitable Growth that destroys the case for a living wage. He did not intend this but he documented in detail the exclusion of inexperienced workers from the restaurant industry in San Francisco after a living wage was imposed. He compared San Francisco’s minimum wage of $12 per hour with North Carolina which only pays the federal minimum of $7.25 per hour.

What Lester found was a systematic increase in hiring standards. The living wage in San Francisco of $12 all but ended the hiring of inexperienced workers as shown in the chart below. This is exactly what basic price theory predicts. I put the two pie charts in his paper into a single bar chart so this powerful effect of the living wage on hiring standards is not lost.

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Source: The consequences of higher labor standards in full service restaurants – Equitable Growth.

The most fundamental criticism of living wage and minimum wage increases is they exclude workers who do not meet the new labour productivity level required to make it profitable for employers to hire them.  UK research found the same thing – an increase in hiring standards and tougher shortlisting. Lester welcomes this transition of the restaurant industry in San Francisco into a career for professionals. As he says in his briefing paper:

Concurrent with this wage compression was a rise in professional standards as employers sought to hire and keep already well-trained workers at higher wages and with expanded benefits. Both developments reduced turnover and attracted more professional employees who maintain a high level of customer service.

As with all minimum wage and living wage advocates, he is incurious as to what happens to those low skilled, inexperienced workers and new workforce entrants who no longer meet the hiring standards of San Francisco restaurants because of the large minimum wage increase.

As Lester concedes in his conclusions about what will happen if the San Francisco minimum wage of $12 an hour, the highest in the country, is extended to other cities and states:

Higher professional standards may limit entry-level opportunities within the industry, while lower standards may result in more employer-provided training for new workers.

Employer funded on-the-job training is often a major part of a job package. It is well-known in the labour economics literature since the time of Adam Smith that any job is a package of wages and other attributes including learning opportunities.

Workers sell their services and buy learning opportunities; firms buy labour services and sell jobs with varying learning possibilities (Rosen 1972, 1975, 1976). The rational allocation of time results in most careers starting with large investments in full-time schooling and then mostly investments in on-the-job training (Becker 1975; Ben-Porath 1967, 1970; Weiss 1987).

As the training provided by restaurant employers is useful to other employers, the trainee must fund it through trading off wages for this training. Once trained, the employee can command a higher pay because other employers are willing to pay them more now that they are trained. Again, this is a standard result in the human capital literature.

Where the human capital is more specialised to one firm or job, the employer and the trainee share the cost. A classic example of this is an apprenticeship.

Source: IZA World of Labor – Do firms benefit from apprenticeship investments?

In San Francisco, employers expect recruits to be fully trained and experienced. They provide little in the way of on-the-job training. Their recruits must have been able to afford to fund this in their previous jobs by trading off wages for training as Lester notes in his working paper:

…San Francisco employers were less likely to report lengthy formal training periods for either front-of-house or back-of-house workers. Instead, there is an overall higher level of skill expectation and—as is the case for many professions—workers are expected to acquire and exhibit industry specific knowledge on their own. 

In North Carolina, as Lester notes, the restaurant industry hires younger workers with less formal education and offers them intensive on-the-job training:

The restaurant industry in the Research Triangle region tends to hire younger workers with a lower level of formal education. Specifically, 49.5 percent of workers in there are under age 24 or have less than a high school education, compared to  38.9 percent in San Francisco. Conversely, 40.6 percent of workers in San Francisco have some college or a bachelor’s degree or higher, compared to 29.7 percent in the Research Triangle Region.

North Carolina restaurants sought to hire unskilled workers who were friendly and reliable as Lester notes:

One manager of a neighbourhood bistro in Raleigh explained what he looks for in a new front-of-house worker: “Basically, we require [that a server] can work a four-shift minimum per week and go an entire shift, an entire eight-hour shift without smoking a cigarette and [without] any facial piercings or anything. Beyond that, just come in with a smile on your face.”

The restaurant industry in North Carolina is willing to give people low skilled,  poorly educated and inexperienced a chance to work if they are willing to work. Lester reports this when quoting an upscale bar-and-grill manager on his hiring standards:

We look for at least one year’s experience, but the biggest thing we look for is we look for the person. We don’t look for the skill. I could teach anybody how [to] wait tables [and] pour drinks. I can teach anybody how to cook steaks. What I can’t teach is how to be a good person.

Lester then discusses with some degree of approval the hiring standards in the San Francisco where restaurants are professional careers:

Rather than viewing servers as essentially interchangeable labourers who can be trained quickly and easily if they possess a modicum of personal hygiene and a friendly personality, employers in San Francisco exhibited a clear description of what a “professional server” was.

One mid-scale restaurant employer said of her front-of-house staff: “We have a lot of people who have made it a career and they’re investing in the knowledge of the product and learning their trade or already know their trade because they’ve done it for years.”

Much to the surprise of believers in the inherent inequality of bargaining power between employers and workers, employers invest heavily in low-skilled employees despite the fact this makes them employable elsewhere. Lester again:

“Training is a huge investment for us and it is constant,” [a manager] said. “Training days depend on the position. Bartending training is ten days and servers require eight days. In the kitchen it’s probably about ten days. Every day they write note cards on all their recipes. But they’ll take a final. When they take their final, their test in the kitchen, they have to know every ingredient, every ounce, and every item, for the entire station. That’s why we require them to write note cards.

Even at higher-end restaurants, employers in the region have built a human resource system that accepts a high rate of turnover. “We try to stay ahead of the game so that we’re always hiring, we’re always interviewing, but hopefully it’s not desperation hires,” says another manager. “And we try to have a mix of needs like people who need fulltime, who can work lunches and brunches and all of that, to servers who really want very part time so that you can kind of over staff on busy shifts and then there’s always someone that wants to go home. There’s always a student that would like a Saturday night off.”

Lester paints a picture of a San Francisco restaurant industry that expects workers to fund their own industry specific human capital. In North Carolina, employers provide those training opportunities to minimum wage workers despite this making these up-skilled employees an attractive proposition for rivals to poach. By depriving low skilled workers of this opportunity of both wages and employer-funded training, a living wage would make them worse off.

I am at a loss here. How can the progressive left regard the exclusion of low paid, low skilled workers as a good thing? How do they put food on the table in San Francisco other than through a welfare check? How do they get their first job?

Downsizing, morale & productivity @SueMoroney @GreenCatherine #livingwage

It comes as a surprise to living wage advocates that entrepreneurs are so alert to the impact of downsizing and firm closures on employee morale that they keep these a secret to the last possible minute.

Entrepreneurs are not fools. They profit from alertness to the effects of changes in the fortunes of the firm on labour productivity. There is a vast literature on how to motivate workers towards more effort and diligence and honesty.

I worked at a Japanese private university whose financial survival was always in question. We spent a lot of time gossiping about the security of our jobs.

I refer to one year at one employer as the year of doing nothing because management was so consumed with restructuring and downsizing. They were too busy to sign out the output of their staff.

I have come across an estimate the effect of downsizing announcement on productivity at a German bakery chain of 193 shops.

Source: The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain by Guido Friebel, Matthias Heinz, Nikolay Zubanov :: SSRN.

The study found that announcements of a sale to a new owner and closure reduced sales by six and 21 percent, respectively. This negative effect increased with the share of workers on a permanent contract, even though these workers faced a much lower unemployment risk. Fewer customers were served per unit of time because of less employee effort at the bakery chain.

Going back to my year of doing nothing, which dragged out through worker consultations sought by the unions under the collective agreement, I remember chatting to a mate whose father was in the downsizing consulting business. He told me that private businesses get downsizing over as quickly as possible because of the impact on morale and productivity. Entrepreneurs are perfectly aware that uncertainty promotes office gossip and valuable staff moving on.

An Economic Approach to School Integration: Public Choice with Tie-ins

Thomas Borcherding “An Economic Approach to School Integration: Public Choice with Tie-ins.” Public Choice, 1977, argues that a reason for racial or ethnic discrimination in the public sector is politics encourages the coercive transfer of income from the racial, religious or ethnic group to those with more political influence.

Race can be used as a means of organizing coalitions to lobby for fiscal and economic discrimination in favour of even a previously unprejudiced group.

Preferences of each group to locate in a common geography and the severe control over entry or exit from the group that such things as skin colour, language, caste, and religious dogma impose make the organization of racial or ethnic coalitions by political entrepreneurs fairly cheap and minimises free riding and defection.

Prejudice may reinforce the solidarity of each group and help to monitor via custom, mores, and folkways the behavior of those that would attempt to bring persons of other groups into the former coalition. Further, prejudice may also serve as a device to rationalize exploitation of another group by fiscal or other means.

Borcherding argues that integration, racial balancing, quotas, and busing of school children take on a new logic when income transfers can be tied to fairly immutable characteristics such as race.

Mixing of children by race reduces the ability of a white dominated school board to differentially favour its own partisans’ children and to discriminate against those of blacks.

This paper anticipated Becker’s point that the competition among pressure groups for political influence for looks for lower cost ways of redistributing wealth so as to as much as possible limits the largess as much as possible to the pressure groups that lobby for it and their allies.

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