
#GeorgeOrwell on @jeremycorbyn #pacifism and #Paris
14 Nov 2015 Leave a comment
in defence economics, politics - Australia, politics - New Zealand, politics - USA, war and peace Tags: British politics, France, game theory, George Orwell, pacifism, Paris, war on terror
Employment status of sole parents in UK, USA, France, Italy, Australia, Ireland and New Zealand
13 Nov 2015 Leave a comment
in economics of love and marriage, labour supply, politics - Australia, politics - New Zealand, politics - USA Tags: Australia, British economy, France, Ireland, Italy, maternal labour supply, single parents, sole parents, welfare state
Despite supposedly having stingy welfare states, both New Zealand and Australia have a lot of sole parents who do not work at all. There is no separate breakdown of full-time and part-time work status in the USA. About 72% of sole parents in the USA either work full-time or part-time.

Source: OECD Family Database.
@nzlabour @NZGreens what do @JohnKey #RonaldReagan have in common @AndrewLittleMP @metiria
13 Nov 2015 Leave a comment

@tslumley on spending ½ PHARMAC budget on one semi-wonder drug @PeterDunneMP
13 Nov 2015 2 Comments
in applied price theory, applied welfare economics, health economics, politics - New Zealand
Thomas Lumley wrote a great post today on the unavoidably brutal arithmetic of rationing the budget of PHARAC – the New Zealand government agency that buys drugs for the public health system.
Would you spend $200,000 per drug for two thousand melanoma cancer patients. It doesn’t work 66% of the time, but helps 34% of patients and cures 6% of patients.
The trick in the tail is funding the drug would cost half the entire budget of PHAMRAC.

Many more wonder drugs, more correctly, semi-wonder drugs coming down the pipe, so these life or death decisions will not get any fewer in a world of scarcity.
In 1979, Gordon Tullock wrote a 1979 New York Law Review book about avoiding difficult choices. As per Gordon Tullock, he barely mentioned the books are mainly discussed as a stream of consciousness his reactions to the book. His review was a review of a book by Guido Calabresi and Philip Bobbitt called Tragic Choices which was about the rationing: the allocation of kidney dialysis machines (a “good”), military service in wartime (a “bad”), and entitlements to have children (a mixed blessing). Tullock argued that we make a decision about:
- how to allocate resources,
- how to distribute the resources, and
- how to think about the previous two choices.
People do not want to face up to the fact resources are scarce and they face limits on their powers.
To reduce the personal distress of making these tragic choices, Tullock observed that people often allocate and distribute resources in a different way so as to better conceal from themselves the unhappy choices they had to make even if this means the recipients of these choices are worse off and more lives are lost than if more open and honest choices about there are can only be so much that can be done.
The increasing number of both wonder drugs and semi-wonder drugs that cost the earth will increase the importance of facing up to difficult choices more honestly than in the past.
Eurosclerosis illustrated in the labour market
13 Nov 2015 Leave a comment
in economic history, Euro crisis, labour economics, labour supply, macroeconomics, politics - USA, public economics Tags: employment law, Eurosclerosis, France, Germany, growth of government, labour market regulation, size of government, taxation and labour supply

Source: Linda Regber.
Escaping from Australian immigration detention facilities – what’s the point?
12 Nov 2015 Leave a comment
in applied price theory, economics of crime, politics - Australia
Some poor bugger died shortly after escaping from the Australian immigration detention facility on Christmas Island a few days ago. I wonder where he was intending to escape?
Christmas Island is in the middle of the Indian Ocean and the only way off is by the airport. He had nowhere to run. There would be lucky to be 2000 people living on the small island of Christmas Island so he would stand out very quickly.
Many years ago, a fight broke out one breakfast time between the different nationalities regarding the management of the canteen at the Port Hedland immigration detention facility. They resolved the differences about this largely self-managed canteen where each cooked their own foods by deciding to stage a spontaneous escape.
As they marched down the road, free at last, the manager of the facility caught up with them. He asked them where were they going? He said it already telephoned Greyhound buses and told them not to sell them bus tickets. Perth is 1300 km away from Port Hedland. The manager of the facility suggested they all come back to settle things over a cuppa as it was warming up as noon was approaching.
Do the European welfare states free ride off American entrepreneurship and innovation?
12 Nov 2015 1 Comment
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, economic history, economics of regulation, entrepreneurship, industrial organisation, politics - USA, public economics, survivor principle, taxation, technological progress Tags: creative destruction, Daron Acemoglu, Denmark, entrepreneurial alertness, Eurosclerosis, international technology diffusion, taxation and entrepreneurship, taxation and innovation, taxation and investment, taxation and labour supply, technology followers, welfare state
Source: Daron Acemoglu A Scandinavian U.S. Would Be a Problem for the Global Economy – NYTimes.com.
How @IainLG @suemoroney @NZPSA argued against zero-hours contract regulation when arguing for a ban
12 Nov 2015 Leave a comment
in job search and matching, labour economics, labour supply, personnel economics, politics - New Zealand, unemployment, welfare reform
I stayed on after my Parliamentary testimony this morning to listen to others. A dozen or more made submissions arguing for more regulation – usually asking that zero hours contracts be outlawed.
I was the only submitter so far who argued against any regulation of zero hours contracts. I was thanked for putting a different perspective at the end of my submission. All members of the committee were very polite and listen to what I had to say.
Inadvertently, of course, Iain Lees-Galloway and Sue Moroney of the Labour Party and several members of the Public Service Association unearthed telling points against the case for regulation of zero hours contracts in the course of the morning in both the submissions and through the Q&A.
The first member of the Public Service Association to present information against zero hours contracts was a home support worker who was a union organiser.
This Public Service Association union organiser said, among many points in a kitchen sink submission, that zero hour contracts would deter people from entering her industry. That’s my point about zero hours contracts:
- Zero hours contracts are a risk to employers when recruiting unless they are packaged within an attractive job offer; and
- Offering a zero hours contracts will deter applicants from accepting a job offer unless there is some compensating factor in that offer.
A second member of the Public Service Association talked about her daughter who was on a zero hours contract in her first job. After a seven-month spell of unemployment, her daughter worked as many shifts as possible to show she was a valued member of her team. Good for her. In low skilled jobs, what employers look for is someone who is friendly and reliable.
Part of that story was about the difficulties of her daughter with the correct payment of her unemployment benefit. Every Friday she has to telephone WINZ to forecast how many hours she expected to work in the following week so her unemployment benefit is correctly calculated for the following paid day.

From time to time, the submitter’s daughter was called in at the last minute for a shift on her zero hours contract at the weekend so that estimate of the previous day is incorrect and she is overpaid on her benefit.
This retention of unemployment benefit eligibility is a key point against the arguments raised by Iain Lee-Galloway about how workers and, in particular, the unemployed have no option but to accept zero hours contracts. Galloway was correct in making this the crux of the matter.
He can he kept stressing the inequality of bargaining power and a lack of options of job applicants when questioning me at the hearings this morning.
It was Iain Lees-Galloway who set up this bargaining power inequality as a crucial argument against zero hours contracts, not me. Zero hours contracts are said by the Labour Party and the unions to be a bad deal. It’s an offer job seekers cannot refuse, especially if they’re unemployed.
If beneficiaries do have options and they can refuse an offer of a zero hours contract, as 50% of British unemployment beneficiaries do, most arguments for the regulation or prohibition of zero hours contracts fall of the first hurdle.
The submitter’s daughter was still on an unemployment benefit despite taking a zero hours contract. She had options. She had a basic income, the unemployment benefit, so she was never left in the lurch if there was no shift that week. She never earned less than the unemployment benefit weekend and week out and often earned more.
- No one who already has a job would take a zero hours contracts unless they were confident of matching the hours and income they earn now; and
- An unemployment beneficiary keeps the unemployment benefit as a cushion when they accept a zero hours contract unless they earn more than $200 a week.
The unemployment benefit allows beneficiaries to earn up to $200 a week after which benefit is withdrawn at 50 cents per dollar. As the beneficiary is still on the benefit, they have access to those all-important 2nd tier benefits ranging from accommodation allowances to special grants for unexpected urgent expenses.
Zero hours contracts allow the unemployed to make the benefit pay. Simon Chapple pointed out to me a few years ago that part-time work and benefit receipt can be an attractive long-term option for low skilled workers such as single mothers. The unemployment or single-parent beneficiary who works part-time has the certainty of the unemployment benefit plus a couple hundred dollars extra-week from their part-time job while retaining the second tier benefits that guard against unexpected expenses.
Sue Moroney then finished off the case against regulating zero hours contracts when questioning a submitter from the construction industry. The submitter was discussing the generosity of parental leave as well as zero hours contracts.
Sue Moroney pointed out that because of childcare responsibilities, the ability of that industry to attract women is greatly diminished if they offer zero hours contracts. She was pointing out a major cost of zero hours contracts to employers who offer them.
Sue Moroney highlighted the risk to employers of cutting themselves off from a major part of the job applicant pool – mothers of young children. That is a big cost unless employers offering zero hours contracts either pay a wage premium to keep access to that talent or offer these contracts to teenagers and adults, men and women, who circumstances dispose to working variable hours, sometimes working long hours and sometimes not working at all that week.
Zero hours contracts is an issue about job search and job matching. These contracts will benefit some employers and some employees. Other jobseekers will not sign such contracts. Still others will find that after signing a zero hours contract, that was not the best choice for them in retrospect. That form of on-the-job learning about competing job opportunities is common. Young people spend their first 10 to 15 years in the workforce job shopping. They move through half a dozen or more different jobs, employers and even industries before they find a good fit for them and stay on.
All in all, zero hours contracts empower the unemployed. Zero-hours contracts allow the unemployed to try out jobs while keeping their unemployment or single parent benefit. They don’t have to go completely off the benefit then risk a stand-down period of 6 to 12 weeks if they leave a regular job that is unsatisfactory.
Furthermore, the zero hours contracts give them an opportunity sometimes to earn a lot of money in a short period of time was still retaining their benefit eligibility. As another member of the Public Service Association mentioned when your wages balloon because of long hours one week, your benefit is wound back, but they are still on their benefit. They don’t have to reapply and risk of stand-down period
Zero hours contracts expand the options of jobseekers, especially the unemployed. Taking a zero hours contract gives the unemployed the option to test out a job without having to give up their unemployment benefit. They are empowering, not put upon as the Labour Party and the union members argued today.
Just testified before a parliamentary committee on zero hours contracts
12 Nov 2015 2 Comments
in labour economics, labour supply, managerial economics, occupational choice, organisational economics, personnel economics, politics - New Zealand, unions Tags: compensating differentials, part-time work, zero hour contracts
My submission to the Transport and Industrial Relations Committee today on the Employment Standards Bill is there should be no regulation of zero hours contracts:
- Workers sign these contracts because they are to their net advantage;
-
Always knowing your working hours in advance is known only to about 30% of shift workers; and
-
Workers command a wage premium when they sign zero hours contracts.
The obvious question is why do jobseekers sign a zero hours contract if it is not in their interests? Most of all, why would a worker who already has a job quit to work on a zero hours contract unless it is to their advantage?
If zero hours contracts are oppressive, the only workers hired on them would be the unemployed. Anyone who has a job would refuse such offers. Those unemployed that do sign a zero hours contract would quit as soon as a better offer comes along. 50% of job offers to British welfare beneficiaries to work on a zero hours contract are turned down.
This frequent refusal of zero hours contracts not only suggests there are options for jobseekers including the unemployed but there are costs to employers. The most likely employer response to reduce these costs of rejection is a offer to pay more to sign a zero hours contract. Everyone in this room knows contractors who work in much more than those in regular employment.
Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a wage premium if zero-hour contracts are a hassle for workers. It is standard for unusual, irregular or casual work to come with a wage premium. If you want regular hours, fixed hours, that comes at a price – a lower wage per hour.
Zero hours contracts is creative destruction in the labour market. Plenty of new ways of working have emerged in recent years: the proliferation of part-time work, temporary workers, leased workers, working from home, teleworking and contracting. Employment laws rest on the now decaying assumption that workers have long, stable relationships with single employers.
At least a quarter of a million New Zealanders already work shifts often with little notice of changes. Work schedules are always known in advance only to 31% of temporary, seasonal and casual employees. Another quarter of these have about two weeks or more notice of shifts. Hundreds of thousands of New Zealand workers freely sign on for variable hours.
Source: Survey of Working Life December Quarter 2012, Statistics New Zealand, Table 13.
Something new and innovative such a zero hours contract should not be regulated because it is not well understood. Zero hours contracts don’t come cheap for employers because of the risk of job offer rejection. There must be offsetting advantages that allow this practice to survive in competition with other ways of hiring a cost competitive labour force.
The fixed costs of recruitment and training are such that one 40-hour worker is cheaper than hiring and training two 20-hour workers. Zero hour contracts would be most likely in jobs with low recruitment costs, few specialised training needs and highly variable customer flows.
This business variability can be borne by the employer with the worker on regular hours but paid less. The alternative is the employee shares this risk with a wage premium for their troubles.
Workers with low fixed costs of working at different times profit from a move onto zero-hours contracts. Those with higher fixed costs of changing their working hours will stay on lower hourly rates but more certain working times
To summarise my points today:
- workers sign zero hours contracts because they are to their advantage to do so;
-
Advance notice of working hours is not as common as people think for shift workers; and
-
Irregular and unusual working arrangements usually command a wage premium.
Employers must pay a wage premium to induce in workers to sign zero hours contracts. This Bill undermines the right of workers to seek those higher wages. Thanks for your time and attention.
Why is the US equilibrium unemployment rate so stable as compared to Canada and the UK?
10 Nov 2015 2 Comments
in business cycles, economic history, macroeconomics, politics - USA, unemployment
The equilibrium unemployment rate in the USA has been dead flat at a little under 6% as far back as the OECD Economic Outlook November 2015 can estimate. The Canadian and British equilibrium unemployment rates have gone up and down to the point of near doubling at times. Institutions cannot be so stable in the USA and so unstable Canada and Britain in terms of the incentives to post vacancies, for search for work in the same in different industries and occupations and revise asking wages. We’re talking about a 35 year stretch macroeconomic and labour market policy in the USA.

Source: OECD Economic Outlook November 2015 Data extracted on 10 Nov 2015 07:07 UTC (GMT) from OECD.Stat.
Furthermore, there is a large literature in the early 1970s and late 1990s arguing that the US equilibrium unemployment rate dropped as low as 4%.

Source: Robert Shimer, Why is the U.S. Unemployment Rate So Much Lower? (1999).
More correctly, for the early 1970s literature, the equilibrium unemployment rate had risen to 4% after being at an equilibrium rate of about 3%. Something doesn’t add up.

Source: Robert Shimer, Why is the U.S. Unemployment Rate So Much Lower? (1999).
This estimate of an unchanging US equilibrium unemployment rate doesn’t add up even more when you consider the discussions after the Great Recession about how the extensions to unemployment insurance from a time limit of 26 weeks to 99 weeks would increase the equilibrium unemployment rate. Something really doesn’t add up for the US equilibrium unemployment rate to be so stable and the British and Canadian equilibrium unemployment rates to be so volatile.

Source: Robert Barro: The Folly of Subsidizing Unemployment – WSJ.
New Zealand gender wage gap for full-time workers and for part-time workers, 2015
10 Nov 2015 Leave a comment
in discrimination, gender, labour economics, labour supply, occupational choice, politics - New Zealand Tags: gender wage gap, part-time work, reversing gender gap
The unadjusted gender wage gap is regarded as a reliable measure of sex discrimination in these day, apparently, because the adjusted wage gap is too small to maintain the rage. In the data below, the gender wage gap is in favour of women. That is an unreliable unadjusted gender wage because many part-time male workers are teenagers. Many part-time female workers are professionals.
Source: Statistics New Zealand, New Zealand Income Survey, June quarter 2015
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