Saturday, August 5, 2017

Marijuana access lets Dutch students grades go to pot

Economic research often extends beyond prices and output.  One recent study looks at what happens in a Dutch university town when a law is passed proscribing marijuana access to students who are not residents of the Netherlands.  As reported in WP, the academic performance of the non-Dutch students improved; their odds of passing a course increased by at least 5 percent.  The performance increase was greatest among students who were performing at a lower level.

Marijuana legalization is based on a wide range of value judgments, of which academic performance is but one dimension.  A key implication of this study is that there is likely to be some adverse impact on learning if marijuana becomes more accessible.  Of course, pot advocates might naturally ask if this experiment were repeated except this time telling the Belgian and French students that they cannot buy Heineken!

Friday, July 21, 2017

Are we facing "Robocalypse Now?"

For ages there have been concerns about workers being displaced by machines.  remember Ned Ludd?  John Henry?  With the growth of machine learning and artificial intelligence, those concerns have become heightened recently.

Basic economics says that the introduction of a new advanced technology will have two effects on the labor market: (1) there will be some displacement of workers whose skills are no longer in demand (e.g., blacksmiths and the automobile, bookkeepers and the computer) and (2) the extra wealth created by more efficient production methods will lead to increased demand for a wide range of products.

MIT economist David Autor has taken a look at the historical evidence on productivity enhancements and displacement.  Exploring 19 countries over 35+ years, he finds that the displacement definitely happens and is sizable within the affected industries.  However, employment actually ends up growing overall.

The downside is that some skilled workers are displaced and lack attractive options.  This means we face a challenge creating new opportunities for the unskilled and medium-skilled workers who are most likely to be affected.  The full report can be found here.

Friday, July 7, 2017

Go play your video game

Young men are becoming less and less likely to be in the labor force or in school.  How are they spending their time, compared to comparable young men a generation ago?  Apparently no small number of them are spending their extra time playing video games.

Chicago Booth economist Eric Hurst has just released his study of time allocation of jobless young men.  Men aged 21 to 30 are working 203 fewer hours than 15 years ago; men aged 31 to 55 are working 163 fewer hours.  Older men used their extra free time on TV, sleeping, eating and personal care; younger men used theirs on recreational computer time, mainly video games.  On average young men game 3.4 hours weekly.  Hidden underneath that average is a wide dispersion, with many clocking zero hours but some spending 20 or more.

There is a bit of a chicken-egg problem in interpreting the results.  One possibility is that the games are so enthralling that they become an alternative world with amenities superior to everyday existence.  In this case a job may never be seen as an attractive option.  Alternatively joblessness leads to free time and in today's age video games have transplanted other forms of idleness such as watching television or hanging out at the mall.  Perhaps it is no coincidence that some companies are using video games as part of their hiring process?

Tuesday, July 4, 2017

Seattle hits some bumps on the path to a $15 minimum wage

Two years ago I blogged about the $15 minimum wage.  At that time the mainstream view among economists was that federal and state minimum wage laws had a modest, negative impact on employment.  The wave of $15 minimums passed recently by numerous cities is uncharted territory because (1) the increases are so large and at such variance from federal and state minimums and (2) many businesses -- especially those in service industries -- can easily relocate to avoid paying the higher wage.

We now are getting the first wave of economic research looking at the impact of the $15 minimum.  At the beginning of this year, companies with more than 500 employees in Seattle had to pay a minimum wage of $15 an hour.  The minimum is now $11 for most other employers and will increase to $15 for all by 2021.  So what has been the impact on firms and workers?

A new study of the Seattle labor market has found that incomes of low wage workers have fallen since the minimum was hiked.  This has happened because employers cut back on work schedules.   Wages increased by 3% but hours fell by 9%, resulting in an overall drop in income of over $100m per year for low-wage workers.  Overall employment did not change, but employers substituted more highly skilled workers for low-wage workers which made the latter group worse off.

The Seattle study will continue and researchers will be looking at other cities such as Los Angeles and San Francisco that have hit the $15 mark.  The sure winner from these minimum wage changes -- data-hungry labor economists.

Tuesday, June 20, 2017

Do students learn anything in college?

Recent WSJ headline: "Exclusive Test Data: Many Colleges Fail to Improve Critical-Thinking Skills."  Higher education is already being criticized for being overly expensive, stifling free speech with political correctness, and having all too many graduates without jobs.  Now we have a new claim: that many students do not really learn much as they accumulate credit hours.

The study cited by WSJ compares scores on a critical thinking test taken by freshmen and seniors at a wide range of schools.  At some prestigious schools (e.g., UT-Austin), the scores of seniors are about the same as those of freshmen.  The schools with the largest "improvement" in scores include Plymouth State and Western Carolina.  

On the surface this would imply that higher education is not delivering on its promise to develop higher level critical thinking skills.  Here is another interpretation: schools like UT-Austin admit students with very strong skills in this dimension to begin with, so the change in scores is negligible three years later.  Also, the composition of the test-taking class changes considerably in some schools.  Almost half of the freshmen at Plymouth State and Western Carolina never graduate, so most of the score increase at those schools could be explained by weeding out the weakest students.

Finally, critical thinking skills are important but they are not the sole measure of academic accomplishment.  Compare the scores of freshmen and seniors on subjects such as biochemistry, electrical engineering, and finance to get a better overall picture.

Saturday, June 17, 2017

A sweet NAFTA deal for sugar producers

The US and Mexico just concluded a deal on sugar trade.  A bit of background is in order.  The US is globally competitive for many agricultural products; sugar is not one of them.  Under NAFTA the US started importing significant amounts of Mexican sugar.  US sugar refiners protested and, to make a long story short, the result is a new set of NAFTA terms on sugar.  Net result: import restrictions and higher prices.  A win for US producers but a loss for US sugar consumers, US producers of products that use sugar and Mexican sugar producers.  A classic win-lose-lose-lose deal.  Perhaps a preview of what will happen when the gang that brought us "The Art of the Deal" gets their hands on the rest of NAFTA?

Friday, June 16, 2017

Ticket pricing on Broadway

Want to see a big hit such as "Hamilton" or "Hello Dolly" with Bette Midler on Broadway? Be prepared to pay $750 at the box office and well over $1000 in the secondary market.  These prices generate headlines and claims that Broadway is unaffordable for the average NYC visitor.

This NYT piece sheds a light on the economics behind live theatre pricing.  As it turns out, there are many theaters on the Great White Way and bargains can be had.  The average ticket price is just over $100 and, on most nights, you can stand in line at TKTS and score a (not great) seat for under $40.

What has changed in recent years is the adoption of dynamic pricing.  The same tools that airlines pioneered have come to the arts and entertainment world.   Ticket prices ratchet up for the most popular shows to ration demand.   By doing so there also is a clear match between the public's willingness to pay and the reward structure for those producing the shows:
From an economics perspective, “this is simply a rationing problem” ... If you keep prices low, people will buy tickets and resell them on the secondary market. Someone is going to pay a market-clearing price, no matter how high. The only question is who should get the money: the investors and performers and creators, or a speculator who managed to snap up the tickets the moment the box office opened?”
The Times article provides some helpful hints for those seeking the best deals: look for weekday shows and visit at an off-peak time such as January or September.  

Wednesday, May 31, 2017

Like health care, international trade is complex

President Trump has lauded Harley-Davidson as a (according to NYT) "a pillar of U.S. manufacturing."

But wait, H-D has opened up a new plant.  And it is not in Wisconsin.  It is in Thailand.  H-D claims that production at the Thai plant is aimed at the Asian market and that none of the motorcycles built in Thailand will be shipped to the US.

So why isn't H-D expanding US capacity to serve the Asian market?  Two challenges: (1) savings in labor costs and (2) Thailand imposes a 60% tariff on imported motorcycles.

But what might have happened to that 60% tariff if the US had completed negotiations on the Trans Pacific Partnership Agreement?  The labor cost difference would not have gone away, but the tariff barrier likely would have become negligible.

Of course union leaders called the Thai plant "a slap in the face to U.S. workers."   And they opposed TPPA.  And they were delighted when the President cancelled TPPA.  But how can they now complain that new production facilities have been opened in Asia?  Sounds like advisors to the unions and the President did not remember much from their economics classes.

Saturday, May 20, 2017

Economists link sound management to firm success

Economists have done very little research linking how different management practices correlate with indicators of firm performance such as productivity and growth.  The reason is quite simple: economic research relies all too often on data collected by the government and the government does not collect data on management.

Two professors at MIT Sloan and a colleague at Stanford decided to collect data on management practices and, with the help of the Census Bureau, linked it to data on individual manufacturing plants.  The focus was on 16 measures of monitoring, targets and incentives which were combined into a management index.

The results, summarized in this HBR piece, were quite striking: every 10% increase in the management index was associated with a 14% increase in productivity.  Well-managed firms also were most likely to grow and less likely to close.  Management practices have a bigger effect on  productivity than IT investments, R&D intensity, and worker skills.

Interesting question raised by the study: we know that investments in IT, R&D and worker skills are quite expensive compared to the cost of changing management practices.  So why don't the poorly managed firms make adjustments?  Maybe it has something to do with who the managers of those firms are!

Saturday, May 6, 2017

All you need to know about trade ... in 70 words

Courtesy of former Secretary of State George Schultz and Harvard professor Marty Feldstein in today's WP:
If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic. 
If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country. 
Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.