Friday, July 13, 2018

Perceptions and reality on immigration

I can understand public disagreement about the impact of immigration on the economy.  Most economic research finds that immigrants do not adversely affect native workers, but it is not hard to find studies that reach the opposite conclusion.  As a result the public sees economist A disagreeing with economist B and eyes glaze over.  

I would have thought there would be less misunderstanding about how many immigrants we have.   A recent NBER study by three Harvard economists says otherwise.  They asked native citizens in six countries to estimate what percentage of the population consisted of immigrants.  In the US the answer was 36 percent, well above the actual level of 10 percent.  

Americans are not alone in overestimating immigration levels.  British, French, Germans, Italians and Swedes were almost as far off.  

Americans also have inaccurate perceptions regarding where immigrants come from and how well they are doing economically.  Americans think 22 percent of immigrants are Muslim, well above the actual level of 10 percent.  We think 26 percent are unemployed and 35 percent live in poverty.  Think again.  The unemployment rate for immigrants is 5.5 percent and the poverty rate is 13.5 percent.  For further details see this article in Salon.  

Wednesday, June 27, 2018

Raleigh: the next big startup hub?

According to Inc. magazine, the answer is yes.  The article brings up the three research universities, space availability, and a strong entrepreneurial network as factors that will make Raleigh the next Austin or Portland.  NC State and the Poole College of Management play a crucial role through Centennial Campus and HQ Raleigh.  Who knows, maybe Amazon or Apple will decide to locate here as well?

Sunday, June 24, 2018

Update on washing machine tariffs

Six months ago I posted on the likely effects of tariffs on washing machines.  As any NC State MBA student would know, a tariff on washing machines would lead to (1) higher prices, (2) fewer purchases (demand curves slope downwards), (3) more domestic production, (4) fewer imports, and (5) increased government revenue.

WP columnist Catherine Rampell provides an update in a recent column.  The not-so-surprising news is that after a 20% tariff, washing machine prices increased 17% in May.  There is more domestic production, but some of it will be coming from new factories that Samsung and LG plan to open in the US.

The news on the job front is less clear.  Other things equal, Whirlpool would expand production in response to higher prices.  But the washing machine tariff is not an isolated event.  Tariffs on steel have increased production costs of washing machines, dampening the increase in domestic production (and jobs).  Also, European countries are preparing their own tariffs in reaction to the aluminum and steel tariffs and U.S. washing machines are on their hit-list.

Rampell cites estimates that US consumers will pay hundreds of thousands of dollars in higher prices for each domestic washing machine job saved by the tariff.  Most of this money will not filter its way to the employees, who are going through their own spin cycle.

Thursday, June 21, 2018

Who has the upper hand in China-US tariff war?

Headline in yesterday's WSJ "White House Sees Edge in China Talks."  Ok, what's the secret sauce for the USA?  Is it the availability of close substitutes for Chinese imports or superior negotiating savvy?

No, it is nothing that subtle.  Instead the White House argument boils down to this: the US exports relatively little ($129.9b) to the US whereas Chinese exports to the US are HHUUGGEE ($505.5b)!  So US tariffs can inflict more damage on the Chinese than Chinese tariffs can inflict on the US.

Problem with this line of reasoning: the costs of a tariff war fall much more heavily on US consumers of imported goods than on US exporters impacted by Chinese tariffs.  With a 25% tariff, not only does the price of imports go up by that amount but domestic producers raise their prices by the same amount.

Bottom line: the pain of a tariff war with China will be asymmetric, with US consumers bearing most of the damage in terms of higher prices and less variety.

Sunday, June 17, 2018

Job openings exceed number of unemployed

Earlier this month the Labor Department reported that there are more open positions than there are unemployed workers.  There were 6.7m openings at the end of April, well above the 6.3m unemployed.  This is the first time this has happened since the data series on job openings launched in 2000.

Although this is encouraging news for individuals looking for work, keep in mind that many employers prefer to poach talent away from someone else.  The unemployed have to compete against people who already have jobs for open positions.  Also there are many people involuntarily working part-time who are trying to gain full-time positions.  Takeaway: employers still have a large pool of position-seekers from which to draw, but the pool has gotten smaller relative to the number of open posts.

Companies with open positions will now consider changing the skill and experience requirements and increasing wages.  Consider the following example from WSJ:
To attract workers, the Saladworks restaurant chain has raised its starting wages about 5%. It also has relaxed standards on tattoos and piercings, allowed employees to wear jeans and bandannas, and gotten more flexible about schedules.

Monday, June 4, 2018

How much do new employees value corporate social responsibility?

Many firms tout their devotion to the triple bottom line and corporate social responsibility (CSR).  Why do they do it?  One answer, according to University of Chicago economist John List in an interview on Freakonomics, is that it helps attract and retain workers.

List made his reputation doing field experiments in economics.  He is so devoted to this approach that he has set up his own data collection firm HHL Solutions to do experiments on labor market issues.  HHL posted help-wanted ads on Craigslist in 12 cities.  The ads varied in terms of the hourly wage ($11 to $15) and whether they mentioned HHL's commitment to corporate social responsibility.  Not surprisingly the application volume was 33% higher at $15 per hour than it was at $11.  Surprisingly (at least to me), the application volume also was 33% higher when the ads mentioned CSR.

The next surprise: the people who responded to the ads mentioning CSR were more 10 to 25 percent more productive and more accurate in their data entry tasks.

So let's see -- lower your hourly wage costs AND get more output.  Sounds like at least one part of the triple bottom line is dong just fine in firms dedicated to CSR.

Wednesday, May 30, 2018

Sacramento Chick-fil-A starts paying $18/hour

Today's WP reports that a Chick-fil-A franchise in Sacramento will bump up its starting hourly wage from $12-13 to $17-18.  The current minimum wage in California is $11, so this decision is clearly being made with the franchise's self interest in mind.  Quote from the owner Eric Mason:
As the owner, I'm looking at it big-picture and long-term.  What that does for the business is provide consistency, someone that has relationships with our guests, and it's going to be building a long-term culture.  
The business case for the raise is based on the franchise's ability to attract and retain qualified workers.  Mason certainly will have less difficulty filling open positions for the next few years.

Will other fast food franchisees follow suit?  The national unemployment rate is below 4 percent, labor force participation has not increased and immigration is being actively discouraged on multiple fronts.  So you might have to pay more the next time you crave some nuggets and waffle fries.  

Monday, April 2, 2018

Does Amazon have a sweetheart deal with USPS?

The US Postal Service has lost significant sums of money every year for at least a decade.  President Trump claims that USPS's contract with Amazon has made things worse.  This article in VOX provides some insights to help analyze Trump's claim.  Key takeaways:

  1. Shipping and packages is the only major component of USPS's revenue stream that is increasing, growing by $2 b in 2017 over 2016.  
  2. First class mail and marketing mail revenue are down by $3 b over the same period.  
  3. USPS costs are largely fixed.  Delivery takes place over the same routes every day; the same sorting and shipping operations take place each day as well, subject to some seasonal fluctuations.  
  4. Unlike any private company, USPS must pre-fund its pension and retiree health benefits for the next 75 years.  This costs $6b annually and accounts for most of USPS annual losses.  
As long as the Amazon contract covers the variable costs of weekend deliveries, USPS comes out ahead.  Could USPS charge Amazon a higher rate?  That depends on whether Amazon could find close substitutes for package delivery.  I would not underestimate them.  

Sunday, April 1, 2018

Economics of tipping

Tips are welcome in many occupations and are absolutely expected by restaurant servers who are paid well below the minimum wage.  Recently some restaurants have eliminated tipping, increased hourly wages and then hiked menu prices to compensate.

How do incentives change in a no-tip restaurant?  Under tipping the wait staff has two incentives: (1) provide good service because many customers have a "pay-for-performance" ethos and (2) upsell the customers because most base their tip on a percentage of the total tab.  In most cases tips are not shared with cooks and dishwashers, leading to less than optimal teamwork.  Finally tips are risky; restaurant traffic goes up and down with the weather and some customers are less than generous.  The result is partial alignment with the incentives of the restaurant owner.

Danny Meyer, CEO of Union Square Hospitality Group, has moved to the no-tip model.  The benefits, he argues in a recent WP op-ed, include more predictable income for wait staff and improved performance management (managers are in a better position to do this than customers).  But the implementation has been far from seamless.  With pay the same on every shift, servers who begged for weekend shifts (with their higher sales volume) now want to work the quieter weekdays.  Some customers balked at the higher menu prices, especially the ones that were less than generous tippers.