Tim Harford, who writes the Financial Times‘s “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy.
Robert A. Radford studied economics at Cambridge University, and worked at the International Monetary Fund. In between, he spent half the war in a German prison camp, and on his release wrote an article, “The Economic Organization of a P.O.W. Camp.” It gives a surprising insight into economic recessions.
The building blocks of the P.O.W. camp economy were parcels of food and cigarettes that the prisoners received from the Red Cross. These parcels were standardized—everybody got the same, beyond the occasional package from home. Occasionally, the Red Cross received bumper supplies, or ran short; in those circumstances everybody enjoyed a surplus or a shortage. Naturally enough, while prisoners had equal rations, they did not have identical preferences. The Sikhs didn’t have much use for their rations of beef or razor blades, for example; the French were desperate for more coffee; the English wanted more tea. Read More »
Friday’s labor-force data brought liberal outcries, and a comment from Ben Bernanke, that the drop in labor-force participation indicates unemployment is really much higher, and the economy in worse shape, than the 7.3 percent unemployment rate might indicate. It is true that participation for men is at a postwar low and has decreased by 3-1/2 percentage points since the 2007 cyclical peak; and women’s participation stopped rising in 1999 and has fallen by 2 percentage points since the peak.
Is this so bad? Yes, if labor-force leavers are desperate to work and just get discouraged. But perhaps no; perhaps it has taken the Great Recession to get Americans to realize that we shouldn’t be working harder than people in other rich countries and should be enjoying more leisure. If this is so, perhaps there’s a silver lining in what so many people view as the economic doldrums of the last three years.
How do economic conditions affect the incidence of child abuse? While researchers have found that poverty and child abuse are linked, there’s been no evidence that downturns increase abuse. A new working paper (PDF; abstract) by economists Jason M. Lindo, Jessamyn Schaller, and Benjamin Hansen “addresses this seeming contradiction.” Here’s the abstract, with a key finding in bold:
Using county-level child abuse data spanning 1996 to 2009 from the California Department of Justice, we estimate the extent to which a county’s reported abuse rate diverges from its trend when its economic conditions diverge from trend, controlling for statewide annual shocks. The results of this analysis indicate that overall measures of economic conditions are not strongly related to rates of abuse. However, focusing on overall measures of economic conditions masks strong opposing effects of economic conditions facing males and females: male layoffs increase rates of abuse whereas female layoffs reduce rates of abuse. These results are consistent with a theoretical framework that builds on family-time-use models and emphasizes differential risks of abuse associated with a child’s time spent with different caregivers.
Our latest podcast, “Crowded at the Top,” presents a surprising explanation for why the U.S. unemployment rate is still relatively high. (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.)
It features a conversation with the University of British Columbia economist Paul Beaudry, one of the authors (along with David Green and Benjamin Sand) of a new paper called “The Great Reversal in the Demand for Skill and Cognitive Tasks“: Read More »
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In fact, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.
More evidence of the relationship between the housing market and the overall economy:
Construction makes up less than 5 percent of employment but accounts for more than 40 percent of the large swings in the job-filling rate during and after the Great Recession.
A new working paper (full version here) by Alan L. Gustman, Thomas L. Steinmeier, and Nahid Tabatabai examines the impact the Great Recession has had on the wealth and income of Baby Boomers nearing retirement. It finds, somewhat surprisingly, that their aggregate wealth decreased very little over the past few years:
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The retirement wealth held by those ages 53 to 58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percentage points by 2010. … Very few in the population nearing retirement age have experienced multiple adverse events. Although most of the loss in wealth is due to a fall in the net value of housing, because very few in this cohort have found their housing wealth under water, and housing is the one asset this cohort is not likely to cash in for another decade or two, there is time for their losses in housing wealth to recover.
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During the recession of 2008-9, labor hours fell sharply, while wages and output per hour rose. Some, but not all, of the productivity and wage increase can be attributed to changing quality of the workforce. The rest of the increase appears to be due to increases in production inputs other than labor hours. All of these findings, plus the drop in consumer expenditure, are consistent with the hypothesis that labor market “distortions” were increasing during the recession and have remained in place during the slow “recovery.” Producers appear to be trying to continue production with less labor, rather than cutting labor hours as a means of cutting output.