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Posts Tagged ‘income’

Why Broadway Performers Are Paid More

A recent New York Times article discussed a meeting being held to protest a “tiered wage” that averages $1,000 per week for performers in touring productions of Broadway musicals — compared to a “full wage” of $1,800 for the Broadway productions of the same show.  

Why shouldn’t the pay be the same for the same effort?  The article gets the answer correct: the pay must equal the marginal revenue product for the production to be profitable; and even compared to performances in cultural capitals like Austin, Tex., the revenue-per-seat-filled on Broadway is much higher. A touring company just cannot, as the article notes, make a profit or perhaps not break even paying the same wages as on Broadway.  Perhaps not fair to the performers, but this is good economics.  With this difference in pay, however, the quality of the touring companies is unlikely to be as good as the Broadway company.

For N.B.A. Hopefuls, Zip Code Matters

We’ve blogged before about the (relatively small) effect of birth month on athletic excellence.  But how does birth location affect a potential athlete? In The New York TimesSeth Stephens-Davidowitz  calculated the probability of getting to the N.B.A. by Zip codeHe found that players like LeBron James, born to a low-income teenage mom, are the exceptions to the rule:

I recently calculated the probability of reaching the N.B.A., by race, in every county in the United States. I got data on births from the Centers for Disease Control and Prevention; data on basketball players from; and per capita income from the census. The results? Growing up in a wealthier neighborhood is a major, positive predictor of reaching the N.B.A. for both black and white men. Is this driven by sons of N.B.A. players like the Warriors’ brilliant Stephen Curry? Nope. Take them out and the result is similar.

What Happens When You Teach Parents to Parent?

A new working paper (abstractPDF) by Paul Gertler, James Heckman, and several other co-authors examines the impressive long-term effects of a Jamaican program that taught low-income parents better parenting skills.  Here’s the abstract:

We find large effects on the earnings of participants from a randomized intervention that gave psychosocial stimulation to stunted Jamaican toddlers living in poverty. The intervention consisted of one-hour weekly visits from community Jamaican health workers over a 2-year period that taught parenting skills and encouraged mothers to interact and play with their children in ways that would develop their children’s cognitive and personality skills. We re-interviewed the study participants 20 years after the intervention. Stimulation increased the average earnings of participants by 42 percent. Treatment group earnings caught up to the earnings of a matched non-stunted comparison group. These findings show that psychosocial stimulation early in childhood in disadvantaged settings can have substantial effects on labor market outcomes and reduce later life inequality.

When a Wife Earns More

A new working paper (abstract; PDF) by Marianne Bertrand, Jessica Pan, and Emir Kamenica looks at gender identity and its affect on household income. Their findings will depress anyone concerned with gender equality. Here’s the abstract:

We examine causes and consequences of relative income within households. We establish that gender identity – in particular, an aversion to the wife earning more than the husband – impacts marriage formation, the wife’s labor force participation, the wife’s income conditional on working, marriage satisfaction, likelihood of divorce, and the division of home production. The distribution of the share of household income earned by the wife exhibits a sharp cliff at 0.5, which suggests that a couple is less willing to match if her income exceeds his. Within marriage markets, when a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline. Within couples, if the wife’s potential income (based on her demographics) is likely to exceed the husband’s, the wife is less likely to be in the labor force and earns less than her potential if she does work. Couples where the wife earns more than the husband are less satisfied with their marriage and are more likely to divorce. Finally, based on time use surveys, the gender gap in non-market work is larger if the wife earns more than the husband.

A Carpenter No More

A 50-year-old law professor told me yesterday that between college and law school he worked as a carpenter.  I said it was great to hear that, as it must make him more productive at home.  He said no, he never does carpentry work around his house now for two reasons:

  1. Skill depreciation: he isn’t as good at carpentry as he was when he was doing it full time.
  2. His requirement for quality work is such that he wouldn’t use himself as a carpenter—the income elasticity of demand for quality is positive, and his income is much higher now than after college.

He didn’t mention a third reason, which I think is important, namely that the opportunity cost of his time is too high to make carpentry a good way to spend time. (HT: TB)

How to Live Longer (Ep. 109)

Our latest Freakonomics Radio on Marketplace podcast is called “How to Live Longer.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player in the post, or read the transcript below.)

It looks into why Hall of Fame inductees, Oscar winners, and Nobel laureates seem to outlive their peers. The deeper question in the podcast concerns the relationship between status (not income!) and longevity — a fascinating, complex, and controversial topic (here’s a good place to start reading) about which I believe we’ll hear a great deal in years to come. It will be valuable to know what kind of “status boosts” confer health advantages and, conversely, how disappointment and the like can chip away at us.

This podcast was timed to coincide with two events this week: the annual Baseball Hall of Fame election, in which no players were selected this year for the first time since 1996 (here’s ESPN’s take and here’s a useful statistical snapshot); and the announcement of this year’s Oscar nominees.

Is Income Inequality Rising, and Are a Lot of Feathers Heavy?

New data on income inequality in the United States were just released.  And they provide a useful teaching moment. The graph below, which comes from the Census Bureau, shows the evolution of the Gini coefficient since 1967.  It’s pretty clear that this measure of inequality has been rising pretty much through this whole period.

p>But here’s how the Census Bureau chose to describe these data:

Based on the Gini index, income inequality increased by 1.6 percent between 2010 and 2011; this represents the first time the Gini index has shown an annual increase since 1993, the earliest year available for comparable measures of income inequality.

Say what?

Daron Acemoglu on Inequality

If you’re even a little bit interested in income inequality and how it matters, this Browser interview with MIT economist Daron Acemoglu is a must-read. Acemoglu explains how economists generally think about inequality:

The default position of economists is that inequality reflects the unequal human capital or productive capabilities of different workers. If you start with that premise – that what people earn is commensurate with their contribution to their employer, and also perhaps to society – then greater inequality tells you something about how people’s productivities have evolved over time. This is by no means what every economist believes, but it’s a common view. Economists have cut their teeth on inequality by looking at things like the increase in the college premium over the last 30 years in the U.S. and other economies, as well as the increase in the gap between relatively high earners – the 90th percentile of income distribution – versus the bottom 10th percentile. We’ve seen a big increase in inequality, measured in various ways, and this reflects the fact that the top people, the more educated, high earners have become more skilled. Technology has favored them, globalization has favored them, and inequality has increased for that reason.

Does Democracy Make Us Richer and Better Educated? Or Is It the Other Way Around?

It’s one of the ultimate chicken or egg questions: Does democracy lead to increases in education and income, or do education and higher income lead to democracy? It’s a tricky one, considering that over the last 200 years, they’ve essentially moved in tandem across much of the developed world.
So which is affecting which? A new working paper (full version here) by Fabrice Murtin and Romain Wacziarg attempts to untangle the two to understand whether democracy grows from education and higher income, or vice versa.

What's the Median Income for a Fashion Model in the U.S.?

Take a wild guess: How much do you think fashion models make? It’s one of those professions that unless you know someone, or work in the biz, there’s not a lot of information out there to have a good view into. Judging by models’ perceived glamour and high society status, not to mention the cut-throat competition they deal with, you might think it’s a lot. I think I did. Which is why this line from a TNR review of the new book Pricing Beauty: The Making of a Fashion Model struck me as amazing:

The median income across America in 2009 for a model was $27,330—income that includes no benefits.

The book is by Ashley Mears, a former fashion model and current Boston University sociologist.

Enlisting in the Military Increases Earnings, But Only If You Stick Around

A new RAND research report prepared for the U.S. Army explores the effect of military enlistment on individual earnings and the labor market. The authors used data from applicants to “active-component enlisted service” from 1989 through 2003, and followed them for up to 18 years. From the report:

The authors find that military enlistment increases earnings in both the short and long-term: The percentage increase in earnings attributable to enlistment is about 40 percent in the first few years following application and diminishes to about 11 percent 14–18 years following application. Enlistment significantly delays college education in the short run. In the longer run, enlistment slightly increases the likelihood of attaining a two-year college degree, but it also decreases the likelihood of attaining a four-year college degree, especially among higher-aptitude youth.

What's the Best Way to Measure Poverty: Income or Consumption?

Yesterday we learned that 15.1% of Americans were living in poverty in 2010, the highest level since 1993, and up nearly 1 percentage point from 2009, when it was 14.3%. That data is based on an income measurement which shows that in 2010, 46.2 million Americans were living below the poverty line, defined as $22,314 a year for a family of four.
But income is just one way to measure poverty, and a particularly tricky (and narrow) way at that – so says Notre Dame economist and National Poverty Center research affiliate, James Sullivan, who believes that to measure poverty strictly by income fails to accurately reflect people’s true economic circumstances. Income alone ignores the effects of things like the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. From a Notre Dame press release on Sullivan’s recent poverty research:

“Income received from food stamps, for example, grew by more than $14 billion in 2009. By excluding these benefits in measuring poverty, the Census figures fail to recognize that the food stamps program lifts many people out of actual poverty,” Sullivan says. “If these programs are cut back in the future, actual poverty will rise even more.”

Nice Guys Never Win (Neither Do Mean Girls)

For years, we’ve been hearing from fictional alpha males like Ari Gold and Gordon Gekko that nice guys finish last. Now, according to a collection of studies soon to be released in the Journal of Personality and Social Psychology, there appears to be some truth to the axiom. While nice guys don’t necessarily finish last, they rarely finish first. Researchers Beth A. Livingston of Cornell, Timothy A. Judge of Notre Dame, and Charlice Hurst of the University of Western Ontario, show how “agreeableness” negatively affects monetary earnings. Moreover, their research shows that this “agreeable gap” is more pronounced in men than women, who still trail their male counterparts. Here’s a full version of the study. And here’s the abstract:

Cohabitation in the U.S. has Doubled Since the Mid-1990s

A recent study by the Pew Research Center titled “Living Together: The Economics of Cohabitation,” finds that rates of cohabitation in the U.S. have gone up significantly over the last 15 years. Authors Richard Fry and D’Very Cohn use census data from heterosexual couples who (unlike many of their homosexual counterparts) have a choice between getting married, or simply living together unmarried. Fry and Cohn write:

Cohabitation is an increasingly prevalent lifestyle in the United States. The share of 30- to 44-year-olds living as unmarried couples has more than doubled since the mid-1990s. Adults with lower levels of education—without college degrees—are twice as likely to cohabit as those with college degrees.

Perhaps you already guessed that – the pressure to get married isn’t quite the same as it was 50 years ago. What’s more interesting though is that the level of education makes a big difference as to how the median household income of cohabiters measures up against their married counterparts.

Did Women's Lib Movement Increase Income Gap in the U.S.?

Reader Chris Fawcett writes in with an intriguing question: How did the women’s liberation movement affect the income gap in the U.S.?
Income inequality has been on the rise in the U.S. since the 1970s, roughly the same time that women began entering the workforce in large numbers. Considering the amount of attention the widening income gap gets these days as a source of our economic woes, it seemed like something worth posting.
Here’s how Chris sees the issue:

There are a number of ways I believe this has had a big impact (maybe the biggest impact of any single issue):
1. Women’s participation in the workplace has doubled in the past half century.
2. The divorce rate has increased steadily in the past half century.
3. It is more socially acceptable to not have children (through choice or abortion).
4. People are getting married later in life.
In relation to the commonly used CBO “household” income numbers, I think these issues may have had a huge effect on the perception of the widening income gap as follows:

Income Equality in Revolutionary America

A tad late for Independence Day, but interesting nevertheless: a new paper called “American Incomes Before and After the Revolution,” by Peter H. Lindert and Jeffrey G. Williamson. Couldn’t find an ungated copy; abstract below (emphasis is mine):

Building social tables in the tradition of Gregory King, we quantify the level and inequality of American incomes before and after the Revolutionary War. Our tentative estimates suggest that between 1774 and 1800 American incomes fell in real per capita terms. The colonial South was richer, and then suffered a greater Revolutionary decline, than suggested by previous estimates. Any rapid growth after 1790 seems to have just partially offset part of a very steep wartime decline. We also find that free American colonists had much more equal incomes than did households in England and Wales. Indeed, New England and the Middle Colonies appear to have been more egalitarian than anywhere else in the measurable world. The colonists also had greater purchasing power than their English counterparts over all of the income ranks except in the top few percent.

FREAK-est Links

Using science for art, and art for science. How much does it cost to go to Hogwarts? Stephen Hawking: If we can colonize space within 200 years, humans will survive. World map: 7 billion people and their income. Creating a market for cigarette butts: at $3 a pound, it’s well worth it. Monkeys and fair use: if a monkey takes . . .

The Rich vs Poor Debate: Are Kids Normal or Inferior Goods?

Are you likely to have more kids if you are rich or poor? Or to put this in econo-jargon: Are kids normal or inferior goods? (Reminder: When you get rich you buy more of a “normal good,” and less of an “inferior good.” And yes, the language of economics can be a bit cold.)
This is a question that’s central to a debate between Betsey Stevenson and Bryan Caplan. Recall, Bryan is the guy who argues that having kids needn’t be as expensive or time-consuming as we make them. Fair enough. But he then makes the leap to arguing that we should all have more kids. In her response, Betsey noted:

Caplan is entirely focused on the substitution effect: having kids becomes cheaper relative to buying TVs. So he says buy more kids, and fewer TVs. But what about the income effect? As people become richer, they tend to “buy” fewer children, not more. So there’s an offsetting income effect.

In a follow-up, Bryan runs some regressions that he thinks suggest that Betsey is wrong to say that the rich have fewer kids than the poor. It’s a brave person who debates Betsey on the data. And I think he’s tying himself in regression knots, rather than getting at the issue.

We're Halfway to a Lost Decade

Our current slump began a lot earlier than you think. Which means that we’re halfway to a lost decade.
Many people date the financial crisis as beginning when Lehman collapsed in September 2008. But the economy was already in recession. The NBER reckons the recession began in December 2007. But look closely, and you’ll see that it may have begun a year earlier.
That’s the case I made in my latest Marketplace commentary, which you can listen to here. The point is more easily made with a simple graph. (Click inside the story for a bigger version).
The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that the red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ. I’ve also plotted the peak, trough, and latest reading of each measure.

The Economic Benefits of Trust

On the airport bus in Helsinki, a Finnish woman asked my wife, “What is the biggest difference between Europe and the U.S.?” There are lots of possible answers, but the most striking to me is the tremendous diminution of mutual trust in the U.S. over the past few decades. Why does this matter economically? Because a number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.

The Happiness Wars Continue

There’s a growing sentiment among economists that GDP is a poor measure of a country’s well-being. (See our recent podcast on the topic; also, the research of Joseph Stiglitz.) The latest fad among European governments seeking to separate the overall health of citizens from sluggish economic data is to ask them if they’re happy. The results aren’t exactly encouraging. Less than half of British adults feel they are thriving. And France now ranks as the world’s most pessimistic country, with only 15 percent saying they expect things to get better in 2011.

The Truth About Gay and Lesbian Income

Joe Clark, who has previously written about women’s hockey, took a look at the myths surrounding gay and lesbian income statistics. Interestingly, Clark found that “[g]ay males earn less than straight males, often much less. Meanwhile, lesbians earn more than straight females.”

A Very Interesting Paragraph From …

… Economic Lives: How Culture Shapes the Economy, by Viviana A. Zelizer, an economic sociologist at Princeton: Suppose for a moment that this is the year 2096. Let’s take a look at American families: although by now money often takes postelectronic forms unfamiliar to the twentieth century, in the “traditional” home, “housewives” and “househusbands” receive monthly stipulated sums of money as salaries from their wage-earning spouses.

Debunking the Easterlin Paradox, Again

I’ve written here before about my research with Betsey Stevenson showing that economic development is associated with rising life satisfaction. Some people find this result surprising, but it’s the cleanest interpretation of the available data. Yet over the past few days, I’ve received calls from several journalists asking whether Richard Easterlin had somehow debunked these findings. He tried. But he failed.

At Microsoft, Two Views on a New Tax

In Washington State, high-income residents and corporations are coming together to battle I-1098, a ballot initiative that would levy a 5 percent tax on “income above $400,000 per couple and a 9% levy on income above $1 million per couple.”

What's Derek Jeter Worth? A Freakonomics Quorum

While the New York Yankees’ 2010 season came to a disappointing close, it would still appear inevitable that the team will want to re-sign Derek Jeter, their franchise shortstop. But it appears just as inevitable that his on-field performance isn’t worth nearly as much as he will likely want to be paid.

The Magic Income Number

What’s the magic income number? According to Angus Deaton and Daniel Kahneman, it’s about $75,000, at least when it comes to day-to-day happiness.

Profits From Prison

How’s this for working overtime? Forbes estimates that hip-hop artist Lil’ Wayne will make more money behind bars this year than he did last year.