We study the economic effects of religious practices in the context of the observance of Ramadan fasting, one of the central tenets of Islam. To establish causality, we exploit variation in the length of the fasting period due to the rotating Islamic calendar. We report two key, quantitatively meaningful results: 1) longer Ramadan fasting has a negative effect on output growth in Muslim countries, and 2) it increases subjective well-being among Muslims.
A new working paper (abstract; PDF) by Eric V. Edmonds and Maheshwor Shrestha analyzes whether schooling incentives (in the form of conditional cash transfers) effectively reduce child labor, which is a persistent problem in developing countries. Their conclusion: you get what you pay for. From the abstract:
Can efforts to promote education deter child labor? We report on the findings of a field experiment where a conditional transfer incentivized the schooling of children associated with carpet factories in Nepal. We find that schooling increases and child involvement in carpet weaving decreases when schooling is incentivized. As a simple static labor supply model would predict, we observe that treated children resort to their counterfactual level of school attendance and carpet weaving when schooling is no longer incentivized. From a child labor policy perspective, our findings imply that “You get what you pay for” when schooling incentives are used to combat hazardous child labor.
A new working paper (abstract; PDF) 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.
Three of my colleagues and friends at the University of Chicago — Kerwin Charles, Erik Hurst, and Matt Notowidigdo — recently presented some new research that aims to understand the ups and downs in the U.S. labor market. It’s more serious and important than the usual stuff we deal with on the blog, but every once in a while we deviate from trivialities when something really good comes along.
They’ve been kind enough to put together a layperson’s version of the research below. For those looking for the full-blown academic version, you can find that here.
A Structural Explanation for the Weak Labor Market By Kerwin Charles, Erik Hurst, and Matt Notowidigdo
In the aftermath of the Great Recession, the labor market has remained anemic. Between 2007 and 2010, the employment-to-population ratio of men between the ages of 21 and 55 with less than a four-year degree fell from 82.8 percent to 73.8 percent. As of mid-2012, the employment-to-population ratio for these men remained depressed at 75.6 percent.
In our new working paper (abstract; full PDF), we show that the recent sluggish labor market in the U.S. – particularly for prime age workers without a college degree – can be traced back to the large sectoral decline in manufacturing employment that occurred during the 2000s. After decades of relative stability, total manufacturing employment in the U.S. fell by 3.5 million jobs between the beginning of 2000 and the end of 2007 (see chart below). These manufacturing jobs were lost even before the Great Recession started. During the recent recession, another 2 million manufacturing jobs were lost. While there is talk of a recent manufacturing rebound in the U.S., the recent increase is only a tiny fraction of the total manufacturing jobs lost during the 2000s.
Reuven Brenner of The Americanexplores the economic benefits of shortening college to three years:
Assume that after graduation the average salary would be just $20,000 and remain there. With 4 million students finishing one year earlier, this would add $80 billion to the national income during that year. Or at an average annual income of $40,000, it would add $160 billion. Assume now that the additional $80 billion in national income would be compounding at 7 percent over the next 40 years. This would then amount to an additional $1.2 trillion of wealth – for just one generation of 4 million students joining the labor force a year earlier at a $20,000 salary. At $40,000, this would amount to $2.4 trillion by the fortieth year – again, for just one generation of 4 million people joining the labor force a year earlier. The added wealth depends on how rosy one makes the assumptions about salaries or compounding rates. Add 10, 20, or 30 generations, each starting to work a year earlier, and the numbers run into the tens of trillions of dollars.
The indirect impacts may be as significant. One or two years of additional, compounding earnings could do a lot to shore up entitlement programs, with a more positive impact than requiring people 65 and older to stay in the labor force much longer: the magic of resulting compounding would start earlier.
Writing for Slate, Ray Fisman (who’s been on the blog before) explains why “the bottom 20 percent of American families earned less in 2010 than they did in 2006, the year before the recession began”:
There are two broad shifts that account for much of this decline: globalization and computerization. From T-shirts to toys, manufacturing jobs have migrated to low-wage countries like Vietnam, Bangladesh, and of course China. Meanwhile, many of the tasks that might have been done by middle-income Americans employed as bookkeepers or middle managers have been replaced by spreadsheets and data algorithms.
Fisman argues that in order to succeed in the new economy, American workers need to shift away from construction and manufacturing jobs to “high touch” professions. “If jobs are being lost to low-wage Indians and computer programs, then what today’s worker needs is a set of skills that offers the personal touch and judgment that can’t be provided by a machine or someone 12 time zones away,” writes Fisman.
This prompted an e-mail from Hal Varian, Google’s chief economist. (If you don’t know of Hal you should, as he’s an impressive and fascinating guy — check out the Q&A he did here a few years back.) His e-mail reads:
Saw your piece about Trader Joe’s et al. Here’s one reason to pay people more than their market wage (from my textbook):
Varszegi says that he got his start as a businessman in the mid-sixties by playing bass guitar and managing a rock group. “Back then,” he says, “the only private businessmen in Eastern Europe were rock musicians.” He introduced one-hour film developing to Hungary in 1985; the next best alternative to his one-hour developing shops was the state-run agency that took one month.
A reader named Quinton White points us to an interesting article by Jim Surowiecki in The New Yorker about how retails firms are succeeding by hiring more workers and spending more money training and rewarding them. Surowiecki writes:
A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.
The picture on this t-shirt is a joke. It states: “Always give 100% at Work: 12% Monday; 23% Tuesday; 40% Wednesday; 20% Thursday; 5% Friday.”
But it’s interesting that its creator chose not to spread the work evenly across the week. His/her view of labor supply suggests a temporal dimension that seems sensible: More work on Monday than on Friday, more on Tuesday than on Thursday, with peak work effort on Wednesday. In terms of labor productivity, this does not seem very far wrong.
Our latest Freakonomics Radio onMarketplace podcast is called “A Cheap Employee Is … a Cheap Employee.”
(You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)
It’s about the question of whether low-paid employees are indeed a good deal for a retailer’s bottom line as the conventional wisdom states.
The piece begins with a couple of stories from blog readers, Eric M. Jones and Jamie Crouthamel, which were solicited earlier here. (One of the true pleasures of operating this blog is having a channel by which to turn readers into radio guests — thanks!)
In the past couple weeks I have written about labor negotiations in the NBA and the recent labor agreement in Major League Baseball. Now that we have agreements in both sports, thanks to the new NBA deal, I would like to address why the two unions involved in these negotiations have historically achieved such different outcomes.
The November unemployment data that came out on Friday has Democrats crowing about the drop in the unemployment rate; yet Republicans are rightly pointing out that much of the drop was due to labor-force withdrawal. Neither party, however, seems to be noticing the most remarkable thing: the continuing, constant and historically high share of unemployment accounted for by the long-term unemployed, around 43 percent. This is bad for society for two reasons:
1. The burden of unemployment—the loss in utility—must increase the longer one is unemployed (and has perhaps exhausted savings and unemployment benefits).
2. With unemployment concentrated so narrowly, fewer people than otherwise experience the pain, so the political pressure to do anything to ameliorate the situation is lessened.
The huge rise in long-term unemployment, and the huge rise in the share of income accruing to the top 1 percent of households, both work to dis-integrate American society.
A new paper from Eric V. Edmonds and Norbert Schady finds that cash transfer programs in developing countries may keep kids in school and out of the labor force. From the abstract:
Poor women with children in Ecuador were selected at random for a cash transfer equivalent to 7 percent of monthly expenditures. The transfer is greater than the increase in schooling costs at the end of primary school, but it is less than 20 percent of median child labor earnings in the labor market. Poor families with children in school at the time of the award use the extra income to postpone the child’s entry into the labor force. Students in families induced to take-up the cash transfer by the experiment reduce their involvement in paid employment by 78 percent and unpaid economic activity inside their home by 32 percent.
Last week I looked at the labor negotiations in the NBA. Since then, the NBA appears to have reached an agreement with its workers, ending the latest dispute in professional North American sports.
Over the last three decades, labor disputes have become a common feature in professional sports. In fact – as The Wages of Wins indicated– relative to non-sports industries, labor disputes are about 25 times more likely in professional sports. So the recent lockout in the NBA was hardly surprising.
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.
With the NBA away, sports fans are looking for something to satisfy their need to watch teams strive for victory. Well, why not take a look at the teams competing in the lockout? Okay, maybe this is a contest only a sports economist could love. But while it may not appeal to everyone, the labor dispute is still best thought of as a contest between two teams.
The first team is the NBA owners. The owners are the dominant buyer in the world market for elite basketball talent, so they have substantial monopsony power. In the other corner are the players, who are currently trying to disband their union. This union gave the players monopoly power in the sale of elite basketball talent (more specifically, in helping to determine the conditions under which individual players would sell their services). When a monopsony meets a monopoly on the economic battlefield, the outcome is determined by bargaining.
Chances are, if you’ve heard of the Chinese technology giant FoxConn, it’s because it manufactures the iPhone and iPad. Last year, at an iPhone manufacturing complex in South China, there were a number of worker suicides that made news.
In apparent attempt to fix some of its labor issues, Foxconn’s parent company, Taiwan-based Hon Hai Precision Industry, is now making a big push into robots.
The project, which is initially forecast to cost the Taiwan-based Hon Hai Precision Industry Tw$6.7 billion ($223 million), was unveiled Saturday when Terry Gou, chairman of the conglomerate, broke ground for the construction of a research and development unit in Taichung, central Taiwan.
“The investment marks the beginning of Hon Hai’s bid to build an empire of robots,” the Central Taiwan Science Park authorities said in a statement.
This fall, Murphy has been working with the NBA players union in its negotiations with team owners over the NBA lockout. Steve Aschburner of NBA.com sat down with Murphy for a lengthy and very interesting Q&A on the tricky economics of the NBA, and what role Murphy is playing. Here are a few highlights:
The Jewish New Year is announced by blasts on a ram’s horn (shofar). Many people use much larger horns instead (a kudu, for example). This year, as part of the religious service, a woman picked up the ram’s horn to blow a few sounds, and not much came out—a few feeble toots. After squeaking out half the required notes, she switched to the kudu horn—she switched to additional capital. With the larger horn she blasted the entire congregation out of their seats—truly wonderful sounds.
Even in a religious service we can observe that the marginal product of labor is enhanced by additional capital—even in this context labor and capital are complements in production.
A study released this week by NBER measures the elasticity of substitution between American workers and their immigrant counterparts — in non-economic speak, the study asks whether immigrants are good substitutes for equally skilled native workers. While some comparisons remain murky, it appears that non-native workers are actually “perfect substitutes” for equally skilled native workers. The authors write:
In terms of the elasticity of substitution between equally skilled immigrants and natives, we conclude that the OP data, correctly analyzed, imply that the two groups are perfect substitutes. In fact, by using a statistically valid set of regression weights and by defining the earnings of a skill group as the mean log wage of the group (rather than the unconventional log mean wage used by OP), we find that the OP data reveal an effectively infinite substitution elasticity. The evidence thus implies that native workers are exposed to adverse effects from immigration-induced increases in labor supply.
The study sheds some light on the thinking behind (and backlash against) Alabama’s court-upheld crackdown on illegal immigrants.
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:
This week: No more drunk puppy-buying; the price tag of a hit song; a human homerun; the end of the mancession; why Americans’ cars are getting heavier; and why a pretty woman causes some men to crave war.
Driving through New Jersey we stop for gas and sit for a few minutes until the attendant comes to fill our tank. My son tells me that is because New Jersey has one of the most wasteful restrictions in the Union: There is no self-service gasoline; all gas must be pumped by an attendant. This wastes drivers’ time—it’s almost always quicker to pump gas oneself. The labor of the attendants is thus devoted to generating economic waste and could be spent productively elsewhere rather than in promoting economic inefficiency. Perhaps at one time the restriction was based, as they usually are, on health/safety, or perhaps on preventing pilferage. But today, with credit-card pumps and few (no?) cases of people burning themselves pumping their own gas, the restriction has no rationale—other than protecting the attendants’ jobs.
A lot of us were disappointed in the latest jobs report. Non-farm payrolls grew by only 54,000. By contrast, a good recovery requires growth of several hundred thousand jobs a month. But my dinner table conversations with Betsey helped me put it in perspective. (And yes, given her current job, this explains the somewhat political nature of this post.) Her comparison: Through the entire eight years of the (Dubya) Bush administration, non-farm payrolls grew by an average of only 11,000 per month. OK, the Great Recession explains some of this. But not a lot. Let’s cherry-pick the most favorable sample we can, focusing on the period through to the absolute peak in employment, which occurred in January 2008. This still yields average jobs growth of only 66,000.
The annual conference that I organize with the Institute for the Study of Labor in Bavaria begins Thursday. Each year we receive about 150 submissions, and pick 24 to fill the available time slots. Typically we’ve had one or two withdrawals, but this year we have five. If I had known this, we would have accepted more papers—the conference works best with 22 or 23 papers. Is there any way to solve this problem? I could accept more papers, but the program would be too long if nobody withdrew. I could require authors of accepted papers to post a bond, perhaps $250, forfeitable if they withdraw. While that sounds very economic, I bet we would get fewer submissions—posting bonds for conference participation is not part of our culture—and possibly even lower average quality submissions.
Of course, I punish those who withdraw by disqualifying them from the conference for the next few years. But other than that, I see no solution.
A new report from the OECD paints a fascinating picture of how citizens from different countries stack up on an assortment of metrics: from who works the longest hours, who shops the most, to who is most trusting of others. The annual report, titled “Society at a Glance 2011 – OECD Social Indicators,” is chock-full with interesting data on all kinds of social behaviors.
Checking out of the local supermarket yesterday, my wife was thanked for bagging her own groceries. She stopped, then realized that in the U.S. supermarkets have baggers, while the local supermarkets that we shopped at in Germany did not.
An article on the BBC and elsewhere notes that witches and astrologers are now recognized occupations in Romania and no longer part of the underground economy. Practitioners’ incomes are now taxable-and practitioners are now covered by the country’s pension and health insurance schemes. Some witches have cast spells to overturn the new regulations, while others like the new benefits more than they dislike paying the new taxes.
I can’t tell whether I’m writing this as a very proud significant-other, a jealous co-author, or a pleased colleague, but whatever it is, I can’t resist passing on some good news: Betsey Stevenson recently learned that the Labor and Employment Relations Association is awarding her the John Dunlop Scholar Award, typically awarded to a labor economist in the first decade of their careers. The award is “to recognize outstanding academic contributions to research by recent entrants to the field.” It’s a very flattering acknowledgment, and she’s following in the footsteps of Jon Guryan, Alex Mas, Nick Bloom, David Lee, Marianne Bertrand, Armin Falk and David Autor, among other labor luminaries.