Tyler Cowen's Blog, page 174
May 27, 2014
Why has French employment (for some workers) done so well?
Paul Krugman has an interesting column which focuses on some too often ignored facts about labor markets, here is one excerpt:
France’s prime-age employment rate overtook America’s early in the Bush administration; at this point the gap in employment rates is bigger than it was in the late 1990s, this time in France’s favor.
There is of course more to the column than that. In terms of the bigger picture, I read Krugman as trying to argue this shows more interventionism doesn’t have to be bad. A closer look at the French labor market experience, however, suggests a somewhat different perspective. Here are a few points:
1. In France the influence of less regulated short-term jobs has been rising in importance. For instance “the share of STJ [short-term jobs] in total inflows from unemployment to employment is around 69 per cent,” circa 2010, see p. 7 (pdf). Changes in temporary jobs have driven the French employment picture since 2000 (p.8). That is the French version of The Great Reset and it does not bode well. Very few French think their children will be able to enjoy the same standard of living as they have.
2. The International Labour Organisation — not exactly The Heritage Foundation — writes about France: “The extensive recourse to short term jobs (STJ) is a striking feature of labour markets with stringent employment protection.” (p.20)
3. Favorable French employment results are also due to labor supply effects. For some classes of French workers, especially at the lower end, the return to working has remained high relative to alternative opportunities. Card, Kramarz and Lemieux (pdf) noted this as early as the mid-1990s and also cited a 1992 paper to this effect (see p.870). The United States in contrast has a larger share of jobs which pay quite a bit less than the median wage and not everyone wishes to take those jobs. The evidence here supports some of the “relative wage” theories, where your willingness to work is determined by broader social norms for what a job should go for, rather than just the absolute wage. It is also possible that lower-earning Americans have a weaker work ethic than do the French.
4. To the extent the supply side is the binding constraint, some labor market rigidities won’t hurt employment very much.
5. Even after some massive aggregate demand shocks to both countries, which the USA clearly had a superior response to, the supply side forces still play a positive role in French labor market outcomes. That is against the tenor of other opinions Krugman has expressed about employment being solely demand-driven these days. The supply side of labor markets never ceases to matter, even if it does not always matter in the way that conservative economists are claiming.
6. Within France, there is still plenty of evidence (pdf) that interventions such as the minimum wage bring classic negative effects on employment, even if this is overwhelmed by other factors in some cross-national comparisons.
7. The French system has a much poorer record of employment for the young and for the old, so focusing on prime age workers, while valuable, also doesn’t show the whole picture. For instance French seniors participate in the labor force at 42.5% compared to 72.6% for Sweden, a huge gap. And that artificial removal from so many of the elderly from the labor force in part props up real wages for the prime-age workers. It isn’t as good a deal as it looks if you focus on the prime age workers only.
8. French youth unemployment is quite bad, and contrary to what Krugman seems to suggest it is not mainly because the French are all getting so well-educated. Degree holders are getting stuck too and that is part of the French “Great Reset.”
9. A major ongoing problem for the French labor market is that net public sector job creation hasn’t been there since 2000. That is unlikely to change moving forward and will probably get worse, given French fiscal constraints. This is not something to blame on “austerity,” the French really are close to their fiscal limits.
10. The large number of protected jobs in France has come at a significant growth and efficiency cost: “Until the 1990s, France was among Europe’s leading economies in per capita GDP. By 2010, however, the country had dropped to 11th out of the EU-15.”
11. Here is an interesting comparison between Spanish and French labor market responses to the downturn, although the housing bubble in Spain should play a more prominent role in the argument. You really can read French policy as determined to protect good jobs for prime age workers, at all costs if need be.
For general background, here is a broader Nickell JEP 1997 piece on European vs. U.S. labor markets. If anything, Krugman’s basic observation has been correct for longer than he is letting on.
May 26, 2014
The worst book blurb I have read
Get this:
“The written equivalent of a Botticelli.”
That is from an advertisement for Antony Doerr’s All The Light We Cannot See.
The book has stellar Amazon reviews, and the MSM reviews are quite positive (or here), and yet I bought it only with reluctance, more to satisfy my curiosity than because I think I will enjoy or finish it.
What exactly is so bad about that blurb? After all, I like Botticelli. I like Botticelli a lot. But if they are targeting readers who think such a book can be compared meaningfully to Botticelli, or who would be impressed by such a designation…then I start to worry. And that one piece of Bayesian information weighs more heavily in my mind than all the praise for the work I have encountered.
Very good sentences to ponder
Markets in everything the packing culture that is New York
The division of labor is indeed limited by the extent of the market:
New York City mommies with money to burn are hiring professional organizers to pack their kids’ trunks for summer camp — because their darlings can’t live without their 1,000-thread-count sheets.
Barbara Reich of Resourceful Consultants says she and other high-paid neat freaks have been inundated with requests — and the job is no small feat.
It takes three to four hours to pack for clients who demand that she fit all of the comforts of home in the luggage, including delicate touches like French-milled soaps and scented candles.
At $250 an hour, the cost for a well-packed kid can run $1,000.
There is more here, via the excellent Mark Thorson.
May 25, 2014
Nurses complain about algorithms
In response [to the rise of diagnostic algorithms], NNU [National Nurses United] has launched a major campaign featuring radio ads from coast to coast, video, social media, legislation, rallies, and a call to the public to act, with a simple theme – “when it matters most, insist on a registered nurse.” The ads were created by North Woods Advertising and produced by Fortaleza Films/Los Angeles. Additional background can be found at http://www.insistonanrn.org.
Here is the link. Here is an MP3 of the ad. Remarkable, do give it a listen. It has numerous excellent lines such as “Algorithms are simple mathematical formulas that nobody understands.”
For the pointer I thank Eric Jonas.
The EU parliamentary elections
One headline is this:
The far right anti-EU National Front was forecast to win a European Parliament election in France on Sunday, topping a nationwide ballot for the first time in a stunning advance for opponents of European integration.
I’ve long maintained two points:
1. The eurozone crisis, in purely economic terms, was always salvageable. Monetary policy hasn’t much been used actively, the latent OMT semi-commitment more or less worked, and debt to gdp levels for the eurozone as a whole have never been worse than those of the United States, to cite a few simple facts.
2. Saving the eurozone requires a lot of political coordination, and a lot of intra-zone wealth redistribution, in a manner which I thought was unlikely to be initiated or maintained.
Since I’ve never been convinced that #2 is workable, I’ve not yet had a “I guess I’m wrong about the implosion of the eurozone” moment. You may recall my earlier prediction: “”Enter democracy, stage right” is the next act in the play.”
“We all know that wealth inequality has gone up”
That is a response to the Piketty criticisms from Paul Krugman, and also mentioned by Matt Yglesias. Phiip Pilkington also has a useful treatment. This point however doesn’t do the trick as a defense. Keep in mind that the “new and improved numbers,” as produced by Chris Giles, are showing doubts about the course of measured wealth inequality in the UK. Maybe wealth inequality hasn’t gone up.
Now maybe that does “have to be wrong.” But if the “new and improved” numbers are wrong, it is hard to then argue Piketty’s wealth inequality numbers can be trusted. In which case we are back to knowing that income inequality has gone up, but not knowing so much concrete about wealth inequality. (That is one reason why my own Average is Over focuses on income, and on labor income in particular, because that is where the main action has been.) The data section of Piketty’s book, which has gathered so much praise, then is not so useful, though by no fault of Piketty’s. We might think it likely that wealth inequality has gone up, but if we are going to do these selective overrides of the best available data, we cannot trust the data so much period or otherwise cite it with authority. We also could not map wealth inequality into particular measures of the r vs. g gap at various periods of time.
If there is one big lesson of the FT/Piketty dust-up, it is that we don’t have reliable numbers on wealth inequality.
Now do we in fact “know” that wealth inequality has gone up? See this piece by Allison Schrager. Intuitions about wealth vs. income inequality are trickier than you might think. And on what we actually do and do not know, here is a very good comment on Mian and Sufi’s blog (for U.S. data):
I very much appreciate that you did this, and it’s an interesting and important fact that you document here, but this does not directly respond to most of the discussion. As the extreme ratios seen here (on the order of ~20) indicate, the middle 20% has very little wealth compared to the top 20%, and this has always been true. I don’t think many conservative critics are trying to argue one way or another on this front.
The current discussion is more about the concentration of wealth at the very top, particularly the 1%. And there the SCF shows little to no evidence to support increased wealth inequality – only a minimal rise in the share of wealth held by the top 1%. This is what Kopczuk and Schrager’s article is referencing, and this is the most relevant question for the debate about Piketty’s (and Saez and Zucman’s) findings of higher wealth inequality at the top.
You really need to look at *that* issue, and if you think this is impossible because “the SCF is not a huge sample” (though it does oversample at the top), you need to say so, rather than passing off an interesting but essentially distinct point as being a decisive response to critics – which, frankly, is what you’re doing in this post.
I could not have said it better myself.
Assorted links
1. The fox and the hedgehog, literally.
2. Are today’s teenagers the best-behaved of all time?
3. Gordon Tullock on the economics of slavery.
4. James Hamilton on Piketty (self-recommending).
5. The gadget that makes sure you never lose anything again (there is no great stagnation, perhaps this time for real).
How much have white Americans benefited from slavery and its legacy?
Many people are talking about the Ta-Nehisi Coates essay on reparations. Ezra Klein has a summary of the argument, which runs as follows:
What Coates shows is that white America has, for hundreds of years, used deadly force, racist laws, biased courts and housing segregation to wrest the power of compound interest for itself. The word he keeps coming back to is “plunder.” White America built its wealth by stealing the work of African-Americans and then, when that became illegal, it added to its wealth by plundering from the work and young assets of African-Americans. And then, crucially, it let compound interest work its magic.
I would suggest that most living white Americans would be wealthier had this nation not enslaved African-Americans and thus most whites have lost from slavery too, albeit much much less than blacks have lost. For instance it is generally recognized that freer and fairer polities tend to be wealthier for most of their citizens. (We may disagree about what “fair” means for many issues, but slavery and its legacy are obviously unfair.)
More specifically, many American whites benefited from hiring African-American labor at discrimination-laden discounted market prices, but many others lost out because it was more costly to trade with African-Americans. That meant fewer good customers, fewer eligible employees, fewer possible business partners, fewer innovators, and so on, all because of slavery and subsequent discrimination. The wealth-destroying effects are surely much larger here, even counting whites alone. And the longer the time horizon, the more likely the dynamic benefits from trade will outweigh the short-run benefits from discriminating against some class of others.
Empirically, I do not think whites in slavery-heavy regions have had especially impressive per capita incomes. And a lot of the economic catch-up of the American South came only when the region abandoned Jim Crow.
We also can look at how many white Americans have had ancestors who, at least for a while, had zero or near-zero net wealth. The returns from slavery may have been compounding for some heirs of Mississippi plantation owners, but not for most of us. My father, when he was thirty, had just gone bankrupt from an unsuccessful attempt to manage a New Jersey pet store. In what sense was he, or later I, reaping compound returns from a legacy of slavery? We go back to the point that overall he probably would have had a better chance in the wealthier and fairer non-discriminating society, even if you can pinpoint some mechanisms through which he might have benefited, such as facing less competition from potential African-American pet store entrepreneurs.
The economic incidence of slavery is a tricky matter (most of what Squarely Rooted argues here is wrong). A lot of whites in the slave trade bought slaves at the going market price and earned the going market rate of return. Of course these same whites were reluctant to free the slaves they had bought and that meant terrible lives for the victims. But the gains of those whites are not mirror images of the losses of the slaves. Thus in some regards slavery was a massive collective action problem with a relatively small number of beneficiaries. Those benefiting would include individuals who first saw the gains from seizing slaves from Africa, and individuals who were good at spotting undervalued slaves and buying them up and exploiting them. That’s a fair number of people but it is far from comprising the overwhelming majority of society in 1840, much less 1940 or 2014, once we consider possible wealth transmission to their heirs.
There is still a moral case for reparations even if most American whites have lost from slavery rather than benefited. (Although I doubt if the America public would see the matter that way, which is one reason why the reparations movement probably isn’t going anywhere.) Nonetheless on the economics of the issue I would suggest a very different analysis than what I am seeing from many of the commentators. And this analysis makes slavery out to be all the more destructive, and reparations to be all the more unlikely.
Addendum: It is amazing how many of you cannot read and digest a simple sentence such as “There is still a moral case for reparations even if most American whites have lost from slavery rather than benefited.” Which by the way is far to the “left” of where the current debate stands in American politics and indeed in most other parts of the world.
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