• Everyday economics and money incentives

    Why Money Might Not Motivate Us

    May 25 • Behavioral Economics, Economic Debates, Economic Thinkers, Education, Environment, Government, Labor • 87 Views

    Using money as an incentive privately and publicly can be more complicated then we think.

    Paying For Grades

    Assume that a mom offers her son $10 for every “A” on his report card. There are several possible results.

    • Higher grades: Delighted with the dollars, he could work harder, get all A’s, become his class’s valedictorian and attend Yale or Harvard.
    • Higher grades at first; Only when money is offered will this young man excel. In the long run, the tactic is counterproductive.
    • Lower Grades: Somewhat rebellious, he knows he can infuriate his mother with a “C” average.
    • Insecurity: Unsure of his academic talents, he feels more insecure because of the offer. After all, why would they offer him money? Don’t they trust him?

    California Water

    Would dollar incentives work to diminish water usage in California? Two studies provide some clues.

    Let’s say that people were paid to use less water. With blood donors, contributions diminished when a donor program offered a cash incentive. Researchers believe the money award “crowded out” the prosocial behavior from the people willing to give blood for free.

    Okay, so what about penalties for over usage? We could cite an Israeli daycare center that decided to charge parents who were late picker uppers. The result was more late pick-ups. Researchers hypothesize that the charge placed a price on arriving late. Because the amount was relatively small, parents thought coming on time really wasn’t that important. I would like to add the possibility that the charge let people feel they were paying for the right to be late and some were happy to do that.

    Our Bottom Line: Unintended Consequences

    When a dollar incentive generates the intended result, we have an example of the standard price effect. If the opposite occurs, then we are seeing the indirect psychological effect whereby money is “crowding out” the intended result.

    In the intrinsic and extrinsic incentive literature there is lots of analysis on when money incentives do and do not work. The one common thread involves the likelihood of unintended consequences.

     

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  • Everyday economics and egg prices

    Why Eggs Aren’t Cheaper By the Dozen

    May 24 • Businesses, Demand, Supply, and Markets, Economic History, Government, Innovation, Labor, Regulation, Tech • 87 Views

    Egg markets are entirely scrambled.

    New Chicken Coops

    We knew that new California chicken regulations were going to nudge egg prices upward. Their 2008 larger cage mandate at first applied solely to instate poultry farmers. But as of January 1, 2015 they affected any egg seller in the state. And California imports lots of eggs–close to four billion.

    With egg laying chickens dwelling in cages that had to be 116 square inches rather than the previous average of 67 square inches, the cost of production increased. Said to be $40 a hen, that means $2 million extra for a farm with 50,000 chickens.

    You can see how the price of eggs has trended upwards. In 2000, adjusted for inflation, 97 cents for a dozen eggs equals $1.33 today. A 2008 high of $2.20 plummeted during the great recession before it resumed its climb. Now it is back to $2.065. (Interestingly though, according to the USDA, weekly wholesale egg prices have recently declined and now are rising again.)

    Supply elasticity and egg prices

    From: BLS

    More than the California mandate, though, avian influenza has devastated the egg supply chain

    Sick Chickens

    Because of bird flu or extermination, 32 million egg-laying hens are dead with one-third of Iowa’s egg layers wiped out. Not seen since the 1980s, an avian influenza outbreak is serious but this one is the worst. To come back, farmers have had to kill a whole flock, exterminate and disinfect their homes and then secure new birds. For some, the cost is prohibitive.

    The flu means higher prices, fewer “breaker” eggs sold as liquid to food processors and whole eggs in grocery stores. Thinking of McDonald’s breakfast menu, you can imagine all of the eggs they need for all of those Egg McMuffins. Comparably, any restaurant serving breakfast needed to respond. Some have changed their recipes. Michaels, a seller of plant-based egg substitutes has seen demand for its products spike.

    Our Bottom Line: Supply Elasticity

    In the short run it is tough to increase your chicken supply. As economists, we would say that in the short run chicken supply is inelastic. Because the chicken supply is difficult to increase in a short time period, any supply upset increases prices while quantity dips.

    Supply elasticity and egg prices

     

     

     

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Slicing Bread to Saving Honeybees

    May 23 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Humor, Economic Thinkers, Environment, Fashion, fiscal policy, Government, Households, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Tech • 90 Views

    Our Posts Roundup

    commitment devices to stop smoking Sunday 5.17.15

    An economic way to stop smoking …more

    everyday economics and saving honeybees Monday 5.18.15

    How to save the honeybees…more

    everyday economics and foreign exchange Tuesday 5.19.15

    Big Mac currency clues…more

    Everyday economics and free trade Wednesday 5.20.15

    Why New Balance dislikes free trade…more

    Everyday economics and the impact of Wonder Bread Thursday 5.21.15

    How sliced bread affected women…more

     

    Everyday day economics and the minimum wage Friday 5.22.15

    Some minimum wage insight…more

    Ideas Roundup

    • behavioral economics
    • commitment devices
    • loss aversion
    • environment
    • supply and demand
    • regulation
    • comparative advantage
    • free trade,imports,exports
    • globalization
    • consumer spending
    • opportunity cost
    • gender issues
    • industrialization
    • innovation
    • minimum wage
    • wage floor

     

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  • Everyday day economics and the minimum wage

    The One Big Issue Where Economists Disagree

    May 22 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, Labor, Regulation • 101 Views

    Through a city council vote or ballot measure, assorted municipalities across the U.S. have decided to raise their minimum wage to $15 an hour. For Los Angeles the target date is 2020; Seattle 2017; San Francisco 2018. With federal gridlock the reason reason for local action, the minimum wage is being discussed by politicians and voters in a long list of places stretching from New York to South Dakota and beyond.

    Where are we going? To the minimum wage debate.

    Some History

    Towards the end of the 1937-1938 recession, the Congress passed the Fair Labor Standards Act and the President signed it. Although it mandated $.25 as the first federal hourly minimum wage and affected less than one-fifth of the labor force, the Act was controversial. The night before signing the bill, President Roosevelt said in his fireside chat, “Do not let any calamity-howling executive with an income of $1,000 a day, …tell you…that a wage of $11 a week is going to have a disastrous effect on all American industry.”

    How Much

    In real dollars the federal minimum wage has gone up and down:

    Minimum wage history

    Who

    By Occupation

    Shown below, 4.3 percent of the 79.4 million workers paid an hourly rate received the minimum wage or less in 2013. (We should note that in 2014 there were 77.2 million workers paid an hourly rate; 3.9 percent earned the minimum wage or less.)

    Minimum wage recipients by occupation

     

    By Gender

    At 5 percent for women and 3 percent for men, in 2014, the numbers continued the trend displayed below.

    History of minimum wage by gender

    By Age

    Similar to the 2013 statistics below, in 2014 workers 25 years old or younger were 20 percent of all hourly paid labor but 50 percent of all who earned the minimum wage or less.

    Minimum wage age distribution

     

    Our Bottom Line: The Debate

    On raising the minimum wage, economic opinion is pretty much split. One group concludes there is no minimum wage impact, a second cohort says there is job loss and a third faction cites jobs gains. Including some auspicious names, most have a pretty impressive selection of statistics to prove what they believe and yet each side says the opposition’s conclusions are flawed. From what I could discern, one central problem is the difficulty of constructing a viable counterfactual version of what actually happened.

    Simplifying voluminous research…

    On the “no” side economists have said…

    • lower employment among low skilled workers because of less productivity per wage hour

    Here is a floor that illustrates the unemployment they predict:

    Minimum wage floorFor the “yes” position, a higher minimum wage will…

    • prevent worker exploitation by bosses with more power
    • boost aggregate demand by increasing purchasing power
    • create the incentive to worker harder

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  • Everyday economics and the impact of Wonder Bread

    What Bread Says About Women

    May 21 • Demand, Supply, and Markets, Economic Growth, Economic History, Gender Issues, Households, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Tech • 109 Views

    Women should say “Thank you” to Wonder Bread.

    Where are we going? To the impact of factory bread on women.

    Housework History

    In 1900, a typical housewife devoted 70 hours each week to her work at home. The laundry and cleaning each required seven hours, while meals and meal clean up occupied at least 44 hours. She also baked a half a ton of bread a year. Requiring at least an hour a week, her bread production was the equivalent of 1,400  loaves…until the Ward Baking Company.

    Bread History

    Hugh Ward was an Irish immigrant who started a bakery on NY’s Lower East side in 1850. Rather like Standard Oil, Ward’s firm drove many smaller bakers out of business as he increasingly dominated the commercial bread business. Similar also to the big trusts of the early twentieth century, his firm vertically integrated through the flour milling, yeast production, bakery equipment and transport network it controlled.

    Meanwhile though, the country was ready for industrialized bread. Neighborhood bakeries were worrisome. Unsanitary and inconsistent, the local bread makers had a dark and dirty image. By contrast, Ward Bakers were known for their clean equipment and standardized product. Made with mechanical mixers, kneaders, loaf shapers and bread wrappers, loaves of Ward bread evoked a picture of glistening equipment.

    Sliced factory bread also represented cutting edge progress (sorry-could not resist). First used in 1928 in Chillicothe, Missouri,”The Home of Sliced Bread,” sliced bread was an instant success. As one newspaper explained, housewives felt a ‘ “thrill of pleasure” when they saw each perfect slice.

    In 1929 the Ward Baking Company became Wonder Bakeries and soon was selling pre-sliced packaged loaves of Wonder Bread. Bread making had moved from the kitchen to the factory and the rest of the story is household chore history.

    From a 1900 total of more than 70 hours a week, you can see we have come a long way.

    Industrialization and household chores

    From: The Atlantic

    Our Bottom Line: Industrialization

    Described by Stanley Lebergott in Pursuing Happiness, the American woman was able to leave the kitchen because of Henry Heinz, Gustavus Swift, and Joseph Campbell. In addition to factory food, hot water, central heating, vacuum cleaners, washing machines and refrigerators diminished the time women spent on household chores.

    So yes, many of us look down on Wonder Bread. And we may not have cared that it disappeared from supermarket shelves after Hostess Brands’s bankruptcy.

    But now we should be smiling because Wonder Bread returned in 2013.

     

     

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