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    Middle Class Questions

    Apr 23 • Government, Households, Labor, Macroeconomic Measurement, Regulation, Uncategorized • 1082 Views

    If you have questions about Verizon and middle class income growth,  your conclusions might depend on the questions that you ask.

    My story begins with a disastrous call to Verizon Wireless. One agent left and never returned, three said they could not help me, and the fifth person, hearing I had made no progress after 45 minutes said, “An iPhone is a luxury item; these things take time.” The sixth agent, realizing my problem had an easy solution, helped me graciously and quickly.
    Soon after, Verizon asked me to evaluate their service in an automated survey. Using numbers from 1 to 10 to quantify my satisfaction, I was supposed to assess the last person with whom I spoke in a series of questions. Only in a separate optional comment at the end could I tell about the other five people.
    I suspect Verizon’s computers will conclude they just made another customer happy because I gave agent #6 a “10” for every question. And yet otherwise, my experience was far from ideal.

    The Verizon survey reminded me of statistics about middle class income.

    Researchers disagree about how much middle class income grew from 1979-2007. Citing a 3 percent total, economists Thomas Piketty and Emmanuel Saez say there was virtually no growth. By contrast, a group of Cornell scholars says middle class income grew 36.7 percent.

    A 33.7 percent difference! How? Because the answers you get depend on what you ask.

    Piketty, Saez and the Cornell group had to decide whether they would ask questions about a tax unit, a household, or a family. The former two economists chose the tax unit while the latter selected the household.  Then, the Cornell group considered whether to ask questions solely about returns from land, labor and capital or to include government transfers. And after that, questions about household size become relevant because people sharing a household–even if unrelated–benefit from each other’s income through shared spending.

    The Botton Line: When Verizon, Piketty and Saez, and the Cornell group looked at the answers to their questions, their conclusions were totally accurate. Who is right? It all depends on which questions you think are appropriate.

    The NY Times introduced Thomas Piketty and Emanuel Saez and their ideas in a front page story. Their paper with much more detail is here. For the Cornell group’s research, an Econtalk podcast provided an excellent description and a great summary comparison chart. Gated, their NBER working paper is here.

    *The first sentence of this post was edited after it appeared.

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    Venezuela’s Price Controls

    Apr 22 • Behavioral Economics, Demand, Supply, and Markets, Households, Regulation, Thinking Economically, Uncategorized • 960 Views

    Reading that a Venezuelan retiree did not mind the food lines, I started thinking about how President Chavez’s price controls have changed incentives. The retiree, who has more time than money, now has the incentive to stand in line. Meanwhile, a business owner, seeing profits erased by price controls has the incentive to produce less.
    When a ceiling on prices increases the quantity that people demand while decreasing the quantity that producers supply, the result is Venezuelan shortages of the basics like powdered milk, beef, chicken, vegetable oil and sugar.

    The bottom line: A government established price creates distorted incentives for buyers and sellers. The long lines, pajama tops without buttons, and grouchy salespeople that characterized the former Soviet Union are perfect examples of the results of distorted incentives.

    This NY Times article tells more about price controls in Venezuela. Also, you might enjoy seeing this sign from a Venezuelan store that is posted here.

    *This entry was edited after it was first posted.

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  • Women’s Wages

    Apr 21 • Behavioral Economics, Demand, Supply, and Markets, Gender Issues, Households, Macroeconomic Measurement, Uncategorized • 624 Views

    I just learned that April 17 was Equal Pay Day. Assuming that the average woman earns 22 percent less than the average man, she would have to work until mid-April to equal his pay.

    For women’s pay statistics, I like to look at the Institute for Women’s Policy Research (IWPR). In a recent paper, they say the gap is 17.8 percent because a typical woman’s median weekly earnings are $684 while for men, $832.

    Calling it “occupational segregation,” the IWPR reports that jobs we associate with women pay less than “male occupations.” For example, female secretaries earn $651 a week and even that is $16 less than their male counterparts. Similarly, female cashiers earn $373 weekly and male cashiers, $411. You can see that in lower paying “female” jobs, still men earn more. (All amounts are for median weekly earnings.)

    For the wage gap in occupations dominated by men, the IWPR shows that although the wages are higher, again, women take home less. The median weekly earnings for female drivers/sales workers/truck drivers is $511 a week. A male in the same category? $712. Female janitors/building cleaners? $418. Male janitors/building cleaners? $514. Female CEOs? $1464. Male CEOs? $2122.

    Focusing on the wage gap for professional women, Harvard economists Clauda Goldin and Lawrence Katz cite children as the reason because women take more time off for child rearing and that time off decreases their lifetime earnings. Even women with career continuity tend to select lower paying specialties like general practitioners rather than neurosurgeons or salaried in-house council rather than a high pressure law firm. And, for working mothers with an MBA, 15 years after graduation, the gender pay gap is 25%.

    Super Freakonomics tells us that women are subject to greater pay discrimination for being obese or having bad teeth.

    The Bottom Line: Supply and demand for men and women differ in labor markets.

    If you would enjoy reading more about the gender pay gap, the occupational charts are fascinating in the IWPR report. For a lighter approach,  the Freakonomics blog quotes Goldin and Katz. But, if you prefer seeing their conclusions firsthand, you can look at one of their papers here.

    And finally, an interesting fact: It matters where you live. Washington, D.C. has the smallest wage gap while Wyoming has the largest. This Huffington Post article tells more.

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    Female Human Capital

    Apr 20 • Businesses, Demand, Supply, and Markets, Economic History, Gender Issues, Households, Labor, Thinking Economically, Uncategorized • 621 Views

    To one group of economists, oral contraception is all about human capital.

    1970 appears to have been a turning point. 40 years ago, increasingly, women started entering law school, medical school and other professional programs after college. Instead of majoring in education, more women became judges, physicians, dentists, architects, veterinarians. They entered professions that required years of their time.

    As a result, female human capital–a woman’s accumulation of productive knowledge–became more valuable.

    Asking why, some economists are saying one reason is oral contraception. The proliferation of birth control pills among unmarried women that started during the early 1970s helped them to time marriage and children. Once women could plan child birth, they could better determine when and how to develop their professional skills-their human capital. They could enter and complete longer educational programs, decide the duration of employment, and have control over professional goals. As a result, women entering labor markets could earn more. Earning more, their value climbed in marriage markets. And, because more women were marrying later, postponing finding a spouse was a less costly decision since, as economists Goldin and Katz express it, marriage markets for older women “thickened.”

    Our bottom line: A recent economic study suggests that the pill helped to narrow the gender wage gap, to “upgrade” women’s career choices and to encourage later marriages and child birth. I wonder also whether it materially contributed to U.S. economic growth (but could not find data to confirm it.) Yes, oral contraception is a major social issue but its economic significance is probably considerable.

    I started researching the economic impact of oral contraception after reading NY Times financial journalist, Annie Lowrey’s economix blog. That took me to papers by Goldin and Katz from 2002 and a group from the University of Michigan. I also looked at an interesting discussion of “The Efficiency of Gender Equity.”

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    Living Solo

    Apr 18 • Behavioral Economics, Economic History, Gender Issues, Households, Labor, Macroeconomic Measurement, Uncategorized • 709 Views

    I’ve just started to count the people I know who live alone. School friends, relatives, neighbors. Some are in their twenties and early thirties, unmarried. Others are divorced. Several are widowed.

    31 million of us live alone. Almost one-third of all households in the U.S. are composed of one person. Five million adults, younger than 35, live alone.

    In 1950, living alone was the exception. Not any more. Why?

    Maybe because of affluence, feminism, and technology. An increasingly affluent society has increased our life spans. With one spouse outliving the other, a woman (more typically) or a man is left to live alone. Women working outside the home have less dependence on a spouse. Women can marry later (age 26.5 average) and leave a marriage more easily. Fifty percent of all mariages will probably end in divorce.

    And with pets becoming family members and the proliferation of social media, are we really alone when living solo?

    The bottom line? Ups, downs, and long term economic trends have touched the very essence of how we live. When the economy dipped, more college grads moved in with their parents. More people postponed marriage. More postponed divorce.  On the other hand, with the upward trajectory of the economy between 1940 and 2000, we became more of a live alone society.

    This New Yorker article started me thinking about living alone and is the source of my statistics. In “The Boomerang Generation,” you might look at research from Pew for insight about multigenerational living and here is the census data that confirms the increase in single person households. Finally, for more about the impact of economic growth on our lives, I always love to return to Pursuing Happiness by Stanley Lebergott.

    An interesting single household fact: In 2000, Utah had the fewest single person households and Washington D.C the most.

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