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    Unemployment Benefits and Costs

    Jan 13 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Government, Households, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 526 Views

    99, 26 or somewhere in between?

    At the end of February, Congress again will have to decide about the length of unemployment insurance (UI) Described by the state of California to its residents, 99 remains the maximum number of weeks for receiving UI. Had Congress not acted during December, the benefit period would have reverted to 26 weeks.

    How to decide what to support? Here are 4 possibilities:

    1. Assess cost: UI is a program that is paid for by state trust funds that receive federal/state taxes. According to this GAP report, a majority of the states (map, p.10) had relatively weak trust funds that needed loans from the federal government. As of the end of 2009, no state had enough to cover 12 months of benefits.
    2. Compare duration with other countries: Explained by University of Chicago Professor Casey B. Mulligan with a 2005 graph, the U.S. provided benefits for a relatively short time. Looking at OECD countries, the 3 at the top, Australia, New Zealand and Belgium, offered unending benefits to those who qualified. At the bottom were Italy, the U.K. and last, the U.S (6 months). 
    3. Compare duration with other recessions: Using 92 weeks as the maximum, Dr. Mulligan displays a spike in Nov. 2011 and Dec 2009. Next were Dec. 2008 and Feb. 1992 with federally mandated benefits lasting close to 72 weeks. After that, Mar. 2002 and Apr. 1975 are at 66 weeks or so.
    4. Consider incentives: People who support longer lasting benefits say that when the money is spent, it stimulates the economy. Those for a shorter time period believe that benefits are a job search disincentive.

    The Economic Lesson

    Perhaps we should ask if unemployment is cyclical or structural. Cyclical unemployment subsides when the business cycle returns to prosperity. By contrast, structural unemployment will not go away because it reflects a changing economy that has eliminated “outdated” skills and noncompetitive industries.

    An Economic Question: How might your opinion about the duration of unemployment benefits relate to whether joblessness is cyclical or structural?

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    Sweatshop Dilemmas

    Jan 12 • Businesses, Developing Economies, Economic Debates, Households, Labor, Macroeconomic Measurement • 1298 Views

    Is it okay to have sweatshops in developing nations?

    NY Times writer Nicholas Kristof, and Nobel prize winning economists Paul Krugman and Milton Friedman have all said, “Yes.”

    Kristof points out that the parents of children scavenging in a noxious Phnom Penh garbage dump perceive Thai sweatshops as a path out of poverty. They don’t benefit when factories close because trade agreements require labor standards; they lose jobs when consumers boycott firms whose Asian factories employ child labor. As Paul Krugman says, “While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.” 

    But still, listening to monologist Mike Daisey describe his worker interviews outside a Foxconn electronics factory in China, the horrors of sweatshop work become real. Very low pay, long hours, dangerous working conditions. It brings back memories of the Triangle shirtwaist factory fire (March 25, 1911).

    The Economic Lesson

    Milton Friedman explains in Free to Choose that sweatshops enabled his parents to work when they arrived in the U.S. In a Hong Kong factory, Dr. Friedman says it was “the power of the market” that increased labor’s wages when demand grew for their skills.

    An Economic Question: How would you resolve the dilemmas presented by sweatshops in developing nations?

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  • Twinkie Facts

    Jan 12 • Businesses, Demand, Supply, and Markets, Economic Humor, Financial Markets, Households, Innovation, Labor • 583 Views

    There is more to a Twinkie than sugar, fat, preservatives and artificial flavors. The history of the Twinkie is an economic story.

    Once upon a time, during the depression, a manufacturer can 30 ingredients. Depression: 1930 first sold

    WW II rationing: banana-creme filling 1930-1940s only banana creme

    Bankruptcy: WW II banana shortage–so vanilla filling


    R & D http://www.npr.org/templates/story/story.php?storyId=4780900

    Leveraged buyout: tweaked Twinkie sales during King Kong movie promotion up 20% so thwy returned fr good 2007 more than 1/2 billion twinkies sold annually

    Interstate Bakeries


    Kansas City


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    Slippery Subsidies

    Jan 11 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Regulation • 533 Views

    By Mira Korber, guest blogger, Kent Place School alumna, Yale student, and recent traveler to Buenos Aires, Argentina. 

    Venture down any avenue in Buenos Aires and you will certainly see tremendous lines coiling around the sidewalks as daily commuters await the infamous “colectivo,” or Argentine public transport city bus. Wait a while, then a while longer, and perhaps your bus will arrive quickly, perhaps not. But in the end, it’s worth the wait as your ride is so cheap, you can put up with a little unpredictibility. 

    Climb aboard and spend only between 1.10 and 1.25 pesos for a ride anywhere in the city of Buenos Aires. But now, it’s going to cost you a few more “monedas” (coins). 

    To ameliorate their massive national debt, the Argentine government has no choice but to cut back on national spending, some of which is dedicated to subsidizing the “colectivo” system.

    Subway fares have already increased by 127% — to 2.50 pesos (.58 US cents) and colectivos could raise their 2012 rates by as much as 3 pesos. Additionally, the considerable water, gas, and electric subsidies are on their way out; 260,000 Buenos Aires residents living in affluent neighborhoods have lost all government assistance.

    In 2011, the government doled out almost 69 billion pesos (approx. $16.4 billion USD) in subsidies, the largest recipients being energy (60.4%) and transportation (27.9%). A remaining 31.9 billion pesos went towards social welfare programs.  

    Try out these interactive subsidy graphics at LaNación.com, one of Argentina’s most prominent newspapers; you can find month-to-month costs of subsidizing buses. And here, you can find an interactive map of public transport prices around the world as well as an animated representation of the elements fueling each bus, the “colectivo porteño.”  (NB. “recorrido” = route, “usuario” = user, “boleto” = ticket, “subsidio” = subsidy.)

    Read here about why such extensive subsidies were implemented in the first place, and how the proposed 2012 subsidy cuts will only comprise 4.8 billion of privately estimated expenditure of 70 billion. 

    The Economic Lesson

    Government subsidies exist to (1) help boost industries, (2) encourage businesses to hire more employees, and (3) ease living costs for a country’s residents. By keeping prices artificially low, Argentina experienced tremendous growth in the years following economic crisis in 2001-2002. In 2011, the Argentine GDP measured up at 8.3% (see bottom of article).  But now, due to subsidy lifts that will turn up the heat on already-high inflation (privately estimated around 25%), the economy’s 2012 GDP is projected to be only 2-3%. 

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    Forbidden Dollars

    Jan 10 • Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Households, Money and Monetary Policy, Regulation • 719 Views

    By Mira Korber, guest blogger, Kent Place School alumna, Yale student, and recent traveler to Buenos Aires, Argentina. 

    In Argentina, a $100 USD bill is a hot item.

    And though Argentines want US dollars — for traveling, saving, or otherwise — they cannot get them easily. Government imposed restrictions prohibit citizens from withdrawing any currency other than pesos from the bank. 

    Despite this, Argentines are attempting to access their funds in dollars due to mistrust in the global economy. They fear losing their savings as they did in 2001, when the peso was devalued over 300% and unpegged from the US dollar. 

    After Argentina defaulted on its loans from the IMF, it imposed the “corralito;” in other words, savers could only withdraw $250 USD each week from their bank accounts. Argentines began protesting by whacking pots and pans, a phenomenon known as the “cacerolazo” before disintegrating into fully-fledged protests against the economic mismanagement of their country. 

    Read an explanation of how the 2001 crisis unfolded here.

    The Economic Lesson

    An economic definition of money states that it must be a unit of value, medium of exchange, and store of value. The Argentine peso should function in all three arenas, so why are citizens seeking US dollars in the first place? Globally, whenever a country experiences stormy economic conditions, citizens tend to seek refuge in a currency that they know is a legitimate store of value — in the long run. Now, 10 years after the riots of 2001, it appears that Argentines fear their pesos will devalue drastically again if economic disaster strikes for a second time. They turn to dollars as a symbol of security. 

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