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    Visiting the Labor Market

    Mar 9 • Households, Labor, Macroeconomic Measurement • 485 Views

    We might need to adjust how we think about the labor market. Yes, we know that the unemployment rate for February was 8.9% and that 13.7 million people are jobless.  However, to encourage thoughts about the future, an M.I.T. economist tells us more.

    First, let’s slice the labor force into thirds:

    1) High-skill, high wage workers which include “high education professional, technical, and managerial occupations.”

    2) Middle-skill, middle wage workers that are “white-collar clerical, administrative and sales jobs occupations and blue-collar production, craft, and operative occupations.”

    3) Low-skill, low wage workers which take us to “low-education food service, personal care, and protective service occupations.”

    According to M.I.T.’s David Autor, #2, the middle, has experienced diminishing opportunities during the past 2 decades while the top and the bottom of the labor market have had expanding job potential. Most important, though, are the two challenges cited in Dr. Autor’s paper. 1) Skilled workers are in greatest demand but educational levels have not kept up with our increased need for them. 2) Because we have expanding job opportunities at the top and the bottom of the labor market, we have greater polarization–a greater divide about which he is concerned.

    The basic question for us is trajectory. Do we approve of the direction in which the labor market is heading? What are the policy implications for wages, educational attainment, and employment opportunities?

    The Economic Lesson

    To be defined as a member of the labor force, an individual is:
    -16 years old or older
    -unemployed and looking for a paying job


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    Bikes-For-Hire and the British Coastline

    Mar 8 • Environment, Government, Households, Regulation, Thinking Economically • 499 Views

    London’s new bikes-for-hire program is about more than bikes.

    Launched this summer, the program had to solve a mismatch between supply and demand. In certain places there were too few bikes for the number of people who wanted them. In other spots, the number of racks for dropping them off was inadequate. Checking the stats, one blogger cited the impact of weather and holidays on bike usage.

    Also, the environmental impact was tough to assess. Seeing the trailers being used to transfer empty bikes to busier docks, concern developed that many were not attached to electricity-powered vehicles. Cutting emissions would be difficult because most people left mass transport to use bikes. The goal was to get them to stop using their cars.

    Meanwhile, London’s planners, recognizing a potential tragedy of the commons, sought to avoid thefts and vandalism by buying heavy, 23kg, bikes and using a “complex system of keys and passcodes.

    Finally, one transport economist said that the bikes were solving the wrong problem. People had enough bikes. Citing the lack of safe bike lanes, he said, “It’s just that people are afraid to use them.”

    A last thought–is London’s health insurance program involved if no helmets are provided?

    The Economic Lesson

    Mathematician Benoit Mandelbrot could tell us how bikes-for-hire take us to the British coastline.

    Dr. Mandelbrot was the father of fractal geometry and the idea that the closer you look, the more you see. From a distance, the British coastline will appear straight. However, looking closer and closer increasingly reveals indents and zigzags. Consequently, Dr. Mandelbrot believed that it was actually much longer and even infinite. The significance? Something we might think is simple is really complex.

    Perhaps many government programs, including bikes-for-hire, take us to the British coastline.


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  • War and Money

    Mar 7 • Developing Economies, Money and Monetary Policy • 449 Views

    A ship carrying freshly printed Libyan currency was intercepted near the coast of Great Britain. Assuming that it would be used to fund the Gaddafi regime, the British seized the cash and stored it in a “secure location.”

    Like many nations, Libya outsources currency production. Making good currency is tough. Just keeping up with constantly changing counterfeiting techniques involves precise skills in which firms like Crane in the U.S. and De La Rue in Great Britain specialize. According to World Bank rules, printers cannot produce money for individuals. The order has to come from a central bank that has registered with the World Bank.

    The Economic Lesson

    Typically new money is used to replace worn out currency. The life of a dollar bill, for example, is approximately 1.8 years.

    During the American Revolution, new money was used to pay the troops. With a military guard nearby, and a warning “not to leave his press exposed when absent from it,” Paul Revere assisted the American Revolutionary war effort by printing Continentals. Perhaps, though, Revere’s greatest regret was that he was paid with the money he made. The money issued under the authority of the Continental Congress soon was “not worth a continental.” So much had been issued that, in colonial terms, “A wagon-load of money will scarcely purchase a wagon-load of provisions.”

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    A Reason for 23 Courses

    Mar 6 • Thinking Economically • 513 Views

    At one Chicago restaurant, Alinea, a serving of steak would weigh 2 ounces or so. 5 or 6 bites and you are finished. But then, you would still have 22 other courses to consume.

    Asked why he serves so small an amount, Chef Grant Achatz said, “Diminishing returns.” Given a 12-ounce steak, diners start enthusiastically downing the first bite and the second. Then though, enjoyment wanes until they are eating robotically. By preventing the onset of diminishing returns, Achatz enables his patrons consistently to savor every morsel.

    You might enjoy hearing Grant Achatz interviewed here by NPR’s Terry Gross.

    The Economic Lesson 

    Typically describing the limitations of mass production, diminishing returns refers to less extra output. For example, on one acre of land, if, one by one, you add farmers and shovels, at first your productivity will increase. Eventually though, because of crowding, extra output drops and then disappears.

    More broadly applied, diminishing returns can also refer to the extra pleasure we get from repeatedly performing an activity. For pizza or steak, we love those first few bites. The 37th bite, though, provides much less extra, if any, joy. Our total pleasure goes up by less and less as we eat more and more.

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    From China to Iowa

    Mar 5 • Demand, Supply, and Markets, Developing Economies, Environment, Money and Monetary Policy, Thinking Economically • 501 Views

    We can travel very quickly from China to Iowa.

    In an excellent report from The Economist on feeding the world, you can see how an increasingly affluent Chinese urban consumer affects many of us. One example connects more Chinese meat consumption to soaring prices for corn, wheat, and soybeans because of a growing demand for animal feed.  

    This takes us to Iowa where the price of farmland is skyrocketing. With escalating worldwide crop prices, low interest rates, diminishing lending standards, and investors who say the only direction is up, the price of Iowa farmland is nearing a 1979 high.

    Covering issues that range from population, technology and water to land and climate, the February 24th issue of The Economist ideally discusses “How Much is Enough?” It also returns us to the Reverend Malthus who might be saying, “I share your concern.”

    The Economic Lesson

    Perhaps one of the first environmentalists, Reverend Thomas Malthus (1766-1834) told us in 1798 that population grows geometrically while resource production expands arithmetically. Consequently, resource prices will rise and supply will become increasingly inadequate.


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