• Economic news summary and The American Dream

    How to Find More of the American Dream

    Aug 19 • Behavioral Economics, Economic Debates, Economic History, Education, fiscal policy, Government, Households, Labor, Lifestyle, Thinking Economically • 168 Views

    During 1931, we would have first heard about the American Dream. Although economic growth was evaporating and unemployment was heading toward almost 25 percent, in The Epic of America, author James Truslow Adams told us that the American Dream is…

    “…that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement…It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position…”

    Thoughts about the American Dream took me to a new study on the importance of where you live.

    Neighborhood Matters

    At age 26, someone in the 25th percentile of income distribution who was born and raised in Cincinnati can expect to be earning an annual average income of $23,000. For Pittsburgh, the number is $28,000. But if you moved from Cincinnati to Pittsburgh at age 9, then, 17 years later, you would have earned $25,500. In other words, moving enabled you to make up 50 percent or so of the difference.

    Income mobility and neighborhoods

    From: “The Impacts of Neighborhoods on Intergenerational Mobility”

    Our basic story is that researchers were able to gather huge data that let them follow low income families that moved to new neighborhoods. The data indicated that the younger the child, the higher the income boost from the move. And, you need not be low income. Even the top one percent got that nudge upward.

    You can see how big the boost is for different U.S. counties:

    Neighborhod impact on income mobility

    From: “The Impacts of Neighborhoods on Intergenerational Mobility”


    Asked why living in certain counties increased future income, the researchers said they were not sure of specific causation. Instead they identified five variables that they assumed made a difference:

    • less violent crime
    • more two parent households
    • less segregation based on income and race
    • better schools
    • less income inequality

    Our Bottom Line: Income Mobility

    In a 1990s Congressional anti-poverty program called Moving to Opportunity, poor families received vouchers that they could use to move to better neighborhoods. At first considered a failure, the program is now considered a success because researchers have begun to focus on the income impact of a child’s age. As they expressed it, “Where children grow up affects their outcomes in adulthood in proportion to the time they spend in the place.”

    Knowing more about income mobility, federal policy makers can better enable more of us to achieve the American Dream.

    No Comments on How to Find More of the American Dream

    Read More
  • economic news summary and parental leave

    The Unintended Consequences of Parental Leave

    Aug 18 • Behavioral Economics, Businesses, Economic Debates, Gender Issues, Government, Households, Labor, Lifestyle, Regulation, Tech, Thinking Economically • 333 Views

    Last week, the NY Times told its readers that white collar workers at Amazon endured a pressure laden family unfriendly environment. However, if you work at Netflix, you can enjoy an unlimited leave policy with normal pay during the first year of parenthood. Furthermore, you can even return to work as a part or full time employee and then take some time off if you want it.

    Where are we going? To the unintended consequences of parental leave policies.

    First, some data…

    Tech Firms’ Parental Leave Policies

    Maternity leave and paternity leave at tech firms

    From: Mother Jones (2013)

    U.S. Parental Leave Policy

    U.S. policy on parental leave is among the world’s least family friendly. The 1993 Family and Medical Leave Act (FMLA) says that a new parent is entitled to 12 weeks of unpaid leave during a 12 month period if certain conditions are met that relate to previous work time and the firm’s size. Most other countries though mandate paid maternity leave and some have paid paternity leave also.

    Below you can see that except for the U.S., paid maternity leave is the norm:

    OECD Maternity leave mandate

    From: OECD

    But paid paternity leave is less prevalent:

    OECD data for paternity leave

    From: OECD


    Unintended Consequences

    According to a recent study from an economist at Cornell, generous parental leave policies could jeopardize all women’s chances for promotion. Looking at the impact on women, the study indicated that women hired after the Family and Medical Leave Act was passed were “five percent more likely to remain employed but eight percent less likely to be promoted than those who were hired before” it was enacted. The reason? Perhaps employers hesitate to invest in women if there is a chance they will take long periods of time away from work.

    Similarly, research on the impact of generous maternity policies in Europe indicates that women are less likely to become managers or to occupy high-powered positions. In Chile, a child care mandate for working mothers led to a decrease in starting salaries for all women.

    Our Bottom Line: Incentives

    I suspect that the reality of parental leave shifts employers’ and employees’ incentives. While we may have kinder work policies from certain firms, they still have to worry about competition, the work load carried by remaining employees, and their investment in human capital. Correspondingly, more employees will have the incentive to take time off that might have unintended future repercussions.

    As a result, we should ask whether an Amazon is more female friendly than a firm with mommy time off.

    4 Comments on The Unintended Consequences of Parental Leave

    Read More
  • Chinese yuan and the currency war created by devaluation

    The Yuan Devaluation and the Big Mac Index

    Aug 17 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Humor, Financial Markets, Government, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 152 Views

    With the devaluation of the yuan in the headlines, the most recent Big Mac Index could be helpful.

    Where are we going? To how China and the U.S. look at devaluation differently.

    The Big Mac Index

    As a survey of Big Mac prices in different countries, the Big Mac Index tells us about the purchasing power of a currency. We can start by assuming that If the Big Mac is pretty similar everywhere, then its price should be pretty similar everywhere. But it is not. And from those differences, we can get an idea of whether a currency’s purchasing power is over- or undervalued.

    The July 2015 Big Mac Index indicates that the yuan was substantially undervalued.

    Yuan devaluation explained by Big Mac Index

    From: The Economist

    There is one problem though. It makes sense that a Big Mac will be cheaper in countries like China that have less expensive labor and therefore a lower GDP per person. As a result The Economist also created an adjusted Big Mac Index that recognizes GDP per person.

    Through the lens of the adjusted index, we see that the yuan’s purchasing power for a Big Mac is much closer to the dollar.

    The yuan's devaluation and the Big Mac Index

    From: The Economist

    What It Means to be Undervalued

    To explain valuation, we can look at purchasing power. Using The Economist’s 2013 data, a Big Mac cost $4.20 in the U.S. and 15.4 yuan in China. If, though, you were to convert $4.20, you get 26.54 yuan. But a Big Mac costs 15.4 yuan. With 26.54 you have purchasing power that will get you 1.72 Big Macs. Too cheap, the Chinese Big Mac shows that the yuan was undervalued.

    Our Bottom Line: Devaluation

    While the unadjusted index indicates the yuan was undervalued during the beginning of July, the adjusted version does not. That could provide a clue about why the Chinese just devalued their currency. By cheapening their currency, the Chinese made their exports more attractive. As a result, domestic production could get a boost from more worldwide demand.

    On the other hand, U.S. opinion could be divided. We could say that the devaluation makes Chinese imports cheaper, Spending less on imports, we have more resources to allocate elsewhere. However, U.S. producers who compete with the Chinese will protest that their goods and services have become less attractive.

    We should conclude by reminding ourselves that like a hamburger index of purchasing power, a short list of China’s currency behavior is a vast simplification of what we know and do not know.

    No Comments on The Yuan Devaluation and the Big Mac Index

    Read More
  • Google's new name and branding

    Why Google Just Got a Parent Called Alphabet

    Aug 16 • Businesses, Demand, Supply, and Markets, Economic History, Economic Thinkers, Innovation, Labor, Thinking Economically • 127 Views

    A googol always used to be the number one and then 100 zeros. Now googol, spelled slightly differently, has become a brand. And the brand has been valued at $107.43 billion.

    Where are we going? To how firms use a brand to compete.

    The Need for a New Google Brand

    We could think of a firm’s brand as its bank account. Sort of like deposits, new products can make that brand more valuable. Think Apple and the iPhone. A perfect match, the iPhone and the Apple brand created a synergy.

    For Google though, I suspect their self-driving car was an initiative that confused their brand. After all, when we think of Google, search and information come to mind. As they explain on their “about” page, their “…mission is to organize the world’s information and make it universally accessible and useful.”

    Because Google is doing much more than “search,” I guess they decided on some rebranding.


    The result was a new name and a corporate reshuffling.

    Under a parent called Alphabet, Google became a child with new siblings and its own children. Because of the new structure, Google can have a brand and so too can Alphabet.

    Rebranding Google as an oligopoly

    From BusinessInsider

    Google’s siblings include a subsidiary that is researching human longevity (Calico), one focusing on high speed internet connections (Fiber), and a venture capital group (Google Ventures).

    Our Bottom Line: Strategy and Structure

    As Alfred Chandler told us more than 50 years ago in Strategy and Structure: Chapters in the History of American Industrial Enterprise, corporate strategy and structural change evolve together. For Chandler, the focus was the corporate decentralization that early 20th century giant enterprise required. With Google, it is a more clearly defined parent that eliminates brand confusion in product and financial markets. Their restructuring is about a rebranding that lets them, as an oligopoly, achieve product differentiation.


    Comments Off on Why Google Just Got a Parent Called Alphabet

    Read More
  • The econlife.com economics news summary

    Weekly Roundup: From Skyscraper Shadows to Trendy Foods

    Aug 15 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Humor, Economic Thinkers, Entertainment, Environment, fiscal policy, Government, Health Care, Lifestyle, Regulation • 131 Views

    Our Posts Roundup

    everyday economics and song copyrights and Grumpy Cat Sunday 8.09.15

    The cost of singing happy birthday…more

    everyday economics and embargoes Monday 8.10.15

    A cheese and salmon Russian embargo update…more

    everyday economics and food trends Tuesday 8.11.15

    Why kale reminds us of calamari…more

    property rights Wednesday 8.12.15

    The problem with skyscraper shadows…more

    everyday economics and entitlements Thursday 8.13.15

    How Americans choose between caring and individualism…more


    endangered species and Why We Need Trophy Hunting Friday 8.14.15

    How trophy hunting helps animals…more

    Ideas Roundup

    • intellectual property
    • copyright
    • export and imports
    • trade barriers
    • embargo
    • behavioral economics
    • creative destruction
    • supply and demand
    • property rights
    • entitlements
    • tradeoffs
    • scarcity
    • conservation
    • externalities
    • price system
    • markets


    No Comments on Weekly Roundup: From Skyscraper Shadows to Trendy Foods

    Read More