• Weekly roundup and parental leave plans

    Comparing Parental Leave Plans

    Apr 12 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, fiscal policy, Gender Issues, Government, Health Care, Households, Labor, Lifestyle, Regulation, Thinking Economically • 85 Views

    If you live in Iceland and are starting a family, just think 3+3+3. Three months for mom, 3 for dad and 3 however you want to divide it. Dads though get 80 percent of their salary with a nationally set ceiling that has dropped. Their legislature is considering 5+5+2.

    Since parental leave has been in the news, let’s take a look.

    Parental Leave Plans

    Yesterday California’s Governor Brown signed a bill that boosted the state’s parental leave benefit. While workers currently can receive 55 percent of their wage during a six-week absence, in 2018 the entitlement goes up to 70 percent for people earning close to minimum wage. Meanwhile, those who earn up to $108,000 would get 60 percent of what they earn.

    Also an increase, the UK just initiated a shared parental leave benefit that can flip back and forth between mom and dad or be used entirely by one of them. The basic premise is that a family gets 50 weeks off. During the first six weeks, the person on leave will get 90 percent of the individual’s average pay and then after, 90 percent of £139.78–whichever is lower–for 33 weeks. The mother has to take the first two weeks but then the couple can decide who gets what and when.

    Below fivethirtyeight summarizes OECD (Organization for Economic Cooperation and Development) data. The list though only provides the big picture because there is so much more fine print. Based on the pay-out, the allocation to mom and/or dad, pre-maternity leave, how the capped amount compares to a couple’s income…we could go on and on. The plans and their incentives vary considerably.


    Paid family leave plans

    From: fivethirtyeight

    Our Bottom Line: Externalities

    It probably is impossible to list all of the positive and negative externalities created by parental leave programs. Designed to strengthen the family unit, enhance gender equality, support working women, create nurturing fathers, parental leave can have a positive impact on an entire community. It does though have a cost. True for all public policy, there is a tradeoff in the office and factory, in municipal and national budgets, and, as long as men minimize their participation, for women’s competitiveness in the workplace.


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  • Weekly roundup and Swedish wealth distribution

    The Real Facts About Sweden’s Wealth Distribution

    Apr 11 • Government, Households, Labor, Lifestyle, Macroeconomic Measurement, Regulation, US Presidential Election • 103 Views

    The Swedish Tourist Association suggests that we call +46 771 SWEDEN to “Dial-a-Swede” and talk with someone who lives in Sweden. The reason? Commemorating their 250th anniversary of abolishing censorship, they want to “connect people in troubled times.”

    As of yesterday almost half of the phone calls were from the U.S.:

    why Sweden? and Swedish social welfare

    From: theswedishnumber.com

    So, let’s see what “dial-a-Swede” would tell us when asked about their wealth.

    Sweden’s Wealth Inequality

    Sweden is less equal than most of us imagine. More defined by birth than a meritocracy, the majority of Sweden’s upper class inherited its affluence. The numbers also demonstrate that Sweden has a relatively high number of millionaires and ultra high net worth individuals…and a happy middle class.

    Number of Millionaires

    For a small country, Sweden has a relatively high number of millionaires:

    Swedish wealth inequality

    From: Credit Suisse Global Wealth Report 2015

    Ultra High Net Worth Individuals

    Above the millionaire level, Sweden ranks among the top 20 nations for ultra high net worth individuals:

    Sweden's wealth inequality

    From: Credit Suisse

    Middle Class Wealth

    But still, In Sweden the middle class has more than one fifth of the country’s wealth. Combined with upper class wealth, the total is almost 97 percent.

    Sweden's middle class and wealth inequality

    From: Credit Suisse

    Our Bottom Line: Welfare State

    We could ask why Sweden’s inequality has remained a secret. Credit Suisse hypothesizes (2014 Wealth report) that the, “Strong social security programs, good public pensions, free higher education or generous student loans, unemployment and health insurance can greatly reduce the need for personal financial assets. Public housing programs can do the same for real assets. This is one explanation for the high level of wealth inequality we identify in Denmark, Norway and Sweden: the top groups continue to accumulate for business and investment purposes, while the middle and lower classes have no pressing need for personal saving.”

    As a result, Sweden’s unequal wealth distribution appears to be generating little dissatisfaction.

    And finally, I discovered that Sweden has a champion bunny jumping team:

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  • Weekly roundup and Fuel economy regulation, Tesla and CAFE

    How We Respond to Fuel Economy Regulation

    Apr 10 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Environment, Government, Lifestyle, Regulation, Thinking Economically • 87 Views

    I have a start-stop car that is somewhat annoying. Driving to school each day, I follow a route that includes a three-mile stretch with five traffic lights. Because the red lights have been synched to curtail speed, I start and stop repeatedly. If I drive to NYC during the same day, I could start and stop (and hear the engine rev rather loudly) maybe 20 times.

    The goal is energy conservation and emissions reduction. But is start-stop the best way?

    The CAFE Menu

    In 2012, NHTSA (National Highway Traffic Safety Administration) said its CAFE (Corporate Average Fuel Economy) mandate was a 27.5 mpg average for new cars. While now mpg targets vary with car size, we can say that the approximate current goal is up to 37.8 and for 2025, it will be 54.5 mpg.

    Below you can see a summary of the CAFE fuel economy mpg targets for cars:

    CAFE fuel economy regulation

    From: Data from Edmunds (2013)

    For a start-stop car, a Ford executive tells us that the savings can average three to five percent. However, for someone in NYC traffic or a rush hour jam, the benefits can spike to 10 percent, especially if the wait is relatively long. Still though, a typical driver will save maybe $40 a year, not enough to appreciate the technology.

    Our Bottom Line: The CAFE Incentive

    Although most of us will not ask for start-stop, Ford, Buick and Fiat Chrysler are among the auto manufacturers who are planning to add it to more than half of their cars. Auto manufacturers also have the incentive to produce hybrids and lighter cars, diminish tire rolling distance and increase the number of transmission speeds.

    As economists who know that the law of demand is what really makes us conserve–raise the price enough and we buy much less–we can ask why we use the CAFE approach. After all, in the U.K. we have a per gallon gas tax of $3.44 and a Ford Fiesta with an mpg average of up to 65.7 miles. In the U.S. with an average tax of 47.99 cents, the mpg number for the Fiesta is 31 (city and country combined).

    But, will you vote for a politician that supports higher taxes or start-stop? And which would you really prefer?

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  • Weekly Roundup The econlife.com economics news summary

    Weekly Roundup: From Coffee Hype to Cell Phone Insight

    Apr 9 • Developing Economies, Economic Thinkers, Education, Financial Markets, fiscal policy, Government, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 106 Views

    Weekly News Roundup

    coffee history and innovation Sunday 04.03.16

    How coffee hyped the industrial revolution…more

    Weekly roundup and African statistics and new data sources like cell phones Monday 04.04.16

    What cell phones tell us about Rwanda…more

    Uber impact on creative destruction Tuesday 04.05.16

    The Uber Impact…more

    Grade inflation causes, consequences and incentves Wednesday 04.06.16

    How grade inflation changes our behavior…more

    Weekly Roundup and state and national economic yardsticks Thursday 04.07.16

    Discovering which states are healthy…more

    Weekly roundup and Too big to fail dilemmas Friday 04.08.16

    Worries About Big Banks…more

    Ideas Roundup

    • financial regulation
    • tradeoffs
    • opportunity cost
    • GDP
    • recession
    • inflation
    • human capital
    • creative destruction
    • productivity
    • innovation

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  • Weekly roundup and Too big to fail dilemmas

    A Too Big to Fail Tale

    Apr 8 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 109 Views

    It’s tough to imagine a big bank but maybe the following Mother Jones graphic (2009) can help out.

    the bank mergers that created Too big to fail

    From: Mother Jones

    By 2008, the four major banks–Citigroup JPMorgan Chase, Bank of America, Wells Fargo–had acquired 35 businesses that had been independent in 1990. Having become so large that their “distress” could threaten the entire U.S. financial system, those four banks became “too big to fail.”

    Where are we going? To the regulatory dilemmas that large financial institutions create.

    A Too Big To Fail Tale

    Our story starts in 1980 with a little and a big bank. Penn Square was a “shopping center bank” in Oklahoma while Continental Illinois National Bank and Trust was among the largest in the country. The Penn Squares of the world were one reason Continental was so big. Because Continental was prohibited from having out-of-state branches, it did all of its non-Illinois business with long distance deals. Through those deals in Oklahoma, it supported risky oil and gas ventures.

    By 1982 Penn Square had failed, other questionable loans and relationships began to fall apart, and Continental became the target of rumors that eventually led to a run on the bank. And here is where too big to fail enters the picture. With withdrawals multiplying and the bank’s corporate relationships evaporating, regulators had a dilemma, On the one hand, if they let the bank fail, the U.S. economy could suffer. On the other, a bailout would set a precedent through which government prevented the market from punishing foolhardy risk taking.

    They chose the bailout.

    Our Bottom Line: Too Big To Fail

    We could say that the pendulum of banking regulation has swung back and forth. Following more than a decade of risky banking behavior, Glass Steagall (1933) increased regulatory oversight and diminished banks’ ability compete.

    But by the 1970s, it all reversed. Called disintermediation, the banks were so uncompetitive that depositors were leaving for more attractive deals. The response was de-regulation, more competition, the return of risky banking behavior and new concern about too big to fail.

    And now again with Dodd Frank, we have moved to the regulatory side but this week’s Met Life news could swing us the other way.

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