• Everyday economics of the unemployment rate

    What An Unemployment Rate Does Not Tell You

    Nov 25 • Behavioral Economics, Economic Growth, Economic History, Economic Thinkers, Labor, Macroeconomic Measurement • 368 Views

    As the father of fractal geometry, Benoit Mandelbrot told us that the closer you look at Great Britain’s coastline the more you see. From a distance, it is a curved line. However, looking closely, we see countless indents and zigzags.

    Where are we going? To the “indents and zigzags” that a simple-sounding unemployment rate hides.

    Below, these eurostats compare unemployment in Europe, the U.S. and Japan.

    Unemployment rates compared

    From: Eurostats

    Japan’s Recession

    Idyllic sounding at 3.6 percent, Japan’s unemployment rate tells a different story from a GDP that says they are in a recession. Below, you can see Japan’s GDP contracted at an annual rate of 7.3 percent during the second quarter and 1.6 percent in the third quarter. With consumption leading the plunge, April’s 3 percent sales tax hike might indeed have been a reason.

    Japan's recession with low unemployment rate

    From: http://philippewaechter.en.nam.natixis.com/2014/11/17/3-graphs-on-the-japanese-recession/

    Disparate European Unemployment Rates

    For European statistics, what I found most interesting was the huge regional discrepancies. Although the overall unemployment rate is near 10 percent, looking closely reveals massive differences ranging from 2.6 percent in Oberbayern, Germany to 36.3 percent in Andalucía, Spain. You can see below, it is not easy being green.

    Unemployment rate disparity in European regions

    From: Vox using Eurostat data

    The U.S. Employment Recovery

    Finally, with a U.S. unemployment rate that was 10 percent in October 2009 and now is 5.8 percent, we can smile as the longest period of diminishing unemployment is continuing to unfold. However, when we compare this employment recovery to others, except for 2001, it does not look quite as good. The graph below compares current employment growth to five other recoveries.

    Unemployment rates: U.S. recoveries compared.

    Our Bottom Line: Unemployment Rates

    Like the length of the British coastline, behind one unemployment number, there are countless zigs and zags when we look more closely. Then though, as behavioral economist Dan Ariely tells us, “…So we either simplify the problem and offer a solution, or embrace the complexity and do nothing.”

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  • Everyday economics of football and marginal cost

    The Bills in Detroit and Elsewhere

    Nov 24 • Businesses, Economic History, Entertainment, Government, Labor, Lifestyle, Sports, Thinking Economically • 400 Views

    At first the Buffalo Bills offered free tickets and $10 an hour for helping to remove 220,000 pounds of snow from Ralph Wilson Stadium. Maybe because of the car ban Buffalo declared after its 88-inch snowfall, the plan did not work out. So, tonight, the Buffalo Bills-Jets game will be played in Detroit.

    It wasn’t be as easy as it sounds.

    Transporting the Buffalo Bills to Detroit is much more than a plane ride. There were the snowmobiles that brought the players to the team’s HQ, the buses that went to the airport and the charter flight for the coaches, staff and 53 players. An inexpensive Motel 6 was not an alternative because the team needs conference rooms that only a Hilton, a Marriott or some other business-oriented venue offers. Then, you need meal accommodations. Depending on the player, diets vary, even down to the cut of meat and the amount of carbs. Doing all of this at the last minute means a 30 percent hike to an already expensive line on the team’s balance sheet.

    The wife of starting tight end Scott Chandler shared these pictures of the snowmobile pickup:

    Marginal cost of  Bills' travel to Detroit

    From: Buffalorumblings.com

    Where are we going? To spending at the margin.

    The High Marginal Cost of Travel

    Like the pros, college teams spend a lot on travel. When one journalist compared college football teams’ spending in 2011 and 2012, she found that Alabama’s expenses rose by $4.5 million, Notre Dame, by a whopping $6.6 million and Stanford, $6.1 million. Saying that teams are playing more non-conference away games that will increase because of the newly launched College Football Playoff, this journalist attributes the cost hike to travel.

    Below you can see what schools spend on their teams.

    Marginal Cost college football

    From: Forbes

    From: Forbes

    Even high schools have to absorb big time travel expense. School budgets in Texas were inflated by as much as $140,880 when the four schools that qualified for the playoffs had to travel by chartered bus across West Texas. When we add the bands and drill teams that accompanied the teams, altogether we had 1198 students joining what for some were multi-day festivities.

    Our Bottom Line: Marginal Cost

    Defined as the line beyond which we do something extra, the margin is everywhere in our daily lives. Creating cost and benefit, decisions at the margin involve when to stay in bed for an extra half hour and by how much to exceed the speed limit. Similarly, pro football team owners, college athletics, and municipal school districts each are experiencing cost and benefit at that margin when they decide how much extra to spend on travel.

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  • Everyday economics of an oligopoly

    How To Make a $200 Sneaker Worth $8000

    Nov 23 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Innovation, Labor, Lifestyle, Sports • 413 Views

    Called the sneaker riots, the response to the re-release of the Air Jordan Retro 11s was like the Pigeon Dump. For both of these limited edition events, the lines were long and the supply was low. Many of those who could buy one or two pair resold them on eBay for double, triple or more. Now also for the new LeBrons that retailed for $250, sneakerheads hoped to get $900.

    Where are we going? To how Nike differentiates itself.

    Shooting for High Prices

    On eBay, the Nike limited edition market totals close to $200 million annually. Below you are looking at average secondary market prices. The Lebron 10 What the MVP, originally a $200 pair of sneakers averages more than $2000 on eBay. Astonishingly, for the $250 Air Yeezy designed by Kanye West, 24 people paid more than $8000.

    Oligopoly competition from Nike

    From FiveThirtyEight

    Fascinated that a size 13 could add value, I’ve included a graph about sneaker size from a sneakerhead website:

    Nike's limited editions and Oligopoly competion

    Marketing Power

    With more than $200 million to be made in the secondary sneaker market, observers ask, “why?” Why would Nike forfeit so much money? After all, to diminish the scarcity, it could add to supply. But you can also see how limited edition hype generates “social signaling,” a cool image and less discounting.

    Our Bottom Line: Oligopolistic Competition

    The markets in which oligopolies like Nike compete are composed of few sellers and millions of buyers. While those sellers have price making power and huge production capability, many of them face the challenge of product differentiation. Isn’t Nike saying, “We are different” through their limited editions?

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  • The econlife.com Weekly Roundup

    Our Weekly Roundup: From Free Music to Cheap Oil

    Nov 22 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Humor, Entertainment, Environment, Gender Issues, Government, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Media, Regulation, Tech, Thinking Economically • 435 Views

    Our Posts Roundup

     

    Everyday Economics and the opportunity cost of eliminating gestation crates is less than what we sacrifice by keeping them.Sunday 11.16.14 When humane treatment is about more than kindness…more

     

    Everyday economic of lower gas pricesMonday 11.17.14 Why cheap oil might be costly…more

     

    Everyday economics and automationTuesday 11.18.14 Where robots will enter our lives…more

     

    Women experience appearance discrimination.Wednesday 11.19.14 The downside of beauty…more

     

    The everyday economics of hanging supply and demand, streaming music meant new kinds of contracts with record companies and new relationships with consumers.Thursday 11.20.14 The economic side of Taylor Swift…more

     

    Productivity rises from output targets that increase self-control.Friday 11.21.14 How Fitbits and factories are similar…more

     

    Ideas Roundup

    • opportunity cost
    • regulation
    • behavioral economics
    • GDP growth
    • international trade
    • automation
    • innovation
    • appearance discrimination
    • supply and demand
    • productivity
    • self-control

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  • Productivity rises from output targets that increase self-control.

    How to Become More Productive

    Nov 21 • Behavioral Economics, Businesses, Economic Humor, Economic Thinkers, International Trade and Finance, Labor, Thinking Economically • 451 Views

    Telling about his “Fitbit Life,” comedy award winning writer David Sedaris says a friend first explained the Fitbit as, “…a pedometer…But updated, and better. The goal is to take ten thousand steps per day, and, once you do…” your rubber bracelet vibrates.

    Fitbit Targets

    During the first day he wore a Fitbit, Sedaris decided to pace at the airport rather than sit. Feeling a tingle from his bracelet at 10,000, he added another three thousand steps. (13,000 steps are close to 5.2 miles for someone who is 5’5″.) Feeling compelled by his Fitbit, Sedaris tells us he was at 15,000, then 25,000. “I look back on the days I averaged only thirty thousand steps, and think, Honestly, how lazy can you get? When I hit thirty-five thousand steps a day, Fitbit sent me an e-badge, and then one for forty thousand, and forty-five thousand.” Ultimately, Sedaris tells how he wound up doing nothing in his life but walking.

    Where are we going? To how targets make us more productive.

    Workplace Targets

    In one study, Harvard researchers offered Indian data entry workers the opportunity to select an output target for their workday. If they reached or exceeded their target, as always, they would earn 2 rupees for every 100 fields of data they accurately entered. Missing the target, though, halved earnings to one rupee per 100 fields of data.

    I was surprised that many workers requested the daily target until I learned that they produced more and earned more than the group that had none. Trying to figure out why workers boosted output when they had a target, the Harvard economists said it was all about better self-control.

    The second half of the supply curve below shows the workers’ production/wage increase.

    Productivity for self-control created by targets.

    From: “Self-Control at Work: Evidence From a Field Experiment”

     

    Our Bottom Line: Targets and Self-Control

    At home and at work, targets can raise our productivity because they increase self-control. Sadly though, targets can also create unintended consequences….like spending your entire day walking.

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