• A family invests in land, labor and capital to "produce" children.

    The Cost of Raising Children

    Aug 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Education, Households, Labor, Thinking Economically • 189 Views

    The family is a factory.

    First explained by Nobel Laureate Gary Becker, the family combines land, labor and capital for the shelter, clothing, food, education and all else it needs to “produce” children. Household members engage in a division of labor whereby some individuals participate in workplace market activities while others remain at home. The numbers even indicate that families can benefit from economies of scale because each additional child requires less of an investment.

    Where are we going? To the land, labor and capital investments that produce children.

    The Cost of “Producing” a Child

    In 2013, an average American middle income family spent $245,340 on raising a child until age 18.

    Average spending on a child

    From: USDA


    With the urban Northeast most expensive and rural areas the cheapest, the cost of raising a child depends on where you live.

    Land, Labor and Capital to raise children in U.S.

    From: Washington Post


    Looking at how families allocate land, labor and capital to “produce” children, you can see below that housing receives the most resources and child care/education is #2.

    Factor resource allocation items

    From: USDA


    Also, though, the investment in land, labor and capital changes with a child’s age.

    Resource allocation by age for producing children


    And, depending household income, the investment varies.

    Land, Labor and Capital resource allocation by income


    Finally, as with all economies of scale, the more children you have, the cheaper per child it gets. Single child families spend 25% more on their offspring than the average amount spent in 2-child homes. And, it gets better still. Households with 3 or more children spend 22% less on each child.

    The Bottom Line: Family as a Factory

    Our bottom line: If you think factory rather than family, a new image of your household emerges. That crib you just purchased is capital, a dad and mom are labor and the backyard is land. Together, your land, labor and capital compose the factor resources you use to “produce” children.



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  • With universal healthcare, improved health could come at the expense of free choice.

    Do You Want a Healthcare Nudge?

    Aug 18 • Behavioral Economics, Businesses, Economic Debates, Government, Health Care, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 193 Views

    Primarily for fiscal reasons, in Japan, most 40-74 year olds get their waist size checked each year. A part of the required annual physical exams from local government or employers, waist size is monitored because an obese population can be expensive.

    It all began in 2008 with the “Matebo Law.” Because the Japanese population is aging and their diet is becoming more Western, legislators were concerned that obesity related diseases like diabetes and hypertension would increase. As a result, the law said that women whose waists exceeded the maximum of 35.5 inches and, men, 33.5 inches, had to lose weight within 3 months or get counseling if they had a weight-related ailment. Meanwhile, employers who did not meet the guidelines would have their national health insurance payments increased by close to 10%–potentially a $19 million expense for computer maker NEC.

    You can imagine the new incentives that the law created. For individuals, it meant crash dieting just before the physical exam. At work, it now made sense to offer gym memberships, healthy cafeteria food, and to hire slim employees.

    The Bottom Line and Opportunity Cost

    And that takes us to the United States and an opportunity cost dilemma.

    According to a recent study from researchers at the Olin Business School, Washington University in St Louis, individuals who do not save for retirement also tend not to take care of their health. Commenting on these results, one of the researchers said, “If you think health is really critical for productivity or health insurance costs, you really need to constrain free choice…You have to have mandates.” The mandates to which he refers could range from high sugary drink taxes to Japan’s “Matebo Law.”

    Opportunity cost: Better health for the elderly or free choice

    From: Washington University Newsroom

    Our bottom line: We have a pretty tough opportunity cost dilemma:

    A healthier and wealthier elderly population or a population with more free choice.

    Or, as expressed by Cass Sunstein and Richard Thaler in Nudge, government needs to decide how much to “nudge” our behavior toward a desired goal. The bigger the “nudge,” the less we have the freedom to make our own good and bad decisions.

    Sumo Wrestlers?

    You might be wondering about sumo wrestlers. Most are younger than 40 so the law does not apply to them.

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  • Everyday Economics — Sunday Chart of the Week

    A Closer Look at the EU 28 Economic Growth Rate

    Aug 17 • Economic Growth, Financial Markets, Government, Labor, Macroeconomic Measurement, Thinking Economically • 161 Views

    Our Sunday Charts

    For the most recent data on the EU 28, the real GDP growth rate is .2%, the overall unemployment rate is 11.5% and government debt averages 88%.

    Not so good.

    As aways, though, the averages can be misleading. So let’s look a bit more closely.

    The Charts

    Considering the growth rates of different countries, Greece, Italy and Cyprus have a contracting GDP.

    European GDP growth rates

    From: Graphic Detail, The Economist

    Similarly, for unemployment, Greece, Italy and Cyrus are close to the top of the list.

    Europe's Economic Growth details

    From: Graphic Detail, The Economist

    Finally, for the relative size of their public debt, Greece, Italy and Cyprus borrowed a disproportionate amount when we compare their loans to GDP.

    Why compare debt to GDP?

    Just think of a home mortgage to grasp why we compare debt to GDP. Someone who earns $50,000 a year—sort of comparable to GDP as national income—should not borrow $1 million. However, a household with an annual income of $5 million can afford a $1 million loan.

    Economic Growth and debt for Europe

    From: Graphic Detail, The Economist

    The Bottom 3 and The Bottom Line

    Because of ongoing problems, I selected Greece, Cyprus and Italy as the bottom 3. We should add, though, that Germany’s GDP contracted and France’s stagnated during the past quarter.

    Our bottom line: When you have disparate rates of economic growth, unemployment and debt, for the 18 countries in the euro zone, the separation of monetary and fiscal power is problematic. Consequently, Greece, Italy, and Cyprus have less control over their economic difficulties.

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  • This week's everyday economics included vodka to tax dodgers

    Our Weekly Roundup: From Tipping to Startup Airlines

    Aug 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Government, Labor, Regulation, Thinking Economically • 149 Views

    Our Econlife Roundup for the Week:

    Everyday Economics: Price system8.10.14 How to predict this year’s NFL winners…more


    Everyday Economics: In 2033, the Social Security program will be unable to pay all promised benefits to recipients.8.11.14 Why the new Trustees Social Security Report should make us worry…more


    Everyday Economics: The Contents of Refrigerators, Supply and Demand, and Global Markets8.12.14 How to use refrigerators as a development yardstick…more


    EverydAY economics roundup competition8.13.14 What startup airlines will add to our flying experience…more


    Everyday Economics: Because getting tips is so unpredictable, the low level of the tipping minimum wage is a controversial economic floor.8.14.14 The surprising reasons we give larger tips…more


    Like athletes use usic to pump up performance, so too can we use songs to get the most out of our human capital.8.15.14 Using Queen’s “We Will Rock You” to do a better job…more


    Economic Idea Roundup:

    • Price system
    • Entitlements
    • Supply and demand
    • Oligopoly
    • Economic floor
    • Human capital

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  • Like athletes use usic to pump up performance, so too can we use songs to get the most out of our human capital.

    How Music Can Empower You

    Aug 15 • Behavioral Economics, Entertainment, Labor, Media, Sports, Thinking Economically • 213 Views

    Asked what music she listened to before competing in the 2012 Olympics, gold medal sprinter Allyson Felix said Beyoncé“I’m a Diva.”

    Thinking of athletes like Allyson Felix whom we see listening to music before starting a race, a group of business school researchers wondered about the broader implications. They wanted to test whether the power of music could have an impact in the workplace.

    The Experiment

    In the first step of their experiment, participants were asked to rate music on an “empowerment scale” of 1 to 7. The goal was to identify songs that made people feel dominant, powerful and determined. To compare responses in subsequent parts of the experiment, they also created a “low-power” list.

    The top 3 power songs were:

    • “We Will Rock You” (Queen)
    • “Get Ready For This” (2 Unlimited)
    • “in Da Club” (50 Cent)

    The top 3 low-power songs:

    • “Because We Can” (Fatboy Slim)
    • “Who Let the Dogs Out” (Baha Men)
    • “Big Poppa” (Notorious B.I.G.)

    Next, a different group of participants were given words to complete while listening to the selected songs. Among the “power listeners” who were given p_ _er, the finished words included stronger vocabulary like “power.” By contrast, the low-power listeners noted blander choices like “paper.”

    Other parts of the experiment involved decision-making. In a debate, would you go first? Negotiating, will you take charge? Asked to roll some dice, will you let someone else do it for you? And yes, those listening to the high-power playlist were almost twice as likely (34% of the time) to take the initiative as the low-power control group (20%).

    The Bottom Line: Our Human Capital

    So, where does all of this take us? We are really talking about how music can empower our human capital. Composed of the learning we take to every job, our human capital can be energized and inspired for interviews, business presentations and whenever we need to perform optimally.

    Our bottom line: Increasingly, the study of human capital is about more than markets and incentives. It takes us to physiology, psychology, our neurological hardwiring and behavioral economics.

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