• Everyday Economics and baby boomer productivity

    Why Baby Boomers Will Pull Productivity Down

    Sep 22 • Behavioral Economics, Businesses, Economic Growth, Government, Health Care, Households, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 144 Views

    1999 might have been Derek Jeter’s best season. Twenty-five years old, he had 219 hits, 24 home runs and 102 RBIs. His batting average was .349.

    You can see below that .349 was Derek Jeter’s career high with the Yankees.

    Derek Jeter's batting productivity

    The most valuable baseball players (although Jeter was never an MVP) are typically younger than 30 and rarely over 35. Office workers and salespeople tend to be most productive in their early to mid-40s. Most Nobel prize winners in physics and chemistry did their innovative work before they were 50. Academic studies even imply that businesses with younger workers have a higher return on their assets.

    Where are we going? Wake Forest professor Robert Whaples tells us that we have more to worry about than soaring health care spending and Social Security programs. An aging population could diminish innovation.

    A Less Productive Population

    And that takes us to the 75 million baby boomers who buoyed home ownership, consumer spending and the size of the labor force. Now though, with the youngest baby boomers at 68 years old, approximately 10,000 Americans are retiring each day. As you might expect, retirees spend less than when they were younger and depend more on their children and government. While they boosted labor force participation rates to new highs during the 1990s, their departure from active employment is having a reverse impact.

    You can see baby boomers (born 1946-mid-1964) moving up the population pyramid:

    Moving up the population pyramid, typical baby boomers become less innovative and retard productivity growth.

    From: “The Baby Boom Cohort in the United States: 2012-2060″

    Baby boomers will balloon the number of people who depend on current workers. Called the dependency ratio, it just refers to the retirees who will depend on current workers’ tax dollars for their Medicare, Medicaid and Social Security checks. Returning to Dr. Whaples point, we will also have a smaller proportion of our population who are most creative.

    Aging baby boomer diminish U.S. productivity

    Our Bottom Line and Economic Growth

    Economic growth will be constrained if an older population means a less creative population. There is some good news, though — at least temporarily. Since the millennials (born 1981-1996) have surpassed the baby boomers as the largest population cohort, by 2030, they will have inflated the labor force enough to compensate for their boomer parents’ innovative decline. But then these “echo boomers” will start to retire and the whole cycle again becomes alarming.

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  • Everyday economics for government pension plan

    The Facts Behind the Gender Pay Gap

    Sep 21 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Gender Issues, Government, Health Care, Households, Labor, Macroeconomic Measurement, Thinking Economically • 183 Views

    The U.S. Census Bureau just published new gender pay gap data. But first, for some insight, let’s look at the Khasi.

    The Khasi

    Located in Northeast India, the Khasi is a matrilineal society numbering close to 1 million (2011). From birth, women experience a female world. Their households are led by females, businesses are run by women, property can be inherited only by women. When University of Chicago researchers quantified male and female tendencies to compete, the Khasi women got the top grades.

    In a Khasi maternity ward, you might hear cheering when a girl is born and, “‘oh okay, he’ll do” for a boy.

    Or, if you visit a Khasi home…

    “When we visited the Khasi household of a youngest daughter, if a man (obviously the husband) came first to greet us, he always said ‘please wait, my wife (or mother-in-law) is coming.’ And it was the wife who entertained us…while her husband remained in the corner of the room, or in the next room.”

    The U.S. Gender Pay Gap

    Still close to a 78% average, the U.S. gender pay gap is not quite as wide as it first appears. But 78% does mean that a woman with median earnings has to work three more months than a man to have the same yearly pay.

    Gender Pay Gap census report 2014

    However, a 78% ratio could be misleading because of the baby boomers. With a disproportionately high number of baby boomer ladies and the pay gap widening with age, the oldest female boomers skew the statistic.

    The picture also changes when we remember that women work fewer hours than men.

    The gender pay gap and number of hours worked


    Consequently, although aggregate wages differ, on an hourly basis of 16 cents for every dollar (from Pew, below), the gap shrinks. And, it gets even smaller when we look at hourly wages for women and men with similar characteristics. Then, the gap is close to five cents (2010 data) for every dollar.

    Gender Pay Gap narrows on hourly basis.

    Another consideration is the pay package. Because women tend to accept less pay in exchange for family friendly fringes like paid sick leave when caring for children, their wage may be less than a male counterpart’s but not their whole pay package. In one study, economists estimated the gap was close to 3.6 cents after including benefits.

    Also, we should consider the payoff from college majors. Among the top ten such as petroleum, aerospace and mechanical engineering, men dominate in nine. Perhaps predictably, those that yield the lower pay, including social work and early childhood education, are primarily populated by women.

    And, we could look at state-by state differences and have to be aware of the years and the age groups to which the data apply. So, you can see that we are having a Benoit Mandelbrot moment. As the fractal mathematician said when looking at the British coastline, the closer you look, the more detail you see.

    The Bottom Line and the Khasi

    But, ending where we began, the Khasi take me to a constant. Although we can attribute a gender pay gap to the law or the workplace or college, I suspect we are really talking about changing an attitude that starts with the family. Even for the millennials who seem to be closing the gap, Pew points out that fathers are one-third as likely as mothers to say that being a parent has harmed their chances for advancement.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Milkmen to Menus

    Sep 20 • Behavioral Economics, Businesses, Economic History, Economic Thinkers, Financial Markets, Innovation, Labor, Thinking Economically • 120 Views

    Our Posts Roundup

    It would be beneficial for households and national economic growth if the U.S. saving rate were raised. SUNDAY 09.14.14

    The nudge that makes us save…more

    As an oligopoly, Apple has the power to charge higher prices and differentiate its products in order to let consumers signal status through conspicuous consumption. MONDAY 09.15.14

    The hidden reason we buy the iPhone 6 Plus…more

    bottles of milk doorstep TUESDAY 09.16.14

    Milkmen and other disappearing jobs…more

    Everyday economics and competing through monopolistic competition, restaurants use menu language to signal status. WEDNESDAY 09.17.14

    What a restaurant menu really says…more

    An economic indicator, CEO use of curse words during conference calls Increased during the recession. THURSDAY 09.18.14

    An unexpected economic indicator…more

    The economic impact of the ebola epidemic on Liberia's GDP growth rate FRIDAY 09.19.14

    How the Ebola epidemic changed economic behavior…more

    Economic Ideas Roundup

    • Savings
    • Disposable income
    • Incentives
    • Oligopoly
    • Monopolistic competition
    • Structural unemployment
    • Economic indicators
    • GDP




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  • The economic impact of the ebola epidemic on Liberia's GDP growth rate

    The Economic Impact of the Ebola Epidemic

    Sep 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Government, International Trade and Finance, Labor, Macroeconomic Measurement • 172 Views

    Having just read the World Bank’s September 17th report on the economic impact of the Ebola epidemic, I wanted to share what they said about Liberia. As the nation that has been hit hardest by the Ebola epidemic, Liberia’s suffering includes an economic contraction.

    Soon after Ebola first struck Liberia in March 2014, the illness directly affected the country’s resources. People who had the disease started to withdraw from the labor force and caregivers had to stay home. As for fiscal policy, government had minimal funds available for healthcare treatment facilities, staff training and supplies. They also had less tax revenue.

    Meanwhile, the fear of contagion rippled outward as people avoided work places, public transportation, seaports and airports. With commercial flights down from 27 a week to six, the hotel occupancy rate plunged to 30% in some hotels and 10% in others. In the food sector, a rush to stock up and farms that were abandoned created shortages and rising prices. Then, further exacerbating inflation, speculators have been taking advantage of price volatility.

    World Bank economists also predict that rubber exports will drop by 20% because of the impact of quarantine zones on transport. They cite evacuated managerial employees and canceled expansion plans as the reason for less palm oil production. Similarly, the closure of one of the country’s two mines is the cause for less iron ore.

    Indeed, from one sector to the next, we could continue with the feedback web of contraction. The World Bank summarized the impact:

    We can apply the impact to GDP components.


    Our Bottom Line: The GDP

    The Ebola epidemic is affecting every GDP component. Government’s healthcare obligations are unaffordable, consumers are spending less and hoarding, business spending has shrunk, and international trade has vastly diminished. Still though, according to the World Bank, Liberia’s foregone output will pull its 2014 GDP growth rate down to 2.5% but not eliminate it. For 2015, if the epidemic is not contained, they predicted a more catastrophic 11.9% GDP loss.

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  • An economic indicator, CEO use of curse words during conference calls Increased during the recession.

    An Unusual Economic Indicator: the Chief Expletive Offerer

    Sep 18 • Behavioral Economics, Businesses, Economic History, Financial Markets, Labor, Macroeconomic Measurement • 142 Views

    Asked if she could persuade her husband, the President, to say fertilizer rather than manure, Bess Truman said, “You have no idea how long it took me to get him to say manure.”

    Citing Harry Truman, one Harvard scholar says we use swear words for different reasons. The one common denominator? They might be a “hotline” to our emotions. Because shouting a curse word can have a cathartic impact when we have physical pain and even reduce stress, researchers have hypothesized that they connect us to an emotional part of our brain rather than a language center. And for a CEO, swear words could signal solidarity with employees, investors and analysts.

    CEOs and Curse Words

    So where are we going with this? To investor conference calls and curse words economic indicators.

    Reviewing thousands of conference calls with investors and analysts, Bloomberg discovered that CEO use of profanity spiked during the recession. The 4 most common words? As they explained, “the infamous F-bomb, the scatalogical S-word, the blasphemous G.D., and the derogatory A.H.”

    Bloomberg uses CEO curse words as an economic indicator.

    From: Bloomberg News

    Our Bottom Line: Economic Indicators

    I know this is a leap, but the correlation between CEO language and the recession took me to the realm of economic indicators. On August 21, we heard that the U.S. coincidental indicators index, a barometer of current economic health that includes payrolls and production, went up by .2%. (Could we call CEO use of profanity during conference calls a coincidental indicator?) Meanwhile, conveying a rosier outlook for the next 3 to 6 months, the U.S. leading indicators index, with fewer jobless claims and more building permits, climbed by .9%.

    And finally, interesting that only one woman was on the F-word salty language list.

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