Tag Archives: economics

The Societal Value of Various Jobs

The New Eco­nom­ics Found­a­tion has released a report com­par­ing vari­ous jobs in terms of the soci­et­al value they des­troy or gen­er­ate (pdf).

The report was pro­duced to start “a fun­da­ment­al rethink of how the value of work is recog­nised and rewarded“—specifically by cre­at­ing a rela­tion­ship between jobs that cre­ate a bene­fit for soci­ety and the envir­on­ment and their com­pens­a­tion.

The BBC looks at the report and has pro­duced a sum­mary of the find­ings:

  • Waste work­ers: Cre­ate £12 of value for every £1 they are paid.
  • Hos­pit­al clean­ers: Cre­ate over £10 of value for every £1 they are paid.
  • Child­care work­ers: Cre­ate £9.50 worth of bene­fits for every £1 they are paid.
  • City bankers: Des­troy £7 of value for every £1 they gen­er­ate.
  • Seni­or advert­ising exec­ut­ives: Des­troy £11 of value for every £1 they gen­er­ate.
  • Tax account­ants: Des­troy £47 for every £1 gen­er­ated.

In addi­tion to these fig­ures:

  • Advert­ising exec­ut­ives “cre­ate stress, […] dis­sat­is­fac­tion and misery, and encour­age over-con­sump­tion, […] high spend­ing and indebted­ness. [They also] cre­ate insa­ti­able aspir­a­tions, fuel­ling feel­ings of dis­sat­is­fac­tion, inad­equacy and stress.”
  • Waste work­ers “pro­mote recyc­ling”.
  • Child­care work­ers “cre­ate net wealth to the coun­try [by releas­ing] earn­ings poten­tial by allow­ing par­ents to con­tin­ue work­ing”.

I can­’t help feel­ing that these res­ults are largely swayed by the pub­lic opin­ion* and that the six jobs com­pared by NEF were chosen due to their poten­tial for con­tro­versy (read: pub­li­city) and incor­rect inter­pret­a­tion.

How­ever I did like the ten myths of pay and value (fur­ther inform­a­tion in the report):

  1. The City of Lon­don is essen­tial for the UK eco­nomy.
  2. Low paid jobs cre­ate a lad­der for people to work their way up — oppor­tun­it­ies to advance are open to all.
  3. Pay dif­fer­en­tials don’t mat­ter, so long as we erad­ic­ate poverty.
  4. We need to pay high salar­ies to attract and retain tal­ent in the UK.
  5. Work­ers in highly paid jobs work harder.
  6. The private sec­tor is more effi­cient than the pub­lic sec­tor.
  7. If we tax the rich, they will take their money and run.
  8. The rich con­trib­ute more to soci­ety.
  9. Some jobs are more sat­is­fy­ing, so they require less pay.
  10. Pay always rewards under­ly­ing prof­it­ab­il­ity.

* I ima­gine the res­ults would have been quite dif­fer­ent a few years ago when we were in the midst of a bull mar­ket and MRSA infec­tion rates were high and prom­in­ent in the news.

Anatomy of a Price War

With the recent Amazon–Walmart price war on books and the 1992 air­line industry price war as the back­drop, James Surowiecki takes a look at how price wars start, how they can be avoided, and how to (pos­sibly) win at them.

The best way to win a price war, then, is not to play in the first place. Instead, you can com­pete in oth­er areas: cus­tom­er ser­vice or qual­ity. Or you can col­lude with your putat­ive com­pet­it­ors: that’s why car­tels like OPEC exist. Or—since overt col­lu­sion is usu­ally illegal—you can employ subtler tac­tics (which eco­nom­ists call “sig­nalling”), like mak­ing pub­lic state­ments about the import­ance of “stable pri­cing.” The idea is to let your com­pet­it­ors know that you’re not eager to slash prices—but that, if a price war does start, you’ll fight to the bit­ter end. One way to estab­lish that peace-pre­serving threat of mutu­al assured destruc­tion is to com­mit your­self before­hand, which helps explain why so many retail­ers prom­ise to match any com­pet­it­or’s advert­ised price. Con­sumers view these guar­an­tees as con­du­cive to lower prices. But in fact offer­ing a price-match­ing guar­an­tee should make it less likely that com­pet­it­ors will slash prices, since they know that any cuts they make will imme­di­ately be matched. It’s the retail ver­sion of the dooms­day machine.

These tac­tics and deterrents don’t always work, though, which is why price wars keep break­ing out.

Surowiecki men­tions that there’s appar­ently a big banana price war going on in the U.K. at the moment! News to me.

Financial Equivalents of Life Events

Will­ing­ness to pay to pre­vent trau­mat­ic life events is “the rel­ev­ant stand­ard” for meas­ur­ing the hurt they inflict upon a per­son.

This is accord­ing to Robin Han­son, respond­ing to com­ments in an earli­er art­icle of his (pre­vi­ously) where he sug­ges­ted that as cuck­oldry “is a big­ger repro­duct­ive harm than rape, so we should expect a sim­il­ar intens­ity of inher­ited emo­tions about it. If 2+% of women were raped and we had a reli­able cheap way to identi­fy the guilty party, don’t you think we’d require that?”

Many were offen­ded by Han­son’s com­par­is­on of the hurt a man has inflic­ted on him through cuck­oldry to the hurt inflic­ted on a rape vic­tim, so he notes that, accord­ing to the afore­men­tioned rel­ev­ant stand­ard, men seem to hurt more in some situ­ations (divorce, death of a spouse/child, etc.) than women (ori­gin­al art­icle by Paul Frijters), so why not in this situ­ation?

What’s a mar­riage worth? To an Aus­sie male, about $32,000. That’s the lump sum Pro­fess­or Paul Frijters says the man would need to receive out of the blue to make him as happy as his mar­riage will over his life­time. An Aus­sie woman would need much less, about $16,000.  But when it comes to divorce, the Aus­sie male will be so dev­ast­ated it would be as if he had lost $110,000. An Aus­sie woman would be less trau­mat­ised, feel­ing as if she had lost only $9000. […]  The life­time boost to hap­pi­ness that flows from a birth – for the moth­er around $8700, for the fath­er $32,600. […]  The death of a spouse or child causes a woman $130,900 worth of grief. […] It costs a man $627,300.

Note(s): It is not clear wheth­er the gender pay gap is taken into con­sid­er­a­tion in the above cal­cu­la­tions.
It’s also worth not­ing that if one were to put a fin­an­cial value on cuck­oldry and rape, cuck­oldry’s more obvi­ous fin­an­cial implic­a­tions (rais­ing anoth­er man’s child) must be taken into account (i.e. sub­tract­ing it, at least in part, from the fig­ure).
In this con­text cuck­oldry refers to non-patern­ity events, rather than just unfaith­ful­ness. With this in mind, I agree with Robin Han­son: “I’d prefer to be raped rather than cuck­olded”.

Homeowners and Civil Engagement

Accord­ing to The Wall Street Journ­al, the home buy­ers’ tax cred­it ini­ti­at­ive (U.S.) was “inten­ded to help spur hous­ing sales” by offer­ing fin­an­cial incent­ives to first time home-buy­ers and cer­tain repeat buy­ers.

How­ever the ini­ti­at­ive encour­ages “excess mobil­ity”, sug­gests Edward Glaeser, a pro­fess­or of eco­nom­ics at Har­vard, and this is some­thing we should not be promoting. Why? Less-mobile homeown­ers are good cit­izens due to their great­er civic engage­ment than those who move res­id­ence often.

One of the reas­ons for sub­sid­iz­ing homeown­er­ship is the widely held belief that homeown­ers are good cit­izens. Ten years ago, Den­ise DiPasquale and I wrote a paper invest­ig­at­ing the links between own­er­ship and civic beha­vi­or. Con­trolling for income, edu­ca­tion, age and oth­er vari­ables, we found that homeown­ers were 16 per­cent more likely to vote in loc­al elec­tions, 11 per­cent more likely to know the name of their mem­ber of Con­gress and 10 per­cent more likely to say that they have recently worked to help “solve loc­al prob­lems.”

But we also found that almost one-half of the effect of homeown­er­ship dis­ap­peared when we con­trolled for the time that the per­son had lived in the home. Own­ers are typ­ic­ally much less mobile then renters, and people who stay put are more likely to become civically engaged.

If you think that civic engage­ment is import­ant enough to jus­ti­fy homeown­er­ship sub­sidies, then we cer­tainly should­n’t be encour­aging excess mobil­ity.

How Congestion Pricing and Traffic Jams Help the Environment

When us lay­men think of ways to solve traffic con­ges­tion we typ­ic­ally think of two ways: con­ges­tion pri­cing to force those who are most price sens­it­ive off the roads and on to pub­lic trans­port (which should be improved using the funds gained through said pri­cing), and adding capa­city to the roads. But do these solu­tions really help: do con­ges­tion charges and addi­tion­al capa­city really affect over­all driv­ing habits and are they bene­fi­cial for the envir­on­ment (do they increase pub­lic trans­port use)?

Traffic jams can actu­ally be envir­on­ment­ally bene­fi­cial if they turn sub­ways, buses, car pools, bicycles and walk­ing into more-attract­ive options. […] The tra­di­tion­al solu­tion to traffic con­ges­tion is to cre­ate addi­tion­al road capa­city. But pro­jects like those almost always end up mak­ing the ori­gin­al prob­lem worse because they gen­er­ate what trans­port­a­tion plan­ners call “induced traffic”: every mile of new, open road­way encour­ages exist­ing users to make more car trips, lures drivers away from oth­er routes and tempts trans­it riders to return to their auto­mo­biles, with the even­tu­al res­ult that the new roads become at least as clogged as the old roads. […]

In 1999, the Aus­trali­an research­ers Peter New­man and Jeff Ken­worthy con­cluded that “there is no guar­an­tee that con­ges­tion pri­cing will sim­ul­tan­eously improve con­ges­tion and sus­tain­ab­il­ity,” and men­tioned sev­er­al ways in which con­ges­tion pri­cing can defy the expect­a­tions of its sup­port­ers, among them by caus­ing motor­ists to “drive exactly as they always have if the con­ges­tion charge is covered by their firms (e.g., a major­ity of Lon­don’s peak-hour com­muters have com­pany cars and perks).”

Some have inter­preted Dav­id Owen’s column to be anti-con­ges­tion char­ging: I don’t believe he sug­gests this, primar­ily because of his final para­graph, describ­ing what he believes is the most effect­ive con­ges­tion man­age­ment pro­gram:

A truly effect­ive traffic pro­gram for any dense city would impose high fees for all auto­mobile access and pub­lic park­ing while also gradu­ally elim­in­at­ing auto­mobile lanes (thereby redu­cing total car traffic volume without elim­in­at­ing the envir­on­ment­ally bene­fi­cial bur­den of driver frus­tra­tion and inef­fi­ciency) and increas­ing the capa­city and effi­ciency of pub­lic trans­it.

It isn’t the solu­tion; it’s part of the solu­tion.