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.