Saturday, 21 April 2018

Abby Hall on the boomerang effect and the militarisation of the US domestic police force

From the Economic Rockstar comes this interview with Abby Hall on the militarisation of the US domestic police force.
Abby Hall is an Assistant Professor in Economics at the University of Tampa in Tampa, Florida and a Research Fellow with the Independent Institute.

She earned her PhD in Economics from George Mason University in Fairfax, Virginia in 2015.

Her broader research interests include Austrian Economics, Political Economy and Public Choice, and Peace Economics, and Institutions and Economic Development.

Her work includes topics surrounding the U.S. military and national defense, including, domestic police militarization, arm sales, weapons as foreign aid, the cost of military mobilization, and the political economy of military technology.

She is currently researching how foreign intervention adversely impacts domestic political, social, and other institutions.

You can find Abby’s research, writings and other information on her website at

Friday, 20 April 2018

Are there limits to free speech?

In this audio from the IEA Kate Andrews and Steve Davies discuss the limits to free speech.

Are there limits to free speech - and if so, where should they be set?

In this week’s podcast, Dr Steve Davies, Head of Education at the IEA and News Editor Kate Andrews examine this question.

They take a look at free speech on social media, and at universities, where issues like ‘safe spaces’ and ‘no platforming’ are increasingly controversial.

Yet, the situation is rather more complex than it might seem.

Though, Steve argues, speech should be as free as possible - private institutions and private individuals also have a right to determine what speech they permit on their own property. And public funding of institutions can also complicate matters.

Thursday, 19 April 2018

Dave Rubin interviews Thomas Sowell

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss his new book “Discrimination & Disparities.” They dive into Dr. Sowell’s Marxist past, free speech on college campuses, the role of government, minimum wage laws, his experience as a black conservative, debunking systemic racism, and more.

Saturday, 14 April 2018

CEOs and the family firm

Do family CEOs work harder? The answer seems to be no.

A new paper out in The Review of Financial Studies (31(5) 2018: 1605–53) looks at:

Managing the Family Firm: Evidence from CEOs at Work
Oriana Bandiera, Renata Lemos, Andrea Prat and Raffaella Sadun
We build a comparable and bottom-up measure of CEO labor supply for 1,114 CEOs and investigate whether family and professional CEOs differ along this dimension. Family CEOs work 9% fewer hours relative to professional CEOs. CEO hours worked are positively correlated with firm performance and account for 18% of the performance gap between family and professional CEOs. We study the sources of the differences in labor supply across family and professional CEOs by exploiting firm and industry heterogeneity and variation in meteorological and sports events. Evidence suggests that family CEOs value or can pursue leisure activities more so than professional CEOs
Makes sense to me. One reason for founding and running a family firm would be the flexibility it gives to pursue things other than work. Even if this comes at a financial cost.

Friday, 13 April 2018

The determinants of productivity

From comes this short video in which Professor John Van Reenen discusses the impact of management on productivity.
Competition can foster productivity by eliminating unproductive firms out of the market. John Van Reenen discusses the impact of management quality on productivity - and how this is influenced by market forces. This video was published by the CORE Project.

How much should we care about inequality?

In this podcast from the IEA, Dr Steve Davies, Head of Education at the IEA, and News Editor Kate Andrews examine this question.
How much should we worry about inequality?

With ongoing Corbyn-mania in UK politics, and the popularity of books like Thomas Piketty’s Capital in The 21st Century, it seems like we’ve never cared more about promoting equality of outcome. But is our concern justified? Is economic disparity a characteristic of modernity - or a persistent feature of human civilization?

As Steve explains, inequality - and public concern about it - has been a feature of societies around the world, for centuries.

They also challenge the commonly held view that inequality has been rising in recent years - and examine whether people care more about some kinds of inequity than others.

Thursday, 12 April 2018

Monopsony models and the minimum wage

In an interesting and provocative article at Bloomberg Noah Smith discusses recent empirical research that suggests that higher minimum wages do not have negative effects on employment. Smith argues that this work discredits the standard competitive model of labour markets He favours a model of monopsonistic markets where employers have market power. Smith writes,
Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken. If employers have the power to set wages, then not just minimum wage, but other labor market policies -- for example, union-friendly laws -- can be expected to help workers a lot more than popular introductory economics textbooks now predict.

Textbook writers and instructors should respond by changing the baseline model of labor markets that gets taught in class. Students ought to start with a model of market power, in which a few companies set wages below levels found in a competitive market unless prevented from doing so. That model is about as easy to work with as the traditional supply-and-demand setup, but matches the data much better.
Perhaps not too surprisingly not all economists agree with him.

At the EconLog blog, Scott Sumner says he is not convinced by Smith's arguments. Sumner writes,
1. The replication crisis in the sciences, and the social sciences.

2. Conservative studies seem able to explain the very low levels of hours worked in Europe much better than progressive studies. And the studies that Smith cites are progressive studies. That doesn't mean progressives are wrong, but until progressives are able to explain Europe's labor market, I'll continue to have trouble taking them seriously.

3. Most importantly, Smith overlooks the fact that empirical research is just as unfriendly to the monopsony model of labor markets as it is to the competitive model of labor markets. AFAIK, almost all the empirical studies of the minimum wage suggest that higher minimum wages do not come out of profits, but rather are passed on in terms of higher prices. That result is 100% consistent with the competitive model of labor markets, and inconsistent with the monopsony model (which suggests that if employment doesn't fall then product prices do not rise.)

Thus empirical studies show that when a minimum wage increase forces grocery stores to pay higher wages, they pass on the increased costs in the form of higher prices.

Now I suppose that progressives could argue that demand curves don't slope downwards, and that the higher prices will not reduce sales. In that case, a higher minimum wage need not reduce employment. But as soon as you abandon downward sloping demand curves, you are faced with other dilemmas. For instance, why should progressives oppose "regressive" consumption taxes? After all, if demand curves don't slope downwards, then higher prices would not reduce consumption. And since living standards depend on consumption, regressive taxes would not reduce the living standards of the poor.

Of course we know that demand curves do slope downwards, and we know that regressive taxes tend to adversely impact the poor. What we need to figure out is whether higher minimum wages raise prices and reduce sales. So far, the empirical evidence suggests that they do.

To summarize, the empirical evidence on the effect on minimum wages on employment is mixed. The empirical evidence on the effect of minimum wages on prices is pretty clear---it raises prices. That means that, on balance, the empirical evidence is more supportive of the competitive labor market model than the monopsony model.

This doesn't mean that firms have no monopsony power---they almost certainly have some. The question is how much, and whether the short and long run labor demand elasticities differ.
At the Cafe Hayek blog, Don Boudreaux says,
First, as Jim Buchanan, Donald Dewey, and other economists have pointed out, as long as demand curves for outputs are downward sloping, monopsony power is only a necessary and not a sufficient condition for minimum wages not to reduce the employment prospects of low-skilled workers. For minimum wages not to reduce these workers’ employment prospects, employers with monopsony power must also have monopoly power (and not just the sort of such ‘power’ as is identified in models of monopolistic competition). That is, these employers must have the ability to keep the prices of the outputs they sell above average total costs. If they do not have this ability, then there are no excess profits, or rents, out of which the higher labor costs can be paid.

Second, empirical studies typically fail to examine all the many ways that employers and employees can adjust to minimum wages. The list of such possible adjustments other than reduced hours of employment includes reductions in formal fringe benefits (such as paid leave), reductions in informal fringe benefits (such as workplace safety higher than what is minimally required by legislation), and changes in the nature of the jobs such that workers are worked harder in order to produce more output per hour. To the extent that adjustments such as these occur, minimum-wage-induced reductions in employment will be fewer or lower, but the standard textbook model really still holds.

Third, because in the U.S. the national minimum wage has been in place now for 80 years and is at no risk of being repealed, employers have long ago adjusted their business plans – their capital-labor ratios – to the existence of minimum wages. And employers expect occasional minimum wage increases. Therefore, even the finest and most carefully controlled empirical study of a minimum-wage hike today will not detect the employment-reducing effects of the long-standing expectation of minimum-wage hikes. Because employers have already adjusted to the reality of minimum wages – and to the reality of minimum wages being increased from time to time – any study that correctly finds little or no negative employment effect from this or that minimum-wage hike today nevertheless misses the negative employment effects of minimum wages overall.

Fourth, about monopsony power: it’s more difficult to detect than, ironically, standard textbook models suggest. Suppose that Acme, Inc., competes for workers by offering unusually attractive fringe benefits and work conditions. And suppose that Acme, Inc., has a differential advantage over other employers at supplying to its workers such non-wage amenities, or that for Acme, Inc., the marginal cost of attracting X number of workers by supplying non-wage amenities is lower than is its cost of attracting X number of workers by increasing the wages it pays. Under such conditions, Acme, Inc., gains the power to lower its workers wages by some amount without losing all, or perhaps even any, of its workers.

An empirical study of this firm would conclude that Acme, Inc., has monopsony power. But this conclusion would be incorrect, for the ‘power’ that Acme, Inc., is detected to have over its workers is ‘power’ that Acme, Inc., purchased from its workers – workers who voluntarily agreed to Acme’s employment terms.

Put differently, if (as is not unreasonable for many employers) Acme, Inc., values a steady workforce, it can purchase – with non-wage amenities – from its workers the ability to cut their wages without their quitting. The textbook-bound economist, seeing only the reduced wages and no mass exodus of workers from Acme, leaps confidently to the conclusion that Acme has monopsony power. Yet clearly, in this example, that conclusion would be mistaken.
On Twitter, David Neumark, an economist who has spent many years studying minimum wages, wrote,
Thus, while Smith's position is certainly interesting, and could apply in some particular labour markets, I think he needs to do more to convince many of his fellow economists that the markets with monopsony power should be the standard model for labour markets.

Tuesday, 10 April 2018

The 10-Year baby window that is the key to the women’s pay gap

An interesting new twist on the effects of children on the pay gap between men and women. It has long been argued that having kids is one reason for the gap in pay between men and women but now a new study suggests that women who have their first child before 25 or after 35 eventually close the salary divide with their husbands. It's the years in between that are most problematic.

Claire Cain Miller discusses the new research at the Upshot blog at the New York Times. Millar writes,
Today, married couples in the United States are likely to have similar educational and career backgrounds. So while the typical husband still earns more than his wife, spouses have increasingly similar incomes. But that changes once their first child arrives.

Immediately after the first birth, the pay gap between spouses doubles, according to a recent study — entirely driven by a drop in the mother’s pay. Men’s wages keep rising. The same pattern shows up in a variety of research.
The new twist in the research is to point out that,
When women have their first child between age 25 and 35, their pay never recovers, relative to that of their husbands. Yet women who have their first baby either before 25 or after 35 — before their careers get started or once they’re established — eventually close the pay gap with their husbands.
One explanation is that the modern economy requires time in the office and long, rigid hours across a variety of jobs — yet pay gaps are smallest when workers have some control over when and where work gets done. In high-earning jobs, hours have grown longer and people are expected to be available almost around the clock. In low-earning jobs, hours have become much less predictable, so it can be hard for working parents to arrange child care.

The issue, in general, comes down to time. Children require a lot of it, especially in the years before they start school, and mothers spend disproportionately more time than fathers on child care and related responsibilities. This seems to be particularly problematic for women building their careers, when they might have to work hardest and prove themselves most, and less so for women who have already established some seniority or who have not yet started careers.
So it may not just be having kids that matters for the pay gap, but when you have them matters as well.