Year: 2014

Claudia Goldin delivered the Presidential Address at the American Economic Association meetings last week entitled \”\”A Grand Gender Convergence: Its Last Chapter.\”  The talk is traditionally published in a few months in the American Economic Review. But a pre-copy-edited final draft version is available at Goldin\’s website here.

Goldin points out that the ratio of the median woman\’s wage to the median man\’s wage has been closing over time: \”The mantra of the women’s movement in the 1970s was `59 cents on the dollar\’ and a more recent crusade for pay equality has adopted `77 cents on the dollar.\’\” (For a post from last September on this change, see here.) A substantial part of this change is that what economists call the \”human capital\” characteristics of women–often measured by educational attainment and years of  workforce experience–now look quite similar to those of men. So why does a gender wage gap remain? Goldin argues: \”As women have increased their productivity enhancing characteristics and as they `look\’
more like men, the human capital part of the wage difference has been squeezed out. What remains is largely how firms reward individuals who differ in their desire for various amenities. These amenities are various aspects of workplace flexibility. Workplace flexibility is a complicated, multidimensional concept. The term includes the number of hours to be worked  and also the need to work particular hours, to be “on call,” give “face time,” be around for clients, be present for group meetings and so forth.\”

The typical pattern here is that women have a fairly small gender wage gap when they first start their careers. However, as women reach their child-bearing and child-raising years, the gender wage gap opens up. Women who don\’t have children experience a much smaller gender wage gap. In addition, Goldin shows that this pattern commonly exists within many different occupations, although the size of the wage gap does vary across occupations.  She writes: \”The main takeaway is that what is going on within occupations—even when there are 469 of them as in the case of the Census and ACS [data]—is far more important to the gender gap in earnings than is the distribution of men and women by occupations. … If earnings gaps within occupations are more important  than the distribution of individuals by occupations then looking at specific occupations should  provide further evidence on how to equalize earnings by gender. Furthermore, it means that changing the gender mix of occupations will not do the trick.\”

Here\’s a figure showing the overall pattern. Each of the lines is a birth year for women. The horizontal axis shows the age of the woman. The vertical axis shows the gender wage gap at that age. The vertical axis is measured on a logarithmic scale, and for those who aren\’t familiar with that scale, Goldin inserts the percentage wage gap in brackets. You can see that the lines for women born more recently are higher on the graph, which shows that the gender wage gap is diminishing over time. You can also see that from about age 25 up to about age 40, the gender wage gap expands, whereas after about age 45, it contracts.

Goldin looks at data on wages by gender across these 469 occupational categories. She finds some overall patterns, like the gender gaps tend to be bigger in business occupations and smaller in technology and science occupations.  She focuses on whether an occupation is \”linear,\” which basically means that if someone works 50% more hours than someone else, they earn 50% more. The alternative is whether an occupation is \”non-linear,\” which means that if someone works 50% more hours than someone else, they earn a substantial amount more than 50% more. Careers in business and law tend to be nonlinear: that is, those who work very long hours can make extremely high rewards, and those who work 30 hours per week earn considerably less than half as much as those who work 60 or more hours per week.

As an example of a linear career, Goldin points to pharmacists. (For a detailed analysis of pharmacists, see \”The Most Egalitarian of All Professions: Pharmacy and the Evolution of a Family-Friendly
Occupation,\” by Claudia Goldin and Lawrence F. Katz, National Bureau of Economic Research Working Paper #18410, September 2012). Women were less than 10% of all pharmacists back in the 1960s, and are now more than half. But the nature of the job has also changed. Back in the 1960s, about two-thirds of all pharmacists were independent; now, only about 15% are independent, and the rest work for big organizations like hospitals or drugstore chains. Pharmacists who work part-time earn about the same hourly wage as those who work full-time, or more than full-time. Goldin explains what is behind this pattern:

\”The last chapter must be concerned with how worker time is allocated, used and remunerated and it must involve a reduction in the dependence of remuneration on particular segments of time. It must involve greater independence and autonomy for workers and the ability of workers to substitute seamlessly for each other. Flexibility at work has become a code word to mean shorter hours. It also means temporal flexibility such that total hours worked are the same. Flexibility is of little value, however, if it comes as a high price. There are many occupations that have moved in the direction of less costly flexibility. … Some changes have occurred organically often due to economies of scale (as in the cases of physicians, pharmacists and veterinarians), some changes have been prompted by pressure on the part of employees (as in the case of various physician specialties such as pediatricians), and yet other changes have occurred because of a desire to reduce costs. What the last chapter must contain for gender equality is not a zero sum game in which women gain and men lose. Many workers will benefit from greater flexibility, although those who do not value the amenity will likely lose from its lower price. The rapidly growing sectors of the economy and newer industries and occupations, such as those in health and information technologies, appear to be moving in the direction of more flexibility and greater linearity of earnings with respect to time worked. The last chapter needs much more of that.\”

Aaron Steelman of the Richmond Fed conducted an \”Interview\” with John Cochrane that has been published in Econ Focus (Third Quarter 2013, pp. 34-38). It\’s full of Cochrane\’s characteristically crackling commentary. Here are some snippets:

On the Dodd-Frank financial regulation law

\”I think Dodd-Frank repeats the same things we’ve been trying over and over again that have failed, in bigger and bigger ways. … The deeper problem is the idea that we just need more regulation — as if regulation is something you pour into a glass like water — not smarter and better designed regulation. Dodd-Frank is pretty bad in that department. It is a long and vague law that spawns a mountain of vague rules, which give regulators huge discretion to tell banks what to do. It’s a recipe for cronyism and for banks to game the system to limit competition.\”

On how to stop bailing out large financial institutions

You have to set up the system ahead of time so that you either can’t or won’t need to conduct bailouts. Ideally, both. 

On the first, the only way to precommit to not conducting bailouts is to remove the legal authority to bail out. Ex post, policymakers will always want to clean up the damage from crises and worry about moral hazard another day. … You also have to let people know, loudly. The worst possible system is one in which everyone thinks bailouts are coming, but the government in fact does not have the legal authority to bail out.

On the second, if we purge the system of run-prone financial contracts, essentially requiring anything risky to be financed by equity, long-term debt, or contracts that allow suspension of payment without forcing the issuer to bankruptcy, then we won’t have runs, which means we won’t have crises. People will still lose money, as they did in the tech stock crash, but they won’t react by running and forcing needless bankruptcies.

How large government debts affect monetary policy

Monetary policy will be different in the shadow of huge debts. For example, suppose the Fed wants to raise interest rates to 5 percent tomorrow. The Treasury would then have to start rolling over its debt at that higher interest rate, which means a net flow of about $800 billion of extra deficit that has to come from somewhere — more taxes or less spending eventually. Will Congress still say, “Sure, go ahead and tighten”? After World War II, we had a similarly huge debt and Congress simply instructed the Fed to keep interest rates low to finance the debt. That could happen again. How independent can monetary policy be in the shadow of huge debts?

The issue of time-varying risk premiums

One big unresolved issue in finance is why risk premiums are so big and why they vary so much over time. You can look at the spread between what you have to pay to borrow and
what the U.S. government pays in order to see that risk premiums are big and varying. … For macroeconomics, the fact of time-varying risk premiums has to change how we think
about the fundamental nature of recessions. Time-varying risk premiums say business cycles are about changes in people’s ability and willingness to bear risk. …

On tax-favored savings accounts

Medical savings accounts are a great idea, although the need for special savings accounts for medicine, retirement, college, and so on is a sign that the overall tax on saving is too high. Why tax saving heavily and then pass this smorgasbord of complex special deals for tax-free saving?  If we just stopped taxing saving, a single “savings account” would suffice for all purposes! 

Here\’s a hypothesis: If people who don\’t have health insurance were covered, then they could get preventive care before they became sick and go to primary care doctors when they were a little sick, instead of going to emergency rooms after the symptoms get even worse. Thus, giving them health insurance would cut costs by reducing the number of more costly emergency room visits and also improve health outcomes.

What\’s the best way to get evidence on how whether hypothesis holds true? Or how large the cost savings or health effects might be? Well, imagine a situation in which a state looks at a group of 90,000 people who lack health insurance, and randomly selects 10,000 of them to receive government-provided health insurance. As long as the observable characteristics of the group that get health insurance look the same as those who didn\’t (and this can be checked by a researcher), then one can reasonably compare the outcomes for those who got health insurance with those that didn\’t.

But where to find such an experiment. The answer is \”Oregon.\” Back in 2008, Oregon wanted to expand health insurance coverage, but it only had enough money to cover 10,000 people. So it held a lottery, which attracted 90,000 applicants, and then selected the 10,000 people at random. Since then, a group of economists and public health researchers have been collecting evidence. Their latest publication is \”Medicaid Increases Emergency-Department Use: Evidence from Oregon\’s Health Insurance Experiment,\” by Sarah L. Taubman, Heidi L. Allen, Bill J. Wright, Katherine Baicker, and Amy N. Finkelstein. It was published on-line by Science magazine on January 2, and if you don\’t have access through a personal or library subscription, it is available with free if clunky registration.

They find that health insurance leads to more emergency room visits, not fewer. From the abstract of their paper: \”We find that Medicaid coverage significantly increases overall emergency use by 0.41 visits per person, or 40 percent relative to an average of 1.02 visits per person in the control group. We find increases in emergency-department visits across a broad range of types of visits, conditions, and subgroups, including increases in visits for conditions that may be most readily treatable in primary care settings.\”

Also in Science, Raymond Fisman offers a commentary on these results, called \”Straining Emergency Rooms by Expanding Health Insurance.\” The vertical bars on the figure show how much of an increase in  emergency room visits occurred for the insured patients. The bars separate out different causes for the emergency room visit. Fisman writes: \”Visits that require immediate ER care and could not have been prevented are “emergent, not preventable.” Visits that require immediate ER care and could have been prevented with ambulatory care are “emergent, preventable.” Visits that require immediate care but could be treated in an outpatient setting are “primary care treatable.” Visits that do not require immediate care are “non-emergent.” The lines through the middle of the bars show the 95% statistical confidence intervals.

As Fisman points out, the fact that various primary care treatable conditions and \”non-emergent\” conditions end up in emergency rooms doesn\’t prove that people with health insurance are doing anything wrong. When primary care doctors are fully booked or overbooked for a day, or if it is after normal visiting hours, then primary care doctors often send patients to emergency rooms. In addition, just because a chest pain turns out not to be a heart attack, it may still make sense for the person to head for the emergency room when such a pain occurs.

But whatever the justifications for higher emergency room use, the pattern itself seems clear. If health insurance is expanded, there are likely to be more patients in emergency rooms, not fewer. Fisman writes:

If all goes as planned, many more Americans will soon be covered by some type of health insurance. Although much of the United States looks very different from white, liberal, urban Portland, and the OHIE [Oregon Health Insurance Experiment] involved a small, rather than universal, expansion in coverage, there is no obvious reason to expect that insurance will have drastically different effects elsewhere. That is, based on this paper’s findings, we have good reason to anticipate a large increase—and almost surely not a decrease—in traffic to already overburdened emergency departments across the country. Whether or not you think universal coverage is a good idea, we had better start planning for it.  Clearly, the answer is unlikely to be just increasing ER budgets to accommodate more patients: There are surely better ways to manage health delivery to low-income populations, particularly with an eye to long-term preventive care rather than short-term treatment.

This paper is the third published study of the Oregon Health Insurance Experiment, as it is coming to be called. The first paper, published in the Quarterly Journal of Economics in August 2012, noted that those who received health insurance utilized more health care and reported less financial stress over paying for health care. The second paper, published in the New England Journal of Medicine, May 2, 2013. It found that \”Medicaid coverage had no significant effect on the prevalence or diagnosis of hypertension or high cholesterol levels or on the use of medication for these conditions. It increased the probability of a diagnosis of diabetes and the use of medication for diabetes, but it had no significant effect on the prevalence of measured glycated hemoglobin levels of 6.5% or higher. Medicaid coverage led to a substantial reduction in the risk of a positive screening result for depression. This pattern of findings with respect to clinically measured health — an improvement in mental health but not in physical health …\”

In short, the evidence so far from the Oregon health insurance experiment shows that those who receive health insurance consume more health care, including emergency room care, and also that measures of their mental health seem to improve (less financial stress from health care costs, reduced diagnoses of depression). However, the evidence so far does not suggest that actual physical health status is improved by having health insurance. This is perhaps not a huge surprise, given that the accumulated evidence covers only a couple of years. We know that actual health outcomes are more a function of diet, exercise, smoking, drinking, violence and so on, rather than access to health care.

I am congenitally suspicious of surveys in which people are asked about whether they have acted in charitable ways. But nonetheless, the World Giving Index 2013, which is published by the Charities Aid Foundation based on survey data collected around the world by Gallup, offers all sorts of room for rumination. The survey asks whether a person has participated in three kinds of charitable behavior in the previous month: helping a stranger, donating money, or volunteering. It doesn\’t ask about the quantities of these behaviors: how much help, how much money, or how many hours of volunteering. But as a sort of Rorshach test to stimulate speculation and story-telling, here are some main findings.

First, here are the top-ranked countries, where the overall ranking is determined as the average of the percentages of those who say that they participated in one of the three behaviors. The U.S. ranks first, thanks in large part to the very high score on \”helping a stranger.\”

And here are the bottom 10 countries for these giving behaviors. One might expect that countries which have experienced different kinds of civil strife might rank lower on giving, which holds true in different ways for a number of these countries. But I find it remarkable that in China, only 33% of people report helping a stranger, 10% report giving money, and 4% report volunteering. And in Greece, these percentages are as low or lower. Perhaps this is a sign that in China, people don\’t want to answer questions from surveys? Perhaps in Greece, it\’s a sign that the social divisions following from the economic turmoil of the last few years are leaving a scar? As I said, these kinds of tables are an inkblot where you can tell your own story.

Here are the top ten and bottom 10 countries for each of the behaviors separately. In helping a stranger, the US ranks first, followed by the highly heterogenous list of Qatar, Libya, Colombia, and Senegal.

Here are the bottom 10 countries for helping a stranger. Remember that these are survey data. In these countries, less than 30% of people report to the survey that they have helped a stranger in the previous month.

In the percentage of those having given money, Myanmar (!?!) ranks at the top, followed by the United Kingdom, Malta, Ireland, and Thailand.

In the bottom 10 countries of those who report giving money, 8% or fewer of all respondents say that they have given money in the previous month. A few of these countries have low levels of per capita income, like Niger and Mali. But a number of others–Russia, Ukraine, Georgia, Greece, Armenia–are not especially low-income by world standards.

In the percentage of those volunteering time, Turkmenistan leads the way, with Tajikistan and Uzbekistan also in the top 10, with Sri Lanka, the US, Myanmar, and the Phillipines, also ranked near the top.

And here are the bottom 10 countries, in which 7% or fewer of respondents say that they have given time in the last month.

These survey responses are distinctive enough that it feels to me as if they mean something. But I don\’t know if the appropriate stories need to be told on a country-by-country basis, or if one can make useful arguments about patterns across certain areas or regions. Let the hypothesizing begin.

Andrzej Rapaczynski discusses \”The Moral Significance of Economic Life\” in the most recent issue of Capitalism and Society. Painting with broad strokes, he sketches the outlines of two broad orientations toward the moral significance of economic life, what might be summarized as an Aristotelian view and a Lockean view. In a lead-in to discussing the Aristotelian view, he writes:

\”The person responsible for the most fundamental re-orientation of European thinking about the place of production in the constitution of human liberty – in fact of the very concept of labor that Aristotle had seen as the essence of slavery – is John Locke. Arguing quite consciously against the Aristotelian tradition, Locke claims that labor is the most fundamental attribute of humanity because it is the activity that enables human beings to transform the alien natural world around them into a “tamed,” “human” environment, reflecting our own design, serving our needs, and capable of freeing us from the shackles of the mechanical laws of nature. …

It is this aspect of Locke’s theory that provides the most important moral basis of the nascent modern liberal outlook in which economic activity is no longer seen as geared toward “mere satisfaction” of heteronomously generated needs imposed on us by our physical existence, or as just a precondition of human freedom. On the contrary, economic activity is now seen as the most basic process though which human beings transform the world around them in their own image and initiate a complex interaction between themselves and the natural world that amounts to an activity of human “self-creation”: what labor produces is not just goods or commodities, but the very autonomous human beings who now live the lives they themselves design and determine. Thus, labor, which is at the basis of economic life, far from enslaving those who engage in it, is the prime expression of human creativity, a true production of new reality governed by human intellect and imagination, in which we can recognize and shape ourselves in accordance with our own will. … 

At its origins, then, the modern liberal worldview is not primarily a political theory, but a moral theory of economic production. It is a theory that views labor as a paradigmatic expression of human freedom and the way in which we interact with the world around us and form ourselves as autonomous self-creations. … Art, literature, and music, because of the particularly sophisticated nature of their products, may be more clearly recognizable as the primary artifacts of human culture, but their place in human life is not in principle different from the other objects we produce both to consume and to define the fundamental conditions of our own existence. To be sure, economic life can run into its own excesses and generate all kinds of pragmatic and moral problems. Excessive inequality is always a possible outcome of economic activity, and the thoroughgoing transformation of the natural world can wander into ecological and environmental dead-ends. Some collective regulation of economic life is therefore always necessary to set its clear rules, prevent unintended distortions, assure some basic dignity for all the participants, etc. But, unlike for Aristotle, politics and other non-economic forms of self-governance are not, for liberals, the primary locus of human self-realization. …  On the contrary, it is that the proper discourse of politics is mostly derivative with respect to economic life because the latter is the primary creative activity of the modern man. Political regulation of economic life is thus not an imposition of some external higher norms curtailing the amoral, self-interested pursuits of economic actors, but a process of collective reflection that aims at eliminating contingent distortions of the ethics of production and at bringing out its inherent and defining “spiritual” values.\”

\”But one cannot understand much of the standard language of contemporary social analysis without realizing that the tension between economic activity, on the one hand, and moral concerns (as well as the models of life thought to be truly worth living), on the other, is deeply ingrained in Western culture and constitutes an important component of social consciousness in the developed world. … The greatest achievement of modernity – its unprecedented productive growth, with all its
material wealth and the individual freedom it enabled – has been, in the consciousness of too many, relegated to the domain of the morally empty and the spiritually impoverished. The greatest “culture war” in history is still going on.\”

Those with a taste for these issues might also be interested in two articles in the Fall 2013 issue of the Journal of Economic Perspectives. (Full disclosure: I\’ve worked as Managing Editor of JEP since the first issue in Fall 1987.) Michael Sandel  wrote \”Market Reasoning as Moral Reasoning: Why Economists Should Re-engage with Political Philosophy,\” some themes of which were discussed here on this blog. The other article, by Luigino Bruni and Robert Sugden, is called \”Reclaiming Virtue Ethics for Economics\” and some aspects were discussed here on this blog.

At the beginning of each year, it seems useful to reflect on what I\’m seeking to accomplish with this blog. In previous years, at the end of 2012 and the end of  2011, I focused mostly on explaining and justifying the tone I\’m trying to achieve with the blog: that is, bringing forward themes and arguments and evidence mostly from research and academic sources that I found interesting, with a comparatively light dose of my own opinion. Here, I will focus on a different purpose for this blog: using the blog as a memory partner, to expand own effective memory. I draw on an essay by Daniel F. Wegner and Adrian F. Ward called \”How Google is Changing Your Brain,\” in the December 2013 issue of Scientific American. (The essay doesn\’t seem to be freely available on-line, but many readers are likely to have access through library subscriptions.)

In the past, many people dealt with the complexity of their day-to-day world by dividing up information and memory. Sometimes the division is between people: My wife does a vastly better job of remembering birthdays, anniversaries, and other important dates than I do, while I often take the lead on planning that family vacation a few months off. Many of us have friends, or people we hire, to help with knowledge about hooking up electronics or minor household repairs. We use cookbooks instead of trying to memorize recipes. And of course, many of us live surrounded by little scraps of paper with obscure and often undecipherable notes that were written to jog our memories.

The web offers tools for organizing and accessing information that doesn\’t rely on personal memory. An electronic calendar can be a reminder of dates and times. A recipe can be retrieved by remembering a few key ingredients. How to fix the printer or deal with the programmable thermostat is only a few clicks away. Wegner and Ward say it this way: \”Our work suggests that we treat the Internet much like we would a human transactive memory partner. We off-load memories to \”the cloud\” just as readily as we would to a family member, friend or lover. The Internet, in another sense, is also unlike a human transactive memory partner; it knows more and can produce this information more quickly.\”

They point to some intriguing experiments in psychology about how people rely on the Internet as a memory partner. For example, in one study of how people offload their memory to the Internet, researchers

…asked participants to copy 40 memorable factoids into a computer (for example: \’\’An ostrich\’s eye is bigger than its brain\’\’). Half of the people in the experiment were told that their work would be saved on the computer; the other half were told that it would be erased. Additionally, half of each group was asked to remember the information, whether or not it was being recorded by the computer. We found that those who believed the computer had saved the list of facts were much worse at remembering. People seemed to treat the computer like the transactive memory partners that we started studying decades ago: off-loading information to this cloud mind rather than storing it internally. Strikingly, this tendency persisted when people were explicitly asked to keep the information in mind. It seems that the propensity for off-loading information to digital sources is so strong that people are often unable to fix details in their own thoughts when in the presence of a cyberbuddy.

In another study, using Google to search for answers made people perceive themselves as smarter.

[W]e asked people to answer trivia questions with or with out the assistance of Google and then asked them to rate themselves on this scale. Cognitive self-esteem was significantly higher for those who had just used the Internet to search for answers. Incredibly, even though answers came verbatim from a Web site, people in the study had the illusion that their own mental capacities had produced this information, not Google. To ensure that people had not felt smarter simply because they were able to answer more questions with the assistance of Google, we followed with a similar study in which those who did not use the search engine received false feedback that they
had given the right answers to almost all the trivia questions. Even when participants in both groups believed they had performed equally well, those who had used the Internet reported feeling smarter. These results hint that increases in cognitive self-esteem after using Google are not just from immediate positive feedback that comes from providing the right answers. Rather, using Google gives people the sense that the Internet has become part of their own cognitive tool set.

At some level, people are not wrong to feel \”smarter\” when they can access the Internet. After all, a standard measure of intelligence is that if you can answer the question, you are \”smart.\” When I use this blog as a place to store up useful quotations, figures and tables, or bits of analysis and phrasing, the \”search\” command makes it much easier for me to access specific material on command in the future–and not just to access a dim memory that a year ago I\’m sure I read something somewhere on the topic. This effect is especially useful if I have some time to prepare an answer or to give a talk.

But there is a danger here. I remember once reading a comment about a writer who was known as especially witty and incisive in print, but was regarded as a dull conversationalist. When asked about this disjunction, the writer commented along these lines: \”I\’m like a person with a million dollars in the bank, but only a few pennies in my pocket.\” Of course, I can\’t remember the exact quotation or who the writer is, because I don\’t have the comment recorded on my blog!

But as we offload our own memories and sense of intelligence to the web, we need to beware of some cognitive biases. For example, it is troubling to me that people feel \”smarter\” when they get an answer from a search engine. It is troubling to me that we may outsource our memories to the Internet, in effect choosing to remember less. Wegner and Ward write: \”The psychological
impact of splitting our memories equally between the Internet and the brain\’s gray matter points to a lingering irony. The advent of the \”information age\” seems to have created a generation of people who feel they know more than ever before–when their reliance on the Internet means that they may know ever less about the world around them.\” Ideally, of course, a person might try to rely on the Internet as a repository for facts and background, thus freeing up some mental resources for analysis and creativity. This blog is in a way an experiment in which I try to learn how to strike that balance for myself.

As 2013 comes to a close, this blog is typically attracting 1500-2000 pageviews per day. The pageviews, of course, don\’t count the 270 people who are signed up to receive posts by e-mail, or those who receive the blog via an RSS feed (for example, about 720 people are subscribed to this blog on feedly). There are about 530 subscribers to my Twitter feed, which is almost always just the title of the latest blog entry and a link. Thanks to all my readers, but especially to the regulars who check in a few times a week or a few times a month. And thanks in particular to those of you who use social media to recommend blog posts to others. Although one main purpose for this blog is to extend my own effective memory, I am delighted to have readers along for the ride.