Alvin Roth on kidney exchange

This video is of Alvin Roth's second, of two, 2014 Marshall Lectures given at Cambridge University, February 20 2014. The topic of this lecture is kidney exchange.

Sexual harassment and compensating differentials

While reading a chapter in Ben Powell's new book Out of Poverty: Sweatshops in the Global Economy I came across the following comment,

If the risk of sexual harassment is part of the working conditions at a factory, them firms have to offer higher wages to attach workers. This is precisely what Professor Joni Hersch found when studying U.S. labor markets. She examines sexual harassment claims and wages by industry and finds that women were paid higher wages in industries in which they were at a greater risk of sexual harassment. She concludes that workers receive a wage premium for exposure to the risk of sexual harassment "in much that same way that workers receive a wage premium for the risk of fatality or injury." (Powell 2014: 68-9).

The Hersch article referred to is,

Hersch, Joni. 2011. "Compensating Differentials for Sexual Harassment." American Economic Review, 101(3): 630-34.

The abstract of the article reads,

Workplace sexual harassment is illegal, but many workers report that they have been sexually harassed. Exposure to the risk of sexual harassment may decrease productivity, which would reduce wages. Alternatively, workers may receive a compensating differential for exposure to sexual harassment, which would increase wages. Data on claims of sexual harassment filed with the Equal Employment Opportunity Commission are used to calculate the first measures of sexual harassment risks by industry, age group, and sex. Female workers face far higher sexual harassment risks. On balance, workers receive a compensating wage differential for exposure to the risk of sexual harassment.

The central empirical issue addressed in the paper is whether sexual harassment lowers wages by reducing productivity or raises wages as workers require a compensating differential to incur this risk. Hersch notes that while sexual harassment is illegal it is, in the same way as other job risks, costly for firms to eliminate, which may result in sexually harassing behaviour occurring in some workplace environments. She also notes that the direction of the relation between sexual harassment and wages is not predictable a priori. Sexual harassment may lead to lower pay if harassment reduces worker productivity by, for instance, inducing inefficient turnover, increasing absenteeism, and generally wasting work time as workers attempt to avoid interaction with harassers. Or harassment could be similar to other jobs in which workers face undesirable working conditions, like a high risk of death or disabling injury, and which generate a compensating pay differential.

Hersch writes,

[...] I estimate wage equations controlling for the risk of sexual harassment and for other determinants of wages, including occupation and the percent female in the worker’s industry. The wage equation estimates show that greater risk of sexual harassment is associated with a statistically significant wage premium. Women employed in jobs with an average probability of sexual harassment are paid a compensating differential of 25 cents per hour relative to comparable women employed in jobs with no risk of sexual harassment.

So labour markets deal with sexual harassment in much the same way as they deal with other on the job risks, That is, on balance, workers receive a wage premium for exposure to the risk of sexual harassment in much the same way that workers receive a wage premium for the risk of fatality or injury.

EconTalk this week

Bryan Caplan of George Mason University and blogger at EconLog talks to EconTalk host Russ Roberts about the value of a college education. Caplan argues that the extra amount that college graduates earn relative to high school graduates is misleading as a guide for attending college--it ignores the fact that a sizable number of students don't graduate and never earn that extra money. Caplan argues that the monetary benefits of a college education have a large signaling component rather than representing the value of the knowledge that's learned. Caplan closes by arguing that the subsidies to education should be reduced rather than increased.

A direct link is available here.

A conversation between Milton Friedman and Gary Becker

The following video is of an interview of Milton Friedman by Gary Becker. It was recorded in Chicago in November 2002.

The too big to fail subsidy debate Is over

Or so says Simon Johnson at The Baseline Scenario blog. Johnson writes,

No doubt there is still a lot of shouting to come, but this week a team at the International Monetary Fund completely nailed the issue of whether large global banks receive an implicit subsidy courtesy of the American government. Is there a subsidy, is it large, and how much damage could it end up causing to the broader economy?

The answers, in order, are: yes, there is an implicit subsidy that lowers the funding costs for very large banks; the subsidy is big, with costs of borrowing for these banks lowered by as much as 100 basis points, i.e., 1 percentage point; and yet this large scale of implicit support is small relative to the macroeconomic damage that is likely to be caused by the high leverage and incautious risk-taking that the subsidy encourages.

That subsidising banks, implicitly or explicitly, is dumb and likely to lead to big trouble is something of a no brainer but its good to see that the IMF is willing to come out and say so. This is a step in the right direction. Now for the big question, What to do about it? Answers on the back of a postcard should be sent to just about any world leader you can name.

Why long-term unemployment matters

Previously I have noted papers that deal with the effects of long-term unemployment, see here, here, here and here. Now Tim Harford is writing about it at the Financial Times.

Harford says,

A recent Brookings Institution research paper by Alan Krueger (a senior adviser to Barack Obama during the recession), Judd Cramer and David Cho examines this discomfiting thesis in greater depth. The researchers conclude that people who have been out of work for more than six months are indeed marginalised: employers ignore them, bidding up wages if necessary to attract workers from the ranks of the short-term unemployed.

I’ve written before about an experiment conducted by a young economist, Rand Ghayad. He mailed out nearly 5,000 carefully calibrated job applications, using a computer to tweak key parameters. He found that employers were three times more likely to call an applicant with irrelevant but recent employment experience, than someone who had relevant experience but had been out of work for more than six months. Long-term unemployment had become a trap.

In Ghayad’s experiment, the long-term unemployed were identical in every other way to other applicants. In reality, of course, it may be that people also become demotivated after a long spell of looking for work. The “benefits culture” at work? It seems not. Earlier research by Krueger and Andreas Mueller tracked job hunters over time and showed them becoming ever less active in the job market – and ever more depressed. They could not rouse themselves, even when unemployment insurance payments were about to expire. It wasn’t that the people joined the ranks of the long-term unemployed because they were demotivated to start with: the long-term unemployment came first, and the unhappiness and the lack of drive came later.

The important question, not answered above, is Why do employers ignor the long-term unemployed? Loss of human capital? Do employers see long spells of unemployment as a signal of some bad characteristic about the person? Or something else? Or, as Harford puts it, are

the long-term unemployed [...] people who are not very different to the rest of us – merely unluckier.

Without this question being answered its not clear how to deal with the problem.

Free banking in New Zealand

The following comes from a blog post, by Kurt Schuler, at the Free Banking blog,

Since the revival of interest in the history of free banking begun by Hugh Rockoff's work in the 1970s on American "free banking" of the early 19th century and Larry White's 1984 book on the far freer Scottish system of the same period, economists have studied a number of other free banking episodes in some depth. New Zealand has not been among them, though it has received passing attention. We are fortunate, then, that Harry D. Bedford's 1916 dissertation "The History and Practice of Banking in New Zealand" is now available online. Until this year only paper copies were available at the University of Otago, where it was submitted for the doctorate, and a few other libraries in New Zealand. The university has digitized the dissertation and readers around the world can now find it here.

The work was submitted for the higher doctoral degree Doctor of Letters at Otago in 1916. The Table of Contents reads:

Volume 1: Principles of English Banking current in the “Forties” – Commerce without Banks – Early Banking – Government Debentures as Currency in New Zealand – A State Bank of Issue – Several Banks – the Gold Discoveries – Years of Expanding Credit – Banks and Credit

Volume 2: Movements towards Crisis – The Assets Realisation Board – The Colonial Bank – The National Bank – The Causes of the Crisis – Commercial Influences – Bank Notes – Exchange – The Government Account – Since 1895

Who knew banking history was big back then?!

A grand gender convergence: its last chapter

is the title of a new paper by Claudia Goldin in the American Economic Review (104(4): 1091-1119.) which looks at the gender gap in pay. The abstract reads,

The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.

Presumably firms  reward individuals who labour long hours and work particular hours because it is profit maximising for them to do so and thus this may be a feature of the particular industries in which it occurs. If so this could be a difficult thing to change, it would take either a change in the cost structure of the industry, what would bring about such a change?, or a change on the demand side, that is, customers would have to start demanding a different set of goods or services. Why would they do so?

EconTalk this week

John Cochrane of the University of Chicago talks to EconTalk host Russ Roberts about the experience of teaching a massive open online course (MOOC)--a class delivered over the internet available to anyone around the world. Cochrane contrasts the mechanics of preparing the class, his perception of the advantages and disadvantages of a MOOC relative to a standard in-person classroom, and the potential for MOOCs to disrupt traditional education.

A direct link is available here.