Why women should volunteer

There is a strong cultural tradition of volunteer work in the United States, which is encouraged by many employers and pretty much a requirement if you want to get into good colleges and land scholarships. I am not quite sure why this is more prevalent than in Europe, possibly because Europeans expect the state to help, whereas in the US everyone is more on his own and can expect help from other individuals. Beyond social pressure, there may also be self-interest at work, though.

Robert Sauer shows that for women volunteer work can pay off. Imagine the following scenario: a woman drops from the labor force to have children and raise them for the first years (remember, there is no significant maternity protection in the US). During that period, she volunteers here and there, when her schedule allows it. Once the kids are in school, she rejoins the labor force. Using the PSID, Sauer finds that every year of volunteer work increase the subsequent wage by 2.4% in full-time work, and even 8.3% for part-time work. That is of course after controlling for the years lost in learning-by-doing. This is also done with a structural behavioral model, which allows to highlight why reduced-form regressions would have shown a negative effect: adverse selection is at play in that a different type of people is out of the labor force and into volunteering. The advice to female labor economists is thus: volunteer and estimate structural models.

Optimal Tax Policy

A group of top economists was asked what they thought about this statement:

"Taxing capital income at a permanently lower rate than labor income would result in higher average long-term prosperity, relative to an alternative that generated the same amount of tax revenue by permanently taxing capital and labor income at equal rates instead."

There was not unanimity, but about three times as many economists agreed than disagreed.

Why should entrepreneurial income be taxed less progressively than labor income?

Capital income is typically less taxed, and there are good theoretical reasons to do so. It has mostly to do with the fact that you do not want to discourage the accumulation of capital, which increases wages. You also want to encourage entrepreneurship, which has lead to various tax credits fro entrepreneurs (plus the fact they have an easier time under-reporting income if they are self-employed). But should entrepreneurial income be taxed as progressively as other income?

Florian Scheuer says no, and it should be less progressive, which is actually how it is in the data. Indeed, business taxation is less progressive than taxation of individuals. This makes sense according to Scheuer because of adverse selection on credit markets. The argument is as follows. Individuals choose whether to become regular workers or entrepreneurs. The latter are not all equally suited for the job, and they need credit. There is adverse selection on the credit markets which leads to cross-subsidization from good risks to bad risks. Thus, too many bad risks enter entrepreneurship. Having a flatter tax schedule reverses some of this cross-subsidization.

Roth and Shapley

Congratulations to Al Roth and Lloyd Shapley for winning the Nobel Prize today!  It is well deserved.

FYI to teachers of introductory economics:  I use Al's article on Repugnance as a Constraint on Markets as an ancillary reading in ec 10.

The Value of Consensus Building

As seen by Larry Summers:

"If there is no consensus on the causes or solutions to serious problems, it is unreasonable to ask a political system to implement forceful actions in a sustained way. Unfortunately, this is to an important extent the case with respect to current economic difficulties, especially in the industrial world."

The Harvard Economics Department's Nobel problem

By all accounts, the Economics Department at Harvard University is the best department in world, to the point that it gets an almost perfect score on RePEc. Yet, despite such dominance, anyone on its faculty has not received a Nobel prize in a very long time. The last Harvard faculty with a Nobel, Amartya Sen, was hired five years after his 1999 Nobel Prize. The 1998 Prize, Robert Merton, was at the Business School. You have to go all the way back to Wassily Leontief in 1973 to find the next one.

What is the department's problem? One, it could be that it is populated with brilliant people, but the the exceptional ones who merit Nobel Prizes. Two, it could be that the standing of the department in the profession is overvalued. Three, it could be that the rankings are biased in some way, say that Harvard graduates like to cite their mentors. Four, maybe there is some curse.

The 2012 prize is going to be announced tomorrow. Which Harvard Economics faculty have a shot? The most cited economist is Andrei Shleifer. But his unethical behavior makes it impossible for him to get the prize. Robert Barro is also extremely well cited, but his citations are very often about proving him wrong. Alvin Roth is a serious candidate, but just left for Stanford (because of the curse?). Martin Weitzman is a candidate, but if environmental economics gets it, it should first go to William Nordhaus alone. That leaves us, in my mind with only three viable candidates: Oliver Hart, Elhanan Helpman and Martin Feldstein. Given the long list of viable candidates (say, Tirole, Milgrom, Paul Romer, Lars Hansen, Thaler, Robert Wilson, Nordhaus, Holmstrom, Fama, Dixit, Roth, Kiyotaki, Moore, Newhouse, Grossman, Ross, Rabin, Atkinson, Deaton, Shiller, Berry), the odds remain small.

How daylight saving time burns calories

Daylight savings time was introduced to save energy. Because humans who have access to electricity seem to have a natural tendency to stay up late at night and wake up when the sun is already out, changing clocks seem to coax them into moving their daily cycle closer to the natural cycle. As fewer lights are then on, one saves energy.

Hendrik Wolff and Momoe Makino show that humans compensate by using up more energy themselves. Looking at the period around which we need to adjust our watches one way or the other, they find that daylight savings time leads to an immediate drop in time spend in front of the television to the benefit of outdoor activities. And this healthy behavior leads to an increased calorie consumption, to the tune of about 200 calories a day. Hmm, I wonder whether similar results would be obtained by comparing people along a timezone border. And whether it would be worth moving daylight savings time by two hours instead of one.