Temp work does not lead to full-time work

Companies that refer temporary workers ("temps") like to advertise that temporary work with few benefits is a stepping stone to full-time work with full benefits. Whether they can back this up beyond anecdotal evidence is another question, and it may depend very significantly on the labor market in question. Sectoral practices differ widely, and regulation about temp work in some countries makes it actually difficult to convert temp work to full-time work. In fact, some agencies even try to prevent this, as they would lose their commissions.

Joakim Hveem looks at Sweden and finds that work intermediated through temp agencies actually decreases the probability of subsequent full-time work, as if a stigma were attached. While this negative effect seems to be caused by immigrants, this results is still disturbing, in particular for women who often rely on temp work as a stepping stone to regular work (they could instead try with volunteering). The only good thing that comes out of this study is that temp work at least keeps people out of unemployment. Note, however, that the study is only about temp work intermediated through an agency. As mentioned above, these agencies may have perverse incentives. Self-intermediated temp work may fare better for later outcomes.

John Taylor versus Paul Krugman

1. Taylor: Simple Proof (of weak recovery)
2. Krugman criticism: Financial Crisis Denialism
3. Taylor response: Weak Recovery Denial

The evil of patents

The litigation saga between Apple and Samsung over minute and obvious details of their respective phones makes good entertainment but has little economic value. In fact, it highlights all that is wrong with the current state of the patent system. Sadly, textbooks still teach how temporary monopolies are beneficial for innovation, yet evidence is now overwhelming that they hurt the production of innovation, the use of innovation and well-being in general. I have blogged a few times about some cases and discussed some research in this regard.

Michele Boldrin and David Levine have written a nice summary on where we stand on the usefulness of patents. They have written a very good book about the topic a few years ago (buy it or download it for free, the authors are consistent with their message). The new working paper provides a shorter breviary with the main arguments for and (mostly) against patents, with a few updates from the literature and case studies. The major point is that despite a huge increase in the number of newly granted patents, there is no evidence of increases in R&D expenditures or total factor productivity. In fact, there is a growing consensus that technological progress is slowing down and we should get used to slower growth in the economy. Patent law and practice is at least partly responsible for this.

College Still Pays

A nice, accessible analysis of the economics of higher ed from Michael Greenstone and Adam Looney.

People Respond to Incentives

Even in France:

France's new 75 percent income tax on the rich may not be popular with millionaires. But it's being cheered by another group: Paris real-estate buyers. Real estate agents say that the number of multi-million-dollar real-estate listings in Paris has jumped more than 25 percent over last year -- due in part to the threat of the new income tax....[B]rokers say the 75 percent tax on the wealthiest French citizens has contributed to the decision by many of the them to sell their homes in anticipation of a possible move to another country.

The end of central banking as we knew it

The European Central Bank and the US Federal Reserve have massively changed their balance sheet in recent years. The first step was an increase in size, the second is a change in the structure of the balance sheet, holding not only government bonds but also other securities. Some have called this last step "qualitative easing," and others have argued that it is inconsequential because the price of the securities internalize everything relevant, à la Modigliani-Miller (most prominently Michael Woodford, whose recent Jackson Hole paper is being treated like gospel).

A counter-argument comes from Roger Farmer. Qualitative easing is a quasi-fiscal policy, because it favors a particular sector through the purchase of its assets instead of the "neutral" government bonds. Also, it transfers risk form the seller to ultimately the tax payer. This is not only welfare-improving, as it allows to fine-tune the economy, it can even be Pareto-improving despite the fact that it implies redistribution. Indeed, the policy allows to smooth asset price fluctuations as if the yet to be born were capable of trading. It also removes unnecessary fluctuations in the stock market that are due to sunspots ("irrational exuberance").

The question, though, is why the central bank would be tasked with such operations. A central bank's role is to ensure the short-term health of the economy in general. Fiscal policy can redistribute across sectors and ensure a healthy long-term environment. The Fed and the ECB have resorted to such operations because of a general failure of fiscal policy. In the US, Congress is incapable of setting any sensible policy. In Europe, the EU cannot conduct fiscal policy because it has no taxation powers. Central banks are forced into a role they should not have, even if it looks optimal according to Farmer. But wait until lobbies, politicians and other rent-seekers try to influence qualitative easing.

Russ Roberts talks with John Taylor

Part 1 Part 2