Why $9?

Since the State of the Union address, the minimum wage has heated up again as a political issue.  You can read my previous posts on the topic by clicking here.  (Unfortunately, some of the links in these old posts are now dead.)

There is one question I would like to see some reporter ask Alan Krueger, the president's chief economist: How did they decide that $9 per hour is the right level?  Why not $10 or $12 or $15 or $20?  Presumably, the president's economic team must believe that the adverse employment effects become sufficiently large at some point that further increases are undesirable.  But what calculations led them to decide that $9 strikes the right balance?

The lack of sleep of American school children

Children need sufficient sleep to grow and learn well. But every parent knows how difficult it is to get the children to get that sleep, especially sending them to bed while mom and dad are still up. And once children are in their teens, this becomes even more difficult, even though they still need that sleep time. In the United States it is even worse, as school starts earlier for older children and they sometimes have long school bus trips before that. So it is not uncommon for children to wake up at 6. With 10 hours of required sleep, calculate when they should have gone to bed...

Jay Stewart uses the American Time Use Survey to determine the factors of sleep time for children. First, when school is in session, and when it is a school day, they go to bed 38 minutes later and wake up 72 minutes earlier. This lost half hour accumulates quickly through the week and leads to sleepy heads by Friday. Second, while child development often depends on the mother, in this case sleep patterns during school are not influenced by maternal labor supply.

Then, who is to blame? It is certainly not school homework, of which American school children get little. Is it TV? For sure, it is difficult to drag the children away from the monkey box when the parents are glued to it. Is it over-emphasis on school sports? For many children and parents, sports have priority over academics (even in college). Maybe cutting down on those many hours of daily football training would do the children some good (and besides, there are still more academic scholarships for college that sports ones).

On the causality between the labor income share and the size of governments

One puzzling feature of national account data in recent years has been a decline in the labor income share across most economies. This is not limited to the last recession but has been happening by and large since the 1970s. Why this is occurring is an important research question, and what the consequences are as well.

François Facchini, Mickael Melki and Andrew Pickering claim that this decrease has lead to a reduction in the size of the government. For this, they build a small two-sector model from which they obtain this positive relationship. Then they run some linear regressions to confirm this. But have they really? With the same model, I can obtain a reverse causation or even both variables being jointly function of others. It all depends on what I am assuming to be exogenous. Invert the regression equation, and you cannot reject the reverse causality either (I suppose, I have not done it). So all they have shown is that there is a correlation, nothing more. Claiming causation here is misleading. And if anything, I would have assumed that the causality runs from government size (which is set by political processes and policy) to the labor income share (which responds to market forces and policy).

Most US students do not care about the academic quality of their college

The attitude of students towards college choice is starkly contrasted across continents. While I certainly tend to over-generalize in the following lines, let me highlight a few differences. In Asia, students are very aware of the ranking of universities and strive hard to pass entrance exams to the highest ranked institutions. After that, students do not work much towards learning. All that matters is the signal that you got in. In Europe, students typically go to the local university and are left to fend for themselves. Attrition rates are high, the surviving students are quite good, and there is limited variance in student quality across institutions. In the United States, students are willing to travel far to study, and the selection of the institution depends on reputation, cost and amenities. Having a nice campus, quality dormitories, extra-curricular activities and especially college sports is deemed very important, aspects that do not matter at all in Asia and Europe. Why?

Brian Jacob, Brian McCall and Kevin M. Stange try to offer an hint of an answer by looking at the demand side for colleges. They use detailed data from high school classes in 1992 and 2004, match this with college characteristics and estimate a discrete choice model. The results are more damning than my ramblings above. Except for the top students, high school graduates do not care about academics at all. All they want is excellent "college consumption amenities." And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good. And colleges have responded by devoting to amenities half the resources they devote to academics, producing a generation of well-entertained know-nothings.

Econ Summer Camp

Those with an interest in the history of economic thought might want to consider this summer program.  I have been told that the program is designed primarily for faculty members in economics, other social sciences, and the humanities, though three of the twenty-five slots are reserved for graduate students.

Poverty exacerbates self-control issues

Conservative pundits tend to blame the poors' behavioral issues for their fate. Liberals tend to claim that the poor do not have a fighting chance to make it from the day they were born. And of course neither is completely right, the truth is somewhere in between. It is the economists' task to find where that is.

Douglas Bernheim, Debraj Ray and Sevin Yeltekin bring an interesting piece to this question by integrating self-control issues into a standard model of savings. They are careful to limit the time-inconsistency to eliminate extreme cases where someone would never save (which belong to state assistance anyway) or would never use assets. Then it turns out that self-control issues are amplified by initial poverty. The reason that this poverty trap emerges is that if you have few prospects of assets in the future, there is little to lose from deviating from optimal, time-consistent behavior. If you have more assets or you know you should have more in the future, there is a lot to lose from falling in the trap. This implies, as whenever there is a trap, that one can help these poor people by providing them with enough support to get above the threshold level, and then they can happily fend for themselves.

The Growth of the Welfare State

Source. Click on the graphic to enlarge.