The impact of testosterone on wages

Men earn more than women, this is still rue despite much effort over the past decades. The difference in wages, of course, needs to be measured ceteribus paribus, which means we need to take into account any observable characteristic so that we really compare men and women with the same characteristics doing the same job. This could mean that there is some unobservable characteristic that still matters. Men have more testosterone, and maybe this brings an increase in productivity they are rewarded for. But we typically do not measure that in labor force surveys.

Anne Gielen, Jessica Holmes and Caitlin Myers find a way around this difficulty by looking at twins. Indeed, females with a male twin have been exposed to more testosterone than all-female twin pairs. And males with a female twin got less. Using administrative data from the Netherlands with 80,000 twins, they find that this proxy for testosterone levels has a positive impact on hourly wages for males, but not for females. This new "observable" allows thus to better explain wage dispersion among males, but cannot explain the still remaining male-female wage gap.

Japan 'Defeating' Deflation? Not Quite, My Friend

There is much debate in Japan as to whether the Bank of Japan's efforts to pull the country out of a deflationary spiral are bearing fruit. True, Japan's consumer prince index is actually showing a positive trend, but this may be largely down to temporary factors and not to any structural change. What happens when the central bank spigots close? The questions facing the developed world are  similar in certain respects. Moreover, Japan's shuttering of nuclear reactors in the wake of the Fukushima incident has caused price rises that may soon be undone as more plants come back online:

Japan’s core consumer price index, excluding volatile fresh food prices, rose 0.8% in August from the same month a year earlier. That prompted private economists to raise their forecasts closer to the central bank’s 0.6% rise on average for the current fiscal year ending March.

People familiar with the central bank’s thinking say it sees the index going as high as 1.0% by the end of this year. But private analysts still see any such a rise — driven largely by higher imported energy costs — as unsustainable.

Strip out the energy component of CPI and the news is much less headline-worthy. You guessed it--Japan remains in deflation territory:

Japan’s inflation accelerated to the fastest pace since 2008 in August on higher energy costs, underscoring pressure on Prime Minister Shinzo Abe to drive wage increases as he seeks to end 15 years of deflation.

Consumer prices excluding fresh food increased 0.8 percent from a year earlier, the statistics bureau said today in Tokyo. The median forecast of 30 economists surveyed by Bloomberg News was for a gain of 0.7 percent. Stripping out energy and perishables, prices fell 0.1 percent. 

This is non-news in the war against deflation. Can this artifice continue, though? While global energy prices are unpredictable, some commentators argue that restarting more nuclear reactors is tied to the success or failure of Abenomics. Pessimistically and perversely, then, it is possible that souring consumer sentiment caused by greater dependence on foreign energy may instead forestall the reactivation of Japanese nuclear plants:

In all likelihood, the success of Abe’s nuclear agenda will rest upon the success of his economic agenda. If the public and his party remain confident in the direction of Abe’s economic policies, he will likely be able to sell nuclear energy as an integral part of his vision.

What can I say? Japanese political economy is weird even by Asian standards and cannot be directly interpreted from Western example.

The Coming Tax Hike

Click on graphic to enlarge.

From Casey Mulligan.

What kind of jobs are academic scholars looking for?

Any university ranking that is published these days features a majority of US-based schools at the top. It is clear that across every field the United States is able to attract the best talent, at least when looking at top schools. Why is that so? What attracts scholars to the US?

Jürgen Janger and Klaus Nowotny have created an interesting data set by surveying 10,000 academics across the world and letting them choose between various hypothetical jobs. Those jobs varied along a series of characteristics, which allows to understand what academics value most. The results indicate that the standard US tenure track system is pretty much close to optimal. What matters most is pay, which should have a performance component, valuable peers, internal grants and a good mix of teaching and research. Location does not matter much, presumably because academicians are so focused on their work. Those early in their careers value financial and intellectual autonomy, as well as having some prospect for internal promotion based on performance. The more senior ones do not like being bound to a particular research stream and prefer being in a departmental setup rather than a chair-like system. Given all this, it is no surprise that the US manages to attract the best talent. But one can wonder whether the responses also reflect the realization that the United States has attracted the best researchers, so its system must be better independently from personal preferences.

The shutdown hits econonerds

The BEA website is no longer operative.

The Economics of Christian Reformation

The social fabric of a country has a lot of inertia. It takes generations for norms to change, in large part because people rarely change during their lifetime, and if there is any change it is towards conservatism, that is, preserving the status quo. Yet sometimes change spreads quickly, like a revolution. In some sense we see this with the Arab Spring. All it needed was a small spark, and that spark may seem irrelevant at first. Another dramatic social change was the Christian Reformation that started with a simple priest in a completely irrelevant town of Saxony. Martin Luther was a spark that somehow set on fire an existing social norm, Catholicism, and set in motion a revolution that would keep Europe busy for centuries. How could this happen?

Philipp Robinson Rössner points out that central Germany suffered at the time from economic depression and deflation, at least partly as a consequence from a decline in silver supplies. This context deeply influenced Martin Luther's thinking, which found a receptive audience throughout the region. One thing that I take away from this is that the Reformation possibly happened because currency was tied to silver. Had the region had a modern central bank with fiat money, the money supply could have adapted to economic circumstances and the Reformation may have never happened. Europe would have suffered from much fewer wars, and the world's history (and economy) would have been quite different.

Vaporware 3.0? Shanghai Free Trade Zone

In technology-related industries, the term "vaporware" is used for hardware or software that is all hype and no substance. Either the announced products do not even materialize, or if they do, their features are far less impressive than promised. For our purposes, consider them as "vaporware 1.0" and "vaporware 2.0" respectively.

Today, let us consider yet another overhyped entity that is somewhat larger in scale. Try the largest city in the world's largest country--Shanghai, People's Republic of China--boasting a population of an astonishing 23 million. Just yesterday, a 29 square mile chunk of it formally became the Shanghai Free Trade Zone, but no one is entirely sure what this means. Hong Kong billionaire Li Ka-Shing said it may in time overtake Hong Kong as its economic openness--in banking and other services as well as with a more freely traded yuan--would attract more FDI from elsewhere. Yet, for something so highly touted, how Shanghai will achieve this "world capital" status remain unclear even now after its official launch date:

Well, that’s the plan, at least. The government has so far been clear in its intention to introduce financial reforms in the zone, but not as clear on how they will actually take place. The details on what can and cannot be done there, and when certain reforms will be implemented, remain sketchy. The reforms planned for this Shanghai zone will be much more difficult than those that took place in the trade- and manufacturing-focused zones of yesteryear. Factories, and the shirts, shoes and TV sets they make, are easy to monitor and control; not so financial flows, which could surge in and out of the zone with destabilizing speed. Financial firms could also take advantage of different interest rates and currency values inside and outside the zone to turn a quick buck.

In other words, the Chinese authorities need to ensure that arbitrage opportunities are limited. So the rules are not yet finalized, but there was a grand opening, right? Er, no--it was the softest of soft launches, actually:

Officials at the launch of the zone on Sunday promised a far more open and streamlined environment for foreign firms to do business in China, along with the relaxation of policies for a raft of service sectors, including banking.

However, the absence of senior Beijing leaders at the launch and few specifics on bolder reforms such as a more convertible yuan and liberalised interest rates left some disappointed, while officials stressed the zone remains a work in progress.

Vagueness and a lack of Beijing bigwigs does not make for a promising start. How about promises of greater Internet freedom, then? Well...they turned out to be unsubstantiated rumors after all that you could go tweeting and Facebooking to your heart's content:

The People's Daily, the official mouthpiece of China's ruling Communist Party, denied a recent report in the South China Morning Post saying that people would be allowed to access Facebook, Twitter, the New York Times and other politically sensitive, banned websites within a groundbreaking free trade zone set to launch this month in the country's financial hub, Shanghai. "Today (our) journalists obtained the information from a very powerful channel that these reports are wrong," said the People's Daily.

Let us consider what we have learned so far, then. Unspecified promises for greater economic liberalization at a later date, no bigwig apparatchiks on hand to lend support, and no new freedoms of expression. It doesn't sound so promising to me. However, us gweilo (foreign devils) may be thoroughly mistaken as Chinese themselves are speculating by buying up land there at a fearsome clip:

The property market near the soon-to-be free trade zone is also on a roll. Housing prices have soared 20-30 per cent in one month in the area just outside the Waigaoqiao gates, according to Shanghai Yuexin Real Estate “It seems crazy to me. Nobody knows the exact situation about the zone and they didn’t even take a look at the homes before buying them,” said Xi Xinlei, a Shanghai Yuexin agent.

What is the relevant principle here: A sucker is born every minute, or are some people smarter than you and me? If it's the former, perhaps PC World will in the near future consider the Shanghai Free Trade Zone as the top vaporware product of all time. Stay tuned; some folks have already made fairly large bets that Shanghai is entering a new golden age.