What is the unemployment rate for people with college degrees?

4.2%. The median weekly income for college grads is $1,072 while it is $636 for high school grads. See Gloom Widespread as College Grads Face New Math By DAVID WESSEL of the WSJ. The news is not all great for college grads, though. Excerpts:

"On average, wages for workers with four-year college degrees fell by 8.6% adjusted for inflation between 2000 and 2010, according to government data."

"To be sure, data on wages and incomes don't give a complete picture. They don't count increasingly costly health benefits that many employers provide nor tax breaks enacted to cushion the recession's blow. Nor do they include aspects of life that don't show up in paychecks, from the iPhone to the growing odds of beating cancer.

And Bruce Meyer of the University of Chicago and James X. Sullivan of Notre Dame, who argue official income data paint an overly gloomy picture, note that Americans managed to keep spending in the 2000s while incomes lagged. In an American Enterprise Institute working paper, they cite consumer surveys that suggest inflation-adjusted spending of the typical household (excluding out-of-pocket medical care, education costs and retirement savings) rose 16% in the 1990s and another 16% in the 2000s—some of that fueled by an unsustainable borrowing binge."

"The unemployment rate for recent college grads is 10.7%. More than 14% of Americans between 25 and 34 (5.9 million in all) are living with their parents, up significantly from before the recession. Nearly a quarter of them have bachelor's degrees."

Untangling the Long-Term-Unemployment Crisis

Click here to read this article by David Wessel of the WSJ. Excerpts:

"...according to Fed governor Daniel Tarullo...there is little evidence that the bulk of today's unemployed would still be unemployed if the economy were growing faster or that the bulk of today's unemployment is, in the jargon of economists, "structural.""

""Most of the difference between the prerecession and current unemployment rates is attributable to an aggregate demand shortfall," said Mr. Tarullo"

"The Labor Department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the recession, the ratio was 1.5. If every opening were filled instantly, there would still be many unemployed."

"Wages aren't rising. "We don't see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed," said Harvard University's Lawrence Katz."

"We had a fast-advancing economic decline with layoffs and hiring freezes in a broad range of sectors of the economy. That is not consistent with an increase in structural unemployment being the big explanation," Mr. Tarullo said."

"Data gleaned from help-wanted ads, surveys and government tallies did hint at a growing mismatch during the recession between skills jobless workers have and those employers want, but that "mostly has receded since 2009," says Mike Elsby, a University of Edinburgh economist."

"...between 12% and 33% of the five-percentage-point increase in the unemployment rate is due to this mismatch."

"...there was reasonable speculation that those who couldn't sell their houses wouldn't move to where the jobs are. But the latest data suggest that phenomenon is, as Mr. Elsby puts it, "quantitatively negligible.""

Women and the pay gap

This is a post from April 2007. This issue came up in one of my micro sections this week.

The American Association of University Women issued a report. One of the things it says is:

"Ten years after graduation, women fall further behind, earning only 69 percent of what men earn. Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, the research indicates that one-quarter of the pay gap remains unexplained and is likely due to sex discrimination."

I emailed them the following question but have not heard back (not even now as of October 26, 2011):

"So the 69 percent means that women earn 69 cents for every dollar that men make ten years after college. That makes the gap 31 cents. But when these other factors are accounted for, one-quarter of the gap remains. Since one-quarter of 31 is 7.75, that means when all other factors are held constant, women earn 92.25 cents for every dollar that men make. Is my interpretation correct? How does this compare to what other studies have found? Is this gap changing over time? Were any other causes for the remaining 7.75 cents examined besides sexual discrimination?"

An article by Steve Chapman gives a different view than the American Association of University Women on this issue. Here is a passage from his article:

"I asked Harvard economist Claudia Goldin if there is sufficient evidence to conclude that women experience systematic pay discrimination. "No," she replied. There are certainly instances of discrimination, she says, but most of the gap is the result of different choices. Other hard-to-measure factors, Goldin thinks, largely account for the remaining gap -- "probably not all, but most of it.""

Will Dropouts Save America?

Click here to read this interesting article from today's NY Times. Excerpts:

"...nearly all net job creation in America comes from start-up businesses..."

"If start-up activity is the true engine of job creation in America, one thing is clear: our current educational system is acting as the brakes. Simply put, from kindergarten through undergraduate and grad school, you learn very few skills or attitudes that would ever help you start a business."

"...most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil."

"You don’t learn how to network crouched over a desk studying for multiple-choice exams. You learn it outside the classroom, talking to fellow human beings face-to-face."

"True, people with college degrees tend to earn more. But that could be because most ambitious people tend to go to college; there is little evidence to suggest that the same ambitious people would earn less without college degrees..."

"AFTER all, there is not one job market in America, but two. The formal market we always hear about — jobs that get filled through cold résumé submissions in reply to posted ads — accounts for only about 20 percent of jobs.

The other 80 percent get filled in the informal job market."

"You don’t need a degree (and certainly not an M.B.A.) to start a business and create jobs, nor is it even that helpful, compared with cheaper, faster alternatives."

Should companies give healthy workers a break on their health care costs?

The issue of who deserves government financed health care came up in one of my classes a couple of weeks ago. Megan McArdle had a post at her blog that reminded me of that called Give Me Liberty and Give Me Death?. Here it is:

"Ezra Klein has an interesting article about the Cleveland Clinic's move to cut its own health costs by somewhat curtailing the choices that its employees can make about their lifestyle:

That left enforcement. The clinic tracks its employees' blood pressure, lipids, blood sugar, weight and smoking habits. If any of these are what the clinic calls "abnormal," a doctor must certify that the employee is taking steps to get them under control. Otherwise, no insurance rebate. The idea is to force employees to have regular conversations with their doctors about wellness. If they participate, they can lock in the rates they were paying two years ago. The savings amount to many thousands of dollars.

It appears to be working. Not only has the clinic cut its health-care costs, but its employees are also getting healthier in measurable ways. Workers have lost a collective 250,000 pounds since 2005. Their blood pressure is lower than it was three years ago. Smoking has declined from 15.4 percent of employees to 6.8 percent.

In one sense, the clinic has achieved the health policy ideal: cutting health-care costs by making people healthier. But consider how the clinic has done it -- tying premiums to personal decisions, firing smokers, tracking employee metrics, eliminating popular sodas and foods from campus. By making it harder and more expensive for employees to be unhealthy, the clinic has radically overstepped the traditional, laissez-faire approach of employers to their workers' personal habits.

It also opens the door to onerous forms of discrimination. The clinic no longer hires smokers. Will the obese eventually face similar hurdles? What about fans of fast food? The experiment might work at a famed medical center where the CEO plausibly argues that aggressive leadership in health care is central to the institution's mission. But would it work at General Motors? Caterpillar? Wal-Mart? Medicaid and Medicare?

Roizen thinks it can -- and should. He estimates that an aggressive program could cut federal health spending by $300 billion to $600 billion a year. If he's right, then simply instituting such wellness reforms could cut the federal deficit by far more than the Simpson-Bowles commission or the congressional supercommittee would.

Perhaps unsurprisingly, I'm pretty skeptical. Let's start by asking what the selection bias was. Cleveland fired two high-profile doctors who wouldn't quit smoking. One imagines that employees who do not want their employer nannying them about their gym time and alcohol consumption probably decline to work at the Clinic.

Selection bias will produce good results for the selecting organization, but you cannot replicate its results on a nationwide scale; fat, smoky people have to work somewhere (or go on welfare). If this became common, you'd see legislative pushback in the form of discrimination lawsuits and legislation. I'm betting there are more obese workers/voters than there are people who hit the gym five days a week.

There's also the question of lifetime cost profile. Cleveland mostly isn't covering people in that expensive last year of life; that honor tends to go to Medicare and Medicaid. Cleveland saves money if its workers have fewer smoking-related problems, but if that keeps them alive long enough to get Alzheimer's, their lifetime health cost may go up.

Now, you can certainly argue that it's still a net gain--people live longer, healthier lives. And I agree that longer and healthier lives are a worthy goal. But from a cost perspective, I suspect that there's less to the Cleveland model than meets the eye."

Can Economists Learn To Be Ethical?

I'm not sure you can teach this old dog a new trick like that. See Economists Pen a Code of Ethics By JUSTIN LAHART of the WSJ. Excerpts:

"Academic economists are moving closer to adopting a code of ethics in response to criticism that ethical lapses in the profession helped precipitate the 2008 financial crisis.

Many economists work with companies, financial firms, governments and other organizations that are eager to tap their expertise. That has opened them up to charges that the often lucrative consulting fees they were receiving first blinded them to the risks to the economy heading into the financial crisis and then steered them toward offering policy responses that benefited their clients. But because the potential conflicts of interest weren't generally known, government officials, the news media and the public took their assessments at face value.

The American Economic Association, the largest professional society for economists, decided last January to consider creating ethical guidelines for its membership. That is something that other academic associations, such as the American Sociological Association, have already done, but that the AEA for years resisted.

The group's change of heart was partly motivated by the public attention the documentary "Inside Job"-winner last February of an Academy Award-drew to the consulting relationships of several influential economists. Among them: Harvard University's Martin Feldstein, who served on the board of American International Group Inc. in 2008, when the government saved it from the brink of collapse, and Columbia Business School's Frederic Mishkin, a former Federal Reserve governor, who in a 2006 report sponsored by the Iceland Chamber of Commerce painted a bright picture of that remote country's economy, two years before it collapsed."

"The group is focusing on providing disclosure guidelines to economists when they face conflicts of interest, Mr. Solow said."

These are related articles that discuss Adam Smith and moral sentiments:

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of)

Adam Smith vs. Bart Simpson

Adam Smith vs. Ace Ventura

Can Giving Up Money And Material Things Lead To More Love?

Life is full of tradeoffs, as we often say in economics. But a recent study suggests that couples who make money and material things less of a priority have better marriages. So it looks like you can trade money for love. See Materialism May Erode Couples' Relationships. Excerpts:

"Couples who place money and material things high up in their order of priorities are generally less happy than couples who believe money and possessions are not important, researchers from Brigham Young University, Utah, USA reported in the Journal of Couple & Relationship Therapy. The authors say their research confirms The Beatles lyrics "Can't Buy Me Love" holds true - "the kind of thing that money just can't buy is a happy and stable marriage"."

"Their statistical analysis found that couples who did not feel money and possessions were important scored approximately 10% to 15% higher on marriage stability and other relationship measures, compared to those who did."

"...the detrimental effects of materialism occur despite income levels - i.e. it has a negative effect on those with and without money."

See earlier posts on related topics:

What Do Men In China Need To Get A Bride?

Adam Smith, Marriage Counselor

A Special Valentine's Message On Romantic Love

Can You Put A Price Tag On Love?

Do Opposites Attract? Not Usually, Except Maybe When It Comes To Money

Return of the Love Headhunters

Was Steve Jobs A Hero?

I provide some thoughts and links below, but first, a brief commercial message:



If you understand the title of this blog, you know I that I think that Jobs was a hero.

The NY Times recently said that Steve Jobs isn't particularly heroic

They had an interesting article about teaching character in schools but they had the following passage:

"The CARE program falls firmly on the "moral character" side of the divide, while the seven strengths that Randolph and Levin have chosen for their schools lean much more heavily toward performance character: while they do have a moral component, strengths like zest, optimism, social intelligence and curiosity aren't particularly heroic; they make you think of Steve Jobs or Bill Clinton more than the Rev. Martin Luther King Jr. or Gandhi"

See "What if the Secret to Success Is Failure?"

Here is an article which says Jobs was a hero:

Why Steve Jobs is my hero by Sunil Sethi

Here is an article which says Jobs was not a hero:

Jobs no hero to working class by Harold Meyerson

Some Information On This Year's Winners Of The Nobel Prize In Economics

See Nobel Winners Saved Macroeconomics After Keynes by Edward Glaeser, writing for Bloomberg (Edward Glaeser is an economist as well). The winners were Thomas Sargent, of New York University, and Christopher Sims, of Princeton University, for work on “empirical macroeconomics.” The article mentions some things that we have been discussing or will soon discuss in macro:

John Maynard Keynes

The business cycle

Milton Friedman

Phillips curve

The relationship found between unemployment and inflation

Expectations

Economics Helps Swedish Poet Win The 2011 Nobel Prize in Literature

See Swedish Poet Transtromer’s ’Translucent Images’ Win Nobel from Bloomberg Businessweek. Excerpts:

"Tomas Transtromer, a Swedish poet and translator known for his depiction of nature and his economy of form, won the 2011 Nobel Prize in Literature.

He won the prize “because, through his condensed, translucent images, he gives us fresh access to reality,” the Swedish Academy said today in Stockholm."

"His lyrical, surreal works explore the natural world, “falling somewhere between dream and nightmare,” the Griffin Trust for Excellence in Poetry said on awarding him a Lifetime Recognition Award in 2007."

(some students might not be surprised to see economics and nightmare go together)

How Much Tax Revenue Could Legalizing Marijuana Raise?

This question came up in class this week and a student sent me a link about it. See The Budgetary Implications of Marijuana Prohibition by Harvard economist Jeffrey A. Miron. Here is the Executive Summary:

•Government prohibition of marijuana is the subject of ongoing debate.
•One issue in this debate is the effect of marijuana prohibition on government budgets. Prohibition entails direct enforcement costs and prevents taxation of marijuana production and sale.
•This report examines the budgetary implications of legalizing marijuana – taxing and regulating it like other goods – in all fifty states and at the federal level.
•The report estimates that legalizing marijuana would save $7.7 billion per year in government expenditure on enforcement of prohibition. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
•The report also estimates that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.
•Whether marijuana legalization is a desirable policy depends on many factors other than the budgetary impacts discussed here. But these impacts should be included in a rational debate about marijuana policy.

"Data guys" More Important In Business Due To "Moneyball"

See When Data Guys Triumph by CADE MASSEY and BOB TEDESCHI, NY Times business section, 10-2-11.

Oakland A's general manager Billy Beane and author Bill James are entrepreneurs who created a whole new way of running baseball teams based on statistics and this creative spirit is starting to have an impact in the business world.

The Nobel prize winning physicist Richard Feynman said that "science is the belief in the ignorance of the experts." By challenging the experts in baseball, Beane and James were true scientists, asking questions and looking at data in new ways. Excerpts:

"JOSHUA MILBERG has plenty of business cred: an M.B.A. from Yale, experience in the mayor’s office in Chicago, a job as a vice president for an energy consulting firm. But all of that, Mr. Milberg says, matters less than his reputation as “the data guy” — someone who can offer insights through statistical analysis. And for that, he and a growing number of young executives can credit none other than “Moneyball: The Art of Winning an Unfair Game,” by Michael Lewis."

The book "...examines how the Oakland Athletics achieved an amazing winning streak while having the smallest player payroll in Major League Baseball. (Short answer: creative use of data.)

These managers are savvier with data and more welcomed in business circles in part because of the book."

"At its heart, of course, “Moneyball” isn’t about baseball. It’s not even about statistics. Rather, it’s about challenging conventional wisdom with data."

"This evangelism has created opportunities for the analytically minded."

The article calls this work "creative empiricism."

"But “Moneyball” dramatized the principles behind these forces: a reliance on data to exploit inefficiencies, allocate resources and challenge conventional wisdom — and thus broadened their appeal.

“Moneyball” traces Billy Beane’s use of unorthodox analytics to the work of Bill James. Working as a baseball outsider, Mr. James began self-publishing his analysis and commentary in 1977 and built a passionate following."

"Once people see the value of a batter’s O.P.S. — on-base plus slugging percentage, a key measure in the book — it’s a short step to applying similar principles in their own organizations."

"Generation Moneyball isn’t yet in charge. But as the Nobel laureate Max Planck once said, “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”"

How Well Do You Really Know The Rules of Acquisition?

Where would the economy of this quadrant of the galaxy be without the entrepreneurial spirit of the Ferengi? What is the foundation for their insatiable thirst for profits? It must be the aphorisms, guidelines, and principles called the Rules of Acquisition.

Rule number 1 is "Once you have their money, you never give it back."

My two favorites are

Rule 34: War is good for business

Rule 35: Peace is good for business.

And the one that has saved me more times than I can count

Rule 59: Free advice is seldom cheap.