Monday, April 29, 2013

Is The Rich-Poor Education Gap Getting Bigger?

See No Rich Child Left Behind SEAN F. REARDON, a professor of education and sociology at Stanford. From yesterday's NY Times. Excerpts:
"the children of the rich perform better in school, on average, than children from middle-class or poor families. Students growing up in richer families have better grades and higher standardized test scores, on average, than poorer students; they also have higher rates of participation in extracurricular activities and school leadership positions, higher graduation rates and higher rates of college enrollment and completion."

" the United States over the last few decades these differences in educational success between high- and lower-income students have grown substantially."

"...the rich-poor gap in test scores is about 40 percent larger now than it was 30 years ago."

"In the 1980s, on an 800-point SAT-type test scale, the average difference in test scores between two such children would have been about 90 points; today it is 125 points. This is almost twice as large as the 70-point test score gap between white and black children. Family income is now a better predictor of children’s success in school than race."

"...the proportion of students from upper-income families who earn a bachelor’s degree has increased by 18 percentage points over a 20-year period, while the completion rate of poor students has grown by only 4 points."

"...15 percent of high-income students from the high school class of 2004 enrolled in a highly selective college or university, while fewer than 5 percent of middle-income and 2 percent of low-income students did."

"The most potent development over the past three decades is that the test scores of children from high-income families have increased very rapidly. Before 1980, affluent students had little advantage over middle-class students in academic performance; most of the socioeconomic disparity in academics was between the middle class and the poor. But the rich now outperform the middle class by as much as the middle class outperform the poor"

"The income gap in academic achievement is not growing because the test scores of poor students are dropping or because our schools are in decline. In fact, average test scores on the National Assessment of Educational Progress, the so-called Nation’s Report Card, have been rising — substantially in math and very slowly in reading — since the 1970s. The average 9-year-old today has math skills equal to those her parents had at age 11, a two-year improvement in a single generation"

"...there is no evidence that average test scores have declined over the last three decades for any age or economic group."

"The achievement gaps between blacks and whites, and Hispanic and non-Hispanic whites have been narrowing slowly over the last two decades..."

"If we look at the test scores of white students only, we find the same growing gap between high- and low-income children as we see in the population as a whole."

"...schools don’t seem to produce much of the disparity in test scores between high- and low-income students. We know this because children from rich and poor families score very differently on school readiness tests when they enter kindergarten, and this gap grows by less than 10 percent between kindergarten and high school"

"The academic gap is widening because rich students are increasingly entering kindergarten much better prepared to succeed in school than middle-class students."

"Money helps families provide cognitively stimulating experiences for their young children because it provides more stable home environments, more time for parents to read to their children, access to higher-quality child care and preschool and...access to preschool test preparation tutors or the time to serve as tutors themselves."

"But rising income inequality explains, at best, half of the increase in the rich-poor academic achievement gap."

"High-income families are increasingly focusing their resources — their money, time and knowledge of what it takes to be successful in school — on their children’s cognitive development and educational success'

"But even though middle-class and poor families are also increasing the time and money they invest in their children, they are not doing so as quickly or as deeply as the rich."

"...from 1972 to 2006 high-income families increased the amount they spent on enrichment activities for their children by 150 percent, while the spending of low-income families grew by 57 percent over the same time period. Likewise, the amount of time parents spend with their children has grown twice as fast since 1975 among college-educated parents as it has among less-educated parents."

"The economists Garey Ramey and Valerie A. Ramey of the University of California, San Diego, call this escalation of early childhood investment “the rug rat race,"


Wednesday, April 24, 2013

The Pot Business Is Very Competitive In Colorado

The only question is if its perfect competition or monopolistic competition. See The Pot Business Suffers Growing Pains by ANA CAMPOY of The Wall Street Journal. Excerpts:
"But it turns out that trying to make a profit in this business is harder than expected. When grown and sold legally, marijuana can be an expensive proposition, with high startup costs, a host of operational headaches and state regulations that a beet farmer could never imagine. In Colorado, for example, managers must submit to background checks that include revealing tattoos. The state also requires cameras in every room that has plants; Mr. Klug relies on 48 of them.

Prices for pot, meanwhile, have plummeted, in large part because of growing competition."

"A major drag on earnings for marijuana growers is the labor-intensive nature of the business. Payroll can make up more than a third of production costs, says Jason Katz, chief operating officer of Local Product of Colorado. Managing workers is challenging too, he adds, in an industry where many learned their trade by growing clandestinely. His company went through six growers in three years before one worked out. "They aren't used to being part of regular society," he says.

Costs and management issues aside, the biggest shock to most marijuana growers has been pot prices. As the industry becomes more competitive and there is more pot available, the price for a pound of high-quality weed in Denver has slid from $2,900 at the beginning of April in 2011 to $2,400 in the same period in 2012 to $2,000 this year, according to Roberto's MMJ List, a service that connects wholesale sellers and buyers. At the height of summer demand in 2011, a pound sold for as much as $3,900.

To be sure, some experts say it is possible to do well. Roberto Lopesino Seidita, who runs the price list and consults for the industry, says some growers are pulling in double-digit margins by focusing on price, not just quality. They have developed ways to produce large amounts of pot cheaply, and offer it at unbeatable prices, driving hundreds of customers through the door every day. "It's run like Wal-Mart, he says."

"Offering an assortment of marijuana varieties with different flavors and prices, Mr. Klug says, has been key to building a client base. In the wood-and-metal displays at one of his stores, Mr. Klug offers high-end strains such as Phantom OG for $70 a quarter ounce, and cheaper ones such as Andy's Blue Dream, at $50 a quarter ounce."

"His advice for anyone who wants to become rich by legally dealing pot: "Start with lots of money.""

Monday, April 22, 2013

Students: Would You Like A Free College Education And Stipends Of $990 A Month For Six Years?

See Danes Rethink a Welfare State Ample to a Fault by SUZANNE DALEY of The New York Times. Even some liberal or left-wing politicians think the government has been too generous. Excerpt:
"Students are next up for cutbacks, most intended to get them in the work force faster. Currently, students are entitled to six years of stipends, about $990 a month, to complete a five-year degree which, of course, is free. Many of them take even longer to finish, taking breaks to travel and for internships before and during their studies."
There is even a man known as “Lazy Robert”
"Robert Nielsen, 45, made headlines last September when he was interviewed on television, admitting that he had basically been on welfare since 2001.

Mr. Nielsen said he was able-bodied but had no intention of taking a demeaning job, like working at a fast-food restaurant. He made do quite well on welfare, he said. He even owns his own co-op apartment.
Unlike Carina, who will no longer give interviews, Mr. Nielsen, called “Lazy Robert” by the news media, seems to be enjoying the attention. He says that he is greeted warmly on the street all the time. “Luckily, I am born and live in Denmark, where the government is willing to support my life,” he said"

Thursday, April 18, 2013

Interesting New Book: With Charity for All

The full title is: With Charity for All: Why Charities Are Failing and a Better Way to Give. It is by Ken Stern. Click here to read the WSJ review by MEGHAN CLYNE. Excerpts:
"D.A.R.E. (Drug Abuse Resistance Education) didn't work. Long-term studies have shown overwhelmingly that the program produced no meaningful reduction in drug use and in some cases actually made kids more likely to use drugs. Yet the nonprofit survives, having consumed an estimated $10 billion to $15 billion in donor and taxpayer funds over the past decade."

"From one-person startups to powerhouses like the Red Cross, charities have plenty of good intentions, slick fundraisers and promotional "happy sheets," but they often fail to solve the social problems they are intended to address. As an example, Mr. Stern highlights fashionable water charities that drill wells in Third World countries with much fanfare but are then unable to maintain them."

"The charitable sector is also plagued by corruption and fraud. Even when nonprofits obey the letter of the law, many defy the spirit of their tax-exempt status, differing in no meaningful respect from for-profit enterprises. Among the more laughable examples are the nation's college-football bowl games, which defend their charitable status by pointing out that they donate some of their proceeds to other nonprofits."

"The IRS approves more than 99.5% of all charitable applications, creating more than 50,000 new charities each year. Once a nonprofit is started, the IRS and state regulators exert negligible oversight; even charities exposed as scams can be nearly impossible to shut down."

"According to one survey, 65% of donors don't research the effectiveness of the organizations to which they contribute; the remaining 35% tend to make only a cursory effort."
I wonder what Adam Smith would say. Although he said people were motivated by self-interest and that is how things got done in the market place, he also thought people could be motivated by sympathy. See this earlier post: Adam Smith vs. Bart Simpson.

Another article that is relevant and interesting is Have We Evolved to Be Nasty or Nice? by MATT RIDLEY of the WSJ. It suggests that whether we are selfish or cooperative depends on the circumstances. If we are nice, then we would never see charities being corrupt. But if we were nasty, we would never donate money to charities. So the truth may be complicated.

Monday, April 08, 2013

How Recessions Affect Young People

This is actually a post from 2010. But this kind of issue came up in a NY Times magazine article last week. See Do Millennials Stand a Chance in the Real World? by ANNIE LOWREY.

It is too early in the semester to have talked about recessions. But there was an interesting article called Recession may shape young adults' future habits. Here are some exerpts:
Researchers found "...young people who live through recessions tend to doubt their control over their careers. Unlike people who have lived through sweeter economic circumstances, the youth of recessions tend to look at career success as luck rather than a result of personal action."

"Beyond family pressures, unemployment among 16-to-19-year-olds is at an extraordinarily high level of more than 26 percent. Students finishing college face difficult job prospects, with hiring of this year's graduates down 22 percent, according to the National Association of Colleges and Employers."

[when] "...individuals have had low stock market returns for many years, they don't want to take risks in stocks. And bad experiences with stocks early in life "have significant influence even several decades later."

"...Americans aged 22 years to 33 years have shifted toward more conservative financial behavior too. It's influencing everything from investing to job choices: More are seeking job security and strong benefits rather than opting to jump from job to job to further their careers."
Another article, Birth date, business cycles, and lifetime income says:
"...a one percentage point increase in the national unemployment rate is associated with a 6 to 7 percent loss in initial wages. The annual wage loss declines over time, but is still statistically significant 15 years later. Comparing the wages earned by the class of 1982 (a peak unemployment year) with the wages of the class of 1988 (a peak employment year) over the first 20 years of a career, the wage difference resulted in a difference of nearly $100,000 in cumulative earnings in net present value."

Friday, April 05, 2013

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

The Herfindahl-Hirschman Index is a way of measuring how competitive or concentrated an industry is. The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. This number can play a role in decisions by the Justice Department on mergers.

The Anheuser-Busch InBev and Grupo Modelo want to merge. They both make beer. Anheuser-Busch InBev has 39% of the market and Grupo Modelo has 7%. The increase in the HHI would be 2*39*7 = 546. That would raise the HHI to over 2800. The Justice Department wants to stop the merger becuase the increase in the HHI is too big for a highly concentrated industry. Competition would be hurt too much.

Click here to read the Justice Department complaint. It includes a nice pie chart showing the market shares of brewers. Miller is 2nd with 22%. So right now two firms have more than half the U. S. market. The Justice Department document also shows that in many local markets the HHI could be much higher. Most textbooks say an HHI of 1800 means a concentrated industry while this document uses 2500.

Click here to read a Wall Street Journal editorial about the merger from February that also mentions the HHI.

Wednesday, April 03, 2013

Study of Men’s Falling Income Cites Single Parents

Click here to read the NY Times article by BINYAMIN APPELBAUM from March 20. Excerpts:
"The decline of two-parent households may be a significant reason for the divergent fortunes of male workers, whose earnings generally declined in recent decades, and female workers, whose earnings generally increased, a prominent labor economist argues in a new survey of existing research.
David H. Autor, a professor at the Massachusetts Institute of Technology, says that the difference between men and women, at least in part, may have roots in childhood. Only 63 percent of children lived in a household with two parents in 2010, down from 82 percent in 1970. The single parents raising the rest of those children are predominantly female. And there is growing evidence that sons raised by single mothers “appear to fare particularly poorly,” Professor Autor wrote in an analysis for Third Way, a center-left policy research organization.
In this telling, the economic struggles of male workers are both a cause and an effect of the breakdown of traditional households. Men who are less successful are less attractive as partners, so some women are choosing to raise children by themselves, in turn often producing sons who are less successful and attractive as partners.
“A vicious cycle may ensue,” wrote Professor Autor and his co-author, Melanie Wasserman, a graduate student, “with the poor economic prospects of less educated males creating differentially large disadvantages for their sons, thus potentially reinforcing the development of the gender gap in the next generation.”
The fall of men in the workplace is widely regarded by economists as one of the nation’s most important and puzzling trends. While men, on average, still earn more than women, the gap between them has narrowed considerably, particularly among more recent entrants to the labor force."
" study finding that single mothers spent an hour less per week with their sons than with their daughters. Another study of households where the father had less education, or was absent entirely, found the female children were 10 to 14 percent more likely to complete college. A third study of single-parent homes found boys were less likely than girls to enroll in college." 

Monday, April 01, 2013

Should Employers Penalize Employees Who Don't Engage In Healthy Behavior?

See Employers increasingly are looking to lower their health care costs by using incentives such as cash rewards by Katie Thomas of the New York Times. Excerpts:
"Employers increasingly are looking to lower their health care costs by using incentives such as cash rewards to persuade workers to make better lifestyle choices, according to survey findings released Monday.

But the survey, by Aon Hewitt, a human resources consulting company, also found that employers aren't always so benevolent: A growing number also are penalizing workers who do not make healthy changes, such as quitting smoking or losing weight.

The survey, of 800 large and midsize employers in the United States, found that 84 percent use some kind of carrot or stick to try to nudge employees to improve their health. Of those, 79 percent offer rewards, while 5 percent imposed penalties. Sixteen percent used a mix of both."

"CVS Caremark, the large pharmacy and drug-benefit provider, recently said it would require its employees to report their weight, blood sugar and cholesterol or be forced to pay an annual penalty of $600. It also will require that smokers try to quit."