13/06/2014 § 2 Comments
Several years ago, New Zealand law was changed to allow smaller employers a 90-day trial period for new employees (yes, you wag, ‘smaller’ is measured in number of employees not in centimetres). In the trial period, employers could simply let people go, no harm, no foul. This provision was later extended to all employers.
The Council of Trade Unions did not approve in 2010:
The 90-day trials are part of a “low road” approach to employment. In the 1990s this road led employers to rely on low wages and skills, building a distrustful and ultimately unsustainable workplace environment. It corrodes the trust required for those wishing to take the “high road” of long term, respectful employment relationships which strengthen productivity, skills, work satisfaction, and wages.
According to CTU President Helen Kelly, it still does not approve in 2014:
“The infamous 90 day trial period is a flop. There is no evidence that 90 day trial periods have led to the creation of a single job. In fact it shows that tens of thousands of workers are being dismissed under 90 day trials each year. There’s not a shred of evidence that trial periods have created any additional employment”
The Ministry of Business, Innovation and Employment released a report this week out of its old Department of Labour group. The report concludes that:
Trial periods have provided greater opportunities for workers to be hired.
What the report does not do is assess the impact of the trial period on overall employment. It says:
A key question in this evaluation is whether employers are confident to take on new staff as a result of the trial period provisions. Answering this with certainty would require a detailed statistical counterfactual comparison between firms that did and did not use trial periods, isolating the effect of wider economic and other factors and over a sufficiently long period. Such an analysis is not realistically possible due to data constraints and a lack of an identifiable ‘control group’, and has not been attempted in this report.
The CTU has used this lack to claim that the government has no evidence that the trial has created jobs. And they have no evidence. Because they haven’t looked.
This is a bit of a problem. If one starts from the point of view that labour market flexibility is good to the extent that it provides employees with opportunities and employers with risk-management tools, then THE key question is whether the trial periods led to (a) increased employment or at the very least (b) more employment for traditionally disadvantaged job-seekers. If the rule change doesn’t improve employment outcomes, then it just looks like a shift of power from one group to another with no compensating benefit.
So, really, the key question for the Ministry is, did it work? And the Ministry just shrugged its shoulders and said, ‘Dunno, beats me, it’s too hard.’
We have been here before. DoL/MBIE has already released a report on the 90-day trial period that did not actually answer the central question. And it led 6 months ago to the same wailing and gnashing of teeth — which I discussed at the time.
Let’s put this issue to rest, already. Can I get an econometrician in aisle three for a clean-up? People are spilling out their prejudices and it needs to be sorted out.
12/06/2014 § 1 Comment
Well, may go to Washington.
The big news from my home state of Virginia (sic semper tyrannis!) is the primary to select the Republic candidate for the 7th congressional district. Eric Cantor, leading Republican, lost the primary to David Brat, economist. Way to go, bro’! Let’s see you stick it to those lawyers up on the Hill.
But then one digs a little deeper, and….
“So should there be a minimum wage in your opinion?” Todd pressed.
“Um, I don’t have a well-crafted response on that one,” Brat said, haltingly.
Sorry, what? An economics professor without an opinion on the minimum wage? Such a beast does not exist. That’s like a baseball fan with no thoughts on the designated hitter rule, a physicist with no opinion on string theory.
But then he goes on to explain himself a bit:
“All I know is that if you take the long-run graph over 200 years of the wage rate, it cannot differ from your nation’s productivity. Right? So you can’t make up wage rates.”
Oh, right, that clears it up. Wages cannot differ from productivity, at least not in the long run. Well, that’s easy enough to look up — the Bureau of Labor Statistics does the work for us:
Hey, look at that. Productivity has been running faster than wages since the First Oil Shock Recession, especially since the Volcker vs Inflation Recession of the early 1980s. Well, given the good professor’s theory, we should be expecting a regression to the mean anytime.
In the medium term.
And raising the minimum wage shouldn’t be a problem for the economy, since the productivity is there and has been for 30 years.
I look forward to him sponsoring that bill.
Bonus points: apparently, he is facing off against another professor from the same college, a sociology professor! Disciplinary disputes go prime-time! I’m praying for a cage match.
Bonuser points: as one does, I looked Brat up on Google Scholar, and ran him through Publish or Perish. Professional curiosity. It looks like an h-index of 2? Based on work in the 1990s? Honey, that would get you an R ranking in the PBRF. Not a good look.
11/06/2014 § Leave a comment
I was recently re-reading Hunter S. Thompson’s Fear and Loathing on the Campaign Trail ’72 (for a sample, see here). Words fail, really. Thompson’s approach was so…different, and that’s true for his political writing and his living.
A seemingly minor point, but as I was reading along I noticed the almost-casual use of the word ‘nazi’. Maybe it’s the internet era and Godwin’s law, maybe it’s the mythologising that goes with the distance of time — the War isn’t something in which we participated (my WWII-veteran relatives died in the last few years) but something we tell stories about — but it seems the word has become monstrous in a phantasmagorical sense.
But, of course, Thompson, writing in 1972, would have had a better idea of what ‘nazi’ means than I do, forty years later. He grew up in that generation too young to serve in WWII but old enough to know what was going on. And certainly, in his military service and journalism career, he would have met many vets and heard their stories.
So, when he calls someone a ‘nazi’, he knows what he means. But, do I?
As it happens, a movie about Hannah Arendt was recently playing in Wellington. I couldn’t go, but it reminded me that Corey Robin uses Arendt as one of the four political philosophers in his book Fear: the history of a political idea (several keys ideas are picked up here). Arendt is famous for The Origins of Totalitarianism and Eichmann in Jerusalem. Robin argues that she pursues two different lines of thinking about fear in the two books, and that many Arendt (errant?) academics focus on Origins without understanding the lessons of Eichmann.
The key to Eichmann, both the man and the book, is careerism:
Many people believe that great crimes come from terrible ideas: Marxism, racism and Islamic fundamentalism gave us the Gulag, Auschwitz and 9/11. It was the singular achievement of Eichmann in Jerusalem, however, to remind us that the worst atrocities often arise from the simplest of vices. And few vices, in Arendt’s mind, were more vicious than careerism.
Slavoj Zizek also discusses Arendt. In How to read Lacan, he points to the key twist in perspective that Himmler and other performed to justify / validate / rationalise their actions:
Most of them were not simply evil, they were well aware that they are doing things which bring humiliation, suffering and death to their victims. The way out of this predicament was that, “instead of saying: What horrible things I did to people!, the murderers would be able to say: What horrible things I had to watch in the pursuance of my duties, how heavily the task weighed upon my shoulders!”
I came to realise that Thompson was not being casual in calling the politicians he observed ‘nazis’. He was calling it as he saw it, as Arendt saw the hustlers and operators of her day. He saw them as mean little careerists, willing to destroy anything that got in the way of their pursuit of power, happy to absolve themselves of responsibility and able to wash their hands of any stain by invoking the Himmler twist — the more horrible the deed, the more noble am I to have done it.
We still need such a word. ‘Nazi’ doesn’t cut it anymore, for the reasons given. But the impulse is not gone. In this era in which far-right parties are gaining ground in national and European elections, we need to be able to talk about what they are and why they exist.
10/04/2014 § 2 Comments
I’ve been watching the roll-out of the Affordable Care Act (ACA) in the US. I understand why the Rube Goldberg apparatus was set up the way it was. Doesn’t make me happy about it, but it does mean that more people are better insured.
The Supreme Court ruling that cleared the final roadblock was exactly the sort of split-the-baby decision we should have expected. As sometimes happens with rulings, the implications weren’t immediately clear. In particular, the provision that states could opt out of the Medicare expansion turned out to be more important than was first thought. The implications were recently discussed in an interview with Prof Jonathan Gruber, MIT, Director of the health care program at NBER:
[T]he single thing we probably need to keep the most focus on is the tragedy of the lack of Medicaid expansions. I know you’ve written about this. … I think we cannot talk enough about the absolute tragedy that’s taken place. Really, a life-costing tragedy has taken place in America as a result of that Supreme Court decision. You know, half the states in America are denying their poorest citizens health insurance paid for by the federal government.
(N.B.: ‘half the states’ does not mean half the people — the states in question are less populous than the ones that expanded Medicare.)
Why do I point this out? Because the economist Gruber was surprised by the politics:
if you’d told me, when the Supreme Court decision came down, I said, “It’s not a big deal. What state would turn down free money from the federal government to cover their poorest citizens?” The fact that half the states are is such a massive rejection of any sensible model of political economy, it’s sort of offensive to me as an academic. And I think it’s nothing short of political malpractice that we are seeing in these states and we’ve got to emphasize that.
‘What state’ is an incorrect way to think about the issue. It wasn’t ‘states’ that decided. It was people, specifically politicians and the voters who support them. What politicians-and-the-voters-who-support-them would turn down free money? People who believe — who prefer, let us say — that poor people should not be helped. That poverty is just desserts. That poverty is just the flip side of positive incentives for hard work and sober decisions. These people prefer a certain set of incentives aligned with a specific view of how the world works (Weltanschauung, if you don’t mind me saying).
This ACA situation is the Ultimatum Game writ large. We just played the game in class. When the offer was 50:50 or 60:40, it was accepted. When it was 90:10, it was rejected. Person A turned down free money because Person B else wasn’t ‘playing fair’, wasn’t acting according to Person A’s preferences.
Politics is a way for people to express their preferences and try to foist them on other people. It is also a bloodsport, as Dr Thompson would remind his readers. That’s my way of saying, of course these people rejected Medicare for the poor, even at a cost to themselves. They are using the issue to Make A Statement about how the world should be, and if people get hurt, well, omelettes and eggs.
It’s an important lesson for economists working in policy. People’s preferences are wild and woolly, and when expressed through political process can lead to seemingly perverse results.
24/02/2014 § 1 Comment
Hi Ben -
Your article, ‘American tax grab may target Kiwis‘, contained important errors, and I am writing to correct them.
- US citizens are subject to US tax on their worldwide income. This is true regardless of where they live. Thus, any actions by the US government to have those taxes paid are simply ‘enforcing the law’, not a ‘tax grab’.
- A child born abroad to a US citizen does not ‘automatically’ become a US citizen. He or she has the right to citizenship, but the parents have to apply, and the right lapses once the child reaches a certain age (18 years of age, I think). Thus, the couple in your article had to apply for citizenship for their child, which means they chose US citizenship and all the rights and obligations thereof. Those obligations include paying taxes on worldwide income.
- A green card lapses once a person has been out of the US for a certain period of time. From memory, it remains valid for 2 years, and one can apply for an extension, but only for another fixed period (2 or 3 years). One can keep a green card valid by returning to the US for some period of time, the details of which I don’t recall. All of this means that your statement, ‘Under US law, any Kiwi who has a green card, or US residency, is liable to pay tax in the US, even if they have not lived there for decades’, is false. If the person has not lived there ‘for decades’, the green card is no longer valid and the person is not subject to US tax laws.
In this situation, there are essentially four classes of people:
- People subject to US tax laws, that is, US citizens and permanent residents. They are legally obligated to pay their taxes. The US is asking for New Zealand’s help in enforcing US tax law.
- People tied up somehow with US citizens and permanent residents. These are, e.g., New Zealand spouses of US citizens. The New Zealand government is obligated to protect their privacy and not obligated to share anything about them with the US. They will need to work out what to do about things like bank accounts held by the non-citizen spouse.
- People who once held green cards (or US citizenship) and no longer do. They are no longer under any obligation to the US government, and New Zealand should ensure that their details are not sent to the US.
- People who do not fall into any of the above categories. New Zealand should ensure that their details are not shared, either.
You would be able to check the details of tax obligations and citizenship with the US embassy or consulate. Much of the information is also on official websites.
12/02/2014 § Leave a comment
I have avoided discussing the Trans-Pacific Partnership (TPP) trade negotiations, because it’s complex and secret and yet to be decided. But a statement from Tariana Turia, Associate Minister of Health, leads me to comment. Turia’s plain packaging for cigarettes bill just passed its first vote. The bill is intended to reduce the sale of cigarettes by making the packaging less attractive. A challenge to a similar Australian law is before the WTO, and the bill raises questions about the TPP.
The question is whether New Zealand will have the latitude to pass such laws should it sign the TPP. Just to stress, until the language is finalised, it’s all speculation. This legal post on investor-state arbitration is an example. But, Turia’s statement suggests a certain naivete about the negotiations. She said:
While the tobacco industry may have laid down a threat that if this legislation is passed [it will be challenged] my message to them is that our country has a sovereign right and a legal right to protect its citizens.
The point of these sorts of negotiations, though, is the give-and-take. New Zealand gives up a bit of its sovereignty to make laws within its own borders in exchange for consistency across borders.
One lesson from the analysis of international trade — the one that gets trumpeted — is that free trade makes countries better off. It lowers prices, increases the amount of products, increases product variety, leads to greater uptake of technology, and promotes innovation. Another lesson from exactly the same analysis is that there are distributional impacts from free trade. Some people within a country can be made worse off. This result arises either from the supply or demand side — either individuals’ resources fall in value or their consumption bundles become more expensive. The now-richer country can moderate the distributional impacts, but it isn’t a requirement of the models.
So back to New Zealand. Let’s stipulate that TPP will lead to economic benefits for the country as a whole. The same analysis would also tell us that there are likely to be winners and losers. Given that much of the negotiation has happened out of sight of the public, and that the Government won’t even let the people’s representatives see the text, one does have to wonder who those winners and losers will be.
Also, the cigarette companies have a very good legal argument on their side. The products are legal and their brand image is valuable. Quoting ACT MP John Banks:
I don’t believe the State should seize property rights from legitimate companies selling legitimate products.
So we have two opposing legal rights — the country’s right to protect its citizens, and the property right of companies. In the future, TPP will end up being a thumb on the scales. Turia may find that the balance has shifted.
10/02/2014 § 13 Comments
Universities in the United States run on adjunct faculty. Adjuncts are part-time, temporary, untenured faculty paid per course to teach. They have little time for research or administrative duties, and they are finding it hard.
Paid a few thousand dollars per course, they apparently now make up around half of US university faculty. There is concern about what it means for the quality of education and the future of universities. If teaching staff don’t have time to research, how do they stay current? If they can’t contribute to administration, how will all the curriculum and ethics committees get their work done?
The neologism ‘adjunctivitis’ is revealing. The suffix ‘-itis’ suggests a medical condition that has befallen the faculty — think appendicitis, bronchitis, etc. But what we have here is a choice. These faculty haven’t suddenly come down with adjunctivitis. They have been building towards it for years, making a series of choices, continuing on this particular path despite the difficulties.
It is a hard choice, yes, but a choice nonetheless. Maybe they feel driven to teach. Maybe they really like their specific area of research. Maybe they like where they live, or their partners are settled into their own jobs. But let’s not forget that these are people with options. They are clever people with good work ethics who know how to communicate. They are choosing to continue being adjunct faculty because they feel it is better than the alternatives.
Hey, sorry, it’s not my problem if you can’t land your dream job. Wouldn’t it be lovely to be Prof Reg Chronotis – a little office, a little sinecure, no teaching load? But such positions are works of fiction.
What if a bunch of them said no? What if they just decided, y’know what, selling real estate or writing computer code or being in middle management is less stress and more money? I don’t know what would happen, but it would be interesting to find out. A new cohort of adjuncts might appear, ready to do the same work at the same pay. Or, universities might have to do something about pay and conditions.
Universities are under pressure to offer students luxury facilities at reasonable prices (air conditioning?! private bathrooms?! hah!). Universities are also affected by governments cutting spending:
In 1980, states provided 46 percent of the operating support for public colleges and universities, according to the Association of Public and Land Grant Universities. By 2005, average support had fallen to 27 percent.
Something’s got to give. In this case, it’s the cost of producing the lectures and assessments. A big variable cost with them is the teaching staff. If there’s no countervailing pressure from people, oh I don’t know, refusing to work for peanuts, then that’s where the universities will cut the costs.
Finally, there’s a revealed preference here about the attributes in the bundled good ‘university education’. This adjunct trend has been going on for years, and the complaints about impacts on teaching quality are nothing new. And yet, people keep shelling out more money for poorer teaching. Why? It does suggest that going to university is about getting that certification, or building networks, or being socialised, or buying the name brand if you can. People — students, parents, employers — seem less worried about the quality of the education.
Until they do — can I interest you in a little fixer-upper bungalow with nice harbour views?
07/02/2014 § 4 Comments
Paul Walker asked a question recently — why are some of us focusing on inequality? That started a discussion on the Dismal Science feed at Sciblogs. Since I’ve been implicated by link, I figured I should say something.
Well, first, other people are talking about inequality, but they are getting it wrong. One thing I’m trying to do is establish a sort of factual basis for the discussion. For example, people like to point to The Spirit Level as somehow the final word in the evils of inequality. So I’ve read the book and pointed out its faults, which I think are serious enough that the book doesn’t prove its thesis. Or, alternatively, I’ve calculated that mobility of income quantile doesn’t tell you as much as you think it might. I’m doing this work 500 words at a time, so it takes a while.
Secondly, I’m interested in the economy as a human construction. We’ve designed it, and we can re-design it. Note that I’m not suggesting something like a New Socialist Man. I’m not advocating that we re-make people. But if as economists we believe that (a) incentives matter and (b) institutions matter, then changing incentives and institutions produces different results. So, I’m interested in exploring how we make changes to meet different goals.
Finally, I’m acting according to my preferences. I like fairness. I like symmetry and order. There’s something about equity that appeals to my sense of order. Now, perhaps you think the economy is fair, in the sense that people get what they deserve and actions lead to appropriate consequences. Or, perhaps you think that life is not fair and that’s enough of an explanation. Me? I look around and see more than just the background cussedness of it all. I see people using power and privilege to maintain their own positions, and then saying that it’s just The Way Things Are. Or, more academically, that we shouldn’t turn away from the fraud that accompanied the global financial crisis, for example.
That’s why I’ve been writing about inequality. It’s just my tiny little effort to make the world a better place.
28/01/2014 § 8 Comments
So…Labour made its big policy announcement. I guess I should comment on it.
Let’s focus on the $60 per week for babies. Here’s the case for such a payment:
Our society recognises that the first few years of life are crucial to later development — stuff happens or should happen in that period that can’t be undone or redone. This is, for example, your DOHaD (developmental origins of health and disease) hypothesis. We collectively decide that we want new individuals — babies — to have the best start they can. Maybe we want each one to reach his or her full potential, maybe we just calculate that an ounce of prevention costs less. Either way, the 2 million plus of us with work each put a little money into the pot for the 59,000 families with babies. We use government to organise the whole thing. Given that families are a key institution in society, we route the payment through families. Giving credence to what economists say, we provide families with money rather than things (food, clothing) because each family is best placed to decide what it needs.
But then there’s this detail about excluding families making more than $150,000. If the payment is essentially for the new individual, then why make it contingent on the family’s income? And furthermore, the exclusion would affect only 5% of families, so it has only a marginal impact on the total cost. The exclusion tells us that the payment isn’t just about society supporting new babies, it’s about supporting specific babies.
So then we get into a debate about which babies deserve support. It turns the policy from baby-focused to family-focused. Labour has determined that some families need support, well, actually, that 95% of families need support. And that’s where they lose me.
I definitely see the need-based case for providing extra money to the one-quarter of children in poverty. We could increase the scope even more to include the near-poor. But when we increase it half or three-quarters or 95% of families, we aren’t talking about needs any more. In no plausible way can we argue that 95% of New Zealand families are needy. They may be ‘struggling’, in the sense that we can all find ways to spend our entire incomes and then a bit more. But needy?
And so the policy looks like a giveaway to the middle class, dressed up in concerns about kids and poverty. It’s a great ploy — voters (who are mostly middle class) can feel like they are doing something for barefoot urchins while getting paid themselves. The pay-off is psychological AND financial. That makes it good politics.