Worthwhile Canadian Initiative

International comparisons of construction employment in the recession

Many participants in the ongoing discussion ([1], [2], [3], [4], [5], etc) on international comparisons of the evolution of output and employment have raised the point that construction employment has played a more prominent role than usual in the most recent recession.

I've put together a few graphs that may be useful. I'd also like to point out that the original problem that Nick put forward was to come up with a story for why the US was so different that didn't amount to saying 'The US is different.'

Productivity, labour demand, and employment

This topic has come up a couple of times in comments on previous posts. Suppose there's an increase in labour productivity. Maybe because of improved technology. How will that affect labour demand, and employment?

I'm just going to work through the absolutely standard long-run classical textbook analysis of this question, with the help of a couple of diagrams. There is nothing new here for advanced macroeconomists. This post is aimed at people who have a basic understanding of introductory economics.

The answer is that labour demand can either increase or decrease, though "normally" it will increase. And employment can either increase or decrease, though "normally" it will decrease. (I will try to explain what I mean by "normally", but it roughly corresponds to "what has normally happened historically".)

Does the rest of the world subsidize research on the American economy?

When studios shoot movies or TV shows in Canada, they stick US licence plates on the cars and pretend Toronto is New York (the Rudy Giuliani biopic Rudy), Alberta is Wyoming (Brokeback Mountain), and BC is Kansas (Smallville).

Studios do it because anything explicitly Canadian tanks in the ratings. The same rule applies to blogging. Our Palgrave Econolog ranking is determined by how often other economics blogs link to WCI. Recently, a thoughtful Stephen Gordon Canadian-themed post on the federal budget generated just one link. But when Nick Rowe took Stephen's graphs, put slightly different words around them and called the post US Productivity Exceptionalism, the links poured in.

Spain, Ireland, and the US. All breaking Okun's Law.

In my last post I noted that the US was abnormal in comparison to the other G7 countries. In all the other countries GDP fell by more than employment, so labour productivity fell. That's what normally happens in a recession. Okun's Law says so. But US GDP fell by less than employment, so labour productivity increased. The US broke Okun's Law. The US is abnormal.

What caused the US to be abnormal? There are any number of ways in which the US is different from the other G7 countries. It's hard to tell which one of those differences caused the US to break Okun's Law. So let's increase the sample size.

Spain is even more abnormal than the US. Ireland is a bit abnormal too. (Thanks to commenter David Fitzsimmons for the suggestion, and thanks very much to Stephen for the graphs.) What do those three countries have in common that caused all three to be abnormal? My guess: a big drop in construction employment.

US Productivity Exceptionalism

Stephen's got standards. So I'm going to steal his graphs from his last post, and write the post he could easily have written.

Before you look at Stephen's graphs, ask yourself this question. How well did the US fare in the Great Recession, in terms of GDP and employment, compared to other G7 countries?

Now look at the dark blue lines (that's the US) in both graphs. Compare them to the other lines. Did you see what you expected to see, on both graphs?

The generosity collapse

People give when they're asked. 

Jim Andreoni and Justin Rao have  proved it. They ran the following experiment: one person, the allocator, was given 100 'money units', worth $10 in real money. She was free to choose how much to keep for herself and how much to give to another person, the recipient. The recipient, however, had an opportunity to ask for a particular division of money - 50/50, say, or 30/70 or 60/40.

It turns out that people who ask for more get more - up to a point. When the recipient asks for, say, 70 percent of the money in the envelope, the allocator is quite likely to say "sorry" and give nothing. But a recipient who asks for a 50/50 split on average receives more than the recipient who asks for nothing.

How Much Would You Be Willing to Pay to Reduce Murders by 30%?

And furthermore, would you be willing to make the change if it meant making changes to the water supply?

The federal budget: Austerity or stimulus or neither?

This year's federal budget is going to be an interesting one. A two-year stimulus package was introduced in 2009, which meant that the 2010 budget didn't have much to say. But now some decisions will have to be made. Should the government extend the fiscal stimulus? Follow the United Kingdom's example and embark on an austerity program to get rid of the deficit? Do nothing?

Stand up against the penny

At this year's American Economics Association humour session, stand-up economist Yoram Bauman launched a new campaign: to end the penny - a subject discussed on this blog before.

Bauman has a novel suggestion on how to eliminate the penny: promote it.  Make each penny worth five cents. Allow people to trade in 20 pennies for a dollar. He estimates it would cost about $6 billion- but that's the kind of stimulus the US economy could use right now. Get rid of a useless coin and stimulate the economy all in one go!

Relative grade inflation, and Operation Birdhunt

Relative grade inflation is when one professor grades easier than another professor. Or when one department grades easier than another department.

Operation Birdhunt was my attempt (OK, my colleague Marcel-Cristian Voia did the actual work) to do an econometric study of relative grade inflation across departments. Birdhunt was a failure, but a noble failure.

More evidence on minimum wages, employment and poverty: a continuing series

A couple of months ago, I brought attention to recent work in Quebec on just who is affected by the minimum wage. An important result was that the proportion of minimum wage earners who were in poverty (13.5%) was almost exactly the same as it is for the incidence of poverty in the general population (13.1%).

In the comments, I made the point this way:

If the conditional probability P(A|B) is equal to the unconditional probability P(A), then A and B are two independent events. In this case, we have

P(Poverty | Earns minimum wage) = 0.135

P(Poverty) = 0.131

From this, we can conclude that earning minimum wage and being in poverty are essentially independent events.

I ended with:

The employment effects of the minimum wage might be safely ignored if the gains from doing so - in terms of reduced poverty and inequality - were "large enough". But available evidence makes it clear that these gains are far too small to justify ignoring employment effects. Moreover, the data suggest that marginalised workers are most likely to pay the price of those job losses.

So the issue of whether or not the minimum wage would reduce poverty was an open question, as far as I could tell.

It turns out that some people have been trying to answer it. My colleague Guy Lacroix has brought to my attention a recent study that suggests that when minimum wages are increased in Canada, the net effect is to increase poverty rates.

Property taxes the Calgary way

Toronto's new mayor Rob Ford recently promised to freeze property taxes.

This type of promise drives me crazy.

Property taxes are based on the mill rate times the assessed value of a person's property. So does a pledge to freeze taxes mean the mill rate will be unchanged? If so, property taxes paid will increase as long as housing prices rise - or fall, if housing prices fall. Or perhaps a pledge to freeze taxes means a promise not to change the assessed value of a property - not possible in a system like Ontario's with market value assessment.

Or does a promise to freeze taxes mean that taxes actually won't be raised, that is, any increase in assessed values will be accompanied by a decrease in the mill rate?

I seriously doubt it.

Robots, slaves, horses, and Malthus

I think this is the model that Karl Smith has in mind.

Assume robots are the same as humans. Robots can do all the work that humans can do. Robots need the same amount of energy/food to stay functioning as humans do, but robots themselves can produce that energy/food just like humans can. Robots will need maintenance and training as humans do, but robots themselves can produce that maintenance and training just like humans can. Robots can produce other robots, just as humans can produce other humans.

The only difference between robots and humans is that robots are owned by humans. Robots are just like human slaves.

Trends in job tenure

I've written before on an important and yet not-widely-enough-known feature of the Canadian labour market: the remarkable amount of churn in and out of employment: [1], [2]. Another way of looking at the dynamics in the labour market is job tenure, which the Labour Force Survey measures as the length of time a worker has worked for her current employer.

Over the years, I have seen any number of passing references to the effect that in today's labour market, workers cannot expect to spend to spend as much time working for an employer as in the past: the days of a 'job for life' are long past. But when you look at the LFS data, those good old days don't ever seem to have existed: job tenure numbers have been remarkably stable over the past 35 years.

Book review: Dan Gardner's "Future Babble"

Dan Gardner of the Ottawa Citizen is one of my very favourite journalists. I first came across his work during the 2008 election campaign, in which he distinguished himself by writing what turned out to be the only article on carbon taxes that made no reference to Stéphane Dion's accent. His piece was a beacon of intellectual curiosity in what was otherwise a very bleak media landscape, for which I was almost pathetically grateful.

Happily, he has also found time to write books. His first book, Risk, dealt with the psychology of how we handle uncertainty, and is well worth tracking down, buying and reading. His most recent book, Future Babble, notes that one of the ways we deal with uncertainty is to rely on the predictions of experts. Unfortunately, experts aren't very good at forecasting, but no-one seems to notice or care. Many of the examples Dan uses are, inevitably, from economics, so this is a good book for economists to read and to take seriously.

Canadian Economic Forecasts 2011 - Make Yours Now!

Continuing the now two year old tradition, I invite you all to make forecasts for 2011. Forecasts are for the latest data available on New Year's Day 2012.

The Rise and Fall of Marxism?

My latest time wasting tech toy is Google Ngram Viewer. What's an ngram? A one word phrase, like "Marx" is a one-gram. "Karl Marx" is a two-gram. "K. Marx" is a three-gram (the period counts as a gram too). A phrase of indefinite length is an ngram.

The Ngram viewer is based on Google Books. Google has scanned almost every book (including pamphlets, treatises etc) ever written. It's then counted how often every single word (including names, punctuation marks, etc) appears in every book. For example, in 1860, the word "international" was used 513 times in 162 books published in Britain that year. Google has also counted how often every possible two word phrase was used. Every possible three word phrase.

With a research tool like this I'm like a kid in a candy store - I'm just gazing around hardly knowing where to begin.

Most Popular WCI Posts From 2010

In an idea shamelessly stolen from Marginal Revolution, here are the top-10 posts on Worthwhile Canadian Initiative as determined by pageviews.  I was surprised to learn that it wasn't simply 10 posts on the census.  In fact the majority of posts had nothing to do with Canada whatsoever.  There's something oddly Canadian about that.

And the top 10 are...

Canadian Economic Forecasts: 2010 revisited

Happy New Year everyone!

Last January we made forecasts for 2010. It's now time to check how well we did. (I will do a separate post for 2011 forecasts).

Commenter Mark wins this one by a mile. Well done Mark!