New research paper answers the question regarding extended unemployment benefits and peoples willingness to work/find jobs. Might be surprised by the findings!!

Embedded below is a hot off the press study that explores the effect of Extended Unemployment Benefits on labor markets.  Specifically, do benefits extended beyond the normal benefit time limit (approx 26 weeks) give an incentive for workers to (1) delay looking for work or (2) taking another job.

The key finding:

We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have large first-order efficiency consequences. The major effect of extended benefits is redistributive, providing income to job losers who would have exited the labor force otherwise (consistent with Card et al. 2007).

The first sentence suggests that when unemployment benefits run out people are not taking a job but are completely giving up and exiting the labor force. They simply don't believe there is a job available for them to take or they are qualified for. If they live in an area where the job market is weak, even in a recovery stage, this makes sense.

The last sentence suggests that people stay on the extended benefits because there is no alternative to having that income stream.  They were likely to exit the labor market whether the time limit for benefits was 26 weeks or 99 weeks (the maximum at the height of the recession).

The overall conclusion is that a statistically significant number of people DID NOT use extended unemployment benefits to avoid taking a job.

My own caveat that is not addressed in the paper below but likely has some correlation, is the rise in Federal Disability claims that overlaps this time period.  In other words, how many people moved from Extended Unemployment benefits to the Disability rolls.  Maybe statistically significant or not.  Sounds like fodder for another research paper.

wp2013-09

Note for teachers and students.   Starting on page 3 there is an excellent, basic explanation on unemployment benefits and the timelines for receiving benefits. Students ALWAYS have these detailed questions.

Food prices in 1913 and today. Which do you think is a better deal? More convinced than ever that there are no Good ol' Days--except for the ones we are in now...

The data below are from a BLS report on prices.  It shows basic food staples as they were priced in 1913 and in 2013.

The total market basket cost for these items in 1913 = $3.19 (adjusted for inflation (using the BLS calculator) that would be $74.93 in 2013 dollars).

In 2013 those same items totaled = $49.71 (current dollars)

On an inflation adjusted basis, these food items today are 33% cheaper than in 1913.

Source: Bureau of Labor Statistics

Another way to look at this would be to calculate how many hours, at the prevailing wage, a worker would have to work to earn enough to purchase the items in this market basket.

It is hard to find exact data on wage rates in 1913 but I am going to use this BLS source and guesstimate about $.50 per hour (that is probably high) and the average hourly wage of a worker in  2013 is $23.87 (Source)

So...a working stiff in 1913 would have to work 6.38 hours to earn enough for the groceries and a worker in 2013 would have to work only 2.08 hours for those same groceries.

When would you rather live---today or then?  I choose today.  I am pretty sure I could sneak a bag of Cheetos in my market basket.  Something those old timers could NEVER do!! :)

How do I know pets are a substitute for children, even if you HAVE children? Nice graphic on how much we spend on our pets.

Pets clearly become the "baby" when the baby leaves home or there is not one  (child/children) in the first place.  This report by the BLS has some other interesting observations regarding spending on pets by households during the recession. 

Source: Bureau of Labor Statistics

Bacon will not be a part of your 4 "Coase" meal in San Francisco. See here why.

Bacon, the perfect food in my opinion, is not beloved everywhere.

Bacon restaurant shut down for smelling like bacon

It turns out that not everyone loves the smell of bacon.

A San Francisco bacon restaurant, fittingly called "Bacon Bacon,” was forced to shut its door on Friday after neighbors complained that the "porcine aroma" wafting from the establishment was too strong.

There is an alternative way for this problem to be resolved without government interference.  It is applying what is called the "Coase Theorem": (here is a VERY simplistic definition---go HERE for more detailed explanation)

The Coase theorem states that where there is a conflict of property rights, the involved parties can bargain or negotiate terms that are more beneficial to both parties than the outcome of any assigned property rights. (from Investopedia)

The sweet smell of bacon waffling throughout the neighborhood imposes costs AND benefits on third parties (neighbors) not directly involved in the transaction (restaurant and its customers). 

Some people (by some people I mean me)  might LOVE the smell of bacon in the morning.  The closing of the restaurant is harming them/me at the cost of reducing harm to others, the bacon-haters.

An example of an outcome loosely consistent with the Coase Theorem would be for me, or the restaurant owner, or its customers to compensate the bacon aroma hater in the amount they feel like they have been harmed.  Compensation in dollars or tofu, maybe?

Is society better off with "Bacon Bacon" closed?  NOT in my humble cholesterol filled world.

How about you??

Nice graph showing college degrees granted by gender. You are (and earn) what you study.

Degrees by gender.  Note the 50/50 line ("Social Studies and History" is as close to a 50/50 split as can be) .  This means any bar that extends to the right of the split women earn a perponderance of the degrees in that dicsipline, for example women earn 87.7% of the degrees in "Family and Consumer Sciences".  On the other extreme, women earn only 17.2% of the degrees in Engineering.

Lots of economic, social and political implications here. Discuss.

Source: AEI--Carpe Diem

TENTATIVE answers to the 2013 AP Macroeconomics Exam FRQ's

HERE is the link to my preliminary interpretation of the 2013 AP Macroeconomics FRQ's.

I am open to correction and or suggestions for refinement.  Also, the points I assigned are tentative and I might be wrong as to which parts are or are not assigned points.

Here is the link to the College Board wesite with the actual questions.

For my students:  I can see 2 (maybe 3) points that would have been a challenge.  I think you are going to do VERY WELL!! :)

Nice Economics related cartoon to illustrate "structural unemployment". There will be rage against the machine, but only AFTER it serves you lunch...

Nice economics related cartoon in the NYTIMES today (HT: Jared Bernstein).

A good illustration of "stuctural" unemployment in a lesson on employment in a basic economics class.

NYTIMES

Nice graphic on the change in Skill Levels for jobs in the US since 1983. Where do YOU plan to be on this chart??

US population today is approximately 315 million. In 1983 it was 234 million.  That is a 35% increase.

Low Skill Occupations increased by 20%
Middle Skill Occupations decreased by 24%
High Skill Occupations increased by 42%

High skill occupations have increased faster than the population (YAY!). Low skilled occupations have increased much slower than the population (YAY! Again!).  Middle skill occupations, well, I am not sure where they went, maybe on Disability. 

Sensible policies that foster a postivie business climate, a renewed reverence for entrepreneurship, and a REAL emphasis on vocational skills acquisition would be helpful.

An Ode to a Grecian Spurn ...of reality

Greece, arguably the most economically troubled country in Europe, has a rather high opinion of itself relative to its Euro-area neighbors. Voted THEMSELVES Most Trustworthy in spite of every other country naming Germany. 

To be fair, there is quite a bit of Self Love to go around.  Each believes they are the Most Compassionate.  Nationalism is a hard thing to overcome, even in light of massive contradictionary evidence.

If you are going to have a Socialist Revolution you better have some toilet paper. Oh, and take a basic Econ class too

Venezuelans are learning a hard lesson that could have been avoided if their leader took a basic economics class.  The lesson is on the price paid, literally and figuratively, when price controls are imposed on a market in the name of serving a "social good".

Venezuela hopes to wipe out toilet paper shortage by importing 50m rolls

First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities – toilet paper.

Blaming political opponents for the shortfall, as it does for other shortages, the government says it will import 50m rolls to boost supplies.

Economists say Venezuela's shortages stem from price controls meant to make basic goods available to the poorest parts of society and the government's controls on foreign currency.

"State-controlled prices – prices that are set below market-clearing price – always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union," said Steve Hanke, professor of economics at Johns Hopkins University. 

 If you don't believe in downward sloping Demand Curves and/or upward sloping Supply Curves, then, well, you might be a beloved Populist Leader of a people who don't access to toilet paper. 

It might be just me, but I prefer to love my leaders a bit less and have a bit more toilet paper. But then again, I am a simple man...

Graphically, here is how a specific price control---a Price Ceiling works. 

Here is our Market for Toilet Paper in "free" market equilibrium.  At price "Pe" the Quantity Supplied of TP is equal to Quantity Demanded for TP at Point "A".

Fearless Populist Leader believes that the market price is too high.  Fearless Leader imposes a price on the market that is BELOW the established market price.  This price is called a Price Ceiling---by law the good cannot be priced ABOVE this government set price.

In the next graph, at "P Ceiling" the quantity supplied by domestic producers is now "Q supplied"(Point "B:")  and the quantity demanded is "Q demanded" (Point "C"). 

At the lower price producers will supply SOME toilet paper, but not as much as before because the lower price (assuming production costs stay the same) makes it less profitable.  There is movement ALONG the Supply Curve from Point "A" to Point "B".

At the lower price consumers will increase their quantity demanded from Point "A" to Point "C"---there is movement ALONG the Demand Curve as the price decreases.

You can easily see what is happening on the ground in Venezuela.  At the lower price consumers are "stocking up" on toliet paper at the same time producers are cutting back on production.  With no corresponding change in price allowed, we quickly move into a situation where Quantity Demanded is greater than Quantity Supplied and a SHORTAGE emerges.

Fealess Leader for some reason does not anticipate this and is quite shocked by the outcome.  Now he/she has to pivot and go buy 50 million rolls from SOME OTHER COUNTRY in order to make up for the shortfall.

The result of the Price Control?  Domestic producers/suppliers and their employees are hurt (presumably they use toilet paper too), some consumers have pantry's full of toilet paper but most go without (can you say emergence of "Black Market" trade in TP?), and the government has to use money to buy toilet paper instead of, well, fill in the blank.

Dear Fearless Leader it is called "Econ" usually with a number, like, "101" following it.  It might cost you some money to enroll, but it will be much less than the cost of 50 million roles of TP. 

Just sayin'...