Author Archives: Alex Rogel

Fertility Levels and the Economy

Many countries are below replacement fertility levels due to shifting economic status of women and corresponding role shifts for men in taking responsibility for home and child care. Current research shows this is economically harmful but can be both inflationary and deflationary.

Many wealthy nations are considered to be “below replacement fertility” levels. Replacement level is attained when a country’s average birth rate is 2.1 children per woman, 1 per parent with 0.1 to account for infant and child mortality. One popular opinion on the cause of these low and decreased fertility levels is the economic status of women. Economists Bruce Sacerdote and James Feyrer examine three phases of women’s status and the fertility levels correlated with each phase. In the low-female-status phase, women have very limited if any economic role outside of the home. Fertility in this case is high. In the middle phase, women have roles and responsibilities outside the home yet they are still left with the burden of all home and child care. Fertility is lowest in countries such as Japan, Spain and Italy who find themselves in this phase. In a third phase, women still have opportunity to pursue roles outside the home AND their male counterparts pitch in with maintaining the home and childcare. Fertility is much higher here than in the middle phase.

Sacerdote and Feyrer examine other aspects which impact families’ fertility choices. It is interesting to think that in high-income countries, families make fertility decisions with peer effects in mind. Then in turn, societies with more children may develop more family-supporting infrastructure (e.g. tax incentives, increased maternity leave, and day care subsidies for families with children in France). The multiplier effect of social policy that this leads to is interesting. To think that social policy that supports families could influence one family that could influence many others through the peer effect social multiplier is an interesting concept.

Korea, Singapore & Hong Kong’s fertility levels have decreased from 3.5 to 6.0 children per woman in 1970 to below 1.5 children per woman in 2005. Specifically, Hong Kong’s fertility rate is the lowest in the world at 1.0 children per woman. I find this interesting because I would like to know more about how China’s one-child policy has affected this rate. The article says China’s fertility level is near replacement overall but I wonder how / how quickly this has come to be since the one-child policy was abolished in 2013.

Fertility rates can be difficult to predict for recent years and impossible to predict in real time. The data is difficult to collect and there are multiple ways to collect it. Japan in particular has had a difficult time measuring fertility rates but now that they have, they realize that in 2014, Japan’s birth rate shrunk by the highest amount on record. Their predicted fertility rates have been way off and overestimated consistently since 1965. Ana Swanson writes for the Washington Post:

“A working paper from Tokyo’s Waseda University… argues that the effects of an aging population on deflation are more complicated than typically thought – that aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Overall, Japan’s aging population generated deflation of 0.6 percentage points annually over the past 40 years, the authors say.”

 

[Revised] Small Businesses and the Economy

Small business is an important focus of economic recovery because they are adaptable and stable forms of tax revenue and because they create jobs.

Since the recession, the U.S. economy has not bounced back as quickly as it has in the past. One of the main reasons for this delayed recovery is the decrease in small businesses. Although small businesses do not generate as much money as their larger counterparts, they are an invaluable piece of the country’s economy. In the United States alone, small businesses make up between 60% and 80% of all jobs and employ almost half of the private sector workforce. Therefore, when considering ways to further stimulate our economy, focusing on the establishment and growth of small businesses is an ideal place to start.

On a local scale, small businesses strengthen the economy by bringing growth and innovation to the community. Small businesses attract talent from individuals who are inventing new products or creating new solutions. In addition, small businesses usually remain stable through changing economic times as they are more adaptable to change and customers are more likely to stay loyal. Even if the economy is struggling, majority of consumers will not stop going to their favorite local coffee shop in the morning, regardless if their drink order increases by a few cents. As a result, small businesses are a stable form of tax revenue for communities and where there is more tax dollars there is a bigger budget. This budget is reinvested in the community through schools, public transportation, and the police force.

In order to maintain the valuable effects small businesses provide to the economy, the right climate of entrepreneurship and support must be created and fostered. Fortunately, many programs and support organizations exist that valuable the role of the small businesses, even if they are not small businesses themselves. For example, Goldman Sachs created a the 10,000 Small Business Initiative which focuses on providing small businesses with “greater access to business education, financial capital, and business support services”. The company’s goal is to reach 10,000 small businesses across the country through this integrated approach to create jobs and economic opportunity.

Although the labor department recently announced that unemployment rates fell, the data does not always portray the whole story as there are millions of people still searching for jobs. In order to see our economy continue to flourish, new jobs must continue to develop, which is exactly where small businesses come into play. The value of small businesses and consequently more employment opportunities cannot be understated, as it is a major source of economic stability and economic growth that our country still desperately needs.

Gender and the Economy

The most important aspect of one’s country is their human capital. Human capital affects the direction and future of the economy. However, when half of a country’s human capital does not excel to their full potential the economy will suffer. This is the case for gender equality.

Worldwide, women’s participation in the work force is much lower than that of men. Although women work informally in the economy usually raising children and maintaining the household, they are likely unpaid for this world as a result the wage gap continues to rise. According to Henriette Kolb, closing the gender gap would raise the GDP in the United States by 5% and in Egypt closing the gender gap would raise the GDP by 34%. In addition, better employment opportunities for women increase the profitability and productivity in the private sector. Many companies who provide better employment opportunities for women see greater staff retention, innovation, and access to new markets. Ultimately, when companies invest in women it pays off.

In addition, investing in women provides generational returns. Women are the center of families and communities. For countries that strive in helping working mothers succeed, female employment and female fertility both tend to increase, a statistic majority of people would be surprised by.  When women work outside of the home and gain more financial independence, they are more likely than men to spend their earnings on their children’s nutrition, health and education, which will continue to show returns for years to come. In addition, as women grow more financially independent they become greater consumers of goods and services for the household, which helps spur economic growth. Research has shown that women, more so than men, are likely to invest more in the education and health of their children.

More recently, with the announcement of Hillary Clinton’s presidential candidacy, the case for gender equality is brought to the forefront. Not only is this a huge step for gender equality, but also research has found that inequality is lower in countries when more women are engaged politically. This is great news for the U.S. economy as women in politics advocate and prioritize women’s rights and gender equality, which will have strong implications for family life, health, and education. The cyclical nature of gender equality will continue. As women gain more power in the professional and political fields, this will encourage others to participate and the effects will continue to pass down through generations. By reducing gender inequality, the economy will be grow as half of our human capital will reach their full potential.

Minimum Wage and the Economy

Minimum wage has been a topic of contention since its initiation in 1938 by President Roosevelt as part of the Fair Labor Standards Act. However, recently the topic has gained more attention as President Obama is proposing to have the minimum wage raised from $7.25 to $10.10 by 2016. This proposal has given rise to two differing responses. First, labor and liberal groups believe this raise will help reduce poverty and give more spending power to the poorest Americans. However, businesses and Republicans disagree and feel as though it would cost low-skilled workers and derail many small businesses. So where do economists stand on this highly debated topic?

The economics of raising the minimum wage are hard to predict due to the lack of conclusive data. One thing the data does show is that the American minimum wage by international standards as the minimum wage equals about 38% of the median wage in 2011. Therefore, many economists argue that raising the minimum wage would be beneficial, as it would help tackle income inequality and create a surplus of jobs. Proponents of this theory state that increasing the minimum would be an incentive for individuals to stay in their jobs, which would reduce the turnover rate and consequently the cost of hiring and training new employees. In 2012 the EPI concluded that increasing the minimum wage to $9.80 per hour would create about 100,000 new jobs in the American economy.

However, on the other side of the argument, economists and politicians state that raising the minimum wage simply wont make a big enough difference for our economy. Opponents point to higher prices, job losses, and the collapse of small businesses as the result of an increase in minimum wage. Paul Krugman highlights that although these negative outcomes may result, the main reason against raising the minimum is simply because it would not make that much of a difference. His argument is as followed: About 47% of Americans work at an hourly rate and of all these hourly workers only 4.7% are earning a wage at or below the minimum wage. Therefore, if this group of workers got an increase to $15 per hour, there would an increase of $27.9 million. Hypothetically speaking if all of that increase was put back into the economy via products and services it would only equate to about 1.25% of the total U.S. GDP. Consequently, this small percentage would not make that much of a difference.

However, I argue that minimum wage jobs are not an end goal for majority of hourly workers, but instead a stepping-stone. Therefore, even if raising the minimum wage would not drastically change our economy, it could help 900,000 people escape from poverty and save some of their earnings to invest in their future. So if raising the minimum wage won’t cause explosive effects on our economy, but it will help almost a million of people out of poverty and millions more in saving for their future, why not?

Small Businesses and the Economy

Small business is an important focus of economic recovery because they are adaptable and stable forms of tax revenue and they create jobs.

Since the recession, the U.S. economy has not bounced back as quickly as it has in the past. One of the main reasons for this delayed recovery is because of the decrease in small businesses. Although small businesses do not generate as much money as their larger counter parts, they are an invaluable piece to the country’s economy. In the United States alone, small businesses make up between 60-80% of all jobs and employ almost half of the private sector work force. Therefore, when considering ways to further stimulate our economy, focusing on the establishment and growth of small businesses is an ideal place to start.

On a local scale, small businesses strengthen the economy by bringing growth and innovation to the community. Small businesses attract talent from individuals who are inventing new products or creating new solutions. In addition, small businesses usually remain stable through changing economic times as they are more adaptable to change and customers are more likely to stay loyal. Even if the economy is struggling, majority of consumers will not stop going to their favorite local coffee shop in the morning, regardless if the latte price increases twenty-five cents. As a result, small businesses are a stable form of tax revenue for communities and where there is more tax dollars there is a bigger budget. This budget is reinvested in the community through schools, public transportation, and the police force.

In order to maintain the valuable effects small businesses provide to the economy, the right climate of entrepreneurship and support must be created and fostered. Fortunately, many programs and support organizations exist that valuable the role of the small businesses, even if they are not small businesses themselves. For example, Goldman Sachs created a the 10,000 Small Business Initiative which focuses on providing small businesses with “greater access to business education, financial capital, and business support services”. The company’s goal is to reach 10,000 small businesses across the country through this integrated approach to create jobs and economic opportunity.

Although the labor department recently announced that unemployment rates fell, the data does not always portray the whole story as there are millions of people still searching for jobs. In order to see our economy continue to flourish, new jobs must continue to develop, which is exactly where small businesses come into play. The value of small businesses and consequently more employment opportunities  cannot be understated, as it is a major source of economic stability and economic growth that our country still desperately needs.

Terrorism and the Economy

Thesis: Terrorism disproportionately affects less developed countries whose economies cannot support themselves when one sector of the economy collapses. With terror attacks such as that in Kenya that claimed the lives of 148 last week, one wonders what the economic impact of terrorism is.

Terrorism causes psychological shock due to human loss which causes panic which in turn disrupts consumer spending and confidence. Following 9/11 for example, “forecasters responded with one of the largest one-time collective downward revisions in recent history” and downgraded the forecasted US real GDP growth by 0.5 percentage point for 2001 and by 1.2 percentage points for 2002. Terrorism can also damage an area’s growth as it decreases tourism desire for that area. The OECD estimates the immediate costs of 9/11 to be $14 billion of private enterprise, $1.5 billion of state and local enterprise, $700 million of Federal government expenses and $40 billion for cleaning and rescue. It is difficult to insure against terrorism as the true worth of terrorist-caused damage is difficult to price. Terrorism attacks lead also to tighter security and military regulations, which can at times restrict or inhibit trade which always hurts the economy.

However, the economic impacts of terrorism differ in severity depending upon whether the afflicted nation is more or less developed. Terrorist attacks on more developed nations affect sectors or regions of an economy whereas attacks on less developed regions can affect entire economies. For instance, the 2014 and recent attacks on Kenya have had a particularly bad effect on Kenya’s economy because of their threat to tourism. The attacks affected tourists impression of the country and tourism is Kenya’s second leading source of foreign exchange. This lack of tourism threatened Kenya’s entire economy as a whole. These shifts in perception have even affected President Obama’s attempts to visit his father’s homeland.

As we approach the two-year anniversary of the Boston Marathon bombings, damage is estimated around $333 million to the local economy in lost wages, retail sales and infrastructure damage. While this damage is severe, Boston as a city has not been taken down or devalued. No person thinks twice when traveling to Boston fearing their safety from extremists. This is because Boston has the economic strength and the support that comes from being a city in a more developed country that gives it the resilience to overcome terrorism. While this is not to say Boston was any less affected by the tragic attacks two years ago, it is more equipped economically to survive because it is in a more developed region.

[Revised] Redshirting Alone Cannot Even the Playing Field for Kindergarteners

Thesis: school entrance policy must be altered to take into account a student’s academic ability rather than age alone.

To ensure that all children meet certain academic expectations, standardized tests are regularly administered in U.S. schools. A commonly used strategy to increase early achievement in academic testing is to increase the average age for beginning kindergarten. This can be done in one of two ways: by adjusting the cutoff date for the age of entry or by advising parents to delay enrolling their young children in kindergarten for another year, also known as redshirting. The thought process of policymakers, administrators and teachers for these practices is that older students will be more mature and therefore have a greater chance of academic success. Although redshirting and changing the cutoff date for kindergarten entrance have been shown to benefit children in the short-term in their early academic years, this trend does not continue as they get older. Research has shown that these positive effects decrease over time and ultimately level out between children of differing ages. Instead of redshirting or changing the cutoff dates for school entry by age, research suggests a new policy for school entry must be enacted that examines a child’s academic ability relative to their peers prior to beginning school in order to alleviate differences in maturity levels and academic performance.

A study that will be published in this year’s American Economic Journal-Applied Economics found that children who are redshirted or “old for their grade” do better initially in school, but this shifts by age 16. Philip Cook, a professor at Duke’s Sanford School of Public Policy researched these redshirted children and found that “students who were older for their grade were more likely to drop out and commit a serious crime before turning 20 years old”

Marisa Spietsma, an economist at the labour and human resources management department of the Centre for European Economic Research investigated the long-term effects in sixteen different countries of relative age when entering primary school. She found that older students have approximately 20% of a standard deviation higher test scores than the youngest students. Part of this difference in achievement is attributed to tracking; the practice of grouping students of roughly equal achievement in the same class. Spietsma contends that because students are grouped by what is observable to teachers (i.e. observed ability) rather than maturity level, this leaves younger children at greater risk of learning less, falling behind and perhaps even repeating a grade. Horstrchraer and Muehler agree that determining a child’s level of development will be critical to reducing differences among students, leading to optimal learning opportunities.

In order to maintain a level playing field in academics, a policy must be implemented that states the criteria students must meet prior to beginning kindergarten. Some regions, such as Stillwater, MN allow parents of exceptionally gifted preschoolers to fill out a questionnaire that could allow their child to begin school earlier. The questionnaire involves questions about the child’s self-sufficiency, developmental milestones, play style, entertainment preferences, and physical development and abilities. From these criteria, it is judged whether the child is ready to enter kindergarten.

In light of contradictory evidence on whether it is best for students to start school relatively young or relatively old, instead of establishing a cutoff date that determines the age students can begin school or advising parents to delay enrolling their children in kindergarten, a policy focused on academic ability would both level the playing field and alleviate the numerous shortfalls surrounding the prior two options. By examining children’s academic achievement and cognitive development through an examination, the range of maturity levels in each grade would decrease, benefiting both the teachers and students alike. The younger students, who are likely less mature, will no longer suffer as great a risk of repeating a grade or falling behind in class. By setting a benchmark level of academic ability prior to entering kindergarten, the hope is that in the future, these students will perform better in standardized academic testing and have an increased chance of success outside the academic arena.

Immigration and the Economy

Immigration is a model for supply-side policy. By fixing the broken immigration system, the economy would get an overall boost. President Obama took executive action in regards to immigration, but without bipartisan action the full benefit of immigration on the economy cannot be revealed. Although immigration is a complicated political issue, when it comes to immigration’s effect on the economy, the answer is straightforward.

President Obama’s executive action primarily focused on half of the immigration issue. His action helped illegal immigrants who had already been in the United States for quite some time. However, the benefits from this action are still worth noting. Similar to how businesses work, if there is any level of uncertainty, the behavior of the business will adjust accordingly. The same goes for immigrants; if they are uncertain about their future they will reduce their investments. However, with President Obama’s executive action security increases and these immigrants will be more likely to invest in education, buy homes, start business, etc.

In addition, undocumented workers will come out of hiding and find jobs that better match their skills and potential. This will lead to an increase in the workforce, which the CEA estimates will expand by about 150,000 people over the next ten years as a result of these immigration policies changes. A bigger work force is a bigger economy; as the economy grows so does tax revenues as illegal immigrants who gain citizenship will start to pay taxes. This will result in the government having to borrow less money to finance its operations, therefore reducing the deficit.

One of the major opponents to the immigration changes is the concern that allowing an influx of immigrants will off put jobs for native-born Americans. However, the data tells a different story. Allowing foreign-born workers into the United States will increase innovation and business, therefore increasing available jobs to native-born workers. This will increase the productivity of all American workers. By including immigrants into the mainstream economy will protect native-born workers from unfair competition through illegal wages. In addition to protection, according to the CEA, the overall wage for native-born workers will rise about .3% by 2024, which correlates, to about $170 dollars.

Although there will be positive changes with President Obama’s executive action on immigration, without legislating an official change the full benefit will not be received. The longer Congress goes without legislating a change, the larger the effect it will have on the economy, and not in a positive way.

The Economics of Uber

Thesis: Uber must find a solution to extreme fare surges or else it will alienate its consumer base and become irrelevant.

Why does Uber use Surge Pricing?

Uber hikes up prices during times of high demand for multiple reasons. Firstly, they value supply of available rides over reasonable prices. Uber is aware that unreasonable fare surges (for example 6x baseline fare) turn consumers away and they are actually fine with that. https://medium.com/@jimbumbulsky/the-true-economics-of-ubers-surge-pricing-2ed9de90fcae They would rather consumers see that cars are available and choose not to order than to see that “no cars are currently available.” Secondly, surging creates the illusion that Uber is more popular than perhaps it is. Potential consumers who need a ride see that fares are currently higher than normal and whatever reason they wanted a ride in the first place is amplified. If skies are grey and a consumer thinks it might rain, seeing a fare surge lets them know that others think the same or it probably is already raining elsewhere in town. Thirdly, Uber believes surge pricing makes driving for Uber more appealing, thus getting more drivers on the road. In reality, Uber’s surge pricing model is unclear and their website does not even include an explanation on how they price their rides during times of increased demand (https://www.uber.com/hc/en-us/articles/201836656-What-is-surge-pricing-and-how-does-it-work-). Therefore, this is not an automatic draw for those considering driving for Uber.

Uber’s Surge Pricing is detrimental to both consumers and the company for various reasons. First, fare surges alienate reasonable consumers considering taking Uber over a normal cab. It takes Uber from being “everyone’s private driver” to only the wealthy’s private driver. Surge pricing is bad for Uber’s drivers as it leads to drivers riding around with empty cars. This is frustrating especially in times drivers know are popular to take rides.

A particularly outrageous instance of fair surging occurred during the Sydney hostage crisis in December. Fares reportedly http://time.com/3633469/uber-surge-pricing/ surged to four times normal, at a $100 minimum. Dan Kedmey with Time magazine called this price gouging “Uber trying to capitalize on a potentially deadly emergency.” While Uber attempted to remedy the situation soon after offering free rides and refunds to those in vicinity of the attack, it still calls into question the algorithm Uber uses to hike fares. The algorithm senses when an area is experiencing high demand and low relative supply.

I don’t think any other company (Lyft etc) can sufficiently compete with Uber at this time, particularly in major metro areas and even more narrowly, in college towns such as Ann Arbor. So now is the time for Uber to not be so concerned with having “zeroes” (what Uber calls riders who open the app to see that no cars are currently available) and care more about the quality of the consumer’s experience and the satisfaction of current drivers.

How can Uber solve this problem?

Getting more drivers on the road would help Uber to not alienate as many consumers as it currently does and allow existing drivers to fill their cars more frequently when consumers are not scared off by fare surges.

Redshirting Alone Cannot Even the Playing Field for Kindergarteners

Thesis: school entrance policy must be altered to take into account a student’s academic ability rather than age alone.

To ensure that all children meet certain academic expectations, standardized tests are regularly administered in U.S. schools. A commonly used strategy to increase early achievement in academic testing is to increase the average age for beginning kindergarten. This can be done in one of two ways: by adjusting the cutoff date for the age of entry or by advising parents to delay enrolling their young children in kindergarten for another year, also known as redshirting. The thought process of policymakers, administrators and teachers for these practices is that older students will be more mature and therefore have a greater chance of academic success. Although redshirting and changing the cutoff date for kindergarten entrance have been shown to benefit children in the short-term in their early academic years, this trend does not continue as they get older. Research has shown that these positive effects decrease over time and ultimately level out between children of differing ages. Instead of redshirting or changing the cutoff dates for school entry by age, research suggests a new policy for school entry must be enacted that examines a child’s academic ability relative to their peers prior to beginning school in order to alleviate differences in maturity levels and academic performance.

A study that will be published in this year’s American Economic Journal-Applied Economics found that children who are redshirted or “old for their grade” do better initially in school, but this shifts by age 16. Philip Cook, a professor at Duke’s Sanford School of Public Policy researched these redshirted children and found that “students who were older for their grade were more likely to drop out and commit a serious crime before turning 20 years old”

Marisa Spietsma, an economist at the labour and human resources management department of the Centre for European Economic Research investigated the long-term effects in sixteen different countries of relative age when entering primary school. She found that older students have approximately 20% of a standard deviation higher test scores than the youngest students. Part of this difference in achievement is attributed to tracking; the practice of grouping students of roughly equal achievement in the same class. Spietsma contends that because students are grouped by what is observable to teachers (i.e. observed ability) rather than maturity level, this leaves younger children at greater risk of learning less, falling behind and perhaps even repeating a grade. Horstrchraer and Muehler agree that determining a child’s level of development will be critical to reducing differences among students, leading to optimal learning opportunities.

In order to maintain a level playing field in academics, a policy must be implemented that states the criteria students must meet prior to beginning kindergarten. In light of contradictory evidence on whether it is best for students to start school relatively young or relatively old, instead of establishing a cutoff date that determines the age students can begin school or advising parents to delay enrolling their children in kindergarten, a policy focused on academic ability would both level the playing field and alleviate the numerous shortfalls surrounding the prior two options. By examining children’s academic achievement, the range of maturity levels in each grade would decrease, benefiting both the teachers and students alike. The younger students, who are likely less mature, will no longer suffer as great a risk of repeating a grade or falling behind in class. By setting a benchmark level of academic ability prior to entering kindergarten, the hope is that in the future, these students will perform better in standardized academic testing and have an increased chance of success outside the academic arena.