Economics @ ITT

Scary New Wage Data

Posted in Uncategorized by ittecon on October 26, 2010

1 in 34 who earned wages in 2008 had none in 2009.

tax.com: Scary New Wage Data.

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Confronting Income Inequality

Posted in economics, Income Redistribution, macroeconomics, Policy Issues by ittecon on October 19, 2010

During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.

By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.

 

More: Economic View – Confronting Income Inequality – NYTimes.com.

America’s Poor

Posted in macroeconomics, Policy Issues by ittecon on October 18, 2010

Mint.com put together a Flash chart depicting poverty in the United States.

http://www.mint.com/blog/wp-content/uploads/2010/10/MNT-POVERTY-INT-R2.swf

If this blog supported embedded objects, you could see it here. 😦

Employer Demands Mean Some Jobs Go Unfilled

Posted in economics, employment by ittecon on October 11, 2010

Given that the 2010 Nobel Prize in economics was granted on the basis of contributions in the analysis of labour market frictions, this MSNBC article fed from AP economic journalist, Christopher Rubager, outlines the mismatch between employer demands and job skills. Employers are demanding job roles to be expanded, so that what had been one role now umbrellas multiple roles. The goal of employers is to do more with less, but, frankly, this is poor economics and is flawed on a number of levels.

Think of this in terms of  productions possibilities and comparative advantage. Assume that a skilled programmer has been asked to now perform quality assurance tasks as part of a new job description.

First, we have diluted labour skills specialisation. Overachieving managers may assume that everyone can do multiple tasks with no degradation of output, but this is simply not true.

Next, I presume that each of these functions would have a different contribution margin to the firm. Previously, a software developer may have been “worth,” say, $100 per hour, and a QA analyst may be worth $90. Now, this $100 resource needs to split his effort performing a $90 task. With specialisation, I can pay the $90 in accordance with the lower contribution margin. With this new blend of responsibilities, the new wage requirement is presumably reduced to fall somewhere between $90 and $100 per hour. Assuming my need for each of these skills has not been diminished—say I need 1 software developer FTE and 1 QA FTE—, where is the gain to the firm?

Moreover, job satisfaction may diminish because the reasons for choosing to be a software engineer versus a quality assurance analyst are likely different, and the motivations are divergent. From the developer’s point of view, she is being asked to perform more  work, but with the lower contribution margin, she may be asked to forgo the next pay rise or, worse, take a reduction in pay.

Getting back to production possibility for the software engineer, any effort expended on QA tasks comes only at the expense of software development tasks. This is the trade off—opportunity costs.

So why does this seem to be working in the short run? Employees are sprinting this marathon, hoping not to end up on the unemployment roster. But this cannot be maintained. People are working longer hours out of fear. While this may be a motivator, it is not sustainable.

2010 Nobel Prize for Economics

Posted in economics, Policy Issues by ittecon on October 11, 2010

The 2010 Nobel prize for economics is shared by three economists, Peter A. Diamond, Dale T. Mortensen, Christopher A. Pissarides, in the subdiscipline of labour economics for their work on how government policy affects unemployment. Their theories “help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy,” said the Academy in a statement.

Here are 7 books spanning the political spectrum by Nobel prize winners in Economics.

Why Are People Willing to Fork Out a Fortune for Shoes That Cost Little to Make?

Posted in economics, employment, International Economics, microeconomics, Trade by ittecon on October 6, 2010

Why Are People Willing to Fork Out a Fortune for Shoes That Cost Little to Make? Interestingly enough in microeconomics, supply and demand concepts, marginal pricing, and scarcity are key to the discourse. Yet how do we account for the prices we pay for shoes, clothing, and cosmetics?

Firefighters Let House Burn Because Owner Didn’t Pay $75 Fee

Posted in economics, Policy Issues by ittecon on October 5, 2010

A homeowner in Tennessee did not pay his fire insurance—insurance to pay for the service of extinguishing a fire should his house catch fire—, so the firefighters stodo and watched as his house burned, despite his pleas to  pay “whatever  it takes” to extinguish the flames.

Is this story an example of the need for social goods, or a testimate to private good? Clearly, this is a showcase for market failure. It is also relates to the policies undertaken by the insurance industry to exempt people from coverage due to a pre-existing condition. In this case, the house was on fire and the requisite $75 premium had not been paid.

I’d like to understand the pricing model of the fire department. On the one hand, fire protection was offered as a subscription service, but on the other hand the property owner had offered to remunerate the department. Given the situation, the fire department could have more than covered their marginal costs, even extracting some monopoly profits in the process. This did not happen, so what was happening?