Equal Pay

April 8, 2014 Leave a comment

The Bureau of Labor Statistics (BLS) has issued a report, entitled “Highlights of Women’s Earnings 2012.” The President has decided to seize on this report (http://www.bls.gov/cps/cpswom2012.pdf) to claim that there is a disparity in the earnings of women compared to men. Like many issues addressed by politicians, the claims made by politicians don’t follow from the source document. Here I want to mention two reasons why typical claims about the “evidence” backing up these unequal pay claims are bogus.

Adjusting for Hours Worked

Suppose that I told you that a woman earned $150.00 last week and that a man earned $300.00 in the same week. Does this imply unequal pay? Superficially it does but suppose further that the woman worked 10 hours to earn her income for the week but the man worked 30 hours. The woman was paid $15.00 per hour while the man earned $10.00 per hour. When we look at hourly wages, the impression conveyed by weekly earnings is clearly reversed. Any claims about unequal pay should be based upon hourly wages so that account is taken of hours worked. Advocates of the unequal pay viewpoint typically look ay weekly earnings to support their claims but, as our simple analysis shows, weekly earnings are not informative. Hourly wages are the better measure. My point is simply that hours worked must be taken into account for a useful analysis of pay differences.

Adjusting for Occupations

Wage rates vary across occupations. BLS provides data for various occupations (to find this data, use the phrase “wages by occupation” to search the BLS web site). You will turn up data on incomes for many occupations and you will see how different incomes can be. Suppose that a woman works as an Community Health Worker (BLS reports mean wages 0f $37,640 for this occupation) and a man works as a Computer and Information Analyst (BLS reports an income of $86,100 for this occupation). The income difference is substantial but does this reflect discrimination or unequal pay? Of course not. Wage differences across occupations occur for many reasons, including the risk of the job and the scarcity of workers with the skills needed for the occupation. So to look for some sort of discrimination, it is important to look at the same occupation to search for pay disparities.

Is There Pay Discrimination?

The examples given here make two simple points about how to go about searching for evidence of labor market biases against women; adjustments need to be made for hours worked and occupations. There are reports in the press (see this article for a discussion of evidence on incomes by gender) that once appropriate adjustments are made permitting valid comparisons, pay differences narrow enormously. And there may not even exist statistically significant differences in income. Thus inappropriate use of data provides wildly inaccurate implications about labor market pay differences between men and women.

The Consumer Finance Protection Bureau

March 27, 2014 Leave a comment

The Dodd-Frank bill passed after the most recent recession created the Consumer Finance Protection Bureau (CFPB). I got to thinking about this new agency when I recently read about the Fed paying just under $80 Billion dollars to the U.S. Treasury. The Fed earns interest on its bond holdings and covers its expenses from these earnings, giving whatever is left over to the U.S. Treasury. What does this have to do with the CFPB?

It turns out that this agency is financed out of the Fed’s interest earnings but, remarkably, the Fed has no budgetary authority over it and neither does Congress (although there have been attempts to give Congress budgetary authority). I am not sure that there is any oversight at all which is of course organizationally absurd. Why would the agency be financed this way? Was it an attempt to prevent the budgetary cost of the bureau from becoming readily known by the public. Obviously its existence reduces the interest earnings paid to the Treasury so, all else the same, it increases the government’s deficit.

Further, can you imagine the waste in this bureau without any oversight by the Fed which is paying the bills? There was a claim in the Wall Street Journal by a Congressman some time ago that the secretary to the bureau director was being paid $160,000.  Think it is possible to get a decent secretary for half that? I bet you can.

Categories: Uncategorized

On the Differing Policy Prescriptions of Economists

January 28, 2014 2 comments

To a person who is not a professional economist, it can seem difficult to understand why economists can have such disparate views on economic policy issues.  Part of the explanation for these apparent differences in professional opinion is that some economists are willing to sweep aside the implications of economic theory when theory leads to policy conclusions that the economist dislikes. A recent newspaper article (War on the Poor) illustrates this behavior by some economists.

Alan S. Blinder is a distinguished economist at Princeton University who specializes in macroeconomics. He has produced a substantial body of influential research in his academic career. He also served as a member of the Board of Governors of the Federal Reserve System. He recently published an article discussing what he called a “war” on the poor being waged by the government. This is provocative stuff and he lists a number of policy issues which he believes are illustrative of this so-called war. Here is a revealing quote from this article. Read more…

Stop-and-Frisk and the New York City Murder Rate

January 9, 2014 Leave a comment

New York City just elected a new mayor who has expressed skepticism about the Stop-and-Frisk policy of the New York City Police Department. There has been some press reporting of this situation and I thought it might be instructive to gather some data just to see what the data might reveal about the Stop-and Frisk policy.

One of the truly amazing innovations brought by the internet to economists with empirical interests is how easy it is to gather data. After a one minute Google search, I found the FBI web site (www.fbi.gov) providing data on U.S. crime rates. Their data collection program, Uniform Crime Reports, contains data on crime rates by city among other things and so I downloaded murder rate statistics for New York City.

One last piece of data was needed for our analysis and that is the date when Stop-and-Frisk was started. Another great innovation, Wikipedia, provides the answer. An article there states that the program started under Mayor David Dinkins during the 1990-1993 time period. With this last piece of data, we can now see what the data might reveal about the effectiveness of the Stop-and-Frisk program. Read more…

Fixing the Healthcare System

November 21, 2013 Leave a comment

President Obama now finds himself in the kind of mess that central planning creates. The web site fiasco is just the beginning of the problems that result when politicians try to micromanage a complex healthcare sector. The President is now playing “whack-a-mole” as he attempts to fix the problems caused by the Affordable Care Act but each “fix” creates another problem. For example, health insurance prices may need to be adjusted upward if people are permitted to keep their existing insurance policies resulting in riskier individuals buying insurance in the exchanges. As argued in a recent paper, true reform of the healthcare system requires changing laws at the federal, state, and possibly local levels to permit markets to function as they do elsewhere in the economy.

John Cochrane is an economist at the University of Chicago who has written an article (see After the Affordable Care Actdiscussing how difficult, but desirable, it would be to reform our healthcare system. Here is a summary of his main point (see page 2) regarding the absence of well-functioning healthcare markets.

Such markets do not emerge, not because of deep-seated market failures, but because our current web of health care regulation forbid them from doing so. But deregulation is not easy. The impediments to well-functioning health care and insurance markets go deep in to federal, state and local law, regulation, and practice. And the pieces are linked: Greater competition, innovation and entry by suppliers, greater control by consumers, and insurance innovations that cure the current mess each need the others in order to function.

Clearly he argues that government policy prevents the formation of markets. As an example, I pointed out in an earlier post that Medicare prevents advertising of prices which is a feature of any competitive market system. So one must conclude that true reform is difficult to carry out, no matter how desirable, because so many government policies need to be changed.

This paper is a highly-recommended read and is nontechnical in nature so it is appropriate to non-economists wanting an economist’s views on this subject.

Accountability in Government

November 6, 2013 Leave a comment

I find it infuriating to hear Kathleen Sebelius and the President talk about being accountable for the Obamacare web site fiasco. The fact is neither one is accountable for this disaster.

Accountability requires that something bad must happen to an employee who is incompetent. That unpleasant event is usually being fired for nonperformance. As far as I know, Kathleen Sebelius did not get demoted, she did not take a pay cut, and she did not get fired. If Sebelius wasn’t fired, that must mean she is doing her job well and that job must not include creating a usable web site for Obamacare. Imagine that this fiasco happened to Amazon or Google. People would have been fired on day one. As far as I know, nobody experienced any damage to their careers as a result of this web site mess. Thus one can only conclude that there is no accountability at all but, to the politicians making the mess, it sure seems like a good talking point to pretend that they are accountable.

This seems to be the standard operating procedure for the Obama Administration. They talk but they don’t act. Maybe somebody should tell the President that we expect him to act. Want to know why government is so incompetent? Lack of accountability is part of the answer.

Categories: Obamacare

Enforcing Obamacare Fines

October 31, 2013 Leave a comment

Some time ago, I read a claim that it was quite easy to evade the Obamacare fines. I stumbled upon a news article (read it here) that confirms this claim. To avoid the fines, just make sure that you don’t get a refund from the IRS.

It appears that Obamacare instructs the IRS to deduct fines from any refunds owed to taxpayers. If there is no refund, then what? Well it appears that the IRS will just carry over the bill until the next tax return is filed, collecting the fine at that time. But if there is never a refund, the only recourse is for the IRS to ask the Department of Justice to sue taxpayers for the fines. Think about this. How entertaining would it be to see high-priced U.S. attorneys trooping into what amounts to a small claims court trying to get taxpayers to pay a $95 fine? This would be hilarious to see. I think I’d pay money to see this show!

Obviously this enforcement scheme has no teeth. Why would politicians do this? The only answer that I can imagine is that, after deceiving taxpayers by promising  that the IRS would not be involved with Obamacare and because of the lack of public support for this so-called health care reform, Democratic politicians probably tried to avoid making taxpayers any more hostile to the law than they already were. The result may be that the whole Obamacare system collapses when people ignore the fines and only buy insurance when they are sick. Ironically, if this happens, there may be more people without insurance than there were before Obamacare was passed.

Obamacare really is the gift that keeps on giving. If there was ever a program illustrating the profound incompetence of politicians, this is it. I hope that this lesson is not lost on the public and never forgotten.

Economics One

A blog by John B. Taylor

The Grumpy Economist

One economist's views on economic policy.

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