Monday, 23 April 2018

Why are social workers like sex workers?

I guess there is more than one answer to the question in the title of this post, but the one I have in mind is that both social workers and sex workers have been in the news in the last few days because of fairly transparent attempts to increase (or rather, maintain) their market power. Market power exists when a seller (or sometimes a buyer) has the ability to effect the market price (in the case of workers, this is their wages). For a seller, this allows them to charge a price that is above their costs, and make a profit.

There are many ways that sellers can gain market power. However, two of the most effective ways are: (1) by limiting the ability of their competitors to compete effectively; or (2) by restricting the ability of potential competitors to enter the market and compete with them. In both cases, because buyers/customers/clients have less choice, the seller can raise their price above their costs (which they would find more difficult if there was more competition in their market). In the case of social workers and sex workers, both have been advocating for restricting the entry of potential competitors into their markets in the last few days.

First, on social workers, Emanuel Stoakes (advocacy and communications co-ordinator for the Aotearoa New Zealand Association of Social Workers) wrote in the New Zealand Herald today:
The social work profession in Aotearoa New Zealand is at a turning point. A crucial decision is about to be made that could have long-term implications for social workers across the country.
The threat is a section of the Social Work Registration Legislation Bill which is before Parliament's social services select committee. If the bill remains as it is, it could mean up to 50 per cent of currently registered social workers and practitioners with a social work qualification in roles not described using the words "social worker" will not be required to be registered, meaning they can operate without any accountability.
Occupational licensing is one way that workers can obtain market power. Sometimes, occupational licences make sense, such as when customer safety is at stake. In other cases, occupational licences make less sense. Either way though, the result is a decrease in competition for licensed practitioners from the unlicensed hordes that might compete with them, and a consequent increase in their market power. You might agree with Stoakes that social workers (or anyone doing social work even though their job title is not 'social worker') should be licensed. That's fair enough. But it doesn't mean that the licensing regime wouldn't exclude at least some potential workers who could do a quality job (such as those with social work qualifications from countries, where the degree is not 'recognised' in New Zealand). And excluding those unlicensed 'competitors' raises the market power of social workers.

What about sex workers? They are much more direct about the effects of competition on their earnings, as noted in this article in yesterday's New Zealand Herald:
New Zealand sex workers are furious that foreign prostitutes who come on temporary visas can advertise their services here despite it being illegal for them to work.
High profile escort Lisa Lewis is one of several who have taken their complaints to Immigration New Zealand (INZ) and the Minister of Immigration Iain Lees-Galloway - calling for a harsher stance against migrant sex workers...
She wants INZ to shift its focus from just deporting migrant sex workers to punish those that profit from helping the promotion of these illegal sex workers.
Lewis said the increase in number of foreign prostitutes coming over has hit local sex workers in the pocket.
"Many of the girls no longer meet the same quota as they did a few years ago," she said...
Another sex worker, who spoke to the Herald on the condition of anonymity, said her income had halved from about $12,000 weekly to about $6000 in the last two years...
"We can't compete with the type of services they offer, and besides it is illegal for us to do so," she said.
"But the fact is, every dollar that these migrant prostitutes make is a dollar taken from the back pockets of New Zealand working girls."
The laws restricting foreign sex workers from operating in New Zealand are there for good reason - to prevent cross-border human trafficking into New Zealand. However, if effective (which it seems they are not completely) they have the effect of reducing competition and giving domestic sex workers additional market power.

Both social workers and sex workers have been advocating for greater market power. However, isn't it interesting that only the sex workers are open about it?

Saturday, 21 April 2018

If you're not already studying towards a double major, you should be

For a long time, I've been of the view that for most students, a double major is a better option than a single major. This is for two main reasons. First, it opens more options in terms of employment, especially if the two majors are not strongly overlapping (so accounting and economics, to me, is a better combination than finance and economics). Second, it allows a student to go deep into both disciplines, whereas a single major plus a bunch of disparate electives or a single major alone does not. In the latter case (a single major alone, with minimal electives) may allow extra depth in that discipline, but in many cases there may not be enough course options to only choose a single major (as is the case at Waikato now, where we have substantially curtailed the number of paper options in each major).

Anyway, aside from my own views, is there evidence to support the contention that a double major is better? Yes, there is. A 2008 paper by Alison Del Rossi (St. Lawrence University) and Joni Hersch (Vanderbilt University), published in the journal Economics of Education Review (sorry I don't see an ungated version online), uses data from 66,825 U.S. students in 2003 to answer the question.  They first grouped majors into five groups:
...arts/social science, which includes arts, humanities, social science and other majors; business, which includes economics; education; engineering; and science/math, which includes math, computer science, and science majors.
Then they looked at earnings for single majors, double majors where both majors were in the same group, and double majors where each major was in a different group. Here's what they found:
In the full sample, the results indicate that having a double major significantly increases earnings, with earnings 1.4% higher than for those without a double major. However... the premium for a double major is limited to those whose highest degree is a bachelor’s degree, with a premium of 2.3%. Even though the rate of double majoring is higher among those who achieve graduate degrees, having a double undergraduate major does not increase earnings controlling for level and/or field of the post-bachelor’s degree. The most likely reason is that the highest degree has the primary influence on earnings.
So, a double major is worthwhile (in terms of higher earnings), unless you go on to get a graduate degree (e.g. a Master's degree). Interestingly:
...having an additional bachelor’s degree has no significant effect on earnings, but the returns to graduate degrees are substantial with MBAs and professional degrees having the greatest impact on earnings.
So, in our context, a conjoint degree might not be so worthwhile (as well as those students having a lower odds of completing their double degree). Coming back to majors though, the choice of single major matters:
...majoring in engineering produces the highest return for those with a single major, with a return of about 33%. For those with a bachelor’s degree only, having only one major in business has the next highest return for a single major, 17% higher than a single arts/social science major.
Remember that economics is a business major in this research. And for double majors:
...having two business majors provides returns that are 10 percentage points higher than returns to a single major in business, while those with two education majors have returns that are 5 percentage points higher than those who have a single education major. Aside from those two cases, graduating with one or two majors within the same general area yields about the same relative returns. Notably, having two engineering majors or two science/math majors has no increased return relative to having a single engineering or single science/math major...
The combination of business and science/math has a higher return than either major individually, 10–16 percentage points higher than having a single business major and 11–12 percentage points higher than having a single science/math major for the two subsamples, respectively.
That seems to bode well for students doing economics as part of a double major in a business degree, or combining economics with science or maths. Interestingly, they find similar results for both genders, although:
...females have higher returns than males to engineering and science/math majors, for single majors and most double major combinations including those fields.
Although the U.S. setting is different from New Zealand, Del Rossi and Hersch's paper does provide some suggestive evidence that doing a double major is worthwhile. I may be biased, but I would add that having economics as one of those majors would be an advantage.

Friday, 20 April 2018

Why we should care about the gender gap in economics

In a post I wrote last year, I was challenged a little in the comments as to why I thought the gender gap in economics needed to be narrowed. My (weak) response was that we lose something by being out of balance. What we lose of course is diversity of opinion, to the extent that that women and men (or more specifically, male and female economics) have different views about economic theory and/or policy, and/or different interpretations of the research evidence.

I just finished reading a 2014 article by Ann Mari May, Mary McGarvey (both University of Nebraska - Lincoln), and Robert Whaples (Wake Forest University), published in the journal Contemporary Economic Policy (ungated version here). In the article, the authors report on a survey of 143 randomly selected members of the American Economic Association, the largest such association in the world. They essentially asked each survey participant about the extent to which they agreed with a number of statements, which were grouped into five categories:
The first group of questions relate to core principles in economics and economic methodology. The second through fourth groups examine views on market solutions and government intervention, government spending, taxing, and redistribution, and the environment. The fifth group of questions asks specifically about equal opportunity in society and gender equality in the economics profession.
Their findings demonstrate just how much diversity of opinion there is between male and female economists:
Male and female members of the AEA with doctoral degrees from U.S. institutions appear to agree on core precepts and economic methodology, whereas female economists tend to favor government-backed redistribution policies more than males, view gender inequality as a problem in the U.S. labor market and economics profession more than males, and favor government intervention over market solutions more than their male counterparts... The mean views of women economists on government spending, taxing, and redistribution and on gender inequality are both approximately one standard deviation away from the mean opinion of male economists. Although the divergence in magnitudes of the GLS and OLS estimated gender difference in opinion on U.S. environmental policies is not large, the GLS estimate is statistically significant. The mean response of female economists is about .45 standard deviations greater than the mean male response, indicating that women tend to favor an increase in U.S. environmental protection more than men...
The results of our survey of male and female economists show that the area of largest disagreement between men and women lies in views on equal opportunity. These differences reveal themselves not only in views of gender equality in the economics profession, but in society in general. Large disparities in average responses between male and female economists emerge in response to the statement, “Job opportunities for men and women in the United States are currently approximately equal.” The estimation results show the mean response of female economists is one point (a full standard deviation) lower than that of male economists after controlling for degree vintage and employment type. 
May et al. even tell you why their results are important:
First, these results suggest that it is crucial to include both women and men economists at the table when forming policy to ensure that a variety of professional perspectives are included in the discussion. If demographic differences, such as sex, shape our views of policy-related questions, it may be important that women be included on boards and in policy-making circles at all levels of decision making...
Second, the gender gap in economists’ views may provide a possible explanation why women are underrepresented in economics as faculty in the leading research institutions. If women hold views that shape their perspectives on research issues and inform their thinking on policy conclusions that are at odds with the perspectives of their male counterparts in areas that are at the heart of a discipline, this may affect hiring and promotion decisions in ways that disadvantage women...
Finally, differences in views on economic policy between similarly trained men and women may also influence classroom materials and discussion and ultimately the worldview of students in these classes.
There's a lot more detail in the paper, including some fascinating differences in response to the individual questions. I encourage you all to read it.

Wednesday, 18 April 2018

Compensating differentials, preferences, and the gender gap in wages

Consider two jobs. Job A involves working long hours at unsociable hours of the day, and in areas that are unpleasant or unsafe to visit. Job B involves shorter and more flexible working hours, and working in areas that are safer and more pleasant. Which job would have the higher pay, if all other characteristics and job requirements (other than those I mentioned above) were the same? If you answered Job A, then you're probably right. Job A would pay a higher wage, and the difference in wages between Job A and Job B is what economists refer to as a compensating differential. Essentially, the workers are compensated for the negative non-monetary characteristics of the job through a higher wage.

Now consider two groups of workers. For a given compensating differential (a given difference in the pay between Job A and Job B) Type X workers are more likely to choose Job B. In contrast, Type Y workers are more likely to choose Job A. Type Y workers would earn more than Type X workers on average, but more Type Y than Type X workers would also have to put up with the negative characteristics of Job A. Would you argue that the wages need to be modified in order to ensure that both groups of workers earned the same wage? Maybe you would, but remember that it is the compensating differential that makes Job A worthwhile, and reducing (or eliminating) the compensating differential will increase competition for Job B. So, maybe that's not such a good idea after all.

Now what if I said that Type Y workers were men, and Type X workers were women. Would that change your answer?

That thought experiment is important. The gender wage gap is real, but it isn't all a story about discrimination. Some of it is, no doubt, but some of the gender wage gap may be due to differences in preferences for job characteristics, and only one of those characteristics is the wage. How much of the gender wage gap is due to differences in preferences between men and women? It turns out that is quite a difficult question to answer, but a recent paper by Cody Cook (Uber), Rebecca Diamond (Stanford), Jonathon Hall (Uber), John List (University of Chicago) and Paul Oyer (Stanford) provides some interesting insights. They use data from Uber, and the great thing about their data is that there is no role for discrimination because, as they put it:
Uber set its driver fares and fees through a simple, publicly available formula, which is invariant between drivers. Further, similar to many parts of the larger gig economy, on Uber there is no negotiation of earnings, earnings are not directly tied to tenure or hours worked per week, and we can demonstrate that customer-side discrimination is not materially important. These job attributes explicitly rule out the possibility of a "job-flexibility penalty".
At the national level, they find a gender pay gap of around 7% when looking at hourly earnings of Uber drivers. However, in decomposing the gender wage gap, they focus on data from Chicago (although they note that their results are not sensitive to the choice of city, and in the appendix they present similar looking results for Boston, Detroit, and Houston). Their data on Chicago drivers includes 120,223 drivers (just over 30% female), and about 33 million driver-hours of observations. They find that:
We can explain the entire gap with three factors. First, through the logic of compensating differentials, hourly earnings on Uber vary predictably by location and time of week, and men tend to drive in more lucrative locations. The second factor is work experience. Even in the relatively simple production of a passenger’s ride, past experience is valuable for drivers. A driver with more than 2,500 lifetime trips completed earns 14% more per hour than a driver who has completed fewer than 100 trips in her time on the platform, in part because she learn where to drive, when to drive, and how to strategically cancel and accept trips. Male drivers accumulate more experience than women by driving more each week and being less likely to stop driving with Uber. Because of these returns to experience and because the typical male Uber driver has more experience than the typical female—putting them higher on the learning curve—men earn more money per hour.
The residual gender earnings gap that persists after controlling for these two factors can be explained by a single variable: average driving speed. Increasing speed increases expected driver earnings in almost all Uber settings. Drivers are paid according to the distance and time they travel on trip and, in the vast majority of cases, the loss of per-minute pay when driving quickly is outweighed by the value of completing a trip quickly to start the next trip sooner and accumulate more per-mile pay (across all trips). We show that men’s higher driving speed is due to preference as drivers appear insensitive to the incentive to drive faster. Men’s higher average speed and the productive value of speed for Uber and the drivers (and, presumably, the passengers) enlarges the pay gap in this labor market.
We interpret these determinants of the gender pay gap—a propensity to gain more experience, choice of different locations, and higher speed—as preference-based characteristics that are correlated with gender and make drivers more productive...
First, driving speed alone can explain nearly half of the gender pay gap. Second, over a third of the gap can be explained by returns to experience, a factor which is often almost impossible to evaluate in other contexts that lack high frequency data on pay, labor supply, and output. The remaining ~20% of the gender pay gap can be explained by choices over where to drive. 
In other words, in a setting where discrimination is unlikely or impossible, the gender wage gap is entirely explained by differences between men and women in experience (about one third) and preferences (about two-thirds). Preferences turn out to be a really important component of the gender wage gap. It does leave open the question of how much of the gender wage gap in other occupations (where discrimination is possible) is due to discrimination, but we can be sure that it isn't anywhere near all of the gap. The results in terms of work experience are not gender neutral though, as men will build their job experience faster if they work more hours (and they do).

The gender wage gap is real, but we need to be careful before we pronounce it as definitive evidence of sexism (such as here).

[HT: Marginal Revolution, and then Offsetting Behaviour]