Matt Nolan

Labour market improving rapidly. But still weak.

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Yes the labour market is recovering incredibly rapidly.  Yes the labour market is still weak.  This illustrates it:

In the same vein the Reserve Bank is right that it should lift rates.  But should still keep them in stimulatory territory at present.  How long it should stay there is an issue for debate – and one where I am sure a lot of different people and economists will disagree 😉

The labour market data is strong than expected, but it is a very backwards looking indicator.  It appears that workers have been willing to take lower wages to get back in the labour market – moving us down the demand curve and helping reduce the “surplus of labour” (see the QES and LCI for the wage data).  As a result, growth may still be moderate going forward even off the back of this.

I’d take this as a sign that our labour market is more dynamic, robust, and flexible than I’d previously realised.  That is good.  But it doesn’t mean the NZ economy is on the verge of taking off.

Update:  Kiwiblog discusses here.  A lot of good points are raised in the post definitely worth a look.  However the December to March comparisons are a little bit misleading IMO.  Why?  Two reasons:

  1. Well the September to December 09 increase was substantial and unexpected – there is some feeling that this increase “overstated” the real weakness in the labour market.  As a result, comparing December to March may, in some sense, overstates the improvement in labour market conditions.
  2. Seasonal patterns can break during recessions, and the movements in the SA numbers in December and March are a good example of how this may occur methinks.
Matt Nolan

TVHE bleg: Good history books

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Hi everyone,

We haven’t done a bleg in a while – so I think its time to bring up a new one.  I’m wondering what good history books are out there.  They can be about any period in history, focused on any part or portion of a historical incidence, the key is that they provide a good descriptive discussion of whatever it is.

goonix

A novel solution to the student loan ‘problem’

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In the 2005 election the Labour Government found itself in a very tight battle to retain power. In order to mobilise the student vote, Labour promised interest free student loans. The bribe assisted Labour in returning to Government for their third consecutive term.

At the time National called the interest free loan scheme “irresponsible”. Since coming to power in 2008, however, they have maintained the policy, presumably for similarly cynical political reasons as led to the policy being introduced in the first instance.

As a result of the policy, students have been encouraged to borrow more and pay back less. Debt has ballooned. There are obviously other factors to take into account, such as increasing student numbers during the economic downturn. Nonetheless, it is clear that when given the option of borrowing interest free money, those with student loans have limited incentive to pay anymore than the minimum from their loan, for which they might as well borrow the maximum.

What is National’s response to the perceived student loan problem? The introduction of a $50 administrative fee that student loan borrowers must pay annually. Note that National have also provided an incentive for students to voluntarily pay back their loans through a 10% discount on their loans.

I propose a rather simpler solution. Abolish the half measures currently in place and start charging interest on student loans again. Only then will the correct incentives be instilled.

Will Taylor

Binge Drinking and Risky Sex among College Students

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Hot off the press from NBER, I was particularily interested in one of the main conclusions from the abstract:

Results from a rudimentary instrumental variables strategy and accounting for whether sex is immediately preceded by alcohol use suggest that binge drinking directly leads to risky sex. Some binge drinking-induced promiscuity seems to occur among students, especially males, involved in long-term relationships

I could have told you that without doing any econometrics!

Note: I have read nothing but the abstract so can’t comment on the actual econometrics carried out!

Matt Nolan

A note on delaying the ETS

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Over at Kiwiblog and at the Herald, the idea of delaying the implementation of the ETS is raised.

No matter what Aussie is doing, we shouldn’t do this.  Why?  Delaying the ETS doesn’t delay our Kyoto liability – it just means that we will have higher taxes to pay for the pollution caused in industries that produce pollution.  The point of the ETS is to:

  1. Raise the funds to pay our Kyoto liability,
  2. Set the relative price of carbon production such that it incorporates the full social costs incurred (in this case, this is because we have a liability overseas – so the truth of “global warming” is irrelevant).

So although it might upset some businesses if we don’t delay implementation (in the same way it would upset anyone if you taxed them or took a subsidy off them), we have to look at the other side as well – delaying implementation implies higher income taxes.  Lets not ignore this.

Matt Nolan

Universal healthcare and superannuation, and the cost of thinking ahead

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If doing actions that reward a future self is perceived as costly could we justify these actions.  If thinking about our wealth, human capital, or ability to live in 10 years time is inconceivable, will me over consume now?

In essence this sort of discussion is saying that we discount our future selves TOO steeply (compared to whatever the underlying presumption of a “fair discount factor” is).  Is this a fair value judgment to make in policy?  It is not one I would make, but it appears to be the basis of some overaching policies such as universal healthcare and superannuation.

In this case, we don’t need to worry about a “moral hazard problem” even though (empirically) the actions of moral hazard will appear.  Why?  Because the actors aren’t thinking about the future selves and so these “inefficient” outcomes would have occurred in the first place!  Policy helps to correct this by transfering resources to our future selves to improve outcomes relative to the REAL counterfactual (rather than the idealized one where agents choose on the basis of our subjectively fair discount rate).

I think it is important to keep this issue in mind, because it is a closet behavioural assumption behind most policy.  If we buy this value judgment, then we will believe in a larger role for government then if we didn’t.