Costs of unemployment

Simon Wren-Lewis:

…the long term unemployed typically do not think that at least they have more leisure time, so they are not so badly off. Instead they feel rejected, inadequate, despairing, and it scars them for life. Now that may not be in the microfounded models, but that does not make these feelings disappear, and certainly does not mean they should be ignored. It is for this reason that I have always had mixed feelings about representative agent models that measure the costs of recessions and inflation in terms of the agent’s utility.

Models should inform our interpretation of the evidence, but they are rarely complete descriptions of all relevant information.

Should student loans be bigger?

I share Holly Walker’s concern about the plight of post-graduate students. She is disturbed by a new survey showing that

[post-graduate students] committed to finishing their study highlight[ed] concerns about being able to provide basic needs for themselves without access to the [recently cut student] allowance, such as food and shelter.

As Matt has discussed previously, it is hugely unfair that students do not enjoy the same safety net as the rest of society when they struggle to find employment during their studies. If they are making a genuine effort to find part-time work during their studies, they should have access to a benefit or allowance, just as anyone else does.

The more important question is whether they should be supported through their studies even if they choose not to engage in part-time work. In that case I don’t see a convincing rationale for providing free support to students. They are voluntarily investing in their human capital in anticipation of better opportunities for themselves in future. As we have discussed previously

[t]hree years after completing their degree, a bachelor’s graduate will earn 51% more than someone with only secondary qualifications. Someone with a master’s degree will earn 74% more and a doctoral graduate 120% more.

It makes sense that a person would invest in education to take advantage of those wage increases, along with all the other benefits of a tertiary education. However, it is hard to justify forcing the rest of the population to pay for their personal investment that they benefit from so greatly. Nursing school scholarships may be a good alternative for those wishing to save a bit.

Nonetheless, some people find it hard to raise the money to attend university, despite the likelihood of higher future earnings. That is why we have a student loan scheme. If students are finding it difficult to pay their way during post-graduate study then it probably means that they are unable to borrow enough during their studies. That is because student borrowing is extremely expensive for the government, so the government limits its liability and costs by capping the level of borrowing. A simple solution would be to re-introduce interest on student loans, since the interest comprises the majority of the government’s cost of lending. That would allow the government to lend out more money to students at a lower cost.

Through that change we could allow students to live more comfortably during their studies, and ensure that the transfers to those, relatively wealthy, individuals do not become inequitably large.

How lazy are public sector workers?

Stuff has the data:

Figures from the State Services Commission show government employees took an average of 7.6 sick days in 2012.

No official figures are kept for private sector sick leave, but an Employers and Manufacturers Association survey suggests the average could be as low as 3.7 days a year.

The discrepancy of nearly four days between public and private sector workers could be explained by a more relaxed public “workplace culture”, [Association employment services manager David Lowe said] said.

“There is an impression that the workplace culture in the public sector might not be as focused as in the private sector.”

So there is no comprehensive data on the private sector, which means that the numbers may well be incomparable, depending on the composition of the sample and nature of the survey. Even if we believe the difference is significant, there could be lots of reasons for it. It may be that public sector jobs are more dangerous, or just more stressful, which causes more sick days. It may be that the intense restructuring and job losses in the public sector have caused people to become disengaged with their organisation and take more sick days. It could be that private sector employees are paid more and public sector employees are compensated slightly with the perk of more lenient treatment of sick days.

There are plenty more reasons for the possible difference, but there’s no way that we can discern anything about the laziness of public sector workers from these numbers alone. Not without a healthy shot of prejudice, anyway.

Why don’t we work fewer hours?

Posner hilariously skewers Skidelsky:

They have collaborated on a book arguing that people in wealthy countries like Britain and the United States work too hard and by doing so miss out on the “good life” — an ethical concept of a life as “worthy of desire, not just one that is widely desired.”

If you ask someone to work half as long for half the pay, you should have …answers to his question: What shall I do with my new leisure?

It’s definitely worth reading the whole thing. A small quibble: I agree with the general thrust of Posner’s argument, but do we really work because we can’t think of anything to do with our leisure time?!

Unintended consequences

I once read a great quote that I can no longer find. The gist was that there is no such thing as an unintended consequence, only a consequence you failed to understand. Economists, with a methodology centred on individual actions in response to incentives, are pretty good at picking the consequences of policies. That’s sometimes hard to persuade people of so it’s important to savour good examples like this when they come around:

Performance assessments are an important aspect of a healthy company. In order to maintain fighting weight, an organisation must honestly assay its employees’ contributions and cull the dead wood. … But Microsoft’s implementation plunged the company into internecine fights, horse trading, and backstabbing.

…every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor…For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings.

Employees quickly realised that it was more important to focus on organisation politics than actual performance.

In their pursuit of effective performance measurement Microsoft clearly forgot the effect that the act of measurement has upon employees.