Labor Economics – Page 97 – artdiamondblog.com

“An Image Was Worth a 1,000 Statistical Tables”

Artistic vision of germ-laden hand. (This is not the photographic image mentioned below, and used as a hospital screen-saver.) Source of image: online version of the NYT article cited below.

(p. 22) Leon Bender noticed something interesting: passengers who went ashore weren’t allowed to reboard the ship until they had some Purell squirted on their hands. The crew even dispensed Purell to passengers lined up at the buffet tables. Was it possible, Bender wondered, that a cruise ship was more diligent about killing germs than his own hospital?

Cedars-Sinai Medical Center, where Bender has been practicing for 37 years, is in fact an excellent hospital. But even excellent hospitals often pass along bacterial infections, thereby sickening or even killing the very people they aim to heal. In its 2000 report “To Err Is Human,” the Institute of Medicine estimated that anywhere from 44,000 to 98,000 Americans die each year because of hospital errors — more deaths than from either motor-vehicle crashes or breast cancer — and that one of the leading errors was the spread of bacterial infections.

. . .

. . . the hospital needed to devise some kind of incentive scheme that would increase compliance without alienating its doctors. In the beginning, the administrators gently cajoled the doctors with e-mail, (p. 23) faxes and posters. But none of that seemed to work. (The hospital had enlisted a crew of nurses to surreptitiously report on the staff’s hand-washing.) “Then we started a campaign that really took the word to the physicians where they live, which is on the wards,” Silka recalls. “And, most importantly, in the physicians’ parking lot, which in L.A. is a big deal.”

For the next six weeks, Silka and roughly a dozen other senior personnel manned the parking-lot entrance, handing out bottles of Purell to the arriving doctors. They started a Hand Hygiene Safety Posse that roamed the wards and let it be known that this posse preferred using carrots to sticks: rather than searching for doctors who weren’t compliant, they’d try to “catch” a doctor who was washing up, giving him a $10 Starbucks card as reward. You might think that the highest earners in a hospital wouldn’t much care about a $10 incentive — “but none of them turned down the card,” Silka says.

When the nurse spies reported back the latest data, it was clear that the hospital’s efforts were working — but not nearly enough. Compliance had risen to about 80 percent from 65 percent, but the Joint Commission required 90 percent compliance.

These results were delivered to the hospital’s leadership by Rekha Murthy, the hospital’s epidemiologist, during a meeting of the Chief of Staff Advisory Committee. The committee’s roughly 20 members, mostly top doctors, were openly discouraged by Murthy’s report. Then, after they finished their lunch, Murthy handed each of them an agar plate — a sterile petri dish loaded with a spongy layer of agar. “I would love to culture your hand,” she told them.

They pressed their palms into the plates, and Murthy sent them to the lab to be cultured and photographed. The resulting images, Silka says, “were disgusting and striking, with gobs of colonies of bacteria.”

The administration then decided to harness the power of such a disgusting image. One photograph was made into a screen saver that haunted every computer in Cedars-Sinai. Whatever reasons the doctors may have had for not complying in the past, they vanished in the face of such vivid evidence. “With people who have been in practice 25 or 30 or 40 years, it’s hard to change their behavior,” Leon Bender says. “But when you present them with good data, they change their behavior very rapidly.” Some forms of data, of course, are more compelling than others, and in this case an image was worth 1,000 statistical tables. Hand-hygiene compliance shot up to nearly 100 percent and, according to the hospital, it has pretty much remained there ever since.

For the full commentary, see:

STEPHEN J. DUBNER and STEVEN D. LEVITT. "FREAKONOMICS; Selling Soap." The New York Times Magazine (Section 6) (Sunday, September 24, 2006): 22-23.

(Note: ellipses added.)

The screen-saver at Cedars Sinai Hospital. Source of image: http://freakonomics.com/pdf/CedarsSinaiScreenSaver.jpg

Life Is Better, But Could Be Better Still

November 9, 1952 NYT ad announcing the introduction of the snowblower. Source of image: online version of the NYT article cited below.

(p. C1) When the first snow falls on the North Shore of Chicago this winter, Robert Gordon will take his Toro snow blower out of the garage and think about how lucky he is not to be using a shovel. Mr. Gordon is 66 years old and evidently quite healthy, but his doctor has told him that he should never clear his driveway with his own hands. “People can die from shoveling snow,” Mr. Gordon said. “I bet a lot of lives have been saved by snow blowers.”

If so, most of them have been saved in the last few decades. A Canadian teenager named Arthur Sicard came up with the idea for the snow blower in the late 1800’s, while watching the blades on a piece of farm equipment, but he didn’t sell any until 1927. For the next 30 years or so, snow blowers were hulking machines typically bought by cities and schools. Only recently have they become a suburban staple.

Yet the benefits of the snow blower, namely more free time and less health risk, are largely missing from the government’s attempts to determine Americans’ economic well-being. The same goes for dozens of other inventions, be they air-conditioners, cellphones or medical devices. The reasons are a little technical — they involve the measurement of inflation — but they’re important to understand, because the implications are so large.

. . .

(p. C10) In the early 1950’s, Toro began selling mass-market snow blowers, which weighed up to 500 pounds and cost at least $150. As far as the Bureau of the Labor Statistics was concerned, however, snow blowers did not exist until 1978. That was the year when the machines began to be counted in the Consumer Price Index, the source of the official inflation rate. By then, the cheapest model sold for about $100.

In practical terms, this was an enormous price decline compared with the 1950’s, because incomes had risen enormously over this period. Yet the price index completely missed it and, by doing so, overstated inflation. It counted the rising cost of cars and groceries but not the falling cost of snow blowers.

. . .

Mr. Gordon, besides being a fan of snow blowers, also happens to be one of the country’s leading macroeconomists. A decade ago he served on a government-appointed group known as the Boskin Commission. It argued, as Mr. Gordon still does, that the government exaggerated inflation by more than one percentage point every year.

. . .

. . . Mr. Gordon’s adjustments show that men actually got a 27 percent raise in this period and women 65 percent. The gains are not as big as those of the 1950’s and 60’s, but they do sound far more realistic than the official numbers. Think about it: we live longer than people did in the 1970’s, we’re healthier while alive, we graduate from college in much greater numbers, we’re surrounded by new gadgets and we live in bigger houses. Is it really plausible, as some Democrats claim, that the middle class has made only marginal progress?

For the full commentary, see:

DAVID LEONHARDT. "Economix; Life Is Better; It Isn’t Better. Which Is It?" The New York Times (Weds., September 20, 2006): C1 & C10.

(Note: ellipsis added.)

Source of graphic: online version of the NYT article cited above.

Wal-Mart Really Does Benefit Consumers by Lowering Prices

Scholarly studies show Wal-Mart’s price reductions to be sizable. Economist Emek Basker of the University of Missouri found long-term reductions of 7 to 13 percent on items such as toothpaste, shampoo and detergent. Other companies are forced to reduce their prices. On food, Wal-Mart produces consumer savings that average 20 percent, estimate Jerry Hausman of the Massachusetts Institute of Technology and Ephraim Leibtag of the Agriculture Department.

All told, these cuts have significantly raised living standards. How much is unclear. A study by the economic consulting firm Global Insight found that from 1985 to 2004, Wal-Mart’s expansion lowered the consumer price index by a cumulative 3.1 percent from what it would have been. That produced savings of $263 billion in 2004, equal to $2,329 for each U.S. household. Because Wal-Mart financed this study, its results have been criticized as too high. But even if price savings are only half as much ($132 billion and $1,165 per household), they’d dwarf the benefits of all but the biggest government programs.

For the full commentary, see:

Robert J. Samuelson. "Wal-Mart as Red Herring." The Washington Post (Wednesday, August 30, 2006): A19.

Daley Shows Chicago is Still the “City of the Outstuck Neck”

I think it was the poet Gwendolyn Brooks who once described Chicago as the "city of the out-stuck neck." Chicago’s current Mayor Daley did himself and the city proud recently when he had the guts to stick his neck out by vetoing the proposed Chicago minimum wage. He deserves a salute from Chicago’s consumers and poor. Democrat Daley is the mayor of the out-stuck neck.

Chicago Mayor Richard M. Daley used the first veto of his 17-year tenure to reject a living-wage ordinance aimed at forcing big retailers to pay wages of $10 an hour and health benefits equivalent to $3 an hour by 2010.

The veto is important to Wal-Mart Stores Inc., which plans to open its first store in Chicago late this month in the economically depressed 37th ward.

. . .

In vetoing the ordinance, Mayor Daley cited a potential loss of jobs. In recent weeks, several big retailers had written to his office to oppose the ordinance. "I understand and share a desire to ensure that everyone who works in the city of Chicago earns a decent wage," the mayor wrote to the aldermen yesterday. "But I do not believe that this ordinance, well intentioned as it may be, would achieve that end. Rather, I believe that it would drive jobs and business from our city."

For the full story, see:

KRIS HUDSON. "Chicago’s Daley Vetoes Bill Aimed At Big Retailers." Wall Street Journal (Thurs., September 12, 2006): A4.

(Note: I can’t find the exact source of the out-stuck neck quote, but one reference on the web is: http://starbulletin.com/97/05/22/sports/fitzgerald.html )

Added Evidence for Weidenbaum’s ‘Birth Dearth’

Source of book image: http://www.aei.org/books/bookID.497,filter.all/book_detail.asp

Ben Wattenberg had already been predicting a world population decline for years, when he published The Birth Dearth in 1987. Back then, scepticism was widespread. Governments and philanthropists spent billions promoting birth control to restrain population growth. Many were still convinced of the wisdom of Isaac Ehrlich, darling of the environmentalist enemies of economic growth, who had predicted disaster in his Population Bomb.

(Note that the plausibility of many environmentalist disaster scenerios is based on the assumption of continuous population growth.)

The current decline in birth rates is not a total puzzle. Nobel-prize winner Gary Becker long-ago claimed that quality of children is what economists call a ‘normal’ good, which means that families invest more in quality as their incomes rise. As families invest more in quality, they invest less in quantity.

Whatever the reasons, the evidence continues to accumulate that Wattenberg was right:

After a long decline, birthrates in European countries have reached a historic low, as potential parents increasingly opt for few or no children. European women, better educated and integrated into the labor market than ever before, say there is no time for motherhood and that children are too expensive anyway.

The result is a continent of lopsided societies where the number of elderly increasingly exceeds the number of young — a demographic pattern that is straining pension plans and depleting the work force in many countries.

For the full story, see:

ELISABETH ROSENTHAL. "European Union’s Plunging Birthrates Spread Eastward." The New York Times (Mon., September 4, 2006): A3.

Source of graphic: online version of the NYT article cited above.

Welfare Reform Increases Number Employed

Source of graphic: online version of the NYT article cited below.

WASHINGTON, Aug. 20 — Ten years after a Republican Congress collaborated with a Democratic president to overhaul the nation’s welfare system, the implications are still rippling through policy and politics.

The law, which reversed six decades of social welfare policy and ended the idea of free cash handouts for the poor, was widely seen as a victory for conservative ideas. When it was passed, some opponents offered dire predictions that the law would make things worse for the poor. But the number of people on welfare has plunged to 4.4 million, down 60 percent. Employment of single mothers is up. Child support collections have nearly doubled.

“We have been vindicated by the results,” said Representative E. Clay Shaw Jr., Republican of Florida and an architect of the 1996 law who was vilified at the time. “Welfare reform was one of the most successful policy changes in our nation’s history.”

For the full story, see:

ROBERT PEAR and ERIK ECKHOLM. "A Decade After Welfare Overhaul, a Shift in Policy and Perception." The New York Times (Mon., August 21, 2006): A12.

Money Buys Happiness, and Governments Tax It Away

We are . . . all constantly reminding each other that "money doesn’t buy happiness."

Economists aren’t so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are "very happy" than people in the bottom fifth, and only about half as likely to say they are "not too happy."

There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of "consumerism" explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others — so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

Perhaps you’re unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are "not too happy." At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

For the full commentary, see:

ARTHUR C. BROOKS. "Money Buys Happiness." The Wall Street Journal (Thurs., December 8, 2005): A16.

“Financial Incentives Can Change the Way Medicine is Practiced”

An angioplasty being performed in Eyria, Ohio. Source of photo: online version of the NYT article cited below.

Medicare patients in Elyria receive angioplasties at a rate nearly four times the national average . . .

. . .

. . . some outside experts say they are concerned that Elyria is an example, albeit an extreme one, of how medical decisions in this country can be influenced by financial incentives and professional training more than by solid evidence of what works best for a particular patient.

“People are rewarded for erring on the side of an aggressive, highly expensive intervention,” said Dr. Elliott S. Fisher, a researcher at Dartmouth Medical School, which analyzed Medicare data and found Elyria to be an outlier.

Medicare pays Elyria’s community hospital, EMH Regional Medical Center, about $11,000 for an angioplasty involving use of a drug-coated stent.

The cardiologist might be paid an additional $800 for the work. That is well above the fees for seeing patients in the office. And with the North Ohio doctors performing thousands of angioplasties a year — about 3,400 in 2004, for example — the dollars can quickly add up.

Some medical experts say Elyria’s high rate of angioplasties — three times the rate of Cleveland, just 30 miles away — raises the question of whether some patients may be getting procedures they do not need or whether some could have been treated just as effectively and at lower cost and less risk through heart drugs that may cost only several hundred dollars a year.

. . .

Experts know that changing the financial incentives can change the way medicine is practiced.

For example, Kaiser Permanente, the big health system that employs its own doctors, says its patients in Ohio, including some in Elyria, are slightly less likely than the national average to undergo the type of cardiac procedures the North Ohio Heart Center doctors perform so prolifically.

Kaiser’s cardiologists, who work on salary instead of being paid by the procedure, typically treat patients in that region at the Cleveland Clinic, where they have hospital privileges. And they follow established protocols about when a patient should undergo an angioplasty, when drugs might suffice and when bypass surgery might be the best resort.

“It’s not just individual doctors making up their minds,” explained Dr. Ronald L. Copeland, the executive medical director for Kaiser’s medical group in Ohio. With no financial reason to perform expensive procedures, the Kaiser doctors frequently choose to manage the patients’ heart disease with drugs only. “Our doctors have no disincentive to do that,” Dr. Copeland said.

. . .

For many cardiologists, the natural tendency when they see a patient with heart disease is to perform a procedure to try to clear arterial blockages. And patients, cardiologists say, tend to rely on their doctors’ judgment.

“It’s sort of like, you go to a barber and ask if you need a haircut,” said Dr. David D. Waters, chief of cardiology at San Francisco General Hospital, who is currently studying the effectiveness of different kinds of treatment for heart disease. “He’s likely to say you do.”

. . .

Experts say it can be difficult to detect cases in which doctors cross a medical line and are clearly performing unnecessary treatments.

“A lot of decisions are discretionary,” said Dr. Harlan M. Krumholz, a cardiologist and professor at Yale.

“It’s about where the thermostat is set,” he said, arguing that doctors in a particular geographic area tend to be unaware if the way they are treating their patients is markedly different from the practices of their peers in other areas.

Traditional measures of medical quality are not set up to detect whether patients are being treated too much, he said, unlike the kinds of safeguards that prompt credit card companies to call their customers to discuss unusual spending activity. “Right now there are no ‘smart’ systems in place,” Dr. Krumholz said.

In the absence of any real monitoring or oversight, doctors in most places, including Elyria, have few incentives not to favor the treatments that provide them the most reimbursement. Dr. Waters, the San Francisco cardiologist, said that the way physicians are typically paid — more money for more procedures — results in too many decisions to give a patient a stent.

“You can’t be paying people large sums of money to do things without checks and balances,” he said.

For the full story, see:

REED ABELSON. "In Ohio City, a Heart Procedure Is Off the Charts; SIDE EFFECTS; A Stent Epidemic." The New York Times (Fri., August 18, 2006): A1 & C4.

Source of graphic: online version of the NYT article cited above.

Minimum Wage May Destroy Jobs Overall, In Spite of Card and Krueger

The economists’ consensus about the job-destroying aspect of the minimum wage is less strong than it used to be. In the late 1970s, 90% of economists surveyed agreed or partly agreed with the statement, "a minimum wage increases unemployment among young and unskilled workers." By 2003, this percentage had fallen to 73. Still a strong consensus, but a weaker one than previously. What happened?

The answer: One major study and a book by economists David Card, now at the University of California, Berkeley, and Alan Krueger of Princeton. In a 1994 study of the effect of a minimum wage increase in New Jersey, they found higher growth of jobs at fast-food restaurants in New Jersey than in Pennsylvania, whose state government had not increased the minimum wage. This study convinced a lot of people, including some economists. It was almost comical to see Sen. Edward Kennedy hype this study when he had never before mentioned any economic studies of the minimum wage.

Based on criticism of their data from David Neumark and economist William Wascher of the Federal Reserve Board, Messrs. Card and Krueger moderated their findings, later concluding that fast-food jobs grew no more slowly, rather than more quickly, in New Jersey than in Pennsylvania. But they never answered a more fundamental criticism, namely that the standard economists’ minimum-wage analysis makes no predictions about narrowly defined industries. As Donald Deere and Finis Welch of Texas A&M University, and Kevin M. Murphy of the University of Chicago, pointed out, an increased minimum wage help expand jobs at franchised fast-food outlets by hobbling competition from local pizza places and sandwich shops.

For the full commentary, see:

DAVID R. HENDERSON. "If Only Most Americans Understood." The Wall Street Journal (Tues., August 1, 2006): A12.

The citation for the article by Deere, Murphy and Welch:

Deere, Donald, Kevin M. Murphy, and Finis Welch. "Sense and Nonsense on the Minimum Wage." Regulation 18, no. 1 (1995).

Doctors Face Perverse Incentives and Constraints

Kevin MD’s blog provides an illuminating discussion of how hard we make it for good people to practice medicine. The case discussed involves an MD who is successfully sued for not performing a heart cath on a patient, even though two previous treadmill tests did not reveal any problems. (The heart cath procedure itself has a nontrivial risk of death and other serious complications.)

The discussion in the Kevin MD illustrates the difficult incentives and constraints faced by the conscientious physician. In terms of a patient’s health, a cost/benefit analysis may imply that a medical test should not be performed, but in terms of an MD’s income, and legal liability, a cost/benefit analysis may imply that a medical test should be performed.

Something is wrong with our reward structure and legal institutions, when MD’s who make the right medical call for the patient, are "rewarded" by earning less, and by increasing their chances of being sued.

Read the full discussion at:

http://www.kevinmd.com/blog/2006/06/liable-for-not-doing-heart-cath-on-49.html

For convenience, here is the opening entry in the discussion:

Continue reading “Doctors Face Perverse Incentives and Constraints”

More and Better Jobs Gained by ‘Insourcing’ than are Lost to ‘Outsourcing’

N. Gregory Mankiw, former chair of W.’s Council of Economic Advisors. The media, most Democrats, and some Republicans, skewered Mankiw in 2004 for simply and clearly stating the truth about outsourcing. Source of photo: online version of the NYT article cited below.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 280,000 a year. That’s a drop in the bucket. In July, there were 135.35 million payroll jobs in the United States, according to the Bureau of Labor Statistics. Thanks to the forces of creative destruction, more jobs are created and lost in a few months than will be outsourced in a year. Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

What’s more, the threat of outsourcing varies widely by industry. Lots of services require face-to-face interaction for people to do their jobs. That is particularly true for the biggest sectors, retail and health care. As a result, according to a McKinsey study, only 3 percent of retail jobs and 8 percent of health care jobs can possibly be outsourced. By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore. But those sectors account for only about 2 percent of total employment. The upshot: “Only 11 percent of all U.S. services job could theoretically be performed offshore,” Ms. Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing. Quite the opposite. Last fall, J. Bradford Jensen, deputy director at the International Institute of Economics, based in Washington, and Lori G. Kletzer, professor of economics at the University of California, Santa Cruz, documented the degree to which various service sectors and jobs were “tradable,” ranging from computer and mathematical occupations (100 percent) to food preparation (4 percent).

Not surprisingly, Mr. Jensen and Professor Kletzer found that in recent years there has been greater job insecurity in the tradable job categories. But they also concluded that jobs in those industries paid higher wages, and that tradable industries had grown faster than nontradable industries. “That could mean that this is our competitive advantage,” Mr. Jensen says. “In other words, what the U.S. does well is the highly skilled, higher-paid jobs within those tradable services.”

There is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here. In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the United States lost 125,000 programming jobs but added 425,000 jobs for higher-skilled software engineers and analysts.

For the full commentary, see:

DANIEL GROSS. "Economic View; Why ‘Outsourcing’ May Lose Its Power as a Scare Word." The New York Times, Section 3 (Sun., August 13, 2006): 5.