Category: Labor Economics

Becoming Rich by “playing the tuba on the day it rained gold”

MungerCharlie2.jpg Charlie Munger. Sourge of image: online version of the NYT article cited below.

 

CHARLES T. MUNGER, Warren E. Buffett’s partner and one of the smarter thinkers on the planet, had few kind words for money managers at the recent annual meeting of his company, Wesco Financial.  

"I regard the amount of brainpower going into money management as a national scandal," he said. He later recalled a story told when he was a child in Texas: "When some idiot would get rich, they’d say, ‘Well, old Charlie was out in the field playing the big brass tuba on the day it rained gold.’ A lot of people have become rich lately who were playing the tuba on the day it rained gold."

Lately, though, it has been raining lead on the tuba players.

 

For the full commentary, see:

JENNY ANDERSON. "Insider; Hey, You Have a Problem Paying Alpha Fees and Getting Beta Returns?" The New York Times (Fri., May 26, 2006): C7.

Seeing How Life Has Improved Since the Days of the Cowboys

cowboyPBS.jpg A cowboy on "Texas Ranch House."   Source of image:  the WSJ article cited below.

 

"Texas Ranch House" — circa 1867 — is the latest PBS experiment in transporting a group of people back to another era so we can watch them live and struggle the way our ancestors did.  (Part one of eight begins Monday, 8-9 p.m. ET, but check local listings.)  As with past series such as "Colonial House," everything — clothing, tools, food, housing and all-around deprivation — is authentic.  Once again, though, stuffing 21st-century mentalities into period costumes and situations is a tough fit. And once again, it’s the folks wearing the bodices that chafe the most.

The Western setting is fascinating for two reasons:  What seems familiar from movies and TV takes on fresh significance when there are real people — not pampered actors — trying to scratch out an existence on the frontier 24/7, with no plot to guide them.  There is also the fact, as one of the participants points out early on, that many of us exist today only because a forebear actually did make the real journey West and manage to survive there long enough to bear children.  What luck, we are reminded more than once during this series, that those ancestors were so different from contemporary Americans.

. . .

The trouble that threatens to sabotage the entire experiment develops in the widening gap between the cowboys and the Cooke family.  The first time one of the employees disses boss man Mr. Cooke, yelling "Don’t let your wife run your life," we react with disgust at the insult.  As one of the women in the household explains to the camera, all the cowboys "are sexist bastards."  Besides, instead of rising early to ride the range in search of mavericks for 10 hours, the cowboys — mostly young Americans plus one frisky British boarding-school boy playing the part of 19th-century remittance man — indulge in long naps during the 100-degree days and often wake up in the morning with hangovers after nights of hard drinking.

At some point, though, certain facts begin to sink in:  Mr. Cooke does have management shortcomings and Mrs. Cooke is far more involved in running the business side of the ranch than a frontier wife would have been.  The ladies, in general, don’t enjoy the roles or status that historical reality would dictate, and some act out in defiant, liberated ways.  A fatal flaw, if not the only one, for the success of the ranch enterprise.  In 1867, spending days making cornhusk dolls while the house filled with flies and vegetables rotted in the garden wasn’t an option for folks who wanted to stay alive.  And, like it or not, keeping the ranch hands happy, as obnoxious as they might be, was more important than maintaining marital bliss.

This being a made-for-television environment, no one perishes, but there are no happy endings here, either.  When one of the Cooke daughters says to the camera, "I feel lost and dazed and hurt," you feel genuinely sorry for her.  At the same time, it’s clearer than ever that emotional pampering, navel-gazing and gender warfare are modern luxuries.  Like it or not, if these had been features of daily life in the West 100 years ago, many of the people reading this would never have been born.

 

For the full review, see:

Nancy deWolf  Smith.  "TV REVIEW; The West That Never Was."  The Wall Street Journal  (Fri., April 28, 2006):   W10.

Teachers’ Unions Fight Innovation, Customization, and Variety

(p. A27) Washington – A Wisconsin court rejected a high-profile lawsuit by the state’s largest teachers’ union last month seeking to close a public charter school that offers all its courses online on the ground that it violated state law by depending on parents rather than on certified teachers to educate children. The case is part of a national trend that goes well beyond virtual schooling: teachers’ unions are turning to the courts to fight virtually any deviation from uniformity in public schools.

. . .

There is a universal American desire for customization and variety in goods and services, and education must respond to that demand, whether the unions like it or not.
. . .

This debate, like the ones over many other education issues, is fundamentally about who gets to have power. Yet the power the teachers’ unions now wield will be fleeting if public schools do not become more responsive to parents.
An industry cannot survive by rushing to court every time a new idea threatens even a small slice of its market share. Instead, maintaining, and even broadening, support for public schools means embracing more diversity in how we provide public education and who provides it.

For the full commentary, see:
Andrew J. Rotherham. “Virtual Schools, Real Innovation.” The New York Times (Friday, April 7, 2006): A27.
(Note: ellipses added.)

Labor Market Flexibility Increases Employment and Prosperity

“France is definitely behind,” says William Keylor, professor of International Relations and history at Boston University. “If France were to create a more-flexible labor market it would eventually increase productivity and prosperity, but the short-term transition would be difficult and people just aren’t thinking long term.”
There have been labor changes across continental Europe recently. Denmark’s measures to liberalize hiring and firing have helped the country cut its unemployment rate in half from about 10% in the early 1990s to under 5%. Spain, too, has introduced short-term employment contracts which have helped cut its unemployment rate by more than half from 20% a decade ago.
But elsewhere, attempts at change have met with staunch opposition, often resulting in watered-down measures. Italy passed changes to its labor laws in 2004, introducing an extension of temporary-work contracts that were introduced in 1997 and were credited with helping cut Italy’s overall unemployment rate to 7.1% from 12% when the contracts began. Yet many economists say Italy, which recorded zero growth last year, hasn’t gone far enough.
In Germany, where unemployment stands at 11%, a coalition government headed by conservative leader Angela Merkel has promised to reduce unemployment by introducing similar measures to those hotly debated in France. The government had to settle on compromise measures that can extend a current probation period for workers to 24 months, from the current six. But companies don’t have the right to terminate contracts within those two years without giving just cause. Other, more difficult, provisions, are still on hold.
The new measures that will be introduced in Parliament as early as today are targeted at “disadvantaged” youths, which refer to people between 18 and 25 who have left school without any qualifications and who are unemployed. The provisions include increasing financial incentives to employers to hire people under 26 who face the most difficulties.
It would apply to some 160,000 young people currently hired under government-subsidized job contracts, according to an interview with Employment Minister Jean-Louis Borloo in an interview with Le Monde newspaper. The cost to the government would be around €150 million ($180 million) in the second half of 2006, Mr. Borloo was quoted as saying.
But economists said the change of tack was a bad signal. “The real problem is that the results obtained by opponents of the new law…show that it is very difficult to introduce reforms in France,” Dominique Barbet, economist at BNP Paribas, wrote in a research note. “This will give opponents of reform confidence for future actions.”

For the full story, see:
ALESSANDRA GALLONI. “Bowing to Protesters, Chirac Abandons Youth-Labor Law; Reversal Highlights Europe’s Difficulties With Painful Reforms.” The Wall Street Journal (Tues., April 11, 2006): A3 & A10.
(Note: the title and version of the article quoted here are from the online version. The title and content of the version in the printed paper was a little different in a couple of places.)

Wage Security Inversely Related to GDP Per Capita



Source of graph: Siems, Thomas F. “Beyond the Outsourcing Angst: Making America More Productive.” Economic Letter 1, no. 2 (2006): 1-8.
Schumpeter’s theory of creative destruction implies that more flexible labor markets will result in greater productivity per worker. The above recently published evidence, supports the implication.

A Salute to Villepin is Still in Order

VillepinSalute.jpg Source of image: http://www.lesoir.be/rubriques/monde/page_5715_419028.shtml

PARIS, April 4 — Waves of demonstrations, strikes and violence hit France again on Tuesday as Prime Minister Dominique de Villepin, weakened but defiant, refused to bend to the demand that the government scrap a disputed youth labor law.
It was the fifth nationwide protest since February against a modest initiative that was aimed at encouraging the hiring of young people but that has provoked an improvised, open-ended campaign against the French government itself.
. . .
But, in a sure sign that this was not a country paralyzed, the Paris Métro and bus system ran on a normal schedule. Mail and many newspapers were delivered. Only 18 percent of railroad workers were on strike, compared with 28 percent a week ago. Fifteen percent of domestic flights were canceled, half the percentage of last week. The Education Ministry reported that 23 percent of its workers were absent, compared with 36 percent last week.
In the National Assembly, Mr. de Villepin faced savage criticism from the opposition.
“Mr. Prime Minister, who is governing France today?” asked Jean-Marc Ayrault, the leader of the Socialist party bloc in the Assembly. At another point he said: “You govern no more. You hold the appearance of power, but you no longer exercise it.”
Mr. Ayrault said France was mired in a “crisis of regime with two prime ministers,” apparently referring to the active role that Interior Minister Nicolas Sarkozy has played in trying to open a dialogue with the unions.
In reply, Mr. de Villepin vowed, “The government will not give in.” Despite predictions that the law is doomed, he insisted: “What we want is a victory against unemployment. This is a victory for France.”

For the full story, see:
ELAINE SCIOLINO and CRAIG S. SMITH. “French Premier Refuses to Bow to Protests by Angry Youths.” The New York Times (Weds., April 5, 2006): A8.

Villepin Attacked for Trying to Make French Economy More Open to Creative Destruction

VillepinProtesters.jpg
French students in Lyon protest Villepin with a sign that says “Villepin branche ton sonotone” which I think translates into “Villepin, plug in your hearing aide.’ Source of image: http://www.larazon.es/noticias/noti_int18071.htm
There is much to dislike about French Prime Minister Dominique de Villepin; for example his performance on Iraq, and his restrictions on foreign companies buying French companies. But, so far, he has acted heroically in trying to add flexibility to French labor laws. French students have marched and rioted, French unions will not speak to him, and French politicians have ridiculed him. Now he is under attack, even within his own party.

“. . . one day we are alone on the front line,” he said in defending his youth jobs plan last month. “In this solitude we must find the force to advance.”
But Mr. de Villepin’s problem of late is that his enemies have been multiplying, even in his own camp.
On Wednesday, Interior Minister Nicolas Sarkozy, who, like Mr. de Villepin, wants to run for president next year, for the first time distanced himself from his boss over the new labor law, which would allow employers to fire workers under the age of 26 without cause during their first two years on the job.

For the full story, see:
ELAINE SCIOLINO. “Labor Protests Put French Premier in a Bind.” The New York Times (Thurs., March 23, 2006): A10.
VillepinSalute.jpg A salute to Villepin may be in order. Source of image: http://www.lesoir.be/rubriques/monde/page_5715_419028.shtml

Welch: Importance of Taking and Spreading Best Employee Ideas

Sam Walton may have been the grand master of absorbing good ideas of others and then spreading the ideas across the company. Another master was Jack Welch:

 

(p. 383) Getting every employee’s mind into the game is a huge part of what the CEO job is all about. Taking everyone’s best ideas and transferring them to others is the secret. There’s nothing more important. I tried to be a sponge, absorbing and questioning every good idea. The first step is being open to the best of what everyone , everywhere, has to offer. The second is transferring that learning across the organization.

 

Source:

Welch, Jack. Jack: Straight from the Gut. New York: Warner Business Books, 2001.

See also pp. 197-198 for Welch’s description of the specifics of how Wal-Mart got this job done.

For even more details, see: Walton, Sam. Made in America: Doubleday, 1992.

 

Occupational Licensing Does More Harm Than Good

Source of book cover image: http://www.upjohninst.org/publications/titles/lo.html

(p. C3) It is well known that doctors, dentists, and lawyers must be licensed to practice their professions. But what about occupational therapists, manicurists and barbers? How about fortune tellers, massage therapists, shampoo assistants, librarians, beekeepers, electrologists and movie projector operators? These are just a sampling of the hundreds of occupations that require a license in at least some states or counties.

In a new book, “Licensing Occupations: Ensuring Quality or Restricting Competition?” (Upjohn Institute, 2006), Morris M. Kleiner, an economist at the University of Minnesota, questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.
. . .
Several studies have examined the effect of license requirements on performance in occupations like dentists and teachers. In one study, Professor Kleiner and a colleague, Robert T. Kudrle, found that stricter state licensing requirements for dentists did not noticeably affect the dental health of 464 Air Force recruits. Other studies have found at best weak evidence that students in classes taught by licensed teachers performed better than those taught by unlicensed teachers.
Summarizing the literature, Professor Kleiner concludes, “there is little to show that occupational regulation has a major effect on the quality of service received by consumers.”
At the same time, the hurdles imposed by occupational licensing reduce the supply of workers in many regulated professions, which drives up wages in those jobs and the price of services. Dentists, for example, were found to earn and charge 11 percent more in states with the most restrictive licensing requirements. While tough licensing standards may help higher-income consumers avoid low-quality providers, it also appears to prevent lower-income consumers from gaining access to some services.

For the full commentary, see:
Krueger, Alan B. “Economic Scene; Do You Need a License to Earn a Living? You Might Be Surprised at the Answer.” The New York Times (Thurs., March 2, 2006): C3.
(Note: ellipsis added.)

You want more evidence? OK, here’s more evidence:

(p. A20) BISMARCK, N.D., Oct. 10 (AP) – The State of North Dakota is exploring whether people who sell items on eBay for others must get standrd auctioneers’ licenses, a process that includes taking instruction in talking real fast.

To get a license in the stare, aplicants must pay a $35 fee, obtain a $5,000 bond and undergo training at one of eight approved auction schools, where the curriculum includes rapid-fie speaking, breathing control and reading hand gestures.
“I don’t think it offers any additional protection for the consumer,” said Mark Nichols, who runs a small consignment store in Crosby. “It just creates a lot of red tape for the business, as well as having to put out a lot of money.”

For the full story, see:
“North Dakota Weighs Auction License for Some eBay Sellers.” The New York Times (Tues., Oct. 11, 2005): A20.

For Kleiner’s book, see:
Morris M. Kleiner. Licensing Occupations: Ensuring Quality or Restricting Competition? Upjohn Institute, 2006.

“Unlike Pilots, Doctors Don’t Go Down with Their Planes”


(p. C1) With all the tools available to modern medicine — the blood tests and M.R.I.’s and endoscopes — you might think that misdiagnosis has become a rare thing. But you would be wrong. Studies of autopsies have shown that doctors seriously misdiagnose fatal illnesses about 20 percent of the time. So millions of patients are being treated for the wrong disease.
As shocking as that is, the more astonishing fact may be that the rate has not really changed since the 1930’s. “No improvement!” was how an article in the normally exclamation-free Journal of the American Medical Association summarized the situation.
. . .
But we still could be doing a lot better. Under the current medical system, doctors, nurses, lab technicians and hospital executives are not actually paid to come up with the right diagnosis. They are paid to perform tests and to do surgery and to dispense drugs.
There is no bonus for curing someone and no penalty for failing, except when the mistakes rise to the level of malpractice. So even though doctors can have the best intentions, they have little economic incentive to spend time double-checking their instincts, and hospitals have little incentive to give them the tools to do so.
. . .
(p. C4) Joseph Britto, a former intensive-care doctor, likes to compare medicine’s attitude toward mistakes with the airline industry’s. At the insistence of pilots, who have the ultimate incentive not to mess up, airlines have studied their errors and nearly eliminated crashes.
“Unlike pilots,” Dr. Britto said, “doctors don’t go down with their planes.”

For the full story, see:
DAVID LEONHARDT. “Why Doctors So Often Get It Wrong.” The New York Times (Weds., February 22, 2006): C1 & C4.