Ask an Economist

E.g., Thursday, August 6, 2020
E.g., Thursday, August 6, 2020
Question:
Hello!

I would humbly like to inquire whether this theory explains the drift apart of labor productivity and worker wage as a result of the progress of mechanization. And also I would like to know if it is new and worthy of exhaustive research.

"Increased productivity does not cause nor correspond with an increase in labor compensation. Wages increase in relation to the need for added and specialized skills and the relative scarcity of available labor possessing these. This carries over to skills needed to deploy and operate capital. If capital needs labor with added and specialized skills for it to operate, it will drive the need for higher paid, more specialized workers. The more autonomous the capital is corresponds with an increasingly inverse or stagnant relationship between real labor compensation and increased productivity. Productivity, in itself, is not a driver of added worth to labor." - Michael Nogle July 4, 2016

I am an avid student of history, and social studies, including economics, in my pursuit to gain my secondary teaching credentials. I also have two master degrees, one in liberal studies. I came up with this as a result of these studies. I believe the logic is sound and cannot think of specific areas where my model does not fit. My training in liberal studies has taught me that it is time to ask specialists for further insight.

I hope to hear from you soon.

Mike Nogle
Answer:

Your proposed theory of wage setting appears to be consistent with the way that most economists would approach this issue.  That is, most economists would accept that an individual’s wage is determined by the “human capital” – i.e., skills,...

Question:
Stock Market Question.

There is something very basic and fundamental about how the stock market works that I have never understood and always wondered about.

I understand that a company issues a certain fixed number of shares so the value of those shares are subject to the law of supply and demand. However, it seems like, at any given moment I, and anyone else, can buy or sell any number of shares at the current stock price. So what is the actual mechanism that determines the change in stock price?

If I look at the stock price of company X and see it is selling for $100 per share I, and anyone else, can decide to buy one share at the market price of $100, or one million shares at the market price of $100. So what actually makes the stock price of company X actually move up to $100.01 per share or down to $99.99 per share? It doesn't seem like the stock price would move up unless all available shares were already purchased, or down unless there were people willing to sell shares for less than the market asking price at any given moment.
Answer:

The answer is that stock prices are indeed determined by supply and demand. If you see no change in price when you trade, it is because the amounts you are trading are relatively small. If you try to buy or sell a particularly large amount at one...

Question:
Student mental health issues and resulting disruptive behaviors are becoming increasingly difficult for schools to manage. As a result, sometimes students are staffed into special education strictly for assistance with behavioral goals (and not academic issues). Special education costs are 2-3x the cost of general education, resulting in many school districts' having a year-end budget with a special education deficit. To cover this budget shortfall, local property taxes are often raised. Could early identification and early treatment of student mental health issues help reduce the special education costs a school district pays every year? What is the potential ROI, and how would the impact of this investment be measured?
Answer:

There is a large body of research that shows that peers matter for later academic and economic success.  A prominent study in which children were randomly placed in kindergarten classes showed that children who were placed in schools with...

Question:
Although I studied economics at an undergraduate level and have spent almost a decade working for financial advisers, I've never understood the idea of target inflation ranges or why some countries are described as 'struggling with low inflation'. Is inflation a measure of the rising cost of living? Or is it a measure of the declining value of money? Perhaps it's both i.e. some sort of inverse relationship? Why do economies target an inflation range? I can't understand why we would want the cost of living to rise or want the value of our money to fall. If a country has low inflation, does that mean the cost of living is increasing at a low rate? And wouldn't that be a good thing for the population? Taking that a step further, wouldn't it be even better if the cost of living was declining over time (I believe that's called deflation)? Why is deflation a bad thing? Thanks in advance!
Answer:

If prices are not rising at all over time or even falling, it would act as an disincentive for firms to produce goods for the market. For durables, if people expect prices to fall, they will wait. Since most financial contracts are denominated in...

Question:
So, my question might be more philosophical than economical, but it's wracking my brain and I can't seem to find an answer.

It is about currency and how our money is no longer backed by "gold." Money (i.e. coins and bills) in essence is the same as chips at a casino. At the end of the day, if I choose, I could cash in my chips and get something of value for them. MONEY.

Back in the day, before Jimmy Carter, it was the same way, that, at any time, I could cash in my MONEY for GOLD. (which although has no intrinsic value, is determined to HAVE value.)

So, here is my question.....and I hope I explain it well. A lot of people out there are asking "why can't we just print more money and solve the poverty problem?" Terms like "inflation" and the "devaluing of the dollar" are the usual buzz answers to that question. Also, people give the example that if the government were to print more money and just give everyone $50,000, then everyone would go out and buy things, thus making THINGS more in short supply, thus driving up the price of things. (simple supply/demand economics) But this is where I'm curious. With TRUE unemployment probably somewhere around 15% in this country, if DEMAND rose, then companies would WANT to hire more people and build more processing plants to keep up with demand and raise their profits. So, the influx of cash (printed money) would seem to solve the unemployment problem.

So, here is where I'm confused.....if I apply the same idea of "printing more money and handing it out to the public" to my casino example, then that would be like the casino giving everyone at the poker table an extra $100 in chips to play with. But here's the catch. I understand the PROBLEM with doing that at the casino, because if you give people all these extra chips, then at the end of the night, when people CASH OUT, there will not be enough money in the vault to pay for all the chips. Hence the problem.

But how does that relate to American economics since there is no "cashing out" procedure. If the government gave everyone a bunch more money, there is no "checks and balances" since no one, at the end of the day, goes to the cashier station and exchanges their "chips" (money in this case) for something of value.

Exchanging your chips at the end of the day for MONEY back (which has value in our eyes) makes sense, hence why you can't give out more chips than the money you have in the vault. But it seems the American dollar is not a paper representation of the "money in the vault" no one goes to cash in their money in America.

So I don't understand how currency works and why we can't just print more money since it really isn't representative of anything of value.

Please explain, as I cant find a good answer anywhere online.

(I hope this question wasn't convoluted.)

Thank you so much for your time
Answer:

Let me try to remove some of the confusion. Imagine the only good in the economy is corn and corn costs $1 a pound, and imagine you and all others earn $100 a month. Each month you buy 100 lbs of corn exchanging $1 for 1 lb of corn; so the real...

Question:
An investment group bought Aramark in 2006. Some of the members- J. P. Morgan, Goldman Sachs, Warburg pincus, etc received bailout money from the government in 2008. Would Aramark have gotten any "benefit" or money from that bailout as a private equity holding?
Answer:

My best understanding is that the acquisition you indicated was completed in 2007, but Aramark retained its identity as a company. TARP was created in 2008, and a comprehensive list of companies that received “bailout” funds can be found at...

Question:
What correlations exist, if any, between a country's age distribution and its economic output? Additionally, does the relative shape of a country's population pyramid seem to give any indication of future performance in (a sector of) the stock market? I have read that a country with an age distribution like an inverted pyramid (more older people than young people) requires a greater investment in healthcare, and the opposite shape (non-inverted pyramid) requires a greater investment in education. Therefore, is it a stretch to conclude that the healthcare sector in a country with an inverted pyramid age distribution will fair better than it would with a non-inverted pyramid in the same country?

Also, is there a name for the sub-field of economics that studies how demographics is related to economy?
Answer:

The question of how demographics relate to economic issues (e.g., poverty, economic growth) has been at the forefront of economics ever since its infancy as a science. For instance, Rev. Malthus (1766-1834) controversially suggested that...

Question:
In light of the recent layoffs at John Deere and its suppliers, how does the agriculture sector rate compared to the rest of the economy that seems to be rebounding? How long can we expect sluggish commodity prices?
Answer:

As the layoffs suggest, a large part of agriculture, in this case the crop sector of agriculture, has seen a significant reduction in prices and incomes over the past two years. This drop in prices and incomes can mainly be linked to a surge in U...

Question:
I have been working for the past two years to break into the IT world, specifically in data analytics. So far, it hasn’t worked—there seem to be very few openings for entry-level employees.

The controversy over President Trump’s suspension of temp worker visas got me wondering if there might be a connection. I have seen both sides argue about the effect of H1B visas on employment and salaries, both in IT and in the nation at large, but I am wondering about the effect on entry into the field.

The reason I wonder is that IT skills are very transferable, and a citizen or green card holder is much more able to take advantage of that ability, while a worker on a temp visa may require a bigger benefit to justify the hassle and risk of leaving. In this hypothesis, corporations choose temp workers instead of potentially training their competition’s talent, and not because of a salary differential. Over time, this degrades the pool of local employees, justifying further temp worker visas.

My two questions are, one, is this economically plausible? And two, is there any evidence of it occurring in the US?
Answer:

I think the basic mechanism you describe could well be part of the complex story of how the H1-B visa affects domestic workers in IT. The H1-B visa program does expand the supply of workers for certain kinds of jobs potentially reducing the...

Question:
CIF or FOB Price per Metric Ton of Yellow Corn No. 2 for Animal consumption
Answer:

The Iowa State University Estimated Livestock Returns (http://www2.econ.iastate.edu/estimated-returns/) provides estimates of cattle finishing and hog production costs and returns. The...

Question:
Why is the growth of GDP so important? I understand that we want living standards to go up in the aggregate, but if the economy produced the same amount of goods/services per year for, say, three years, would that be catastrophic in itself (i.e., aside from policymakers and economists freaking out about it)?
Answer:

The event that you are referring to is what economists call recessions. During recessions, GDP drops or grows significantly below normal times for a period of usually less than two years. Recessions are dreaded by many but not all economists....

Question:
Hi, I am a nursing recruiter and am experiencing what I think might qualify as a cartel - I was curious of your opinion. Travel Nursing is a large business where hospitals pay recruiting firms to staff RNs by contract. The bill rates with the hospitals are negotiated in multiyear contracts, whereas the nurses negotiate their pay with the recruiter company per contract (typically 3 months at a time).

This has been quite an efficient market for many years until recently when the nurses started to compare pay for contracts on Facebook groups. Currently a group called Gypsy Travel RNs was created by an ex-nurse to help travel RNs find travel jobs - it has over 20,000 members.

Part of the information now being shared by the RNs is their pay package details quoted to them by the recruiter before accepting an assignment. They will compare what others are being paid and seek the opinion of any person in the group who makes an effort to respond, which is usually responded with "pay too low!"

Every person in this system acts on their own knowledge of the market. However, having hundreds of other RNs injecting their own views of an offer (accurate or not) seems to be artificially inflating the RNs side of the market, which drives up the costs for the hospital side.

It could be argued this is what other consumers do for other large purchases that might be negotiated. However, there are no established Facebook groups with 20,000+ home buyers all currently active at the same time in the market comparing offered prices.

These types of groups keep growing - would you consider this type of system a cartel? It this even legal?
Answer:

Let me first state that I cannot answer the legal part of the question. Antitrust litigations often involve economists to show empirical evidence of abuse of market power and to determine the extent of damage the cartel has caused to consumers...

Question:
Hello,

I was wondering whether a recession is the opposite of inflation or is it the opposite of economic growth. What is it, really, the opposite of?

Thank you
Answer:

A recession is a period of general economic decline, a contraction in the GDP for six months (two consecutive quarters) or longer. In that sense, they represent negative growth.

Question:
I would like to understand how the National Negotiated barrow and gilt price relate to Peoria and interior Missouri live hogs price, futures hog contracts and profit for the farmer, and if possible have a margin profit table from 2013 up to date.
Answer:

To explore the relationship between the Peoria live hog price, Interior Missouri live hog price, National negotiated prior day purchase base price, National negotiated slaughter base price, CME lean hog futures price, and farrow to finish profit...

Question:
The S&P 500 is a list of the top 500 companies based upon market capitalization. As such it is viewed as a good representation of the whole economy. There are 11 sectors in the S&P, for example Financials which accounts for 13% of the whole list, ranking 3rd after the healthcare and information technology sectors. Berkshire Hathaway (BRK.B = $530 billion market value) is included in the Financials sector. BH also owns a significant amount of stock in most of the financial sector, as well as other sectors. BRK.B is represented on the S&P mainly as an owner, not a producer of products or services. Does including BRK.B in the S&P 500 skew the results of the economic ratings, because, like circular reasoning, it means many of the S&P are represented twice?

Since I am not an economist, I am asking out of curiosity, not criticism and would like to better understand this situation. Thank you for your consideration and any response.
Answer:

Yes, there is a potential for double counting---in the case of publicly traded companies included in the SP500 that are also held in the Berkshire's portfolio (e.g., Apple or American Express). The extent to which this may skew any ratings or...

Question:
Are there any studies that address the weighted effects of different causes for loss of manufacturing jobs such as automation secular changes in purchasing and international trade?
Answer:

You can try

David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade," Annual...

Question:
I have a question about the Federal Reserve system at the heart of our monetary system. I have heard many accounts and explanations. I am very wary of anything I read in the news, and even more wary of what our government does. Was the act actually concocted on a private island by powerful, wealthy bankers? Was president Wilson actually remorseful of the passage of the act and its effect? Was the act passed under less than the usual standard of congressional consensus and due process? Can you comment on debt as a dynamic within the Fed? Should the public be wary of the lack of transparency? I have absolutely no faith in our system's ability to promote anyone else's interest, except the wealthy and big business. Any cause for optimism otherwise? Can you suggest a good book on the Fed? Thanks.
Answer:

The Federal Reserve has a long history as the nation’s central bank. While there have undoubtedly been many changes in the U.S. economy, banking, and the financial sector since the passage of the Federal Reserve Act in 1913, much of the structure...

Question:
My understanding of the Fed is that it must keeps its books balanced as follows:
value of securities held at central bank = amount of central bank money.

If the value of the securities rise, then the Fed needs to increase the amount of central bank money, which it does by passing its "profits" to the US treasury. Normally, the securities held at the Fed are US Treasury Notes, but starting with the Great Recession, the Fed began accumulating mortgage backed securities as well. Ultimately, these securities gave a profit, and these were passed on to the US treasury like always. However, what if that was not the case? What if these securities defaulted, and the Fed incurred a "loss"? Would it have to pass the loss onto the US Treasury as well? What would that look like? Would the US treasury simply give the Fed US Treasury Notes without getting central bank money in return?
Answer:

The following FEDS Note by Bonis, Fiesthumel, and Noonan (2018) provides detailed answers to your questions: https://www....

Question:
Hello economists! Regarding people who are unemployed --if every one of them went through the motions and started their own small business today (let's assume that part goes off without a hitch) would the economy benefit from the increased occupied jobs, or have no net change from a proportional increase in competition?

Or something completely different?
Answer:

There are many assumptions underlying your question. To begin with, we have to ask, why are people currently unemployed? assuming businesses are in it to maximize their profits, then if they are not hiring (which is why there are unemployed...

Question:
Many years ago I remember a quote that said something along the lines of "Every job at Boeing supports 3 jobs in the community" meaning that wage earners spend their wages, which in turns supports other wage earners like grocery clerks, hair stylists, mechanics, doctors, etc. Is there a formula for this? How do I determine in Seattle, for example, how many jobs each $90K job at the City (a large employers) in turn supports in the community?
Answer:

It is common for industries to claim that they create jobs outside the industry, especially when they are seeking government subsidies.  A few years back, a consultant for the Iowa ethanol industry claimed that ethanol was responsible for 90...

Question:
Would slowing down immigration and blocking illegals from working in the US automatically cause the minimum wage to rise on its own?
Answer:

Minimum wages are wage floors set by law, not by the market. They, however, are subject to political pressure from citizens. If, say, hypothetically, all immigration, legal or otherwise, was stopped, then there would be a stronger demand to hire...

Question:
I am working on a research project of agriculture cooperatives and their locations across the United States. I have found several sources that list the coops by name and give the main office corporate address, but I have been unable to find a list of cooperative and their operating branches. Does such a list exist?
Answer:

To my knowledge, a publically-accessible national listing of all the agricultural cooperatives and their branches does not exist. However, many states have cooperative associations or cooperative development centers that likely maintain a list of...

Question:
I live in a condominium which some time ago changed the rules that permitted dogs to one that forbade them unless grandfathered. I researched the issue a bit and discovered that 39% of households owned one or more dog. I don't recall the source; don't know the veracity but I wonder how to calculate what impact that would have on the resale value of my condominium if every dog owner refused to purchase any unit prohibiting dogs. (I know that that's not 100% true. Just looking for a starting point.)
Answer:

It seems there are two markets for condominiums.  Units that allow dogs (Market Dog) and units that do not (Market Sad).  My Black Lab mentioned that the latter group are probably sad folks. Ok – my econ jokes in class aren’t any better...

Question:
Two friends go out for breakfast, each ordering eggs, toast and coffee. The total bill is $20.00. They agree to leave a 20% - $4.00 tip for the fast and friendly service. The following week, the same two friends go across the street to a comparable restaurant and again order an eggs, toast and coffee breakfast. This time the total bill is $22.00. When it comes to deciding the tip, one friend suggests that the tip should be the same as last week, 20% - $4.40. The other friend reasons that because the food, the service and the dining experience were essentially the same, the total amount paid, $24.00 should be the same, meaning a $2.00 tip. This friend further reasons that if the restaurant owner is charging 10% more for the same meal, the staff should be compensated accordingly higher. What are your thoughts? When all other factors are essentially equal, should comparative meal costs factor into tip consideration?
Answer:

The writer has already shown that a good argument can be made either way. There is no correct answer the way the question is framed. The friends will debate the question until the restaurant closes. So, let's give them something else to debate...

Question:
What would be the costs and benefits of returning to the gold standard?
Answer:

Under the gold system, either gold circulates as money, or there is a fixed relationship between the amount of currency in circulation and the amount of gold, given the dollar price of gold. In either case, it means that a valuable resource which...

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