Afternoon roundup

It's been a while since last posting. The tabs...

• Gita Gopinath on Covid's lessons for inflation and central banking


• Long-Covid and labour markets. There is still far too little data on this. 


• Expect it to get weirder


• Be careful about audit studies that use racially-loaded names to signal race. They can signal other stuff at the same time. And they aren't perfect signals on race either. 


• Matt Levine on Silicon Valley Bank


• Very strong NZ public support for incentive payments to local councils. Good.


• Ian Powell on some of the messes in health system reforms. There will not be the back-end efficiencies the government may be looking for. Ian McCrae suggests these reforms for the next policy bonfire.


• Pattrick Smellie on lame government industry transformation plans


• I expect a NZ version of this would find similar results: the decline in marriage and the rise in social problems. 


• Doesn't it make more sense to finally deal with the messy problem of setting FBT on employer-provided parking than to try to FBT-exempt every single possible substitute for driving? Should sneakers be FBT-exempt for those who walk to work?


• Electricity generators warning that proposed Resource Management reforms are going to completely screw up building new power generation. 


• Rebecca Macfie argues that a pile of contractors wind up working for less than minimum wage and so contractor law reform was needed. I have difficulty squaring the assertion about low low contractor wages with the fact of very tight labour markets where hospitality and retail are having to pay margins above the minimum wage even at entry level. Is it illegal for these workers to just go and find a different job?


• 72% of Kiwis think that farmers should be allowed to use genetically modified grasses that reduce methane and nitrate emissions.


• It really looks like the guy running NZ's newly merged polytechs hasn't got a clue about academic freedom.

Underemployment and immigration

Alexandra Turcu over at the Asymmetric Information substack goes through some of the underemployment figures. 

The answer matters. One story I'm regularly given about why Labour wants to maintain very tight immigration settings is that Labour ministers believe there is still a lot of slack in the labour force, despite inflation and despite the positive output gap, because of the seemingly high underemployment figures. 

Turcu finds:

We analysed data from New Zealand's Household Labour Force Survey (HLFS) spanning the six years between Q2 of 2016 to Q2 of 2021, finding that under-employed workers were only working one hour per week less than their fully-utilised counterparts. For those working full-time, this equates to 40 hours worked by the underemployed compared to 41 hours worked by the fully-utilised.

The key difference between the underemployed and the fully-utilised is not hours worked; rather it seems to be household and individual income. As an example, part-time underemployed workers earn 28% less than their fully-utilised counterparts, and this gap widens to 32% when we compare the full-time underemployed to to fully-utilised full-time.3

These findings challenge the tempting assumption that underemployed workers are just not working enough. It also begs the question: Is the issue that underemployed individuals aren’t working enough hours, or that they can’t increase their incomes while working a 40-hour week? We cannot determine this from the HLFS, as a “not enough income” option was not offered to respondents.

If you click through to the full paper, you find that there are about as many underemployed full-time workers as there are underemployed part-time workers and that the average underemployed worker puts in about one fewer hour per week than the average fully-employed worker - whether full-time or part-time. So a part-time worker who says they're underemployed works about an hour less than a part-time worker who says they're fully utilised. 

If Minister Wood thinks that there are a pile of underemployed workers who could put in a lot more hours if it weren't for those dirty dirty immigrants, well, there ain't much slack there. The paper suggests that a lot of reported underemployment is dissatisfaction about current income rather than hours.

Four day weeks?

The Dom Post asked me for comment last week on Perpetual Guardian's trial of four-day work weeks. They wanted to know whether I were pro or con. I couldn't really do that: how am I or anyone else outside of the company to know what works best for them? I'm totally 'pro' their being able to try this out, but how could anybody be for or against it as a general policy?

So I gave them this instead, celebrating that companies and workers still have the freedom to come to whatever arrangements work best. For some it could be four day weeks, but it would hardly work for all. 

New Zealand's relatively flexible labour markets allow this kind of innovation, but we should not take them for granted.

Australia's Awards system, for example, is far more prescriptive about the pay and conditions that must be in place in every workplace.

The rules might make sense if one size really did fit all firms in any given industry, but the market is more complicated than that.

If Perpetual Guardian's experiment works for them, firms facing similar circumstances will have to take notice. If it fails, they can revert to the more standard five-day week.

The costs or benefits either way fall with them, so they have every reason to have thought hard about this.

But when regulation sets the conditions across a whole industry, experimentation like Perpetual's becomes much too hard.

And if MBIE gets things wrong, firms and workers bear the costs.

Let's celebrate Kiwis' ability to innovate, while we still have it.

90 Days

Motu's had a look at the effects of the 90 day trial legislation. Under that legislation, employers could hire employees on a trial basis and dismiss them relatively easily within that 90 day window. Supporters of it expected it to encourage employment of riskier employees; opponents expected substantial churn: that employers would somehow figure it made sense to hire people for three months, fire, rinse and repeat.

The Motu study, undertaken by Nathan Chappell and Isabella Sin, two fine Canterbury economics graduates, uses a beautiful little natural experiment. Firms smaller than 20 employees were allowed to use the provision; those over it were not. At least for a time. Afterwards, it extended. But you had a nice little period in which there was a discontinuity at 20 employees. They then looked at hiring data in for firms in the 15-25 employee range. If the bill had effects, that's where the difference would show up.

Using that experiment they find, well, very little in the aggregate. There was no particular boost to employment, but neither was there any churn. It didn't seem to do anything at all.

But there is a bit of a problem in focusing on the aggregate. If you're looking at effects across all firms, and only a minority of firms would ever want to use the trial periods, then if there were an effect for that group of firms, you likely wouldn't see it in the aggregate data. The data doesn't let them tell which firms actually elected to hire new employees on trial arrangements, and which offered permanent contracts from the get-go.

Or to put it another way, suppose that some medicine reduced your chance of death from a relatively uncommon disease by 10%. You wouldn't notice any effect at all in overall aggregate national death rates. But you would notice it if you looked in the places where it were used.

This could matter. They cite MBIE work showing greater uptake of trial periods in construction and wholesale trades and low use in education and training; they then find a about a 10% increase in hires among small firms in industries known to use trial periods who were eligible to use trial periods as compared to small firms in the same industry that were just a bit too big to use trial periods. Those small firms eligible for 90-day trial periods in high-use industries had about a 7% increase in long-term hires.

Evidence that it particularly encouraged employment of riskier employees is rather weak, or at least riskier as measured by things like being a former beneficiary.

On the whole, it looks like the policy provided an increase in employment in construction companies and wholesale trades, no increase in churn or dismissals. If you think that people bear substantial psychological costs of a 90-day trial period where actual dismissal rates are trivial, then you might not like the policy. If you think that those are likely to be minor relative to the employment benefits in the sectors that need it, then the policy remains a good one. And if you're going to weigh the psychological costs of uncertainty for employees under trial periods, weigh too the psychological costs for employers having to make hires under conditions where firing is very difficult.

It might not be as beneficial as we had hoped at the outset, and so it might have been a mistake when evaluated against other beneficial policies on which the government could have expended political capital (youth minimum wages, for example), but it's a policy well worth continuing.

Crossposted from The Sandpit.

Occupational licensing: repo edition

Occupational licensing rules block too many Americans from entering protected professions.

Brookings covered some of the horrors back in January:

For example, some states require that florists and make-up artists satisfy expensive and time-intensive requirements before they are legally permitted to perform their jobs. Also subject to such requirements in various states are locksmiths, ballroom dance instructors, hair braiders, manicurists, interior designers, and upholsterers.

This regulatory practice is known as “occupational licensing,” and it has spread to cover around 30 percent of the U.S. workforce, up from just 5 percent in the 1950s. The practice now has a significant bearing on workers of all skill levels, and extends far beyond the occupations of doctors, lawyers, nurses, and teachers. 

It is important to realize that occupational licenses are not mere state-sponsored certificates to signal that workers have completed some level of training; occupational licensing laws forbid people from practicing in their occupation without meeting state requirements. If the rationale for licensing an electrician is to protect public safety, it is difficult to see what rationale supports licensing travel guides. Yet, twenty-one states require a license for travel guides. Among these, Nevada has created the highest hurdle: a person hoping to be a travel guide in that state must put in 733 days of training and shell out $1,500 for the license. 

Their policy paper on it is here.

The Mercatus Center agreed, showing how licensing requirements also push up costs for consumers.

So New Zealand wouldn't be dumb enough to start trying to catch up with America on this front, right?

Well...

Associate Minister of Justice Simon Bridges and Commerce and Consumer Affairs Minister Paul Goldsmith have today announced strict new laws that will better protect the public from repossession agents engaging in unscrupulous practises.

“The changes mean that all repossession agents, as well as their employees, must be registered and licensed from 6 June 2015”, Mr Bridges says.

Applications for licenses will be accepted from 6 March 2015.

“Those who breach the new laws can be fined up to $40,000 under the Private Security Personnel and Private Investigators Act”, he says.

Maybe there's a case for going after cowboy Repo people, but why not do it simply by enforcing the rules around lawful repossession rather than setting up a big licencing regime?

Why make labour markets more rigid? Was there any RIS on this?

And today I learned that New Zealand has a Private Security Personnel Licensing Authority, which will be running the Repo Agent licensing.

Labour Force Rorschah test

NZ's latest labour force survey numbers are really good news. Sometimes, an increasing unemployment rate is just fine. This quarter is one of those times and don't let anybody tell you different.

From today's release:

	December 2014 quarter	Quarterly change	Annual change
	(000)	Percent
Employed	2,375	+1.2	+3.5
Unemployed	143	+5.8	-2.6
Filled jobs	1,800	+0.1	+2.5
	Percent	Percentage points
Employment rate	65.7	+0.4	+1.0
Unemployment rate	5.7	+0.3	-0.3
Labour force participation rate	69.7	+0.7	+0.9
	Level	Percent
Average ordinary time hourly earnings	$28.77	+0.5	+2.6
Wage inflation (salary and wage rates, including overtime)	1102	+0.5	+1.8

The Labour Force Participation Rate has almost cracked 70%. Wage earnings growth is well in excess of CPI inflation. The increase in the unemployment rate coincides with a simultaneous, and bigger, increase in the employment rate: more people are being drawn into the labour force by strong employment growth. Some of those new-to-the-market or returning-to-the-market workers could take a little while to land, and so the unemployment rate is higher. 

And remember too that we're also in the midst of very high net migration to New Zealand. 

Remember: increasing unemployment rates while labour force participation is increasing even faster generally is a good sign. Decreasing unemployment rates while labour force participation is dropping hard is generally not a good sign: it means people are giving up on the idea of getting a job. 

Year-on-year, the employment rate is up a full point, the unemployment rate is down a third of a point, and LFPR is almost up a point. Smokin'.

Update: and remember too that the job vacancies index is now higher than it was in '07.

Odd Japanese labour markets

Am I the only one who read the various stories on impending social collapse in Japan and reckoned there to be a potentially large opportunity for a firm that would be happy to hire women on flex-time arrangements?

Tyler pointed to one story yesterday; another hit the Washington Post today. Short version of both: Japanese labour markets are a disaster. Employers expect that a woman getting married has shifted to the mommy track and so pull her from opportunities for advancement, because she's likely to leave work after childbirth. And they're not wrong: the Guardian story says 70% of women leave work after having had a kid. Women wanting to have a career then don't get married.

Suppose that were all that were going on. We'd then expect some clever firm would figure out that there are tons of qualified women itching to get back into the labour market on flex-time arrangements and would hire them on a compensation bundle including less salary, on-site daycare*, and flex-time. Further, the peculiarities of the Japanese labour market could really work to such a firm's advantage. If you expect that a firm will dump you post-kid, then you don't make relationship-specific investments with that firm pre-kid. If you expect that you can flip to a decent flex-time arrangement post-kid, you work much harder for the firm pre-kid. And while the "job for life" norm seems to be abating in Japan, I'd be surprised if it were less true there than elsewhere.

So, why isn't this happening? First explanation: work norms. Where everyone's expected to put in really long hours, and where a firm has a mix of 16-hr workers and 7.5-hr workers, there's really no choice but to sideline the 7.5-hr workers onto the slow-track. But surely that's somewhat question-begging: it seems pretty improbable that you get that more output from one worker on 16-hour days than from two workers each on 8-hour days (who are on the same hourly but different annual total pay). And even if the 16-hour worker is more productive than two 8-hour workers, you could then just pay the 8-hour worker proportionately less.

Next explanation: The Guardian says kids are unaffordable unless you're on two incomes, but it's impossible to be on two incomes. Tokyo's expensive, but it's not the world's least affordable place. Beijing, Rome, Mumbai, London and Paris all come out worse on this index. But, where that index is conditioned on disposable incomes, and where salaries are based on crazy-long hours, then affordability could be a serious issue for those wanting to move to sane work hours. Maybe this part starts sorting itself out as homeowners die off faster than houses depreciate. Housing prices then fall rapidly as supply starts exceeding the number of people.

I can imagine a story where tight space constraints in Tokyo combined with pretty strong work norms have folks bidding up housing prices until it's pretty tough to afford a spot big enough for a family without two incomes with long work hours. But that story then conflicts with survey data that has money and housing as trivial reasons for not marrying; the Post story reports instead that "Do not feel the necessity" and "Do not want to lose freedom or comfort" were the main reasons given by both sexes for not marrying. And wanting to enjoy hobbies or entertainment was a slightly more commonly given reason for not marrying than wanting to concentrate on work or studies.

Maybe we need a Japanese translation of Bryan Caplan's book on low-effort parenting. The integral under the kid marginal-benefit curve is a lot bigger if you figure out ways of continuing to enjoy freedom and comfort.

Update: Brennan MacDonald points out that visas for domestic guest workers are much more difficult in Japan than in Singapore; if it's much harder to get a nanny, then that too helps explain female labour supply differences.


* Daycare availability seems a serious problem.