Youth Unemployment

The 2025 Task Force recommended allowing the youth minimum wage to diverge from the adult rate:

In the last decade, New Zealand has introduced substantial real increases in the minimum wage. The minimum wage was increased sharply during the boom years of labour shortages, and in 2008 the separate lower youth minimum wage was abolished (putting all young employees on the same minimum wage as adults). In 2008, New Zealand had the second highest minimum wage in the OECD relative to the median wage at 59 percent of the median wage, up from 51percent of the median wage, in 2002. Only France, whose minimum wage at 64 percent, was more generous, and the OECD average is for the minimum wage to be at 46 percent of the median wage (OECD 2010a).

As the latest Household Labour Force Survey stats are out, I reckoned it worth running the new numbers through the little model I'd run previously.

Again, these are the residuals from a very simple regression where the youth unemployment rate is the dependent variable and the adult unemployment rate is the independent variable. The residual says how far the actual youth unemployment rate is from its longer term relationship to the adult unemployment rate. Things spike up sharply after youths were made subject to the adult minimum wage.

The adult unemployment rate this quarter was 5.1%. The youth (15-19 yr old) rate was 23.3%. The residual this quarter was 8.5: if the youth unemployment rate were performing about as it previously did in relation to the adult rate, the youth unemployment rate would be 8.5 percentage points lower. That's about 12,000 kids. If we take the previous highest residual as reflecting the normal effects of recession (2.6 in March of 94), the excess residual currently is 5.9 percentage points, or about 8,500 kids. Note that youth labour force participation has dropped while overall labour force participation is up; the numbers above understate things.

National won't do anything. There's no margin in it for them. None of the kids who get a job as consequence of legislative change would credit National for it; any kid who gets a wage cut will blame National (as will their parents). Doing something always risks that Labour would then have something about which to complain; the unions would also get something they could campaign on rather than just looking like idiots for trying to drive The Hobbit out of the country. As for the rest of the 2025 Commission's recommendations:

Finance Minister Bill English made it clear those recommendations were still politically unacceptable.

"Any changes must meet the tests of fairness and equity, be consistent with our election promises and occur at a sustainable pace," he said.

About as expected. I haven't had a chance to go through the report in any particular depth as yet, but my prior would be that there's not much intersection between the set of things that could make a difference and the set of things that Key would be willing to try. I can take English's point about building support for changes and putting them in place in a way that they won't be undone. But they're going to have to start making some of the harder moves sometime.

Cargo cult reading

Just a reminder that folks ought read with caution arguments of the form

• Vocabulary at 22 months predicts educational attainment;
• Reading to kids can help vocabulary;
• Therefore, read to kids to help them in the long run.

Hey, reading's great. And fun. Ira now recites Where the Wild Things Are back to me, and that's cool. But thinking that moving from not-reading to reading to your kids will ensure outcomes commensurate with those of heavily reading kids is cargo cult thinking.

High IQ folks tend to have lots of books in the house and tend to read to their kids 'cause they enjoy it. They have high IQ kids because of assortative mating and intelligence's heritability. Even if they never read a word to their kids, those parents' kids would probably wind up with pretty decent outcomes just from innate IQ and hearing their parents talking: higher IQ folks have a vocabulary range maybe twice or three times the average. And I know I've seen studies suggesting that, if you control for number of books in the house, the amount of reading a parent does with his kid doesn't have much effect on the kid's outcomes.

So then vocabulary at 22 months may predict educational attainment because they've gotten a taste for reading from their parents, because they've inherited good genes from their parents, or a combination of both. Simply looking at differences in mean educational attainment by differences in mean vocabulary at 22 months doesn't tell you much at all about the effect of reading on educational attainment.

Similarly, sorting kids by income and vocabulary scores tells you little about the effect of income on kids' ability if IQ predicts income and if IQ is heritable.  The report linked above contains this graph:

The report notes that some of the effect is mean reversion, but also points to the different slopes as suggestive of the effects of income.  An entirely plausible alternative reading is that it's reflecting mean reversion to different means.  If it's more likely that high IQ parents have higher income, then a kid from high income parents who tests badly at age 3 is more likely to have had an off day than a kid who presents the same score but who comes from a lower income cohort.

Income may well be doing some of the work here, but ignoring IQ seems a bit odd.  Especially since the Millennium Cohort Study included measures of parental educational achievement, as seen in the study of the effects of prenatal maternal drinking that was also based on MCS data.  Sounds like there's fodder there for a future honours research project.

Onanistic voting

Wilkinson argues the case for voting's rationality over at The Economist.

Unlike some benighted economists, I don't think voting is irrational. Individual participation in collective activities are perfectly rational when one has a taste for participation. Voting is a bit like clapping at the end of a performance or doing the wave at a baseball game. It affects the outcome not a whit whether or not you clap at the symphony or throw your arms in the air when the wave rolls around to the cheap seats. But most of us like to go along and we do. Nothing irrational about that!

I don't think any economist would argue that voting is irrational if done for the intrinsic joy of voting. But few voters go to the ballot box singing a tune about how they love standing in queues and pulling arms on machines; they really seem to think that it's important and that it makes a difference. If voting is performed as an instrumental act in pursuit of better policies, it's irrational.

Andrew Gelman says it's not necessarily irrational if you count up the benefits to all the other folks who are benefited by your changing policy. But what about all the people you harm by pushing outcomes away from what they'd prefer? Surely if your vote winds up being the decider between A and B, half the population is going to be pissed off at you, right? But suppose that you, the deciding voter, really have better knowledge and know which party's bundle of policies is better for the country as a whole. We're then relying on your willingness to provide public goods to make the voting act rational. And we already know that folks in large anonymous environments defect in provision of public goods. So it's pretty unlikely that that's what's going on.

I'll stick with voting as onanism. If done for its own sake, you can't call it irrational. But if you think it's productive activity, you're probably a bit nuts. We'll see how many Americans today prove that they're masters of their domain and how many are tempted by the seemingly attractive candidate across the street....

Keynesians and Article II, Section I

No person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty-five Years, and been fourteen Years a Resident within the United States.

Keynes was British, right? So calling someone a Keynesian suggests they're not really American enough to be President?

Happy election day, Americans. Somehow your voting system has to extract collective wisdom from these kinds of inputs.

HT: Claire Morgan

Costs of smoking

The lead item on TV3 cited the Ministry of Health's bogus $1.9 billion figure on smoking costs. Hon. Tariana Turia continues to stand by her anti-smoking unit's $1.9 billion estimate of the costs of smoking to Vote.Health but, in correspondence, provides this teaser:

While giving a good indication of what the current costs are of treating the health damage caused by smoking, this figure has never been portrayed as a measure of what might be saved if compared to a world where smoking had been eradicated.

Is she ceding the point that smokers, if they didn't die of smoking related diseases, would go on to die of some other costly disease instead? If a cost can't be avoided even in a counterfactual world where smoking doesn't exist, can we really call it a cost of smoking? How can they continue pushing this number with a straight face?

Hon. Turia's letter:
Turia Letter 12 October 2010

GE, nuclear and climate

Karl Smith at Modeled Behavior counts himself as a climate dove:

The issue in my mind is that there are actual existing problems in the world today. Yet, the hawks of various breeds are arguing that we should take actions which will make those problems worse in the hopes that we will prevent some larger problem down the road.

As always I question their ability to foresee the real problems that will occur down the road and think that people are generally overconfident their long range forecasts.

Are you sure Iraq is going to use weapons of mass destruction because this could go very badly in the short term and we need be fairly confident that there is a long term win here. We saw how that worked out.

Again, I don’t doubt the sincerity of the hawks. I think they really did believe they were making the world a better place. However, I think there was a tendency to focus on this big PowerPoint-ready existential risk as opposed to the small on the ground risks that were more likely and closer at hand.

Here we have to ask, are you sure that reducing carbon emissions is necessary to forestall the negative effects of climate change. Because, this could turn out very badly in the short term and we need to be fairly confident that there is a long term win here.

I have people telling me that using current technology they could rig up devices to cool the planet at a much lower cost. Are they right? I don’t know. But if they are not insane then are we certain that 100 years of active research into the subject won’t yield low cost solutions?

People are also telling me that the greatest risks are flooding and the necessity of relocating hundreds of millions of people. However, we built housing for 5 billion people over the last century. Can we not do the same over the next?

Count me also as a dove. To the extent that we in NZ ought to be doing anything, we ought to be funding research in ag sciences for breeding lower emission livestock and pasture grasses, then releasing the results via creative commons patents to allow broadest possible uptake.

The environmental movement seems not to be coming around as well, or at least parts of it are:

Stewart Brand, an American activist and former editor of Whole Earth Catalog, said: "I would like to see an environmental movement that says it turns out our fears about genetically engineered food crops were exaggerated and we are glad about that. It is a humble and modest stance to take to the real world.

"Environmentalists did harm by being ignorant and ideological and unwilling to change their mind based on actual evidence. As a result we have done harm and I regret it."

Patrick Moore, one of the founding members of environmental campaign group Greenpeace, added: "We were right that the nuclear industry had problems, but that didn't mean we should be against nuclear energy completely.

"We have caused extra gigatons of greenhouse gases to be released into the atmosphere by being so precious about nuclear."

The activists feature in the Channel 4 documentary What the Green Movement Got Wrong, which will be broadcast this week.

They say that by successfully lobbying against the building of new nuclear power stations, environmentalists forced governments around the world to build new coal fired power stations instead, resulting in billions of extra tonnes of carbon dioxide and pollution being poured into the atmosphere.

Mr Lynas, who along with other activists ripped up trial GM crops in the 1990s, said that GM food had now been consumed by millions of people in the US for more than 10 years without harm, and this had convinced him to change his views.

The campaigners say that since they expressed their change of position, they have been vilified by traditional sections of the environmental movement.

I've seen some argument that coal-fired generation releases more radiation into the environment than does nuclear generation.

Nuclear can't compete with the low costs of hydroelectric generation in New Zealand, at least until some of the lower cost modular options start hitting production. Making things earthquake proof would also seem rather important. But neither of those seem here to be the binding constraint; rather, it's ideology.

What happens to the purported NZ "clean green" image once folks start putting the correct sign on anti-nuclear and anti-GE stands?

Nick Rowe on campus administration

It's not enough (in some cases) to put the carrot in front of the donkey. You have to point to the carrot, tell the donkey it is a carrot, and that he can eat it. And work out marginal revenue and marginal cost for the donkey too. And repeat this several times. This is most true for departments in subjects that economists' prejudices tell us are less likely think like economists.

Nick Rowe explaining one of the lessons of his Associate Deanship. He also gives some nice anecdotes about the principal-agent problems within academia.

The university as a whole faces a hard budget constraint. Individual departments face a soft budget constraint. Individual profs face none.
...
The very worst case I saw was when Barney was cancelled. Barney, a very large first year course, about dinosaurs or something, was one of the most profitable courses in the university. And it was cancelled, by the department.....to save money. There was any number of prissy little boutique courses that could have been cancelled. But they cancelled Barney. We had to go all the way up to the VP Finance to get Barney a reprieve.

The problem is obvious. Barney made tons of money for the university. But the individual department saved money by cancelling Barney, since nearly all the students taking Barney came from other departments and faculties. The incentives just didn't line up.

Fortunately, Canterbury's internal funding model has been a fair bit more sensible than that: departments pay a per-student tax to the centre for centrally provided services and keep the rest. That works because government funding varies by type of student, so the bench sciences' usual excuse for cross-subsidization, kit costs for students, are already factored into the per-student government subsidy. We do find other ways to make life difficult though.