Random reflections on economics

For some time now I’ve been lucky enough to have a professor of economics as one of my private students, and helping this person put together presentations, papers, and whatnot has exposed me to a field of inquiry that is quite different than SLA.  It’s been refreshing and somewhat zen-like to see the extreme quantification of social forces and psychological phenomena and to hear the thoughts of people dedicated to to that enterprise.  The following are some thoughts on what I’ve seen over the last year or so.

Quantification is not reductive

The stereotype is that economists view people’s loves and lives as “mere” numbers, which has earned economics as a field the nickname “the dismal science”.  I never got the feeling, though, that economists view quantification as taking away some quintessential human elán from the thousands or millions of people whose behavior they are analyzing.  To the contrary, it seems to be a common understanding of the field that numbers are just the only way to deal with data points that number in the millions; it would be impossible to describe something like a national gender wage gap qualitatively and still be fair to each individual.  It’s certainly not true that economists view that number as the inarguable conclusion of a research question; validity and how to test for it are problems that animate much of the literature (it seems). In short, quantification of human behavior is a necessary part of looking at data sets this large and doesn’t “reduce” people if you have an appropriately skeptical attitude toward what the numbers really mean.

Conservatives tend to place free will at the base of questions of economic justice

A basic assumption of the field which has come under question since the 1980s is that people, when presented with a field of choices, will choose correctly and consistently according to their mostly stable preferences.  It would be hard to find a bedrock principle more at odds with either modern psychology or any adult’s lived experience of other adults.

It follows from this ideology that humans make rational choices based on stable preferences that human choice is above reproach, that whatever people decide given a set of options is a priori proof of justice. Any attempt to “nudge” people into a better choice or to force certain choices will produce warped and economically unhealthy outcomes. If people seem to naturally separate themselves into different groups, it must reflect a natural, stable preference within those groups.  Such is the explanation often deployed to dismiss the gender pay gap as the result of women’s free will rather than any kind of injustice.

You see the basic logic at play here in many areas of public life – certain politicians seem to see no motivation for human behavior that is not economic, and the main or only purpose of government is to encourage (or at least not punish) good economic decisionmaking. When people, either individually or as a group, seem to display an affinity for factors other than income (e.g. family, conformity, culture, or community) when choosing a career, that choice is accounted for in their reduced income. The last thing the government should do when people make uneconomic choices is to reward them economically with nutritional assistance, hiring quotas, or tax credits.

Luckily, I am at a healthy remove from both the ideologies of free will and the prosperity gospel, and I therefore don’t think people’s choices (particularly economic choices) are self-justifying.

Glass ceilings vs. sticky floors

The glass ceiling is probably the most emblematic phenomenon from economics to make it into popular culture. Loosely defined, it is an income gap at the top of the income distribution. In practice, it is often interpreted as a man getting promoted to an upper management position over an equally hard-working woman, who unlike the man is expected to perform childcare and other domestic duties in addition to working full-time.

Of course, I don’t know many men or women in upper management of anything. I do know many men and women in jobs that pay by the hour, and many more who used to have those jobs.  Every week when I went shopping at my local MaxValu (Japanese chain supermarket), I would notice the people stocking the shelves, men and women, the cashiers, almost all women, and the mounted pictures of the store managers, all men. There are, obviously, many more people in jobs like this than in jobs like the last paragraph in any developed country.  But for some reason, there isn’t a metaphor in common currency to describe the observed income gap at the bottom of the income distribution.

Where it is discussed, it is called a sticky floor.  As I understand it, in economics, it is simply a parallel phenomenon to the glass ceiling, but one that concerns vastly larger numbers of people. In my mind, discussions of glass ceilings sometimes have the false-consciousness character of waitstaff on their break debating whether a 39.6% tax on the top bracket is unfairly high. Yes, it matters that Sheryl Sandberg has few peers in the Forbes 500, but it matters more and to more people that men in the bottom 10% of incomes out-earn women in the same bracket (I would include a source here, but it would reveal the identity of my student).

Because all my posts now include mandatory COCA data, The phrase “glass ceiling” occurs 465 times in the corpus, vs. 20 for “sticky floor” (only 3 of which seemed to be about economics rather than literal sticky floors).

A salary scale in a company that isn’t growing

This will strike any of you who have formally learned economics before as shockingly ignorant, even if the rest of this post hasn’t. Basically, when things stop growing, it’s not as if they settle into a flat but stable equilibrium. Sometimes, growth makes the system stable.

Screen Shot 2018-04-25 at 13.38.10.png

This graph, drawn for me at least 2 weeks in a row by my student, shows the salary of a worker in the sort of company that hires people for life compared to that worker’s level of contribution to that company (y axes), over the career of that worker (x axis).  The salary is in blue and the level of contribution (I believe it was called “human capital”) is in green.  There are two periods where these lines are very far apart: at the beginning of the worker’s career, where he/she contributes far more than he/she takes in, and past mid-career, where he/she takes far more than he/she contributes. This graph was drawn for me mostly to explain the phenomenon of mandatory early (sometimes as low as 55) retirement ages, the rationale being that companies want to shorten the length of time that workers can draw more salary than they’re worth. It also helps explain why companies may want more and more recruits every year; it is these recruits who contribute the most to the company. As each cohort ages, larger and larger new cohorts are required to pay for the older cohorts’ increasingly opulent salaries.  This is a stable system as long as each cohort is larger than the last.

When the cohorts stop growing, it starts a chain of events that potentially results in the death of the company. First, without the contributions of new workers, the company can no longer afford the salaries of its older workers.  Older workers may take early retirement or salary reductions (and grouse mightily about today’s youth). New workers and potential recruits notice that the formerly guaranteed high late-career salary is no longer guaranteed and start to question the benefits of accepting such a low early-career salary. The company therefore has an even more difficult time finding large enough cohorts of new workers.

Call me naïve, but I hadn’t seen this clearly before, nor had I seen the implications for national pension systems. Now that I do, I am even more glad to be in ESL rather than working for Toshiba, and I definitely hope all my students have lots of kids who all pay their Social Security taxes.

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