Free download: If wages fell during a recession

You can download my full paper “If Wages Fell During a Recession” with Dan Houser from the Journal of Economic Behavior and Organization (only free until September 24, 2022).

There is a simulated recession in our experiment. We ask what happens if employers cut wages in response. Although nominal wage cuts are rare in the outside world, some of our lab subjects cut the wages of their “employee”. Employees retaliated against nominal wage cuts by shirking, such that the employers probably would have been better off keeping wages rigid.

We also tried the same thing with an inflation shock that allowed the employer to institute a real wage cut without a nominal wage cut. The reaction to that real wage cut was muted compared to the retaliation against the obvious nominal wage cut.

Inflation was implemented after 3 rounds of the same wage to create a reference point.

I blogged about the experiment previously, so I won’t go into more detail here.

The Great Recession happened when I was an undergraduate. As I started my career in research, the issue of employment and recessions seemed like THE problem to work on. The economy of 2022 is so different from the years that inspired this experiment! Below I’ll highlight current events and work from others on this topic.

Inflation used to be something Americans could almost ignore, and now it’s at the highest level I have seen in my lifetime. Suddenly, people are so mad about inflation that politicians named their bill the Inflation Reduction Act just to make it popular.  

The EWED crew has made lots of good posts on inflation. Although job openings and (nominal) wage increases are noticeable right now, Jeremy explored whether inflation has wiped out apparent wage growth.

More recently, the WSJ reports that real wages are down because inflation is so high. “Wage gains haven’t kept pace with inflation. Private-sector wages and salaries declined 3.1% in the second quarter from a year earlier, when accounting for inflation.”

Firms in 2022 did not just sit back and let real wages get eroded exactly proportional to inflation. But it is also not the case that Americans got a raise of 9% to exactly offset inflation. According to our experiment, there would be outrage if workers were experiencing a nominal wage cut in proportion to the real wage cut they are getting right now.

The high inflation combined with a hot job market makes this current economy hard to compare to anything in our recent history. Brian at Price Theory explained that inflation pressure is coming from both supply and demand factors.

Joey has a nice graph on inflation composition.

Did anyone see this coming? Watch Jim Doti of Chapman University predict high inflation based on the money supply in his forecast back in July 2021.

Lastly, our experiment on wage cuts has been cited in these papers:

Intentions rather than money illusion – Why nominal changes induce real effects

Economic stability promotes gift-exchange in the workplace

Wage bargaining in a matching market: Experimental evidence

Can reference points explain wage rigidity? Experimental evidence

Shocking gift exchange

Secret Fun Tech People

If you are trying to pick a career, it would help to know what the daily experience is like in various professions.

A friend of mine recently quit her old job and did a coding bootcamp. She worked hard, went through interviews and is now working in tech. She was correct in expecting that coding is more interesting and provides more opportunity than her old job.

She is not at a FAANG or grinding at a startup. She got hired in a remote position that requires an understanding of code. She’s starting at the bottom of the hierarchy in her 30’s, as someone with no experience.

Now that she has started work in the industry, she reported to me that, “I don’t think I could have predicted that the people would be this much fun.”

She is genuinely enjoying tech culture. She texts me obscure tech jokes now as if it’s an SNL skit that I would enjoy. (e.g. https://www.youtube.com/watch?v=kHW58D-_O64 somewhat obscure YouTube channel) Her previous job was boring, and she never told me a positive thing about it. She is happy, not just with her financial return on investment but with her community.

If you read much about tech policy, you have heard about harassment in the workplace, especially for women. This is indeed an important issue. I’m not presenting my anecdote to imply that everything is fine everywhere. If people are trying to make important life decisions, then this is worth discussing.

One factor that might make people not want to learn to code is that they are afraid the work would be isolating and boring. It can be, but there is also a community aspect that can be positive.

I polled my Twitter friends and got this result (small, biased sample, albeit, and I suspect it’s mostly men who answered):

No one disputed that tech folk can be fun, although some people wanted to qualify the statement by saying that different companies have different cultures.

John Vandevier (@JohnVandivier) sent me a blog he wrote about a study on tech culture. “Analyzing ‘Resetting Tech Culture’ by Accenture and Girls Who Code” The study shows that the world is complex. Lots of women are happy in tech. At the same time there are people who face harassment. There is good news and bad news. Offenders should stop offending. There are also good opportunities out there for people who train for tech.

When I shared the story about my friend’s good news, it was mostly ignored on Twitter. Good news does not drive engagement. Happy people are not interesting and so no one hears about them. Tech is not the right choice for everyone, and some people have been mistreated at tech companies, but on the margin a few more people should probably go for it.

Here’s something to balance out my rosy report about all the laughing and LOLing among coders. Last year I had a miserable long day of coding. I wrote up a diary entry about how much I hated that day. I’m not trying to get sympathy for myself. I wanted to capture a modern experience that is shared by many.

Coding can be hard and frustrating and lonely. The jokes are funny because the pain is real.

See New York City for free

When writing in the capacity of an economist, one should never pitch an experience as “free”. Going anywhere has opportunity costs, especially if you have to pay several tolls on the New Jersey Turnpike. That said, if you want kids to see New York City as part of a road trip, consider Liberty State Park.

You can enter and park for free. There is a playground, picnic tables, and lots of trails. You can see the Statue of Liberty, Ellis Island and Manhattan across the river.

Taken from a nature trail inside the park. There is also a clear view of the statue next to the river.

At the northern edge there is a memorial for those lost on 9/11.

If you have hours to spend, you could also pay admission for the Liberty Science Center. Currently, my family has free admission because of the ASTC Travel Passport Program.

Drone Racing is Poised to Grow

  1. Observations from the World Games

Drone racing was an event at the World Games in my city. Now I know it exists (as does canoe polo!).

The composition of contestants was interesting. One pilot was only 14 years old, the youngest person competing in the 2022 World Games. Another pilot was in a wheelchair. Drone racing is for sports like Work From Home is for professional jobs – the number of competitors is potentially enormous.

Spectators reported that it was hard to follow the actual drones with your eyes. People in the stadium for the race usually watched the jumbo screens that show the point of view of the pilots. This raises the question: why bother with the drones at all when we could just be doing e-sports? There is something special about the extra challenge of a physical race. The machinery adds a NASCAR-like element, and it gives people an excuse to gather together.

Videos, if you’d like to get a sense of how the sport works:

Championship Race: Xfinity CA Drone Speed Challenge, 2018

Maine drone racer heads to the World Games

2. Thoughts on the Future

Polaris published an industry report that predicts growth.

Drone racing will grow in the United States. This seems like a sport that will appeal to Generation Alpha and their parents.

As a parent, I would support it. It’s expensive, so that’s going to be prohibitive for a while, but millions of Americans bought drones at some point in the last decade. Drones get broken in races, but the cost of components is coming down. Part of the sport is being able to repair and build your own custom drones.

A handful of US high school already have drone racing clubs. Adults will be able to point to the value of learning technology that comes along with racing for fun.

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Perks in Severance

I have written three blogs on the TV show Severance this summer. My newest post is up at the Online Library of Liberty.

I discuss how job perks are portrayed in the show. The bosses in the show are creepy and we come to find out that they are totally evil. Given the way everything feels in the show, you could come to the conclusion that perks are generally manipulative and false. Someone implied that in an op-ed published by the NYT.

My argument is that free adults can use “perks” to motivate themselves and each other to do the right thing.

We are all just trying to get that dopamine, in the short term. Should people only feel happy when they are doing drugs or playing video games? Should bosses not be allowed to create a fun moment at work?

Trivial gifts and prizes must be cheap, so that their cost does not start to outweigh the benefits of incentivizing things we should be doing anyway. Finding ways to make a responsible life exciting is in fact the key to maintaining our liberty. Most people do not want to be martyrs. They want life to be fun.

The following tweet shows the character Dylan and his performance prize.

Behavioral scientists have documented lots of quirks in human behavior. We aren’t solely motivated by our (real wage) salaries to produce effort. The good news is that we are capable of self-reflection. We can make these quirks work for us. Lots of successful people will promise themselves a small reward at the end of the week if they accomplish something hard.

Perks aren’t all bad at work, but, on the other hand, Severance could make you more alert to genuine manipulation that is out there.

Watching Severance prompts good questions. Who are you? (That’s the opening line of the show.) What are you doing with your life? Whose purposes are you serving?

I liked the show because it has great characters, funny moments, and it gets you thinking. If you watch the show, don’t take it too seriously. Ben Stiller is a co-director. The man (the genius) brought us Zoolander (2001).

One give-away that this ain’t the new 1984 is a plot hole concerning how the main character Mark decided to sever himself and join the evil corporation. According to the show, his wife died and he was so sad that he quit his job as a history professor after three weeks of feeling sad. I know a lot of academics. History professors have worked too hard and too long to quit their jobs after three weeks of feeling sad. Take everything with a grain of salt from these writers. Mark’s general lack of executive control is at odds with the backstory that he once obtained a job as a history professor.

Severance is described as science fiction but it clearly takes place in the United States of America. For one thing, a “senator” has a role. For another thing, the work schedule is pretty American. This is a funny video on how Europeans view the American work schedule:

I have no idea how far down the rabbit hole the writers will feel like they have to do in Season 2. Will there be a role for a POTUS?

The second blog was posted to EWED: my thoughts about relating Severance to Artificial Intelligence.

A question this raises is whether we can develop AGI that will be content to never self-actualize.

And, back in May, OLL ran my first blog about Severance and drudgery.

The first line in the show is, “Who are you?” Themes about identity and purpose are explored alongside the thrilling hijinks of the prisoner innies. Outie Mark has nothing except his personal life to think about, which in his case is tragic. Innie Mark has nothing but work. Neither man is happy or complete.

Birmingham AL hosts The World Games

Have you heard of The World Games? It’s the Olympics for sports that are too random to be in the real Olympics. It is happening right now in Birmingham, AL. It’s not too late to get your tickets to see Canoe Polo.

For people interested in regional politics, this blog about the city successfully hosting a major event might be interesting. His references to people in “the suburbs” is something you won’t understand without some context and history. But you don’t have to be a local to learn that history, since everything is online.

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Teaching with ACS regional data

If you are teaching a quantitative college course, then you have probably thought about where to get data that students can practice with.

Public Use Microdata Areas (PUMAs) are non-overlapping, statistical geographic areas that partition each state or equivalent entity into geographic areas containing no fewer than 100,000 people each. The image here shows PUMAs around Birmingham, AL. I created a dataset for my students that includes demographic data from the American Community Survey (ACS) for the region around our university.

For just about any topic you would teach in stats, I can create a mini assignment using data on the people around us. Any American metro area has clusters of high-income households and clusters of low-income households. One example of a an exercise is to create summary statistics on income by PUMA. Students will be surprised to learn the facts about their own city.

Zachary has blogged about how great IPUMS is. The way I obtained the data was to make a free account with IPUMS. If you asked for data on every American, you’ll end up with an unwieldy big file. The trick is to filter out all but a handful of PUMAs. I also recommend restricting it to just one year unless you are teaching time series techniques.

I originally got the idea from Matt Holian. Matt wrote fantastic book called Data and the American Dream. The book has data and R codes that allow you to reproduce the findings from several interesting econ papers that all use ACS data. I’m not teaching material that overlaps perfectly with Matt’s book, so I couldn’t assign it to my students, but I did borrow some elements of his idea and even (with his permission) some of his code.

The World is Watching Top Gun Maverick

I see that you’re hurtin’, why’d you take so long

To tell me you need me? I see that you’re bleeding
You don’t need to show me again
But if you decide to, I’ll ride in this life with you
I won’t let go ’til the end

So cry tonight
But don’t you let go of my hand
You can cry every last tear

These are the lyrics to the song sung by Lady Gaga in the closing credits of Top Gun: Maverick. This song has been on the Billboard Top 100 chart for 6 weeks. The film TG:M is on its way to breaking a billion dollars worldwide at the box office this year. People (millions of people in every demographic all over the world) want to see Tom Cruise, playing himself (j/k), save the day. At the end of the movie they expect you to want to cry, and then Lady Gaga tells you to just let it out.

The only bit of acting that was hard to believe in the movie was the guy who was trying to play the arrogant jerk. The writers were trying to inject some drama with his lines, but the whole cast was so good-hearted and earnest. These folks seemed about 2 meters from heaven, and I don’t just mean because of flying at high altitudes.

After seeing TG:M in theaters this weekend, I watched the original 1986 movie (free on Amazon Prime right now) for comparison. The locker room banter in TG1 seemed more genuinely mean-spirited. That was back when bullies were bullies and no one was afraid of getting canceled?

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Nudging Students to Choose a Major

In one sense, it seems like advice does not work. Advice is often ignored and sometimes even resented. People are going to just do what they want.

And yet, many people were in fact influenced by advice at some point in some situation. Many people can tell you about a mentor they spoke with or a book they read. Somehow, we do indeed need to learn about our environments and make choices about career and health and relationships. So, advice does work, sometimes.

A trivial example is why I stopped putting sugar in my coffee. A random anonymous message board post said that you should stop putting sugar in your coffee and your taste will adjust. “You won’t even miss it,” the anonymous poster told me. From that day forward, I stopped putting sugar in my coffee. I’m healthier and I don’t miss it. I was “nudged”. I was also predisposed to make this healthy decision, and I had sought out advice.

We might overestimate the effectiveness of advice because when people bother to talk about it, they mention the one time it affected them. First, they fail to mention the thousands of messages that had no effect (personally I still eat all kinds of junk food that contain sugar despite getting warnings to stop). And secondly, some decisions (perhaps including my coffee-sugar example) would have been made eventually without the advice event. Even recognizing those limitations, I still believe that messaging works sometimes.

It is tempting to think that, at almost zero cost, you could nudge people into making different decisions, just by sending them messages. There is a growing literature on this topic. Economists like myself are collecting data on whether it works.

One of these papers was just published:

Halim, Daniel, Elizabeth T. Powers, and Rebecca Thornton. 2022. “Gender Differences in Economics Course-Taking and Majoring: Findings from an RCT.” AEA Papers and Proceedings, 112: 597-602.

We implemented an RCT among undergraduate students enrolled in large introductory economics courses at the University of Illinois at Urbana Champaign. Two treatment arms provided encouragement to major in economics. A “prosocial” treatment provided information emphasizing the wide variety of career options and personal benefits associated with the major, while an “earnings” treatment provided information on financial returns. We evaluate the effects of the two treatments on subsequent choices to take another economics course and declaration of the economics major by the end of the student’s junior year using student-level matched administrative data. … Our primary aim is to evaluate whether women can be “nudged” into a major with low-cost, theoretically grounded, encouragement/information interventions.

Our primary sample consists of 1,976 students who were freshmen or sophomores during the focal course.

We find that the average male student receiving either treatment is more likely to take at least one more economics course after the focal course, but there is little evidence of increased majoring. The average woman appears unresponsive to either treatment.

Treated women with better than-expected focal-course performance are nudged to take an additional economics course. The likelihood that a woman takes another course in response to treatment increases by 5.6-5.9%-points with a favorable one-third- grade “surprise”. The hypothesis of treatment effects on women’s majoring, mediated or not, is rejected. Men’s susceptibility to treatment is invariant with respect to focal course performance.

Women did not demonstrate a bias towards a pro-social framing, and men did not demonstrate a bias towards a pro-earnings framing.

The pile of null results for messaging, when it is randomly assigned, is growing. It’s good to see null results get published though.

One of my current projects is related, but with a focus on computer programming instead of majoring in economics.

Thoughts for the week on podcasts and the Constitution

  1. Jamal Greene was the most recent guest on Conversations with Tyler. This is how Greene describes his work habits as an academic with children:

GREENE: … my most effective work habit is to use the entire day to work. I get a lot of work done late at night. Most of my time during the day is spent teaching classes or meeting with students, and all writing and reading and preparation and everything is much later. That means I don’t watch television shows. It’s a really extended workday.

I work during soccer practices. I work sitting in the car while my kids are doing something or other. I don’t segregate times of the day where I can’t work.

One thing I find personally is that if I’m doing empirical work then I really need to be inside with at least one external monitor. As much as I like the idea of working from the pool (referencing the viral video of the week) being at my office is the best set up.

2. Currently I am teaching an online asynchronous class. Considering that my students are on the move in different places right now, I decided to create a podcast assignment. This seems to have gone over well. One student had a criticism for the episode that she chose: it was not entertaining. Another student complained that his episode had too much fluff about the personal lives of the speakers. This raises the interesting question of how the experts manage to make podcasts informative without being boring. It’s an art. Talking about your personal life to break up the subject matter can work but it can also feel like a waste of time.

3. For a discussion group, I read The Essential Federalist and Anti-Federalist Papers.

Something that stood out to me was the sheer intensity of these guys. Liberty is a serious topic, but I’ll just share something that is funny from the book.

In the middle of a long fiery speech of Patrick Henry, the book inserts a line in brackets:

What will then become of you and your rights? Will not absolute despotism ensue? {Here Mr. Henry strongly and pathetically expatiated on the probability of the President’s enslaving Americans, and the horrible consequences that must result.}

A footnote explains that stenographer had difficulty keeping up with Mr. Henry and was occasionally reduced to recording a mere summary of his words. It’s impressive that a stenographer could have gotten as much as they did.

I came away from the book thinking that people should talk more about this moment in history, and then I started noticing when people do talk about it. In fact, Tyler was interviewing a constitutional scholar this week and explicitly addressed the idea of “federalism.”

4. The debate does rage on 200+ years later.

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