Economic Thinking In Action

What is the true value of placing your kids in a high performing school?

by Dwight Steward

Deciding which schools their children attend is one of the biggest and anxiety producing decisions that parents make. Often at the heart of the decision is determining how much value there is in children attending highly competitive high schools versus less competitive high schools. For example, are kids in highly competitive schools more likely to attend and graduate from college?

Recent research by Princeton economist Will Dobbie and Harvard economist Roland Fryer, suggest that in contrast to some conventional wisdom, that the typical college applicant does not gain much from attending competitive high schools. The authors conclude;

Our results suggest that the typical applicant does not significantly benefit from attending a school with dramatically higher-achieving and more homogeneous peers….With that said, without longer-term measures such as income, health, or life satisfaction, it is difficult to fully interpret our results. To the extent that attending an [highly competitve high school] with higher-achieving peers increases social capital in ways that are important for later outcomes that are independent of college enrollment, graduation, important for later outcomes that are independent of college enrollment, graduation, or human capital, then there is reason to believe that our conclusions are premature…

by Dwight Steward

Economics in action: Texas Cattle Prices Will Continue to Increase

Dwight Steward wrote:

Cattle prices in Texas will continue to go up. There are several factors that point to a continued increase in prices.

1. The overall number of cattle in Texas has fallen. From 2012 to 2013, the total number of cattle on feed decreased by over 600,000 from 11.9 M to 11.3M which is a 5% reduction. As with anything, the fewer that you have the more that they will cost.

2. The number of breeding cows has decreased even more. From 2012-13, the number of breeding cows decreased 12%, from 4.57M to 4.02M. The smaller number of breeding cows in Texas means that there will be fewer calves born in subsequent years which absent significant imports of cattle into the state, means that there will be smaller herds into the indefinite future for Texas.

3. The Fracking Boom. The fracking boom has made cattle ranching relatively more expensive in certain areas of the state. In some areas, such as South Texas, cattle ranchers have found that it is more profitable to sell or lease their land for oil and/or gas exploration.

See the cattle price data here;

https://docs.google.com/spreadsheets/d/15jia1S9wv7BVUzGngeHoX-Ac6ERhCWTrzqIj2GUR4dA/edit?usp=sharing

by Dwight Steward

Rest Periods, Hybrid Pay Systems, and the Minimum Wage in California

Dwight Steward wrote:

Companies use many different systems to pay employees. One such system is a hybrid pay system, where an employee earns an hourly rate as well as a wage for productive tasks. For example, an employee who is paid $4 per hour and additionally $0.10 per box unloaded from a truck. Recent cases discuss how companies that utilize a hybrid pay system should pay their employees a minimum wage for rest periods.

According to a May 8, 2013 decision in Bluford v. Safeway Stores, “rest periods must be separately compensated in a piece-rate system. Rest periods are considered hours worked and must be compensated… A piece-rate compensation formula that does not compensate separately for rest periods does not comply with California minimum wage law.” In other words, earnings for productive tasks cannot be used to subsidize rest breaks.

Age-earnings profiles for MBAs

A person’s earnings will tend to increase as they age…to a certain point. After that point, which is around age 46 or so depending on the person’s education level and occupation, the person’s earnings will tend to decrease as the age.

The age-earnings profile captures this phenomenon. The age-earnings profile is calculated from data sources like the Current Population Survey from the U.S. BLS

Here is a question that we recently addressed:

Q: Any idea on how to create an age-earnings profile for someone specifically with an MBA? Are there data somewhere that have created such a profile? I can see using the ACS (American Community Survey) to look at people by age who have a master’s degree and are employed in management occupations. Anything more specific?

A: The ACS would be a good start and would allow you to estimate an age-earnings profile more specific to the facts in your case. In our cases we generally estimate the age earnings profiling using a regression model. In our cases, there are generally not enough observations to filter for all the specific facts that we want to account for so a regression approach has been useful for us.

Standard age earnings profile regressions from labor economics models, see for example papers by Mincer et al., Lazear et al, , Welch et al. and many more, regress earnings on experience, experience squared, occupation variables, geographical variables, and education variables.

3 Strategies 4 Extending Drug Patents

Patents create short term monopolies that can last up to 20 years. The idea is that the time is needed to provide the patent pioneers time to recoup the money it took to research and develop the product. When the patents expire patent holders in the pharmaceutical industry have generally employed a number of strategies to effectively extend the patients and ward off competition.

Strategy one: Marketing
Strategy two: Moving customers to drugs that are still protected by a patent
Strategy three: Paying potential competitors not to enter

See The Economist June 21, 2014 p. 74 for more discussion on the issue.

State Capitalism or Crony Capitalism?

Schumpter @theeconomist argues that State owned enterprises that own significant portions of many of the major companies in their country have found ways to continue to survive and even grow. Schumpter, referencing a new book “Reinventing State Capitalism” says that even though China and Russia own approximately 60% and 35% of their respective stock market capitalizations, some of the new State Owned Enterprises in some ways resemble private sector firms.

Steps to converting non-analyzable wage, time, and business electronic data

When manual data entry of non-analyzable financial or wage data is not an option, OCR software and specialized designed and written computer software data cleaning routines is a good alternative.

For example in our approach, we use a number of OCR programs including Abbey Reader to first translate the data into a format that is recognized by statistical programs such as STATA and computer software script languages such as VBA.

Once the data is converted, we write specialized computer software routines to extract the relevant data from the converted file. The computer code, which is written in STATA, VBA, or other scripting language, puts the extracted data into a format that can be analyzed by statistical and spreadsheet programs.

These approach to converting wage, business, employment or other types of data has the advantage of being able tobe reproduced by either party if required.

Having both the data cleaning and statistical and economic analysis performed by the same economic outfit and team is desirable. Data cleaning is not performed in a vacuum; that is the very definition of ‘dirty data; depends on what the data is to be used for. Some data items may not convert very well by the OCR and software code, but the items may be of little value in the economic and statistical analysis in the first place.

One advantage of using the same research outfit to do both the data cleaning and the economic and statistical analysis is that the distinction gets made early in the analysis process.

Converting and analyzing wage and business data from PDFs

Some wage and business data is electronic but is not analyzable in the format that it is maintained by the employer or company.

For instance,some employers use computerized data systems for recording the start times, lunch periods, and end periods for certain employees. When reviewing this data in the regular course of business some of these employers review standardized, pre-formatted reports of the time punch data instead of the actual underlying time punches that were made by each individual employee. Many of these standardized reports are presented in a PDF or other non-analyzable electronic format.

Similarly, some businesses retain certain information, such as itemized copies of purchase orders, only in a PDF or other non-analyzable electronic format.

The task when addressing economic damage issues that rely on this type of non-analyzable electronic information, is to accurately and efficiently translate the data into a format that can analyzed using statistical programs, such as STATA. In cases with relatively small amounts of data spreadsheet programs such as EXCEL could also be used.

How is this done? Next>>>>

Evaluating economic damage allegations related to damaged credit

Allegations of economic loss arising from damaged credit history appear in cases involving business damages as well as personal injury torts.

In these cases, the loss allegations generally revolve around a specific economic damage such as a mortgage loan denial or a higher interest rate.

The economic damage calculation and/or rebuttal analysis general involves comparing the plaintiff’s current economic and credit situation to the economic and credit situation that could have been reasonably expected to occur had the incident in question not occurred.

The credit situation that could have been reasonably expected to occur had the incident in question not occurred is typically referred to as the ‘but-for’ scenario.

Analyzing business damages arising from the injury of a principal employee or owner

Lost profits arising from the injury of a principal employee or owner require an analysis of the actual and ‘but-for’ revenue of the business entity. The date(s) the alleged economic damage to the business began and end is an obvious stating point in the business damages analysis.

Generally, there may be multiple dates if the economic damage occurred in stages. For example, there may be a major impact time period, such as a period of time where principal(s) or the owner were not able to perform any managerial duties at all following a physical injury. Following the major impact period, the principal(s) or owner may have returned to their duties in a limited capacity or full capacity after some amount of time