Assignment #10

12 Apr

Chapter 7 of Poor Economics critically analyzes microfinance, the institution often hailed as the cure for poverty worldwide. Best known for Muhammad Yunus’ Grameen Bank, the extension of credit to the world’s poorest has received lots of attention, as Yunus himself received the Nobel Peace Prize for his work. There is no doubt that microcredit can help alleviate poverty, but it is often overhyped. This chapter of Poor Economics attempts to evaluate the process of extending credit to the poor, through traditional means as well as the innovative microcredit institutions.

Two examples are used in the book: 1) the ennuchs of India who lend to the fruit sellers and 2) the Kabuliwalas who lend in Bengal. The authors discuss the outrageous rates of the ennuchs saying that they charge 5% interest per day on the loans that they give to the fruit sellers. Here, it is important to show how exorbitantly high the rates are but I think they go beyond the necessary point when they show the amount that it would be if compounded over a full year, since that is an unrealistic scenario. They then compare this to the highest rates charged in the US on credit cards, which most here view as usury, and explain how those rates would be great in any poor country. The authors then explain that lending from the Kabuliwalas are essentially the same as lending from the mob in the US; you don’t do it unless you absolutely have to because their tactics of reacquiring their money are absolutely ruthless.

Like the other chapters, the authors take a sensible approach to evaluating the issue. They present all the different sides of the issue and provide intelligent analysis. For instance, they point out that microcredit is moneylending for a social purpose. Hence, even in cases where large microfinance institutions are charging outrageously high rates, by rich country terms, they are actually a much better option. 

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Assignment #9

29 Mar

Autor, Levy, and Murnane (2003) were one of the first to investigate the effect of technological change in the last decade, specifically the decline in the cost of computer capital, on the labor market by looking at data from 1960 to 1998. They argue that computer capital, “(1) substitutes for workers in performing cognitive and manual tasks that can be accomplished following explicit rules; and (2) complements workers in performing nonroutine problem-solving and complex communications tasks.”

This article brings to light the importance of technological progress in the labor market. That variable clearly needs to be accounted for somehow in the regression, though it will probably need a proxy variable, like time. The problem is that it is not the best way to account for that variable, which is indeed very hard to measure. It does, however, not violate any of the assumptions of the model.

Aside

Assignment 8

22 Mar

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The primary relationship of interest is the effect of recessions, reflected by the lack of gdp growth, on youth unemployment levels. This particular regression attempts to measure effects specifically on youths aged 16-19 employed in routine cognitive positions, like an administrative assistant, in the labor market.The coefficient of interest is not particularly good with an extremely low gdp level. However, there may be some co-linearity at play as another variable, labor force participation for those aged 15-24, could be determined by gdp growth. The only conclusion that can be drawn is that overall youth labor market participation has a particular effect on youths working in these particular occupations. The regression, at this point, clearly has many flaws. In this one and others, the lfp1524 variable has a much more significant effect than any of the others. Thus, there is no causal link that be drawn yet from any of the regressions on the data.

Assignment #6

1 Mar

Technological progress has been one of the greatest products of the capitalist system, fostering continued economic growth over the long term. New technologies have fostered progress and changed societies forever. There have been societal complications, however, related to technological progress over time. Change has not helped everyone. The most famous example of a group which protested technological change was the Luddites, 19th century English textiles artisans, who smashed the looms of new textile factories that allowed them to be replaced by less-skilled laborers. Recent innovations in automation and personal computing have been the equivalent of the invention of the textile loom in today’s age. Several researchers have looked into these developments and their effects on the labor market and society in general. They have discovered two intricately related trends: skill-biased technological change and job polarization. Specifically, it has been discovered that technological change has caused the polarization of jobs to the low-skill and high-skill ends of the spectrum, with a hollowing out of middle-skill jobs. Much of the research has focused on the effect of these trends on the middle class, looking primarily at type of occupation and wage. The goal of this paper is to further delve into their results and analyze the effects of these trends on three separate age groups— 16-19, 20-24, and 25-55— in order to determine how these trends have affected youths differently than adults.  My hypothesis is that young people would be particularly affected by the elmination of positions which required routine work, since many entry level opportunities often fall into the routine category. I hope to find the relationship between occupation type and age group from 2000 until 2011, analyzing data from the Bureau of Labor Statistics and following the methodology of Jaimovich and Siu (2012).

 

Autor, Levy, and Murnane (2003), “The Skill Content of Recent Technological Change: An Empirical Exploration.” Quarterly Journal of Economics, 118(4), November 2003, 1279-1334.

Autor, Katz and Kearney (2008). “Trends in U.S. Wage Inequality: Revising the Revisionists.”
Review of Economics and Statistics, May 2008.

Jaimovich, Nir, and Henry Siu. “The Trend Is the Cycle: Job Polarization and Jobless Recoveries.” National Bureau of Economic Research, 2012.

Smith, Christopher L. “Implications of Adult Labor Market Polarization for Youth Employment Opportunities.” M.I.T. Department of Economics, July 2008.

Smith, Christopher L. “Polarization, Immigration, Education: What’s Behind the Dramatic Decline in Youth Employment?” Federal Reserve Board of Governors. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1956751&gt;.

Assignment #5

22 Feb

I read Freakonomics back when I was in high school and Chapter 3 is the only one that I vividly remember because it was such an interesting expose. The central argument of “Why do drug dealers still live with their moms?” is that dealing crack cocaine is not very lucrative for those who are actually selling it on street corners. In fact, the chapter details the complex, corporate-like structure of the crack business which distributes its profits like McDonald’s- exorbitantly high wages for the top brass and minimum wage (or less) for the average worker. 

The first statistic of real interest in the chapter is on page 103, which is that J.T.- the local drug boss- paid himself $8,500 while the rest of his employees earned a combined $9,500. Therefore, his three officers earned a mere $7 per hour while the foot soldiers earned $3.30!

The second statistic of interest comes on the same page is that, “The top 120 men in the Black Disciples represented just 2.2% of the full-fledged gang membership but took home well more than half the money.” This fact proves that the capital in this illicit business was being accumulated by a select few, just like a regular corporation. Moreover, it reveals the tournament-style nature of the business where the pyramid is very steep, making a foot soldier selling crack on the street hoping to be a drug lord one day not so different than a high school quarterback lifting weights in hopes of becoming an NFL QB.

The next stat comes on the following page 104, which is that the foot soldiers had a 1 in 4 chance of being killed during the four year period studied. This statistic is a complete revelation considering that the foot soldiers were only making $3.30 an hour. It’s clear that the several factors determined this low wage, most importantly that the young black men in the South Side of Chicago thought that the drug business was the only way to success. They’d take those huge risks and low wages, just for a small chance at becoming a drug lord one day.

The final statistic of importance is that the neighborhood’s median income was about $15,000, well less than half the US average. Ultimately, this fact that the area in which this crack business was occurring was also desperately poor is supremely significant. The crack business only could have succeeded in such an environment where their is a huge demand for cheap drugs as well as a huge supply of cheap labor. The ghetto of Chicago is extremely susceptible to this type phenomenon because a few drug lords can profit immensely by suctioning all the already small amount of cash held by individuals into a few hands. They offer a form of security and protection in return for being able to sell their drugs freely. It’s a dangerous situation that’s striking other cities around the world like the favelas of Rio de Janeiro where there are a lot of people in desperate poverty.

 

Assignment #4

15 Feb

My topic focuses on the effect of job polarization on youth unemployment, specifically in the last recession. It takes inspiration from a paper by Jaimovich and Siu in which they analyze labor market trends by occupation type over the last several recession. Their primary finding is that the jobless recoveries that have occurred are caused by a phenomenon called job polarization. Job polarization occurs when middle-skill/ middle-wage positions are hollowed out, with job growth only occurring at the high and low ends of the spectrum. They show convincing evidence that most of these disappearing jobs involve routine tasks which have been replaced through mechanization and computerization.

The motivation behind my project is to expand beyond J&S’s work which looks strictly at the job market by occupation type by evaluating the effect of these labor market trends on different age groups. My hypothesis is that youths have been adversely affected in the most recent recession by job polarization in comparison to the other age groups. The goal is to gain a greater understanding of what has happened to the labor market which my generation is now entering.

My data come from the Bureau of Labor Statistics. They are broken by occupation type and then three age groups (16-19, 20-24, 25-55). At this point, I have not further subdivided these groups into race or sex, but would be able to if more analysis is needed. Going forward, I need to do additional research on youth unemployment in the United States. I have done some preliminary research but it is not nearly enough to support some of the early data work that I have done.

Assignment #3

8 Feb

Poor Economics discusses poverty traps in detail to uncover how those who are already poor remain stuck in poverty. The Slate article by Mullainathan and Sharfir adds another component to these poverty traps, the scarcity element. They argue that the scarcity of resources and time, causes those in poverty to make poor decisions that sacrifice their future welfare. For instance, a person might borrow at an extravagant rate to afford healthcare for an ailing child. The reality is that, at that moment, they don’t have a choice.

There is no question that poverty traps exist in the developing world. In the developed world, there is a social safety net specifically so that people do not fall into poverty just because of one unfortunate event. Governments require health insurance, workman’s compensation, and unemployment benefits so that citizens to plummet into poverty. Where these social support systems do not exist, there are inherently poverty traps. 

It would be effective, however, if Mullainathan and Sharfir could actually quantify the effect of this scarcity issue. To what extent are people willing to sacrifice their future in moments of scarcity and distress? Is there truly a feeling amongst those who live “paycheck to paycheck” that they have no other option? More information on this feeling of helplessness for those stuck in a poverty trap would further support this theory.

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