Variance eaten up by extreme means (truncation)

If scales are continuous and limitless, variance and means are two different things. If scales are limited, however, this is not the case: towards the bounds, there will be substantially less variation than toward the center of the scale because of censoring.

The issue arose when we wanted to see whether there was divergence or convergence of job quality in Europe. If the scale was wide, the evolution of the variance would tell this, but if the scale is limited and the average moves towards one of the bounds, the variance will be wrongly considered to indicate convergence.

As a solution, I would compute some kind of one-tail variance on the longest tail if the other is strongly censored, hence assuming the latent distribution is symmetric. I have not seen such a measure yet, but it is easy to calculate.

In a way, it is a measure that should be possible to derive from truncated regression. It would be nice to do that.

Variance eaten up by extreme means (truncation)

If scales are continuous and limitless, variance and means are two different things. If scales are limited, however, this is not the case: towards the bounds, there will be substantially less variation than toward the center of the scale because of censoring.

The issue arose when we wanted to see whether there was divergence or convergence of job quality in Europe. If the scale was wide, the evolution of the variance would tell this, but if the scale is limited and the average moves towards one of the bounds, the variance will be wrongly considered to indicate convergence.

As a solution, I would compute some kind of one-tail variance on the longest tail if the other is strongly censored, hence assuming the latent distribution is symmetric. I have not seen such a measure yet, but it is easy to calculate.

In a way, it is a measure that should be possible to derive from truncated regression. It would be nice to do that.

Why social bargaining?

Much of the research I do centers around social bargaining. Time and time again, social bargaining advocates need to withstand the intuitive logic of perfect competitive markets. Their stance however is obviously biased by self-interest.

I try to sum a few point that in my view are essential in justifying social bargaining.

1. Social bargaining is insider-oriented. It unites workers and companies already employed and functioning. While this implies that often outsiders are forgotten and the government would need to intervene, in most cases they have a shared interest in improving the economy. Politics, because of the majority rule, may changes sides much more often and creates instabilities. When reflecting on, for example, European economic policy established the European monetary area, it is clear many decision have been unwise and had no economic, but rather political ends.
2. There is - in my view - a fallacy in the way we intuitively think about economic decisions. As we see demand and supply curves, we believe companies en employees think in such terms. While to some extent this may be the case, many relations come about by selection: the companies and workers that do not comply to the economic laws are ruled out. The remaining actors either are aware of these laws, or they are too a large extent ignorant of this, which is what I believe is way more common then we would expect. The reason we don't is that people who think about the economy are smart and have models in mind. People that make up the economy don't. This is where social bargaining comes in: shared experience over time may lead to more sensible pay scales, working condition, etc. then one could come up with himself. This is hard to admit, but I'm afraid it is true.
3. Sometimes, having perfect information (but imperfect control) can lead to micro-economically well motivated decisions, which turn out wrong at the macro level. In fact, wages are the best example of such dynamics. Every company would like to minimize costs (remember point 2: they might simply not survive otherwise), and wages are a cost. I am aware that wages should equal marginal productivity, but when marginal productivity goes to zero, so would wages. So when wage have a tendency to go down or, because of market imperfections such as monopsonies, the firm will profit. However, if every firm behaves in this way, aggregate demand drops. Therefore it is better to consider a coördinated pay level. Social bargaining does just that. In addition, for wages, it is accepted that in the medium run productivity adapts to the wage level, not the other way around. If one wants to direct the economy toward capital intensive, innovative industries, this can be done through social bargaining.

Type I and Type II errors

Type I: Ho true -- accept Ha / reject Ho -- try to limit this through minimizing the standard errors on your estimates, estimates should be efficient

Type II: Ha true -- reject Ha / accept Ho -- harder to know, estimates should be more consistent

http://en.wikipedia.org/wiki/Type_I_and_type_II_errors

Joseph E Stiglitz

Academic board progressive economist alliance, and also a Noble Prize winner.

Joe Stiglitz is a very political economist, a rare species nowadays. He started his research in economics with the study of inequality, but also contributed to the economics of market failures and information asymmetry.

I like his explanation of monopoly power of small firms. He showed that even if the market appears to be quite competitive and easy to enter, we may have an implicit kartel in, for instance, grocery stores. Every firm owner knows that if the customer is in the shop, he will not bother and run to the next for a very small price increase. He also knows the next grocer thinks the same, so a price increase is harmless for his business and monopoly profits can be made. This game goes on and distorts markets or creates and inflationary bias. It's fascinating.

Here's a great interview with Joe Stiglitz on the Ezra Klein show: http://www.stitcher.com/podcast/vox/the-ezra-klein-show/e/joseph-stiglitz-on-broken-markets-bad-trade-deals-and-basic-48035656?autoplay=true. (he criticizes the universal basic income in this bite)

Shapiro, C & Stiglitz JE (1984) Equilibrium unemployment as a worker discipline device, AER 74

Modelspecificatie: RESET test

Ramsey's specificatietest (RESET test) onderzoekt of er quadratische of kubieke termen moeten toegevoegd worden aan het model. Het komt neer op een F-test voor de gecombineerde significantie van de coëfficiënten van de toegevoegde voorspelde waarden uit een lineair model.

The Wage Curve

In 1995 publiceerden David Blanchflower en Andrew Oswald The Wage Curve. Daarin vonden ze een quasi universele negatieve relatie tussen de werkloosheid en de lonen. Dit klinkt weinig verbazingwekkend: indien de werkloosheid hoog is, is er een overaanbod aan werknemers, die elkaar onderbieden.

Toch is dit moeilijk te begrijpen vanuit een klassiek supply & demand denkkader. Nemen we een normale dalende vraagcurve en een stijgende aanbodscurve. Het totale aanbod is inelastisch, en bepaalt de werkloosheid (het verschil met het evenwicht). Dan zijn er twee mogelijkheden:

1. De vraag daalt, waardoor het evenwicht zich verplaatst langs de aanbodscurve, en de werkloosheid toeneemt.
2. Men bevindt zich niet in het evenwicht, maar ergens op een punt met een lager loon en boven de aanbodscurve. 

Dit zijn twee eigenaardige posities. In de eerste moeten we een verklaring vinden voor de daling van de vraag. Depreciatie van het kapitaal (uitgestelde investeringen) of technologische achterstand zijn de eerste kandidaten. Naderhand verwachten we echter dat het totale aanbod endogeen is, en zich eveneens zal bijstellen. In het tweede geval is er een imperfecte marktwerking. In het schema bevinden we ons op een punt op of boven de aanbodscurve en onder het equilibrium, waar bij perfecte concurrentie hogere lonen mogelijk zijn. Dit is niet het geval, bijvoorbeeld door beperkte arbeidsmobiliteit, waardoor de werkgever als een monopsonist opereert en louter rekening dient te houden met de (lokale) aanbodscurve. In dit geval kan de werkloosheid als exogeen opgevat worden: neemt de werkloosheid af, dan is er effectief druk om hogere lonen uit te betalen.

Het zou interessant zijn een decompositie te doen van de wage curve volgens het aandeel vraagverschuiving en het aandeel marktimperfectie.