Conference: Public Economics for Development

I have been invited to present my research at the conference called Public Economics for Development, organized by UNU-WIDER in Maputo, Mozambique, on July 5-6, 2017. My talk regarded a work in progress that is carried out by me and Petr Janský as part of the COFFERS project. First of all, I would like to express my gratitude to UNU-WIDER for organizing such a great event, bringing together researchers from all over the world to talk about what economics can do to end poverty and jump-start sustainable development in poor countries.

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Phantoms on the labor market

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Having trouble finding a job? Blame the phantoms.

If you ever spent some time looking for a job online, you have most likely stumbled upon a listing for a position that has already been filled, and most people would agree that it is very annoying. In their recent paper, Bruno Decreuse and Arnaud Chéron call these job listings phantoms. It is not hard to imagine how phantoms directly create inefficiency in the labor market. Job seekers who apply to phantom listings lose their time by calling and employers who leave their ads online even after they have filled the advertised position lose their time by responding to job seekers and explaining them that the position has already been filled. Yet, many employers just leave their phantoms out there. The authors estimate that around 37% of job listings on Craigslist (a major job board in the US) advertise for already filled vacancies.

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Thought experiment #1 – the iPhone experiment

I love thought experiments so much that I am just now making this a blog series. One of my favorites is the so-called iPhone experiment, which was introduced to me by one of the best things the internet has ever given to humanity – the Wait But Why blog.  Its author, Tim Urban, summarizes the instructions as follows:

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Should tall people pay more taxes?

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Do you think that’s absurd? Keep reading.

Tax systems of most developed countries are astonishingly complex. Depending on your country, factors such as your income, consumption, wealth, number of children, charitable contributions, mortgage payments, health insurance expenditures, or whether you donate blood may all influence your tax liability, i.e. the total amount of tax due each year. The ultimate aim of designing a tax system is fairness, although the concept is rather subjective. There are multiple plausible, yet very different views on what is fair. One view (very rare, luckily) is that a flat tax would be the most fair tax, as everybody would just pay the same amount. In practice, two main principles are used to argue which taxes are considered fair – the ability-to-pay principle and the benefits principle. While income tax or wealth tax are prominent examples of taxes we deem fair based on the ability-to-pay principle (you pay as much as your financial situation allows you to), consumption tax or highway tolls are typical taxes based on the idea of the benefits principle (you pay as much as you use a certain good or public service). The framework for optimal taxation which remains a centerpiece in modern public finance was laid out by James A. Mirrlees (of Mirrlees Review) and William Vickrey, for which they jointly received a Nobel Prize in 1996.

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Multilingual countries

I love how some countries are just somehow set up so that people speak more than one language. I am not talking here about countries like Switzerland or Belgium, where there are more official languages and people just kind of learn them all at school to understand other citizens of their own country. And I am not talking about countries like Morocco or Algeria, people of which learn a foreign language because of their colonial heritage. I am talking about countries like Poland, Hungary, Portugal, the Netherlands, Czech Republic, Sweden and the like. A common theme in these countries in this particular context is that their native language is relatively insignificant on the global scale, because not many other countries speak it, if any. But why do people of some countries learn it more than others, even though it should be similarly important to them?

The value of workers from these countries on international markets is quite diverse as a result. What I want to point out is that if you’ve ever watched TV in the Netherlands, for example, you may have noticed that lots of movies and TV shows are in their original language – usually English – and the TV channel shows subtitles in Dutch. I am not saying this is the principal reason why most Dutch people speak fluent English, but I am sure it helps. In other countries, such as the Czech Republic, the bulk of all foreign TV content is dubbed into the common tongue. I find this highly disturbing from my personal view, because I don’t like the dubbed versions, and also as an economist, since this situation is very inefficient. I feel confident when I say I have studied and learnt more languages than most people, and watching movies and TV shows in their original versions is one of my favorite ways to study them efficiently (since I would be watching movies and TV shows anyway, why not learn while doing it, right?) That’s why I call to all those responsible – don’t dub your TV channel’s content! It will be cheaper for you, many new people will start watching your channel (I can’t be alone on this), and you can sleep better knowing that you provide free language lessons to tens of thousands of people at a time.

Get out of your social bubble

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Recently, social media have become the primary source of information for many and thus play an increasingly important role in influencing opinions, and apparently more so for the young generation. The problem is that on social media, opinions you usually get exposed to become less and less diverse as a result of both automatic filtering algorithms (whose goal is to get as many shares as possible) and the fact that you are more likely to follow people with similar views (who are, in turn, likely to share information biased in favor of their opinion). An example is your Facebook feed, which is personalized based on your past clicks and likes, making you less likely to “see the bigger picture”. This phenomenon is called a filter bubble and it concerns both search engine results and social media. However, as some people argue (here or here), social media are a more powerful tool for filter bubbles, and this is a problem. Others think that when it comes to the really important decisions, it might not be that bad just yet, and there are even guidelines on how to get out of your filter bubble.

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Are you struggling to find a job? Maybe it’s time to change your name

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Unfortunately, we have not yet arrived to a time when people of all colors have the same opportunities. Numerous studies have shown that in the US, being an African American is strongly correlated with earning less money for the same work, having worse access to education, being more likely to be unemployed and so on. Nonetheless, there are areas in which one would not expect racism – like responding to CV submissions not including pictures of the person. However, as shown by Marianne Bertrand and Sendhil Mullainathan in their field experiment, even your name can affect your chances.

The authors started by choosing typically white and typically African American sounding names, such as Emily Walsh and Jamal Jones, and sent out resumes randomly in response to help-wanted ads in Chicago and Boston. In total, they responded to over 1 300 job offers, sending out more than 5 000 resumes. They randomly assigned previous work experience to these fake resumes and responded to a variety of jobs to get a sample as good as random.

The authors find large differences in callback rates. While applicants with a white-sounding name need to apply for, on average, 10 positions to receive a callback, it is 15 for applicants with an African American-sounding name. Moreover, the researchers also recorded and analyzed the applicants’ addresses and the perceived quality of the resume (in terms of previous work experience relevant to the job, education etc.). The results suggest that living in a wealthier neighborhood helps significantly, and a high quality resume helps more when you have a white-sounding name.

Reference: Bertrand, M., & Mullainathan, S. (2004). Are Emily and Greg more employable than Lakisha and Jamal? A field experiment on labor market discrimination. The American Economic Review, 94(4), 991-1013. Available here. A freely accessible working paper version is available here.

Laissez-faire vs. regulation – which colonial legacy is better?

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Since the very beginnings of market economies, there have been two general views of how things should be done; how the governments should behave. Laissez-faire vs. regulation, right vs. left, liberalism vs. social state, republicans vs. democrats, keep-your-money-and-use-it-however-you-want vs. give-us-your-money-and-we-will-redistribute-it. One might think that by now, we should have known for a long time which system works better. We can just compare two nations that each use one of the systems, right? However, comparing two nations with different systems shows to be a very difficult task due to great heterogeneity in virtually all other characteristics that affect the outcome. In the words of the theory of treatment econometrics, constructing a counterfactual is incredibly difficult. In the words of a normal person, we don’t know what economies would look like had they adopted a different system.

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Letting others do the work will not get you a Nobel

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You have probably done this at some point in your life, be it school, work, or organizing a party – you are part of a group assigned to a task, and while working on it, you realize you might as well just let others do the hard part. In the end, you all get the same credit for the final outcome anyway, right? Congratulations, you have just become the so-called free-rider of the group.

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Why are we still not making 18-cent coins?

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In the US, commonly used coins are worth 1, 5, 10 and 25 cents. Have you ever wondered whether the current system of coin denominations is efficient? Well, turns out it’s not. Actually, as Jeffrey Shallit (2003) shows in his short note, the US system could be improved by 17% just by changing the dime to an 18-cent coin!

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