Firm-specific skills and working from home

One of the central features of the debate about working from home is that it leads to the loss of random, but productive, encounters with colleagues. I’ve responded with the observation that some of my best research ideas have come from largely unplanned encounters on the Internet.

It’s just struck me that there is a conflict here between the interests of workers and those of firms and managers.

A lot of universities (or, more precisely university managers), think of themselves as developing and promoting a corporate brand. In this context, research collaboration within the university (particularly if it is trans-disciplinary) is viewed very positively, while collaboration with other universities is less well-regarded. But for individual academics, the big rewards come from high-profile work within tightly defined fields, which implies a desire for collaboration with other people in the same field who will, in general, be located elsewhere. While intra-university collaboration may be rewarded in internal promotion decisions, the outside opportunities are greatest for people with external collaborators. Those outside options are routinely used as a bargaining chip in negotiations over salary.

This issue isn’t specific to universities. Labor market theory distinguishes between firm-specific skills and general skills (which are of value to any employer). Back in 1964, Gary Becker made the argument that firms would be willing to pay the cost of firm-specific training for their workers, but not for general training which increases their outside opportunities. (This seems entirely convincing to me, although the empirical evidence I found on a quick search is both limited and inconclusive).

What applies to training also applies to serendipitous encounters. Collaboration with co-workers can enhance productivity within the firm, but doesn’t do much for your market value outside. Conversely, if workers enhance their productivity at home by making more use of industry discussion groups, Skype chats with people in other firms who are addressing similar problems, and so on, that enhances their bargaining power relative to their employers.

In this context, it’s striking that the hardest push for a return to the office is coming from the finance sector, led by JP Morgan. Even though textbook finance is all about hard numbers on earnings, risk and so on, the industry actually operates largely on personal contacts, networks and exchanges of favours, particularly information. That’s why it’s concentrated in a handful of global cities, and why so much attention is paid to issues like “poaching” of staff, no-compete clauses and the like. It’s obviously in the interests of employers to build up internal networks and control external interactions.

As with all these issues, my ideas here are provisional and almost certainly wrong in some respects. So, feel free to correct me.

Livable income guarantee

I’ve been working on the idea of a Livable Income Guarantee for some time. This is a version of the participation income idea put forward by the late Tony Atkinson. ANU has just published a policy brief on the idea, written jointly with Tim Dunlop, Jane Goodall, Troy Henderson and Elise Klein.

It’s not the ultimate theoretical ideal for ideas like Universal Basic Income or a Job Guarantee. Rather, it’s a policy that could be introduced now, within the existing fiscal framework. The key elements are

  • permanently setting the unemployment benefit (whatever it’s called after Jobseeker) equal to the age pension, and subject to the same income and asset tests
  • expanding eligibility to encompass a wide range of contributions including
    • voluntary work
    • child care
    • full-time study
    • artistic and cultural activity
    • starting a small business
  • replacing current compliance enforcement with an approach similar to that used in the tax system, with self-assessment backed by auditing

The estimated cost is $18 billion a year, and a range of financing options are included.

Sandpit

A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

To be clear, the sandpit is for regular commenters to pursue points that distract from regular discussion, including conspiracy-theoretic takes on the issues at hand. It’s not meant as a forum for visiting conspiracy theorists, or trolls posing as such.

Choose your own 538 adventure

Like lots of others, I’m anxiously watching forecasts of the US election outcome. But it’s hard to figure out what’s going on, with Biden way ahead in the polls, behind in the betting markets and rated a 70 per cent chance by the model at 538.com. Inspired by this post from Andrew Gelman, who is working on the Economist model (Biden currently a bit over 80 per cent), and an informative tweet from Nate Silver, I’ve managed to improve my own understanding a bit. At least I think so.

Silver’s tweet confirms that the Electoral College system gives Trump a significant advantage relative to an election by popular vote. He syas
Chance of a Biden Electoral college win if he wins the popular vote by X points:

0-1 points: just 6%!
1-2 points: 22%
2-3 points: 46%
3-4 points: 74%
4-5 points: 89%
5-6 points: 98%
6-7 points: 99%

With that information, it’s easy enough to fit a normal distribution to the margin, and get an estimate probability of winning. By fiddling with the numbers, it’s easy to replicate the 538 probability estimate and also to get a probability distribution looking fairly similar to those displayed on te site. My best estimate is N(5,4), that is, the mean value for the margin is 5 points and the standard deviation is 4. The mean value is consistent with the description of the state level estimates on the 538 site, which (very roughly speaking) take the existing polls (which currently have Biden ahead by 7.4 nationally) and then give Trump 1 point for an incumbency advantage (reducing the margin by 2 points).

Looking at the Economist model (which doesn’t necessarily agree with 538 on the exact distribution of the Electoral College advantage) it fits pretty well with N(6,3)

The standard deviation is a big deal here. N(5,4) implies a 95 cent range of, roughly, -3 to 13. I can’t say I find this plausible, at least assuming the election proceeds without armed intervention. Short of personally inventing a vaccine and hand-delivering it to the entire US population, I can’t imagine anything that would give Trump a 2.5 per cent chance of winning the popular vote. And it’s equally hard to see what would push him much lower than he is now.

If you would like a more optimistic story, you can get one by focusing exclusively on the polls where Biden’s lead has been consistently between 7 and 9 points, consistent with a distribution like N(8, 0.5), which puts Biden at 99 per cent.

I should alert readers that I don’t always get this kind of calculation correct, so feel free to check it out and correct it if necessary.

The Economic Consequences of the Pandemic

That’s the title of the book I’m working on for Yale University Press, and also the theme of two articles I published yesterday.

One, in The Conversation, looked at the potential benefits of remote work and the likely struggle over who will get those benefits. Key paras

For the most part, disputes over sharing the benefits of remote office work will be hashed out between employers, workers and unions, in the ordinary workings of the labour market.

But what about the other half of the workforce, who don’t have the option of working from home? In particular, what about the mostly low-paid service workers who depend on people coming into offices?

If the productivity gains made possible through remote work are to be shared by the entire community, substantial government action will be needed to make sure it happens.

The other article, in Inside Story, looks at the end of the goods economy and its replacement by an information and services economy, a transformation that’s been highlighted by the pandemic. An important implication is that investment demand by private firms is likely to stay low, even as greater public investment is desperately needed.

Tech firms like Microsoft, which now determine stock market values, don’t need much capital. The book value of Microsoft’s capital stock is less then 10 per cent of its market value. The rest is made up of intangibles, a polite word for monopoly-power network effects, intellectual property, and good old-fashioned predatory conduct.

Without any need for private sector investment, interest rates will remain low unless public investment picks up the slack. With the physical goods economy fading into the past, though, we don’t need more of the transport infrastructure projects governments automatically turn to at times like these. Rather, we need to invest in human services like health (mental and physical), education and childcare, and in information platforms that break the monopoly power of the tech giants.

These are the investments that will allow Australia to flourish in an economy dominated by information and services rather than industrial production.

Continuing on the monopoly theme, I did an interview with ABC’s Future Tense, which is now online

Assessing the lockdown policy: a baseline comparison

Various people, mainly but not exclusively in the Murdoch Press, are still complaining about the cost of the lockdowns and other restrictions imposed to control the Covid-19 pandemic. But most of these people seem to think that, in the absence of the controls, we would have avoided the economic costs, without any additional deaths (or, for the more hard-nosed, with only some expendable old people who would have died soon anyway). So, I thought I’d fill the gap by doing a comparison of the actual outcome with a baseline case: no government-imposed restrictions and no economic policy response.

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Hydrogen

It’s now clear that we have the technology we need to run a completely decarbonized electricity generation system. South Australia is the world leader[1] generating more than 50 per cent of its energy from renewable sources, and aiming for 100 per cent renewables by 2030.

The unit cost of renewables is now well below that of carbon-based generation (and nuclear). The remaining big question regarding the economics of the transition is the cost of storage, taking account of the variable nature of solar PV and wind.

As I’ve pointed out before, any reversible process that uses energy is a potential storage technology – that’s true of batteries, pumped hydro, flywheels, stored heat and many more. But hydrogen is a particularly appealing storage technology, because it offers the potential to decarbonize major industrial processes.

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