Job search, yet again

John Quiggin64 Comments

I got lots of very helpful responses to my recent post on the search theory of unemployment, here and at Crooked Timber. But it has occurred to me that I haven’t seen any answer to one crucial question: How many offers do unemployed workers receive and decline before taking a new job, or leaving the labour market? This is crucial, both in simple versions of search theory and in more sophisticated directed search and matching models. If workers don’t get any offers, it doesn’t matter what their reservation wage is, or what their judgement of the state of the market. Casual observation and my very limited experience, combined with my understanding of the unemployment benefit rules, is that very few unemployed workers receive and decline job offers, except perhaps for temporary work where the loss of benefits outweighs potential earnings. Presumably someone must have studied this, but my Google skills aren’t up to finding anything useful.

And, on a morbidly humorous note, it’s a sad day for the LNP when efforts to bash dole bludgers actually cost them support. But that seems to be the case with the latest plans, both expanded work for the dole and the requirement for 40 job applications a month. I’ll leave it to Andrew Leigh to take out the trash on work for the dole (BTW, his new book, The Economics of Almost Everything is out now).

The 40 applications requirement has already been the subject of some amusing calculations. I want to take a slightly different tack. Suppose (to make the math simple) that the average job vacancy lasts a month. There are roughly five unemployed workers for every vacancy, so meeting the target will require an average of 200 applications per vacancy. The government will be checking for spam, so lets suppose that all (or a substantial proportion) of the applicants take some time to talk about how they would be a good fit with the employer and so on. Dealing with all these applications would be a mammoth task. One option would be to pick a short list at random. But, there’s a simpler option. In addition to the 200 required applications from unemployed people, most job vacancies will attract applications from people in jobs. A few of them may be looking for an outside offer to improve their bargaining position with their current employer (this is a big deal for academics), but most can be assumed to be serious about taking the job and in the judgement that they have a reasonable chance of getting it. So, the obvious strategy is to discard all the applications except for those from people who already have jobs. What if there aren’t any of these? Given that formal applications are going to be uninformative, employers may pick interviewees at random or may resort to the informal networks through which many jobs are filled already.

Trying to relate this back to theory, the effect of a requirement like this is to negate the benefits of improved matching that ought to arise from Internet search. By providing strong incentives to provide a convincing appearance of looking for jobs for which workers are actually poorly suited, the policy harms both employers and unemployed workers who would be well suited to a given job.

Update I found the following quote widely reproduced on the web

On average, 1,000 individuals will see a job post, 200 will begin the application process, 100 will complete the application,

75 of those 100 resumes will be screened out by the Applicant Tracking System (ATS) software the company uses,

25 resumes will be seen by the hiring manager, 4 to 6 will be invited for an interview, 1 to 3 of them will be invited back for final interview, 1 will be offered that job and 80 percent of those receiving an offer will accept it.

Data courtesy of Talent Function Group LLC

Visiting the TFG website, I couldn’t find any obvious source. The numbers sound plausible to me, and obviously to those who have cited them. But, if the final number (80 per cent acceptance) is correct, then it seems as if the search theory of unemployment is utterly baseless. Assuming independence, the proportion of searchers who reject even three offers must be minuscule (less than 1 per cent).

The end of economic rationalism …

John Quiggin38 Comments

… and the new age of entitlement.

That’s what we are getting under the Abbott government. It’s striking how suddenly the elite consensus in favor of free market policies has collapsed now that we have a tribalist pro-business government. Some examples:

* The Institute of Public Affairs, which once treated irrigation projects like the Ord River scheme as the worst kind of boondoggle now lobbies for them, and for special tax breaks, on behalf of their new owner major sponsor, Gina Rinehart

* The Business Council of Australia wants a strategy of “growing those sectors of our economy that can win on a global scale and make the greatest contribution to lifting our national wealth.” Of course, they deny that this involves “picking winners” or “national champions”, but this is just an example of the euphemism cycle at work

* The Financial Review today runs a piece (paywalled) from Danny Price of Frontier Economics, combining absurd alarmism about the supposed cost of a carbon price (already refuted by experience) with advocacy of the nonsensical and dirigiste “Direct Action” policy

* Finance Minister Matthias Cormann has rejected cost-benefit analysis in favor of a “nation building” approach to infrastructure (the subtitle of Michael Pusey’s book on economic rationalism was “A Nation Building State Changes its Mind”

Economic rationalism had both strengths and weaknesses. The crony capitalism emerging under this government has no redeeming features.

Uncle Tom’s Cabin

John Quiggin30 Comments

The concept of self-ownership came up in discussion at Crooked Timber as a result of my passing slap at Nozick in the post on Austrian economics and Flat Earth geography. I’ve been planning posting on some related issues, but I realise there are some critical points I need to clarify first, most notably on the relationship, if any, between self-ownership and property rights.

I’m inclined to the view that there is no such relationship, or more precisely that our inalienable rights over our own bodies represent a constraint on the legitimate scope of property rights, rather than forming a basis for such rights. But, there’s lots that I know I don’t know about this, and, presumably, more that I don’t know I don’t know.

The problems for me start with language. As far as I know, no one has ever remarked on the title of Harriet Beecher Stowe’s anti-slavery classic Uncle Tom’s Cabin. Yet the core of the book is that Tom owns neither the cabin nor himself: both are the property of his owner. And that brings up another striking feature of language (at least English). We use the possessive case to refer to Tom’s owner, but, obviously the owner was not Tom’s possession whereas, legally, the reverse was true.

The abolition of slavery hasn’t resolved the contradictions here: for wage workers, it’s natural to divide the hours of the day into “company time” and “my time”, while for house workers the common complaint is the absence of any “time of my own”.

So, some questions to start off with

First, how universal is the linguistic conflation of the possessive case with possession in the sense of ownership (Wikipedia suggests that there may be some exceptions, but the distinctions described are not precisely the ones I mean). And, if there is such a linguistic universal, what conclusions should we draw from it?

Second, have political philosophers looked at the question in this light: that is, on the relationship between the broad use of the possessive to denote relationships of all kinds and the particular use to denote property ownership. If so, what is the relationship between self-possession and self-ownership?

Austrian economics and Flat Earth geography

John Quiggin51 Comments

One of the striking features of (propertarian) libertarianism, especially in the US, is its reliance on a priori arguments based on supposedly self-evident truths. Among[^1] the most extreme versions of this is the “praxeological” economic methodology espoused by Mises and his followers, and also endorsed, in a more qualified fashion, by Hayek.

In an Internet discussion the other day, I was surprised to see the deductive certainty claimed by Mises presented as being similar to the “certainty” that the interior angles of a triangle add to 180 degrees.[^2]

In one sense, I shouldn’t be surprised. The certainty of Euclidean geometry was, for centuries, the strongest argument for the rationalist that we could derive certain knowledge about the world.

Precisely for that reason, the discovery, in the early 19th century of non-Euclidean geometries that did not satisfy Euclid’s requirement that parallel lines should never meet, was a huge blow to rationalism, from which it has never really recovered.[^3] In non-Euclidean geometry, the interior angles of a triangle may add to more, or less, than 180 degrees.

Even worse for the rationalist program was the observation that the system of geometry (that is, “earth measurement”) most relevant to earth-dwellers is spherical geometry, in which straight lines are “great circles”, and in which the angles of a triangle add to more than 180 degrees. Considered in this light, Euclidean plane geometry is the mathematical model associated with the Flat Earth theory.

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Old men behaving badly (repost from 2011)

John Quiggin61 Comments

John Howard’s endorsement of Ian Plimer’s children’s version of his absurd anti-science tract Heaven and Earth has at least one good feature. I can now cut the number of prominent Australian conservatives for whom I have any intellectual respect down from two to one.[1] Howard’s acceptance of anti-science nonsense shows that, for all his ability as a politician, he is, in the end, just another tribalist incapable of thinking for himself. [2]

Although not all the tribal leaders are old men, an old, high-status man like Howard is certainly emblematic of Australian delusionism . Like a lot of old, high status men, he stopped thinking decades ago, but is even more confident of being right now than when he had to confront his prejudices with reality from time time. Like other delusionists, Howard has no scientific training, shows no sign of understanding statistics and almost certainly hasn’t read any real scientific literature, but nonetheless believes he can rank clowns like Plimer and Monckton ahead of the real scientists.

The situation in the US is similar but even more grimly amusing, with the sole truthteller in the entire Republican party, Jon Huntsman, recently reduced to waffling (in both US and UK/Oz senses of this term) because he briefly looked like having a chance to be the next non-Romney. This tribal mindlessness is reflected in the inability of the Republican Party, at a time when they ought to be unbackable favorites in 2012, to come up with a candidate who can convince the base s/he is one of them, but who doesn’t rapidly reveal themselves as a fool, a knave or both.

And, as evidence of the utter intellectual shamelessness of delusionism, you can’t beat the campaign against wind power, driven by the kinds of absurd claims of risk that would be mocked, mercilessly and deservedly, if they came from the mainstream environmental movement.

The global left is in pretty bad shape in lots of ways. Still, I would really hate to be a conservative right now.

fn1. Now down to zero. Turnbull has proved he lacks any real substance.

fn2. I’m not saying that all Australian conservatives are mindless tribalists. There’s a large group, epitomized by Greg Hunt and now Malcolm Turnbull, who understand the issues quite well, but are unwilling to speak up. Then there is a group of postmodern conservatives of whom Andrew Bolt is probably the best example, who have passed the point where concepts of truth or falsehood have any meaning – truth is whatever suits the cause on any given day.

CCS AWOL?

John Quiggin65 Comments

As recently as the Stern Review in 2006, carbon capture and storage from coal-fired power stations was seen as the most promising clean energy technology on offer. This was before the huge decline in the cost of solar PV and the more modest, but still substantial progress on wind energy. Since then, the technology has dropped off the radar, to the point that many reports don’t even mention it. But I just got an invite to a conference on the subject, so I thought I would take another look.

The blurb refers to a number of projects “Callide and Surat Basin in Queensland, CarbonNet in Victoria, and South West Hub in Western Australia”. A quick survey suggests that these are mostly at “proof of concept” stage, rather offering a technology that could actually be implemented on a large scale. Globally, the site says

The Global Status of CCS Report: February 2014 states that there are 12 large-scale CCS projects in operation globally and nine under construction. Overall, these 21 projects have a total capture capacity of almost 40 million tonnes of CO2 a year.

If my arithmetic is right, the entire global effort is about equivalent to the impact of Australia’s Renewable Energy Target:the large scale component calls for 41 000 GWH a year by 2020: my rule of thumb is 1MWh = 1 tonne CO2.

There’s also a report on CCS in the New York Times, which is optimistic, but very vague on cost.

That’s disappointing: from Australia’s point of view, a cheap, safe method of CCS would have resolved the climate change problem, at least as regards electricity, with no adverse impact on our coal industry. I’d be interested in comments from more informed readers.

Hazlitt and the glazier’s fallacy

John Quiggin21 Comments

I’ve been working for quite a while now on a book which will respond to Henry Hazlitt’s Economics in One Lesson a book that was issued just after 1945 and has remained in print ever since. It’s an adaptation of the work of the 19th century French free-market advocate Frederic Bastiat for a US audience, specifically aimed at refuting the then-novel ideas of Keynes.

My planned title is Economics in Two Lessons. In my interpretation, Hazlitt’s One Lesson is that prices are opportunity costs[1]. My Second Lesson is that, in the absence of appropriate government policy, private opportunity costs (market prices) won’t reflect social opportunity costs. Here’s a central piece of the argument, responding to Hazlitt’s exposition of Bastiat’s glazier’s fallacy.

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Productivity yet again

John Quiggin24 Comments

The ABC has yet another story about economists warning on the need for more productivity. It’s a mixed bag. First up, this from Professor James Giesecke from Victoria University’s Centre for Policy Studies

“We’re going to need a growth rate in multi-factor productivity more like the rates that we saw back in the ’70s and ’80s, about 0.7 per cent per annum, in order to begin increasing per capita living standards going forward

appears to mark an abandonment of the mythical 1990s productivity surge, though he goes on to talk about micro-economic reform. More clearly positively, a bit of attention paid to bloated and lazy management rather than telling the rest of to “work harder and smarter” Many economists are turning their eyes to the business sector to take the productivity baton from the labour market to galvanise growth. Finally, there’s this from Peter Harris of the Productivity Commission who has

nominated energy, health and education and other parts of the non-traded sector as candidates for reform. (emphasis added)

Wow! I would have thought that, 20 years after the Hilmer report, the Australian energy sector has been as thoroughly reformed as it can possibly be, short of going back to oil lamps. We’ve had corporatisation, privatisation, pool markets and full retail competition. And of course, the results are evident for all to see. Apparently, though, we are in need of more.
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