Trivial economics of time allocation as applied to blogging

Why do I blog? Blogging is a matter of self-expression, mostly, along with the hope that some reader may be entertained or informed (in that order of difficulty). This is consistent with a model in which the number of posts in my blog appears as an argument in my utility function, alongside consumption of rice, housing services, transport services....

As Becker argued, utility is actually a production process involving commodities purchased in the market, as well as time. Time however is also a factor in producing the income to purchase the market goods. So the choice of time allocation and choice of goods is a compromise between competing ways of generating utility. For example, in deciding to buy a DVD, the biggest factor is time (for the dollar-per-disk variety, cost is rather trivial.)

And similarly for posting in the weblog. It is relatively easy to trace a life history of my schedule over the past couple of years. In general during months where the frequency of posting would be higher, the value of my time for income-generation was rather low (deadlines farther away).

Now is as fairly convoluted an explanation as you can get for a posting hiatus.

University of the philistines

The raging issue in my alma mater is the increase in tuition fees. Long held at 300 pesos per unit (a little over US$ 6), in real terms this is now a little less than a third of its value when it was first set years ago. The proposal therefore is to raise it to about P1,000 (in the largest campuses) and thereby recover lost value. (Please check out this page and links to learn more about this issue.)

Of course, I should not expect the buyers (students) to take this lightly. It is an opportunity to rehash tired old bromides as the following:

Mr. Alfonso, has been quoted as saying that it is wrong to use students as a “source of income” for the university. “They tell us that it’s not the government’s role to subsidize tertiary education, but we believe otherwise.” (PDI, 24 November). During the congress of student councils held in Davao, which I personally attended, Mr. Alfonso declared that the difference between the students’ position and that of the UP administration was “philosophical.” In other words, their position is that tertiary education should be entirely subsidized.

Me too! It is my position that economists be entirely subsidized. Heck, it is my position that people who blog should be subsidized, as well as people with a fondness for Booksale pocketbooks. Furthermore, I demand as my unique inborn right to be subsidized because I am, er, in my mid-thirties. Yes, I demand to be subsidized because I take the MRT and I don't have a pet! That's my philosophy. Now if I can just round up a posse to lynch opponents of my sacred subsidies, I would demonstrate the depth of the values inculcated into me by my alma mater. So let us sing our school song:

UP naming mura, pamantasang hirap.
Ang bariya namin,
Sana'y iyong tiisin.
Malayong lupain,
Hasikan man ng lagim
'Di rin magbagago ang palamunin (2x)

Luntian at pula
Sakim kami kailanman
Ipagdiwang natin
Bulwagan ng hangal.
Humayo't ipagkait
Ginto at katapatan
Mabuhay ang pagpapakasasa sa pondo ng bayan (2x)

Doctors, nurses, economists, and fools

An old story (dating back to 2004) has been picked up and updated in the major US news services (example). It's about the medical exam topnotcher, Elmer Jacinto, who is now working as a nurse in New York.

The article draws attention to a major Filipino daily, who called Elmer a "sellout," and a columnist who condemns his "deplorable ambition". (Parallel Universes excerpt from these reactions.)

Such condemnation is foolish, ignorant, and stupid. Elmer is simply exercising his right to make a living, wherever and however he sees fit, without exercising fraud or violence. To say that he is "depriving" the Philippines of his medical skills, presumes that Filipinos have the right to demand Elmer to supply his services to them. There is no such pre-determined right. The right to demand Elmer his services belongs solely to his buyers, because of his standing promise to exchange services for fees.

It does however appear odd that a very bright medical doctor is spending his time dressing wounds and sticking needles into buttocks. Elmer is very likely to be more capable than many of the doctors ordering him about. Are markets stupid? No - government intervention is. The modern professional licensing system, firmly entrenched everywhere (including the United States), is preventing Elmer from being deployed in the job where the value of his service is highest. That's all there is to it. Contrary to popular belief, the United States is not an apostle of free markets, but rather a major heretic.

I am very thankful I belong to a profession that does not have licensing requirements. On the downside, a lot of fake "economists" though are getting away with pretty idiotic public pronouncements. Still, we seem to be doing pretty well even without the market distorting props of professional licensure.

We economists like to practice what we preach.

The power of positive sum thinking

A congressman attributes opposition to the proposed 125-peso wage increase to a pro-business bias. This is a classic sign of "zero-sum" thinking: that business generates a fixed income, which is divided at will by the business owner into a labor share and a profit share. Of course the greedy business owner would leave only the barest minimum for the labor share; hence such greed must be restrained by benevolent government intervention.

However the zero sum formulation is incorrect. Running a business is a positive-sum game. That means the combination of exchanges between factor owners and entrepreneur, and between entrepreneur and consumers, generates a value in excess of what existed prior to the combination. Capital acting alone, or labor acting alone, or households acting alone, would not be able to realize the total benefit realized through the market. Think of it this way: if you are just acting alone, magtanim ka na lang ng kamote (just go plant sweet potatoes).

Forcing the business owner to pay higher wages would reduce the total value generated by the whole process. Artificially higher costs mean they will cut back on production as well as hiring labor. Lower production means fewer goods for consumers and fewer jobs for workers. This brings us closer to a world where all we can do is plant kamote.

Zero sum thinking is pervasive and pernicious. Positive sum thinking on the hand allows us to see the truth behind the following equation: antibusiness = antilabor.

A wage too far

The Philippine Congress is getting itself way over its head with its latest plan to hike wages by 125 pesos. In terms of the minimum wage that's nearly a 40% increase in Metro Manila. NEDA is against it, and for good reason. I think their projections are believable. I mean for heaven's sake, take a look at this chart: the high end of the minimum wage (presumably in the capital) is a whopping US$6.30 in the Philippines, two-and-a-half times that of China (whose per capita income is above ours). It's also far in excess of Thailand (double our per capita income), Indonesia, and Vietnam (a fast-rising Asian tiger economy.) Earlier I have written about what it really takes to help the working man and woman. I have little to add to that, except to wonder in disbelief how brainlessly we approach economic policy. Can the law of the downward-sloping demand for labor be repealed? Do causes have effects? Can something be had for nothing? Is there such a thing a free lunch?

Speaking of free lunches, read this if you're interested in interpreting the latest economic figures. I also have little to add to it, except to say, more important that expertise is common sense. Precisely what is the scarcest resource in the body politic.

Population damnation

When Keynes wrote about slavery to the idea of some defunct economist, he may well have been referring to Malthus. The idea of population growth outstripping food supply has had a long life, retaining great vigor even in its advanced age.

In its modern version, the Malthusian idea is that population growth is driven by high fertility (and low mortality), eventually outstripping the carrying capacity of the environment and natural resources. Physical scarcity will eventually force a stable population outcome, while producing plenty of human misery by war, disease, and famine. (Ever watch Soylent Green?) The most oft-cited essay on modern Malthusianism has got to be "The Tragedy of the Commons" by Garret Hardin, published in Science. Hardin's argument is that the world is an open access resource ("commons"), and population growth forces an inexorable pressure upon it. Individually rational behavior from the growing population causes a depletion of global resources. Solutions offered - appeals to conscience in restraining demands on resources, or privatizing the commons - are all impractical. Hardin's recommendation? Do away with the idea that families have the fundamental human right to determine their own size. Implement population controls by "mutual coercion, mutually agreed upon."

Written as it was in 1968, the essay is now very seriously dated. What really happens when we allow households to determine their own size voluntarily? It depends. In wealthier nations, households tend to be smaller. In fact in many countries the fertility rate is below 2.0 (the absolute minimum for population replacement), hence without migration, these populations will shrink! These countries include: Canada, Japan, Korea, France, Germany, Greece, Norway, Portugal, Sweden, Spain, Italy, Singapore, Germany, and the United Kingdom. Why? A host of reasons - educated, working, socially assertive women, access to modern contraceptive technologies, all correlated with developing country status, are the key reasons. Growth to a developed country status would be the long term cure for overpopulation, averting the dire Malthus-Hardin prognostications.

In the medium term though, I don't deny that rapid population growth is itself a drag on per capita income growth. One reason may be through diminished household asset formation: the more children, the lower the savings (Orbeta, 2006) and the lower is schooling per child.

So there is an argument to providing incentives to limiting household size. Tax exemptions based on number of dependents have the perverse effect of encouraging larger household size (simply by lower the cost of bigger families.) Subsidies on contraceptives and information drives on their responsible use will also play a role. Now if your religion doesn't allow you to avail of these technologies, then of course you are not to be coerced. But neither should the state allow its population policies to be hijacked by the values of one or two religions, however widely held.

The population growth circus

I think it all started with the title of the unfortunate link title of the NSCB press release: "Philippine population growth slows to 1.95 percent by 2010." (This is already incorrect, but the newshounds started tracking.) The content of the press release itself clearly states that the 1.95% figure, covering the period 2005-2010, is a projection.

Somehow reporters got stuck with the link title and dropped the "estimate" part.

Reality check: the only way to check for sure whether population growth really slow down is to conduct a census. The last one was in 2000. The next one is scheduled for 2010. There is no way to check the actual population growth per year in between. (Censuses are expensive.)

The confusion has gone way out of hand, as discussed in the NSCB clarification. Even NEDA chief Romulo Neri got carried away:

Romulo Neri, director general of the National Economic and Development Authority (NEDA), noted that the latest population growth rate was nearing the government’s medium-term target of 1.94 percent. Neri said slowing down population growth to 1.94 percent a year was necessary to enable the Philippine economy to feed and sustain its entire population.

Unless of course he was misquoted, which is perfectly possible.

Solita Monsod finds the projection unbelievable, and so does Dean Jorge Bocobo. Essentially both are arguing that the decline simply does not square with historical data. (I should hat-tip DJB for getting me to post on this topic.)

However, the population projection method is not based on fitting to past data. It uses projections of fertility rate and mortality, using baseline data from the 2000 Census, combined with certain scenarios. For the mortality rate, the projection applies life expectancy, with an assumed upward increment over time (about 2 years for every quinquennium). For the fertility rate, three assumptions are made, regarding the year in which net replacement fertility (approximately zero population growth) is reached: 2030 for the low assumption, 2040 for the medium assumption, and 2050 for the high assumption. The estimates cited by the NSCB pertain to the medium assumption.

I am not a demography expert. However I would agree with DJB and Mareng Winnie that some consistency be observed with experience. To my amateur eyes, I would think that pushing the target dates of net replacement fertility backward would maintain the official method, while satisfying critics. Perhaps by ten years? DJB has a graph showing that using the "high" as the working assumption leads to a better fit with historical data.

Lessons learned from this brouhaha:

1. Journalists are seldom to be trusted for accuracy in reporting crucial technical details. If possible one must always go back to the source document (often a technical report, or a journal article).

2. A fantastic amount of saliva and ink can be spilled, largely on inane discussions by politicians and other "concerned citizens", about population programs, birth control, public investment priorities, the Roman Catholic church, and so forth, on the basis of what is essentially an urban legend.

3. Be careful about naming your hyperlinks!!

The real pro-labor approach

Today is Labor Day. As the rest of us honor the day of the working man and woman, unions use the opportunity to press for more stringent regulations on the labor market. At least two come to mind: first is the demand for an across the board minimum wage increase. Second is the demand for elimination of the contractual labor category and provision for security of tenure.

Bulatlat.com provides a good summary of these demands from the labor perspective (Bulatlat article):

Citing government data from 1990-94, a research by the Asia-Pacific Research Network (APRN) in 2000 revealed that the combined share of casual, contractual and part-time workers in total enterprise-based employment was between 14-15 percent. It went up to 18.1 percent from 1994 to 1995. By 1997, the figure has reached 21.1 percent, meaning that for every five workers one is a casual, contractual or part-timer worker.

For example:

In the more than 20 branches of Shoe Mart (SM), one of the biggest chain of shopping malls in the country, in 2002, nine out of ten workers are contractuals, hired either through an agency or by a concessionaire, said Maristel Garcia, spokesperson of the Sandigan ng mga Manggagawa sa Shoemart, the union of SM employees.

Contractuals abound in export zones and industrial parks around the country, such as those in Baguio City, Cavite, and Laguna. A survey of APRN covering 14 unions under the Kilusang Mayo Uno (KMU or May 1st Movement) in the National Capital Region revealed that contractual workers comprise 67 percent of the workforce at the time. This is despite KMU’s efforts at protecting job security and benefits.

“It is true that contractual labor is now really extensive. Easily seven in every 10 companies practice contractualization,” Donald Dee, president of the Employers Confederation of the Philippines, told Manila Times in 2003. “We know for a fact that contractualization is meant to avoid regularization,” admitted Dee.

Today the share of contractuals in the total workforce may even be bigger. For example, after SM management practically crushed the union by terminating all striking union workers in 2003, Garcia said, it stopped regularizing workers and was able to employ more contractuals.

In other large firms, threats of retrenchment complemented by early retirement schemes resulted in a stripped-to-the-core number of regular workers. The Philippine Long Distance Company (PLDT), the country’s largest telecom company, was able to reduce its workforce from 14,000 to 10,000. Its rank and file union membership has dwindled from 7,000 to 4,100. It was also able to reduce the 3,000-member supervisory union to just about 2,000. The rest of PLDT’s required manpower comes from contractual workers who are paid piece meal, per phone installation or telecom services sold.

In Japanese-owned Asahi Glass Corporation, the ranks of regular workers have been decimated after a wave of forcible retirements. Retired workers were subsequently rehired as contractuals. At present, there are five contractual employees for every regular worker.

The benefits of higher minimum wages and greater worker security are clear. However, are there any negative consequences we should know about? (That is the problem with such ideologically slanted analysis. We are told of all the benefits of this or that anti-market imposition, but any attempt at analyzing cost is slammed. So much for critical thinking.)

Okay the negative effects are:

1. Higher minimum wage means more expensive workers. More expensive workers means, within a market economy, capitalists will higher fewer workers. (The alternative is to go the planned economy route and eliminate capitalists altogether; all productive capital would be owned by the state. Then the government becomes one big employment agency. It can pay all the higher wages it wants. Heck it can even print money if there's no budget for it. Worker's utopia indeed!)

2. Enforced security of tenure means firms have less flexibility to deal with economic change. If the market for their product sours, they are forced to produce less. In the absence of worker security, they can cut costs, in part by laying off workers. However with worker security this is difficult. Enforced security of tenure also means that removal of individual workers because of poor abilities, mismatched skills, low productivity, and so forth requires a lengthy adjudication process (i.e. the termination "for cause" provision in the Labor Code.) Finally with security of tenure comes a long list of costly but compulsory worker benefits. Because of this, firms either decide to higher fewer workers, or hire workers who can easily be removed - i.e. the casuals.

3. The "casualization of labor" cited in the Bulatlat article is therefore a consequence of regulations enforcing security of tenure, particularly on workers hired for a year (Labor Code provision) or more than six months (a guideline that is being increasingly used as a cut-off to determine which worker is becoming "regularized."). However this is going to create a lot of "churning" in the labor market. Ever wondered why some salespersons in SM are rather inept? It is likely that by the time they became familiarized with their duties their six months is up. To be replaced by someone who has to learn the ropes all over again. This is probably going on also in many factories. Once you learn the skills on the shop floor, you have to be removed. This is not the best way to develop a quality labor force!

Note finally that the benefits of higher minimum wages and enforced worker security are ultimately enjoyed by those who are currently regular workers. No wonder they have a strong interest to fight for them. Even if this would cause misery among the ranks of those who are outside this group - mainly the unemployed, or casual workers.

(More detailed arguments for reforming labor markets are found in this paper by Gerry Sicat. It's a great read.)

That is, the real pro-labor approach would be: fewer regulations, rather than more. Not only that: it would be pro-growth as well.

Seeing those demonstrations and strikes and pro-labor legislators and bureacrats in the Department of Labor and Employment, I wonder: who will protect us workers from our protectors?

Immigration supply

A Reuter's story (through Yahoo) relates a discussion on the supply side of immigration. The context of course is the raging debate on the US on immigration - though Mexican immigrants are the biggest group affected, lots of Filipinos illegals stand to benefit as well.

Per capita income is a good indicator of local wage rates. The disparities are indeed enormous. The case of Spain and Portugal are held up as examples of how tackling the supply side - evening out the income disparities - will do much to ease immigration pressures.

What happened to Spain? Well way back in mid-1980s its US$ per capita income (PPP-adjusted) was 10,435; today it stands at 25,100. That is per capita income rose by a factor of nearly 2.5. That can be done by plodding along at a decent growth rate of about 4.5% per year (in per capita terms). Once your economy is that size, you don't need Tiger economy growth rates (in the rate of 7% and above) to double hit developed country levels in a short time. All Mexico needs to do is to trundle along at about that pace; in fact its per capita growth has been in the range of 1%-2% in the last couple of decades. So the US can expect a lot more migration from the South in the medium term - that how that entry is managed is their call.

What about the Philippines? At about US$ 1,000 per capita, even doubling income will still keep us at a poor country level. If we can make our per capita income grow by 3% per year (around the growth rate last year) then in 20 years we can hit US$ 2,500. Pretty impressive, no? That's about Thai standards now. What we need is really fast growth (Tiger - standard). At 7% per capita growth (9.5% in GDP terms), we quadruple income in 20 years. But that's only about Malaysia standard (these days). In fact, the past couple of decades our per capita growth has been lower than Mexican standard!

So we can expect lots of migration from the Philippines over the next several decades. Slow growth and employment generation at home has been a major "push" factor behind all that worker migration. If we can rack up decent growth rates, there will eventually be a slowdown in the rate of growth of overseas remittance - and even a reversal. I do not believe that overseas remittance growth has contributed in a significant way to slowing down our growth rate - my gut feel is that the effect has been positive.

Inane proposals on migrant labor

Why restrict the overseas Filipino professional? So asks this Inquirer columnist, who talks about a full page ad put out by Fair Trade Alliance. I didn't read the ad myself, but I have a pretty good idea what it would say ... and Mr. Pagalangan relates the gist of it: keep them home.

What the %^&*@#$$?!!!

The skilled Filipino worker gets paid higher wages outside. His or her well-being goes up; as a fellow Filipino this should count for something, no? Even if he or she happens to be living abroad? What is more, he or she remits income back to the Philippines, increasing the well-being of the family. So far so good.

The cost? We back home get deprived of some cheap skilled workers. Well, time to get real folks - other people overseas are willing to pay for our workers. And we pretty well have to learn to match these wages if we want to keep them here.

What about our health care, and all those "critical professions"? Same thing. It's the price system at work. You get what you pay for - whether it's food, drugs, or people. Any suppression of the price system (say, by inane regulations on overseas work), is going to backfire. Probably the regulation won't work as workers, placement agencies, and public officials themselves circumvent its obvious stupidity. Worse still, it may work - and in the medium to long term you will see fewer people investing in quality education and training. (Those prospective high wages abroad have got everything to do with all that studying!)

How about "return service"? I've got a better idea. Why subsidize all that higher education anyway? Do away with tertiary education subsidies entirely. All that money is better spent on providing quality education at the primary and secondary level. Then let the professional - who has invested in their own human capital - make their free choice about where to work.

Disclaimer: I had a brief stint abroad (in Malaysia, 2 years) doing research in an agricultural research center. I probably have a vested interest in this issue. So? The idea is still $%%^&$#!! stupid. And I'm still right.

Human capital "externalities"

I mentioned in the last post something about "externalities" associated with human capital. First off, externalities are benefits or costs of actions that are imposed without going through a market transaction. Ordinarily, to enjoy an economic good I would need to buy it; but in the case of an external benefit you just soak it in, as it were. It is alleged that human capital has this effect. If I get educated, it's not only I who benefits, but the rest of the society which interacts with me. They may benefit in a variety of ways - I may develop or sharpen ideas, which end up hastening the rate of innovation; I support and improve basic institutions that keep the economy running smoothly (e.g. I make wiser choices during elections); I influence my society towards greater civility, harmony, participation, etc.

So an OFW (overseas foreign worker) who gets an education here and hies of abroad, may not be able to share the externality with his or her countrymen (except, these days, the voting part). In fact, other societies get to soak up his or her good ideas!

This suggests a good argument against the brain drain. It's not enough that brainier workers go abroad and send home the money; their brains should all come together here and reach a critical mass of ideas that lead to innovation and ignite economic growth.

The idea sounds good, but unfortunately the empirical confirmation about the existence of significant externalities is inconclusive. I for one am not about to bring home the OFWs just because of this alleged externality. However, I do find massive OFW deployment to be symptomatic of weak employment generation in the domestic economy (plus an excess of government subsidy for the footloose.) It is these root causes that need to be addressed, in order to keep the brains from being drained.

Why go to school? There's an obvious answer

Sassy Lawyer in her Manila Times column says:

The intention to cash in on one’s education is not an evil thing; it is a cultural thing. Perhaps, it is an offshoot of the Spanish colonial rule when Filipinos were denied education and doomed to poverty. When the Americans introduced the public school system, people saw it as a way out. In our culture, education is an investment. Many marginal families do not flinch at incurring debts and pawning or even selling their meager properties just to see their children through college. We are taught that having an education assures us of a bright future.

Bright means financially comfortable. And a bright future is something that the college graduate is expected to share with his parents, siblings and other relatives. In short, our educational orientation is focused on the individual and the family rather than on society.

My answer: sorry - it's not evil; it's not cultural; it's economic. Education is an investment. You spend money and time now, to reap higher wages later. It's that simple. It's not wrong, any more than investing in stocks is wrong, any more than investing in a business is wrong. This is simply an act of a rational, sensible human being. And going abroad to realize higher wages is simply an extension of this rational behavior.

This is the lesson of human capital theory (first conceptualized in 1964). After forty years economists have accummulated a large body of evidence on the main predictions of the theory:

a. higher education is correlated with higher future wages;
b. current wages are negatively correlated with wage growth;
c. older people tend to invest less in human capital;

and so on. (I can give you the references - if you're interested.)

However there is another, also economic, reason for wanting to keep all that human capital at home. It's got nothing to do with purity of motives. It's because of alleged "externalities." What's that? Oh, that's not obvious, so I'll save it for another post.