Thursday, July 17, 2014

Question: why do expatriates receive a 15% bonus for living in China?

Its the air pollution

On some days the air pollution is 25 times worse than what’s considered safe in the U.S., deaths from lung cancer have risen 465 percent over the last three decades, and arecent study showed that Beijing residents can expect to spend significant periods of their life infirm. 

This is a compensating wage differential paid to keep employees from moving to cleaner cities.  Interestingly, companies like Coke offer the bonus only to expatriates (foreigners), not to local Chinese, as they have a lower probability of moving.

Tuesday, July 15, 2014

Forget income inequality, lets go after zoning restrictions...

The Financial Times has a nice article on the causes of housing price inflation (House prices are rising as a percent of national income (from 10% to almost 60%).  

A clever 2005 study by American economists Edward Glaeser and Joseph Gyourko compares the price of an extra square foot of land attached to a house (a slightly bigger back yard, perhaps) with the average price of a square foot of land under a house in the same city. If the problem is a natural shortage of land, the two prices should both be high because it is profitable to build on the back yards until the two prices converge. 

That is not what happens, however. In the cities of coastal California, the average price of urban land is 10 times the price of land in a back yard because zoning laws make it impossible to turn one into the other. ...  

The ratio of these two figures – as much as 10 to 1 – suggests only 10 per cent of the value of land in expensive cities is due to its natural scarcity. The rest is planning restrictions.

BOTTOM LINE:  zoning restrictions transfer income from those who own houses to those who do not.

The desire to preserve open space and familiar, low-density cities is quite natural – but it is time to wake up to the enormous cost. ... If we want to make society fairer and more equal, just let people build.

Wednesday, July 2, 2014

Promoting from Within

The typical fast food restaurant will have personnel problems. For much of the hourly staff, this is their first job for minimum wage when they become teenagers. They work part-time and for relatively short time spans. Restaurants are almost always hiring. High turnover and low motivation do not usually make for interesting jobs or career succession paths.

Chipotle revamped hiring practices in 2005 in an attempt to address these issues. They did a lot of things but chief among them was promoting from within. If you see other crew members being selected to become supervisors, managers, leaders and directors, you might try to make yourself noticed.
In 2005, the US company underwent a transformation that would make its culture as distinct as its food. As more than 1,000 stores opened across the US, the company focused on creating a system where promoting managers from within would create a feedback loop of better, more motivated employees. That year, about 20% of the company’s managers had been promoted from within. Last year, nearly 86% of salaried managers and 96% of hourly managers were the result of internal promotions.

It seems to have worked:
Since its IPO in 2006, Chipotle’s growth has been exceptional. Sales have increased from $826 million that year to $3.2 billion last year. And the company had 9.3% growth in comparable store sales last quarter, which is remarkable for a 21-year-old company that hasn’t raised prices recently.

Hat tip: EconJeff

Tuesday, July 1, 2014

How should Nestle increase profit?

By taking advantage of scale economies in purchasing.  

BOSTON—When Paul Grimwood took over Nestlé SA NESN.VX +0.29% 's struggling U.S. operations a year and a half ago, he faced an unlikely problem: Hair nets. 
Nestlé's seven independent businesses in the U.S., which run a total of 87 factories, were buying hair nets and safety shoes from more than 100 suppliers. Because the units weren't talking with each other, Nestlé, the world's biggest food company, couldn't get the best bulk discounts in its biggest national market. Now Nestlé says it uses just "a handful" of suppliers. 
The same thing happened with flavorings. By combining purchasing departments across businesses, he chopped the number of flavor suppliers in the U.S. to four from 48. 
"If you keep rolling that out across the scale and size of the whole U.S. market, it makes a phenomenal difference to the profitability," Mr. Grimwood said in a recent interview.

Monday, June 30, 2014

Do women lie to their husbands?

In Zambia, at least, the answer is yes, when the topic is contraception.

When women are given access to contraception alone (without their husbands), they are 25% more likely to use it:

...these effects were concentrateed, as predicted by theory, among women who wanted to postpone childbearing and also resported having a  husband who desired more additional children than they did.  ... 

However, two years after the treatment:

...we do find that these individuals experienced a significant reduction in happiness, health and ease of mind...

Friday, June 27, 2014

What happens when we make patients pay more?

The answer comes from Japan, where the elderly become eligible for significantly lower cost sharing when they turn 70 (co-payment rates go down by 60-80%, and there are no deductibles in Japan).  Here is what happens:

1.  They consume more (for inpatient admissions and  office visits the elasticity=-0.2); but
2.  Their health status does not change; and
3.  They pay less out-of-pocket (smaller co-payments more than offsets the bigger consumption).

BOTTOM LINE:  Bigger co-payments can reduce utilization without adversely affecting health.

OK, here is the science, where are the politicians?

Tuesday, June 24, 2014

Moving parking spots to higher valued uses, but NOT in SF

Auctions create wealth by identifying the highest valued use for an asset, and setting a price for it.  However, this wealth creating activity is against the law in SF:

SAN FRANCISCO (CBS SF) — San Francisco is putting the brakes on a mobile app that allows drivers to auction off their choice public parking spotsto the highest bidder. 
City Attorney Dennis Herrera Monday issued a cease-and-desist demand to Rome, Italy-based startup Monkey Parking and CEO Paolo Dobrowolny. 
Herrera also sent a request to the legal department of Apple Inc. to immediately remove the mobile application from its App Store because Herrera said it violates Apple’s own guidelines on legal requirements for apps.

Aside squashing the wealth-creating ability of the app, the City Attorney is also increasing congestion and pollution, by lengthening the amount of time that drives have to search for spots.

Monday, June 23, 2014

How will rise in US interest rates affect exchange rates?

The gap between the return on US Federal government debt, called "Treasuries" (yielding 2.61%), and those of riskier European government debt, has fallen dramatically.

Now the Financial Times reports that this is attracting foreign investors to the US:
“In Europe, the risk is that the euro will depreciate,” says Scott Minerd, global chief investment officer at Guggenheim Partners. “That makes buying US Treasury bonds and other US assets attractive because the local currency could depreciate and interest rates are significantly higher in the US than in Europe.”

These investors sell Euro's to Buy dollars (to invest in US reasuries) which can be modeled as an increase in demand for dollars, which increases the "price of a dollar", or alternatively as an increase in the supply of Euros which reduces the price of a Euro. Either way, this should cause the dollar to appreciate relative to the Euro.

Thursday, June 19, 2014

Under-funded muni pensions exposed by new accounting rules

We have blogged extensively about the way that mayors, including Nashville's, promise big pensions to city unions, and then hide the cost of the promises with accounting "gimmicks."  For example, a high discount rate, like Nashville's 7.5%, reduces the present value of future pension promises, and reduces the amount that a city has to save for the future.

Now, the GASB (govt. acct. stds. bd.) is proposing rules that will give taxpayers visibility into what mayors are doing by forcing mayors to add promises to the balance sheets of a city and use lower, more realistic, discount rates.  The net effect seems small

According to the Center for Retirement Research at Boston College, a group of 150 public-employee pensions that were 72%-funded in 2013, meaning their assets were 72% of their obligations, would have been only 65%-funded under the revamped rules.

But for cities and states with particularly egregious accounting, the effect is likely to be much bigger.

In a related development, young people seem to be noticing that they will be stuck with the bills run up by irresponsible politicians.  Here is an advertisement aimed at Louisiana's Federal Senator:

Wednesday, June 18, 2014

Can Your Online Social Network Help You get a Loan?

Lenddo has a new (old?) twist on making small unsecured loans. When you apply, you must provide your online social networking site information. They scour this information to help determine your creditworthiness. You are deemed more creditworthy if your friends are more creditworthy. Moreover, they notify your friends about how well (or poorly) you have paid back the loan. These aspects help to solve the adverse selection and moral hazard issues endemic with these sorts of loans. Of course, the cost is giving up some privacy. You may want to take down those drunken hookup photos and you may want to "unfriend" that ex-con brother-in-law.

The new part is that this uses online information to get a better picture of how trustworthy you are based on the people with whom you associate. The old part is that this was a key feature of a small town banker 100-150 years ago. For the most part, this has been replaced by credit scores and employment history. Actually, most people in the town would judge your character based on who "your people" were. This could be abused if, say, folks did not like the color of your people's skin but it was also highly informative. As a consequence, it meant that once you were in a good circle, you would not want to give up those connections. Townsfolk were understandably wary of the stranger who came to town. Why did he leave his people?