13.8.06

POOLING AND SEPARATING EQUILIBRIA. I'm tooling up to teach the advanced theory course, and one of the topics I intend to cover is self-selection. Perhaps between now and the end of the semester I will come up with a more intuitive explanation than "Pooling happens when efficient separation is costly." The phenomenon is clearly ubiquitous and merits further investigation.

Consider first the vanishing vacation (via 11-D; Andrew Sullivan was grousing about this in August of 2001.)

SOMEWHERE on a faraway beach, a cellphone rings, a BlackBerry buzzes, a laptop beeps.

It is an electronic requiem for the American vacation.

Why did it die?
“There’s a large increase in the number of people who worry that they will lose their job,” said Ellen Galinsky, the president of the Families and Work Institute, a nonprofit center for research on the American work force. In 1977, 45 percent of people felt truly secure in their jobs while only 36 percent have felt that way in recent years, she said, citing the organization’s surveys.
But wait, there's more!

But plenty of employees worry about taking vacation for reasons that have little to do with job security. Some consider themselves to be indispensable. Many are competitive. “There’s the feeling that overwork is the red badge of courage,” Ms. Galinsky said, adding that people often compete to see who works the latest and the longest.

Ambitious workers can even be reluctant to ask a colleague to help out while they are on vacation. “They take it all on themselves,” said Jennifer Sullivan, a spokeswoman for CareerBuilder.com, the job recruitment Web site. “Those are the people that are probably working multiple hours on their vacation or not taking vacation at all.”

But it is not cruel Dickensian bosses and heartless company policies that prevent employees from enjoying — or worse, taking — their vacations.

“Mostly people work because they want to,” Ms. Galinsky said.

“It’s mostly something that we’re doing to ourselves.”

And there's definitely self-selection.
“The reality is the more responsibilities you have, the less time you take off,” wrote Anderson Cooper in Details magazine last year. “You have too much to lose. I’m convinced a big reason I got my own show on CNN was the fact that I kept filling in for people who were on vacation. Now if I leave the anchor chair too long, I worry Eve Harrington will take my place.”
Thus, a pooling equilibrium in which the most ambitious people both set the norm, and, upon achieving high rank, look for the same traits in their underlings. And the rat race appears to go to the swiftest rat.

Downsizing, labor market volatility and the country’s shift from an industrial economy to one based on service and knowledge have helped create what Ms. Galinsky described as a “rapid-fire” way of working. People expect instantaneous responses to their e-mail messages at all hours, vacation or no vacation. The boundary between work and home life is now fluid, she said, adding that “we plan life off the job the way we plan life on the job.”

And that may not be a good thing. The Families and Work Institute study found that overworked employees are more likely to make mistakes, to be angry at their employers and at colleagues who do not work as hard. These employees are also more likely to have higher stress levels, experience symptoms of clinical depression, report poorer health and neglect themselves.

But is that pooling equilibrium necessarily stable? Last week, I considered evidence that the newest entrants to the work force were saying enough to all that.

Consider next house poverty, which is troubling the dean at Anonymous Community.
When other people are willing to take out (or extend) interest-only and negative-amortization mortgages, they push up the price of houses. If I understand math well enough to know the stupidity of taking out that kind of loan, I will find that my prudence will be punished by my being relegated to neighborhoods I want no part of. Since other people have abandoned traditional (or long-standing legal) restraints, I am forced either to live (comparatively) low on the increasingly-polarized economic scale or to take outsized risk. Neither is reasonable. We used to have strict requirements about credit-worthiness, down payments, and amortization, precisely to prevent the kind of runup in precarious lending (and house prices) that has happened over the last few years.
The dean must be contemplating the Two Income Trap. It's not clear that people would be less house-poor in the absence of creative financing. The price of a house might be lower in the presence of harder budget constraints, but the Say Aggregation Principle would still bite on people, and two-income households would still be able to outbid one-income households for many houses, particularly in the neighborhoods with the most desirable schools, and fewer people might be able to buy houses. It's an old problem. The social critic might grouse about the little boxes made of ticky-tacky, but those boxes were an improvement over the cold-water flats.

He's also contemplating the Good Old Days.
When there was something resembling a viable Democratic party, the grand compromise was to do away with most sumptuary laws, but to enact public policies that tended to lead to a relatively football-shaped income distribution and to provide pretty good public schools in most areas. The compromise, and it was a good one, was that certain basic necessities of life were within the reach of most people, but ‘frills’ were left to the open market. (In some relatively egregious cases, frills were even subject to ‘luxury taxes.’ These have been replaced mostly by ‘sin taxes,’ which are taxes on the luxuries available to the working and middle class.)
I'm trying to remember when these Good Old Days were. I remember something called "tracking" and something else called "de facto segregation" and something else called "restrictive covenants" leading respectively to "mainstreaming" and "intact busing" and "fair housing" and a new set of inducements to self-selection. (In fact, there's probably a week's worth of Lagrangian manipulation in the preceding sentence.)

The taxation part of the quote is material for my colleagues, who work on something called "Ramsey optimality." By definition, sumptuary taxes on "frills" can be avoided by doing without those frills. The technical term is "elastic demand." Such taxes aren't terribly effective at raising revenues. The "sin taxes" may in fact tax "luxuries" although those taxes are more effective at raising revenue if the demand for the good is inelastic. Cigarettes and beer come to mind, and economists of a provocative stripe will introduce the notion of legalizing street drugs and taxing them according to the inverse-elasticity rule.

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