Monthly Archives: August 2009

How long will the economic downturn last? While some claim to see green shoots, others – such as my colleague Martin Wolf – see a slow and painful process ahead. I have little to add to that debate, but I can guarantee that for some of us, the impact of this downturn will last a lifetime.

That is the conclusion I draw from the research of Till Marco von Wachter, an economist at Columbia University, who has been tracing the lasting effects of bad luck in the job market. Having to look for a job at the wrong time can force us into compromises whose repercussions can last years or even decades.

For example, when von Wachter teamed up with two US government economists, Jae Song and Joyce Manchester, to study the experiences of those hurled into unemployment by mass layoffs in the 1982 US recession, they discovered horrendously long-lasting effects. The recession itself – one often compared with today’s downturn – was savage, but it was over in less than two years. Yet von Wachter and his colleagues discovered that those who lost their jobs had incomes about 20 per cent lower than would otherwise be expected, even two decades later.

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In the bunfight for Christmas leave, it’s never too early to start. I work in middle office, where there is an operational requirement to be staffed to a minimum of 50 per cent at all times. This year there are three working days between Christmas and New Year, and nobody wants to work them. What is the fairest way of divvying up the Christmas leave?
Middle Office Minion, London

Dear Minion,

It is an outrage that you and your colleagues have been placed in this absurd position. Let’s review the facts: you place a higher value on your time between Christmas and New Year, but your company’s annual leave policy does not place a higher price on these days. Given this pricing policy, everybody wants leave at Christmas, and so a bureaucratic bodge job is duly handed down from on high.

It is as though the company had offered each staff member a Christmas gift of either a bottle of champagne or a can of lager, and then started inventing rules on discovering that there was not enough champagne for everyone. The idiots who foisted this system on you should scrap it at once, and instead offer sufficient overtime pay at Christmas to ensure that there are enough recruits.

Failing that, the sensible solution is to arrange side-payments among yourselves. The people who value the break least (those with different faiths, or infuriating relatives) should be the ones doing Christmas duty, while the rest pay them compensation. Arrange a quick auction in which the amount of compensation rises over time; when enough bidders have dropped out of the auction, the remaining bidders pay the volunteers to hold the fort. Perhaps the compensation should be suitably seasonal: the bidding could open at one partridge in a pear tree.

Questions to

My new book, “Dear Undercover Economist“, is out this week in the UK, Australia, New Zealand, India and South Africa. The US and Canadian editions will be along in three weeks.

Dear Undercover Economist is a collection of my favourite “Dear Economist” columns from 2003-2008. Loyal FT readers will get the idea, but here’s a sample:

Dear Economist,

I work as an escort in Canary Wharf. I wonder if you might have some sound business advice on how workers in my industry should tackle the sudden drop in demand following the collapse of Lehman Brothers?
Miss C

Dear Miss C,

I wasn’t aware that escort services were pro-cyclical, but I shall take your word for it. You have three options, none of them perfect.

One: relocate. Canary Wharf is a pure banking play, and you could seek a more diversified market. The West End is full of hedge funds, oil barons and old money. However, I recognise that it will take some effort to find new clients. The economist Steve Levitt and sociologist Sudhir Venkatesh discovered, in a recent analysis of Chicago street prostitution, that the industry was very concentrated because prostitutes and clients would otherwise fail to find each other. You, of course, are not in quite the same game and may be able to relocate with ease.

Two: tough it out at Canary Wharf and hope that supply falls to match demand. Levitt and Venkatesh found that the supply of street prostitution was highly elastic in response to a demand surge. (The fourth of July holiday provokes a spike in trade for prostitutes – who knew?) Existing prostitutes would work longer hours, other prostitutes would travel to the area, and women who didn’t normally work as prostitutes at all would dabble in the business. This suggests that many of your rivals will find something else to do in the tough times.

Three: you may find that escort services are a little like estate agency, in that even severe demand shocks don’t tend to reduce fees. You’d find yourself well paid when in work, but frequently idle. That spare time could be used to study or find a part-time sideline.

I would give exactly the same advice to an estate agent.

More or Less is back! It airs on Radio 4 this Friday at 1.30pm BST and Sunday at 8pm BST. You can also listen online, subscribe to a podcast, and read more at the More or Less website here.

This program: the Pythagorean comma, the truth about a YouTube video on muslim immigration that has notched up ten million hits, and we revisit our statistical projections of the final matches of last season’s Premier League. We’ll also look at a striking new claim from the Home Office: that people arrested and then released without charge, or found innocent, are as likely to commit a future offence as those then convicted of a crime. Can it be true? Find out on More or Less.

Now that we have completed our family, my wife wants me to have a vasectomy, strongly hinting that she will withdraw all sexual favours unless I comply. For a long time now, the amount of sex we have been having (about once a month) has been less than I would like (a couple of times a week). While I am not an economist, I have read that positive incentives are important. Wouldn’t my wife have more chance of persuading me to have the snip if she promised me more frequent sex rather than threatening to withdraw it altogether?
Dave, London

Dear Dave,

In traditional economics there is no important motivational difference between stick and carrot, and so I can hardly accuse your wife of bad economics in that respect.

But, even if your proposal is accepted, you face a serious problem. Your vasectomy is a one-off operation, for which you seek an ongoing future incentive. How can you be sure that your wife will stick to the deal? Economists call this the “hold up problem”.

You are hoping for an extra 90 bouts of intimacy per year. Since I give your marriage five more years, tops, this adds up to an extra 450 sexual encounters in total. But there is no guarantee that, after you have your operation, you will experience any of them.

The obvious answer is a performance bond. Your wife could deposit, say, £45,000 with a lawyer. Whenever the two of you contact the lawyer to confirm that intercourse has occurred, he will release £100 to your wife.

Perhaps that seems unromantic, so I have a better idea – simply secure payment in kind upfront. If the two of you get busy, you should get through 450 lovemaking sessions within a year, perhaps sooner. You might even find you enjoy it so much that this troubled marriage perks up. I suggest you get started at once.

Questions to 

Railways are back in fashion. Globally, the industry has been booming, thanks less to high oil prices than to a growing emphasis on the environmental benefits of trains over planes. The UK now has its first high-speed railway line (a few decades after everyone else), Barack Obama is promising similar links in the US, Japanese-built bullet trains are making a splash in Taiwan, and the French seem never to have lost their love of fast trains. Then, of course, there are the rather slower trains operated by the state-owned Indian Railways, the world’s largest commercial employer, with 1.4 million staff.

But it is the rail system of a bygone India that has attracted my attention recently. Colonial India – which comprised present-day India, Pakistan and Bangladesh – had no railways in 1850 but more than 60,000km of track by 1930. What difference did that expansion make to the country’s economy?

Dave Donaldson is a young economist who now knows more about the details of colonial railways than anyone alive. For his PhD research on the subject at the LSE, Donaldson had to build a massive database based on paper records of the railway building programme, gathered in painstaking detail by colonial officials.

It seems obvious that the railways should have had a large impact – they did not compete with cars or planes, but with bullocks on dirt roads that a train could outpace by a factor of 20. But not everyone was convinced. Romesh Dutt, an Indian historian and politician, argued over a century ago that the railways did not help rural areas, while Mahatma Gandhi saw them as promoters of the bubonic plague and accessories to famine. (If they can ship food in, he reasoned, they can also ship food out.) And it is certainly true that the British had military aims uppermost in their minds when they built the network.

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Tim Harford’s blog

This blog is no longer updated but it remains open as an archive.

Tim, also known as the Undercover Economist, writes about the economics of everyday life.